SPINCYCLE INC, POS AM, 2000-06-01

SPINCYCLE INC
POS AM, 2000-06-01
PERSONAL SERVICES

Previous: MARCHFIRST INC, S-8, EX-23.2, 2000-06-01

Next: SPINCYCLE INC, POS AM, EX-10.12, 2000-06-01

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 2000

REGISTRATION NO. 333-57989
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

POST EFFECTIVE AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SPINCYCLE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7215 41-1821793
(STATE OF OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

PETER L. AX
CHIEF EXECUTIVE OFFICER
15990 NORTH GREENWAY/HAYDEN LOOP, SUITE 400
SCOTTSDALE, ARIZONA 85260
TELEPHONE (480) 707-9999
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

SUSAN M. HERMANN
PEDERSEN & HOUPT, P.C.
161 N. CLARK STREET, SUITE 3100
CHICAGO, ILLINOIS 60601
TELEPHONE (312) 641-6888

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]

If the Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION (a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2

[SPINCYCLE LOGO]
PROSPECTUS

SPINCYCLE, INC.
144,990 WARRANTS TO
PURCHASE 26,661 SHARES OF COMMON STOCK
AND 26,661 SHARES OF COMMON STOCK

------------------------

SpinCycle, Inc. originally sold 144,900 units, each unit consisting of a
12 3/4 senior discount note due 2005 with a principal amount at maturity of
$1,000 and one warrant to purchase .1839 shares of common stock at an exercise
price of $.01 per share, on April 29, 1998 to Credit Suisse First Boston
Corporation in a private placement. CS First Boston then placed the units with
qualified institutional buyers. The purpose of this prospectus is to permit
those holding any of the 144,990 warrants or up to 26,661 shares issuable to
them upon the exercise of their warrants to offer and sell those securities. The
warrants and the shares may be sold by the holders from time to time directly to
purchasers or through agents, underwriters or dealers. The warrants are
exercisable at any time and will expire on May 1, 2005.

SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT THE RISKS INHERENT
IN OWNING OUR WARRANTS OR SHARES OF OUR COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated June 1, 2000.

<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 8
Use of Proceeds............................................. 13
Capitalization.............................................. 13
Selected Financial and Other Data........................... 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Business.................................................... 25
Management.................................................. 33
Principal Stockholders...................................... 37
Certain Transactions........................................ 39
Description of Capital Stock................................ 39
Description of the Warrants................................. 41
Description of Our Credit Facilities........................ 44
Description of the Notes.................................... 46
Federal Income Tax Consequences............................. 49
Selling Stockholders........................................ 52
Plan of Distribution........................................ 53
Notice to Canadian Residents................................ 54
Legal Matters............................................... 55
Experts..................................................... 55
Available Information....................................... 55
Index to Financial Statements............................... F-1
</TABLE>

This prospectus contains forward-looking statements. Statements that are
not historical facts, including statements about our confidence in our
prospects, strategies and expectations about expansion into new markets, growth
in existing markets, comparable store sales and ability to attract new sources
of financing, are forward-looking statements that involve risks and
uncertainties. These risks and uncertainties include, but are not limited to,
(1) our historical and anticipated losses and negative cash flow; (2) debt
service requirements, restrictions and covenants related to our substantially
leveraged financial position; (3) considerable competition from local and
regional operators in all of our markets; (4) our ability to hire, train, retain
and assimilate competent management and store-level employees; (5) our ability
to identify new markets in which to successfully compete; (6) our ability to
locate suitable sites for development or acquisition; (7) our ability to
negotiate acceptable lease terms; and (8) our dependence on timely fulfillment
by landlords and others of their contractual obligations. No assurance can be
given that new stores will achieve sales and profitability comparable to the
existing stores or according to our strategic plan. There can be no assurance
that an adequate revenue base will be established or that we will generate
positive cash flow from operations. Any investor or potential investor in
SpinCycle must consider these risks and others that are detailed in this
prospectus.

2
<PAGE> 4

PROSPECTUS SUMMARY

This summary includes all material items relating to the offering and
should be read with the more detailed information and financial statements and
notes appearing elsewhere in this prospectus.

The Company SpinCycle was founded in October 1995 to
develop and implement SpinCycle's unique
concept of a national chain of branded retail
laundromats and to serve as a platform for a
nationwide consolidation in the retail
laundromat industry. Our goal is to become the
leading operator of high quality coin-operated
laundromats in the United States by
establishing SpinCycle as a national brand,
providing a superior level of customer service
and by exercising disciplined management
control in executing our business plan.

Market Opportunity Based on a 1997 survey conducted on behalf of
and published by the Coin Laundry Association
for its members, we estimate that the
coin-operated laundromat industry is a $2.0-3.0
billion industry characterized by steady,
non-cyclical demand with approximately 25,000
laundromats nationwide. According to the
survey, the average laundromat generates
$151,000 and the median generates approximately
$93,700 of annual store revenues. In
comparison, of our 90 stores which had been
open at least one year as of the beginning of
our 1999 fiscal year, our 50 developed stores
had average annual revenues of approximately
$338,000 and median annual revenues of
approximately $319,000 and our 40 acquired
stores had average annual revenues of
approximately $315,000 and median annual
revenues of approximately $286,000. These
results relate to our fiscal 1999 store
performance.

We believe that our superior store design,
sophisticated site selection methods,
disciplined professional management and
financial resources will enable us to
successfully consolidate this highly fragmented
industry and deliver a superior product to
customers.

Business Strategy We intend to maintain and build upon our
leading position in the national retail
coin-operated laundromat industry by:

- maintaining operational focus on existing
markets;

- leveraging our unused store capacity;

- leveraging our national brand for laundry
service;

- building demand for wash and fold service and
other laundry related services;

- identifying development and acquisition
candidates in high profile locations within
targeted trade areas in each of our markets;
and

- developing stores within trade areas that
contain at least 15,000 households of more
than two occupants with median household
incomes between $25,000 and $35,000 and in
which at least 50% of such households rent
their homes or apartments.

Competitive Strengths Superior Facility and Customer Service. In
sharp contrast to many existing laundromats, a
SpinCycle laundromat is an inviting, spacious
and well-equipped facility that is conveniently
located, clean and well-lighted. We provide air
conditioned stores that are
3
<PAGE> 5

bright and colorful. Each store is configured
with our unique equipment mix that optimizes
customer convenience and is designed to
maximize profitability. Each store is staffed
by at least one trained customer service
representative.

Industry Leader. By being the first nationally
branded operator of superior laundromat
facilities, and by effectively promoting and
clustering stores in prime locations in our
targeted markets, we believe that we have
achieved or will achieve a market leading
position in each of our markets.

Advanced Systems and Controls. SpinCycle's
advanced management information systems allow
us to monitor, on a store by store basis, daily
revenue and the frequency of use of our washers
and dryers.

Experienced Management. We have a management
team with experience in finance, development,
operations and nationwide multi-unit rollouts
which we believe is a competitive advantage.

Recent Mature Store Performance We define a "mature store" as a store which has
been (1) developed and operated by us for at
least 13 complete and continuous four week
periods or (2) purchased by us and operated by
us or the prior owner for at least 13 complete
and continuous four week periods, at least four
of which periods have been since we acquired
the store.

Recent Developed Store Performance. For the
quarter ended March 19, 2000, on average, our
50 developed mature stores which were mature
for all of our 1999 fiscal year generated
approximately $28,055 of per period revenue,
approximately $9,979 of per period Store EBITDA
(defined as EBITDA before allocation of any
selling, general and administrative expenses;
EBITDA is defined as earnings before interest,
taxes, depreciation and amortization) and
approximately $3,116 of per period gross
operating profit after depreciation of
approximately $6,863.

Recent Acquired Store Performance. For the
quarter ended March 19, 2000, on average, the
40 acquired mature stores, which had been
mature for all of 1999, generated approximately
$25,286 of per period revenue, $8,133 of per
period Store EBITDA and approximately $3,823 of
per period gross operating profit after
depreciation of approximately $4,310.

There can be no assurance that these results
are indicative of future results.

4
<PAGE> 6

OFFERING SUMMARY

This prospectus relates solely to the warrants and the shares of our common
stock issued or issuable upon exercise of the warrants. We will not receive any
of the proceeds from the sale of the warrants or the shares of our common stock
issued upon exercise of the warrants.

THE WARRANTS:

Issuer........................ SpinCycle, Inc.

Warrants Offered.............. 144,990 warrants which, when exercised, will
entitle the holders thereof to acquire an
aggregate of 26,661 shares of our common stock.

Exercise Price................ $.01 per share of common stock.

Expiration.................... The warrants will expire on May 1, 2005.

Anti-Dilution Provisions...... The warrants have customary anti-dilution
provisions.

Voting Rights................. Warrant holders have no voting rights.

Warrant Shares................ The warrants entitle the holders to acquire
shares of common stock.

OUR OFFICES

Our headquarters is located at 15990 North Greenway/Hayden Loop, Suite 400,
Scottsdale, Arizona 85260. Our telephone number is 480-707-9999.

5
<PAGE> 7

SUMMARY HISTORICAL FINANCIAL AND OTHER DATA

The summary historical financial and other data is derived from our
financial statements and notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. Our 1995 fiscal year was for the period from October 10, 1995
(inception) through December 31, 1995. On December 1, 1997, we changed our
financial reporting to a 13 period fiscal year, comprised of 13 four week
periods. Our 1997 fiscal year was the period from January 1, 1997 through
December 28, 1997, our 1998 fiscal year was for the period December 29, 1997
through December 27, 1998 and our 1999 fiscal year was from December 28, 1998
through December 26, 1999.

The summary financial and other data as of and for the quarters ended March
21, 1999 and March 19, 2000 were derived from our unaudited financial statements
and, in our opinion, include all adjustments necessary for a fair presentation
of such information. These adjustments are of a normal and recurring nature.
Operating results for the quarter ended March 19, 2000 are not necessarily
indicative of the results that may be expected for all of 2000.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL QUARTERS ENDED
------------------------------------------------------------------------ ---------------------
DECEMBER 31, DECEMBER 31, DECEMBER 28, DECEMBER 27, DECEMBER 26, MARCH 21, MARCH 19,
1995 1996 1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ -- $ 1,015 $ 8,653 $ 30,936 $ 52,174 $ 11,606 $ 13,298
---------- -------- -------- -------- ----------- -------- --------
Operating income (loss)..... (5) (3,873) (13,337) (15,270) (13,953) (2,919) (1,220)
---------- -------- -------- -------- ----------- -------- --------
Net income (loss) before
extraordinary loss........ (5) (3,894) (13,796) (24,321) (29,663) (6,257) (5,207)
Extraordinary loss from
early extinguishment of
debt...................... -- -- -- (334)(1) (782)(2) -- --
---------- -------- -------- -------- ----------- -------- --------
Net income (loss)........... (5) (3,894) (13,796) (24,655) (30,445) (6,257) (5,207)
Repricing of Series C
preferred stock........... -- -- -- (1,459)(3) -- -- --
Accretion of mandatorily
redeemable preferred
stock..................... -- -- (1,941) (756) -- -- --
---------- -------- -------- -------- ----------- -------- --------
Net income (loss) applicable
to holders of common
stock..................... $ (5) $ (3,894) $(15,737) $(26,870) $ (30,445) $ (6,257) $ (5,207)
========== ======== ======== ======== =========== ======== ========
Net income (loss) per common
share..................... $(1,362.75) $(117.42) $(412.76) $(937.60) $ (1,096.60) $(225.37) $(187.54)
========== ======== ======== ======== =========== ======== ========
Weighted average number of
common shares
outstanding............... 4 33,162 38,127 28,658 27,763 27,763 27,763
Cash dividends declared..... -- -- -- -- -- -- --
========== ======== ======== ======== =========== ======== ========
SELECTED OPERATING DATA:
Cash flows provided by (used
in) operating
activities................ $ (33) $ 2,380 $ (8,973) $ (3,877) $ (618) $ (1,077) $ 973
Cash flows provided by (used
in) investing
activities................ (18) (8,504) (22,862) (58,936) (9,092) (5,691) (498)
Cash flows provided by (used
in) financing
activities................ 56 6,479 39,724 58,803 9,597 5,690 (139)
EBITDA(4)................... (5) (3,305) (10,516)(5) (5,685)(5) 2,536(5) 265(5) 2,150
Store EBITDA(6)............. -- (651) 213 5,736 12,969 2,781 4,462
Depreciation and
amortization.............. -- 568 2,341 9,562 14,310 3,152 3,369
Capital expenditures(7)..... $ 18 $ 13,391 $ 53,892 $ 67,960 $ 9,683 $ 5,737 $ 508
Stores open at end or
period.................... -- 14 71 163 172 172 172
</TABLE>

6
<PAGE> 8

<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 28, DECEMBER 27, DECEMBER 26, MARCH 19,
1995 1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... $(31) $(5,344) $ 5,409 $ (931) $ 1,749 $ 2,816
Property and equipment.................. 18 12,841 53,969 100,657 95,242 92,602
Total assets............................ 55 13,809 75,496 128,256 119,544 116,967
Total debt.............................. -- 4,592 35,926 103,432 128,148 131,663
Total liabilities....................... 60 10,890 46,330 115,593 137,326 139,955
Mandatorily redeemable preferred
stock................................. -- 6,810 48,793 --(8) -- --
Convertible preferred stock............. -- -- -- 50,846(8) 50,846 50,846
Shareholders' equity (deficit).......... (5) (3,891) (19,627) 12,663 (17,782) (22,988)
</TABLE>

---------------

(1) Our net loss for the fiscal year ended December 27, 1998, includes the
extraordinary loss associated with the writeoff of approximately $334 of
unamortized deferred financing costs related to two of our former credit
facilities.

(2) Our net loss for the year ended December 26, 1999 includes the
extraordinary loss associated with the write off of approximately $782 of
unamortized deferred financing costs related to the replacement of one of
our former bank credit facilities.

(3) We have recognized the fair value of the 7,295 shares of our common stock
issued pursuant to the re-pricing of our series C convertible preferred
stock as a return to our series C preferred stockholders. Accordingly, this
amount has been deducted from our net loss in determining the net loss
available to common stockholders for purposes of calculating basic and
diluted earnings per share. See also Note 9 to our financial statements.

(4) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because management believes it is a
widely accepted financial indicator of an entity's ability to incur and
service debt. While EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles and
should not be considered as an indicator of operating performance or an
alternative to cash flow, as measured by generally accepted accounting
principles, as a measure of liquidity, it is included to provide additional
information with respect to our ability to meet our future debt service,
capital expenditures and working capital requirements.

(5) EBITDA excludes the losses on impairment and disposal of long-lived assets
of approximately $480 for the fiscal year ended December 28, 1997, $23 for
the fiscal year ended December 27, 1998, $2,178 for the fiscal year ended
December 26, 1999 and $32 for the fiscal quarter ended March 21, 1999.

(6) Store EBITDA is EBITDA before allocation of any selling, general and
administrative expenses. While Store EBITDA is not intended to represent
operating income or loss as defined by generally accepted accounting
principles (as operating income or loss under generally accepted accounting
principles includes allocation of selling, general and administrative
expenses) and should not be considered as an indicator of operating
performance as measured by generally accepted accounting principles, it is
included herein to provide additional information with respect to
store-level cash operating margins.

(7) Capital expenditures includes the purchase of laundromat equipment pursuant
to an existing supply agreement and financed with borrowings in connection
with our former senior credit facilities of approximately $4,887 in fiscal
1996, $31,358 in fiscal 1997, $2,455 in fiscal 1998, $164 in fiscal 1999,
$123 for the fiscal quarter ended March 21, 1999 and $11 for the fiscal
quarter ended March 19, 2000. The capital expenditures for 1997 included
approximately $11,485 of laundromat equipment for use in stores opened in
1998. The capital expenditures for 1997 and 1998 include approximately
$4,120 and $872 for land acquired and held for sale-leaseback transactions,
$1,919 of which is shown under the heading "Land held for sale-leaseback"
on our balance sheet at March 19, 2000. Capital expenditures also include
the cash outlay to acquire new businesses (net of cash acquired). Such
outlays totaled approximately $12,064 for fiscal 1997, $26,880 for fiscal
1998 and $0 for fiscal 1999.

(8) Concurrently with the closing of the sale of our senior discount notes and
warrants, the put rights previously associated with our three classes of
preferred stock were terminated, therefore, those shares are no longer
mandatorily redeemable.

7
<PAGE> 9

RISK FACTORS

Prospective purchasers of the warrants and shares issuable upon exercise of
the warrants should carefully consider the specific risk factors set forth
below, as well as the other information appearing in this prospectus, before
making an investment in the warrants or the shares.

WE MAY BE UNABLE TO ACHIEVE PROFITABILITY OR MANAGE OUR GROWTH

Our future success will depend on our ability to operate our stores
profitably. As of March 19, 2000, we have not yet operated all of our stores,
taken as a whole, profitably. As of March 19, 2000, we had 172 stores open and
have no plans to open more stores in 2000. Our success is dependent upon a
number of factors, including:

- our ability to hire, assimilate and retain competent management;

- our ability to hire, train, assimilate and retain competent store-level
employees; and

- the adequacy of our financial resources.

Our ability to develop stores or rehabilitate acquired stores is dependent
on timely fulfillment by landlords and others of their contractual obligations
to us, the maintenance of construction schedules and the speed with which local
zoning and construction permits can be obtained.

WE HAVE NEVER BEEN PROFITABLE AND WE ANTICIPATE SIGNIFICANT LOSSES FOR THE
BALANCE OF 2000

We have never been profitable and have incurred significant net operating
losses and negative cash flow from operations to date in connection with
developing, owning and operating laundromats. For the quarter ended March 19,
2000, we had a net loss applicable to holders of common stock of approximately
$5.2 million. At March 19, 2000, we had a recorded accumulated deficit of $80.9
million. We expect operating losses for 2000.

Losses and negative cash flow from operations will continue until we
establish a sufficient revenue-generating base of laundromats, which we may
never be able to do. The extent of these losses will also depend, in part, on
our ability to generate additional revenues in our stores from retail sales and
ancillary services offered in our stores. To the extent that revenue does not
grow at anticipated rates, or that increases in operating expenses are not
followed by commensurate increases in revenue, or that we are unable to adjust
operating expense levels accordingly, our business, results of operations and
financial condition will be materially and adversely affected. There can be no
assurance that our operating losses will not increase in the future or that we
will ever achieve or sustain profitability.

WE MAY BE UNABLE TO ESTABLISH OUR BRAND WITH POTENTIAL CUSTOMERS OR MAINTAIN IT
WITH EXISTING CUSTOMERS

We believe that establishing and maintaining our brand will be critical to
attracting and expanding our customer base. If our customers and potential
customers do not perceive our facilities and services to be of high quality, or
if we alter or modify our brand image, introduce new services or enter into new
business ventures that are not favorably received by our customers, the value of
our brand could be diluted.

WE HAVE SUBSTANTIAL DEBT OUTSTANDING; WE HAVE NOT YET GENERATED THE CASH FLOW
THAT WILL BE NECESSARY TO SERVICE OUR DEBT WHEN IT BECOMES DUE.

We have indebtedness outstanding that is substantial in relation to our
stockholders' equity. As of March 19, 2000, we had total outstanding
indebtedness of approximately $131.7 million, of which $120.7 million relates to
the senior discount notes and of which $7.5 million was outstanding under our
credit facility with LaSalle Bank National Association and $3.0 million was
outstanding under our credit facility with Alliance Laundry Systems LLC, and we
had total stockholders' deficit of approximately $23.0 million.

8
<PAGE> 10

Our high degree of leverage could have important consequences to holders of
the warrants and the shares for which they are exercisable including that:

- based upon recent operating results, substantially all of our cash flow
from operations will be required to be dedicated to our interest expense
obligations with respect to the senior discount notes and will not be
available to us for operations, working capital, capital expenditures or
other purposes beginning when the first payment on the notes is due on
November 1, 2001;

- our ability to obtain financing in the future may be limited;

- our flexibility to adjust to changing market conditions and our ability
to withstand competitive pressures as compared to less highly leveraged
competitors could be limited, including by reason of the covenants
contained in the indenture governing the senior discount notes and the
agreements related to our LaSalle and Alliance credit facilities; and

- we may be more vulnerable to downturns in general economic conditions or
in our business or be unable to undertake capital expenditures that are
important to maintain or grow our business.

Since our inception, we have not generated positive cash flow from
operations. As a result, we have been required to pay our fixed charges,
including interest on existing indebtedness, and operating expenses with the
proceeds from sales of our equity securities, loans from stockholders and other
credit arrangements. As of November 1, 2001, we will be required to satisfy
substantially higher periodic cash debt service obligations because, as of that
date, cash interest on our senior discount notes will be payable in the amount
of approximately $9.25 million every six months. The approximately $145.0
million of principal amount at maturity of our senior discount notes will become
due on May 1, 2005. In addition, as of March 19, 2000 we had drawn approximately
$7.5 million on our LaSalle credit facility which comes due in September 2001
and $3.0 million on our Alliance credit facility which requires that we begin
making 60 monthly payments of principal and interest in September 2001, and to
the extent we borrow additional amounts on the LaSalle facility or obtain
additional financing, we may have substantially more indebtedness outstanding by
the end of 2000.

Our ability to make scheduled payments or to refinance our obligations will
ultimately depend on our financial and operating performance, which in turn is
subject to prevailing economic and competitive conditions and to financial,
business and other factors that may be beyond our control, including operating
difficulties, increased operating costs, prices we can charge our customers, the
response of competitors and delays in implementing our strategy. Our ability to
meet our debt service and other obligations will depend largely on the extent to
which we can successfully implement our business strategy and manage our
operations.

In the event we are unable to meet our obligations with respect to our
existing indebtedness, we may be required to reduce or delay capital
expenditures, refinance or restructure all or a portion of our indebtedness,
sell material assets or operations or seek to raise additional debt or equity
capital.

OUR SUCCESS DEPENDS ON THE PERFORMANCE OF KEY PERSONNEL AND ON OUR ABILITY TO
ATTRACT AND RETAIN ADDITIONAL PERSONNEL

Our future success depends upon retaining the services of our senior
management staff, and upon attracting and retaining executive officers and other
personnel. Only our chief executive and chief development officers are bound by
employment agreements. All other officers have and we anticipate that all future
officers will have an at-will employment relationship with us. We only have a
"key person" life insurance policy covering our chief executive officer.

THERE IS NO PUBLIC MARKET FOR THE WARRANTS OR THE SHARES FOR WHICH THE WARRANTS
ARE EXERCISABLE

Although we have registered the warrants and the underlying shares of
common stock, the shares are not listed on any exchange and there is currently
no trading market for the warrants. If such a market were to develop, the
warrants and the shares could trade at prices that may be higher or lower than
the price paid by

9
<PAGE> 11

selling holders of warrants or shares depending on many factors, including
prevailing interest rates, our operating results and the market for similar
securities. CS First Boston has advised us that it currently intends to make a
market in the warrants and the shares for which the warrants are exercisable.
However, CS First Boston is not obligated to do so and any market-making with
respect to these securities may be discontinued at any time without notice.
Therefore, there can be no assurance as to the liquidity of any trading market
for the warrants or the shares or that an active trading market for these
securities will develop. We do not intend to apply for listing of the warrants
or the shares on any securities exchange or stock market.

THE VALUE OF THE WARRANTS AND THE SHARES FOR WHICH THEY ARE EXERCISABLE MAY BE
REDUCED BECAUSE OF THE AVAILABILITY OF OTHER SPINCYCLE SECURITIES IN THE MARKET

The warrants are exercisable at any time until May 1, 2005. We have a total
of 27,763 shares of common stock, 76,974 shares of series A convertible
preferred stock, 125,498 shares of series B convertible preferred stock, 72,930
shares of series C convertible preferred stock outstanding and warrants to
purchase 26,661 shares of common stock, all of which were sold in private
placements. In addition, as of March 19, 2000, we had outstanding option grants
exercisable for 51,694 shares of common stock of which 14,684 were vested. The
holders of the preferred shares have both demand and "piggyback" registration
rights. Sales of restricted shares in the public market, or the availability of
such shares for sale, could adversely affect the value of the warrants and any
common stock issued upon exercise of the warrants.

OUR STEPS TO PROTECT OUR TRADEMARKS AND PROPRIETARY RIGHTS MAY BE INADEQUATE

We regard our anticipated service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success. We intend
to rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, users, partners
and others to protect our proprietary rights. Effective trademark, service mark
and trade secret protection may not be available in every country in which we
may expand to provide services. Therefore, the steps we take to protect our
proprietary rights may be inadequate.

WE ARE HIGHLY DEPENDENT ON OUR MANAGEMENT INFORMATION SYSTEMS

We depend on management information systems to monitor daily revenues and
machine utilization in each of our stores, exercise centralized cash and
management controls and compile and analyze critical marketing and operations
data. Any disruption in the operation of our management information systems, the
loss of employees knowledgeable about these systems or our failure to continue
to effectively modify the systems could have a material adverse effect on our
business, financial condition and results of operations.

WE DEPEND UPON A SINGLE SUPPLIER FOR OUR LAUNDRY MACHINES

To date, we have acquired substantially all of our equipment from Alliance
Laundry Systems LLC, the successor to Raytheon Commercial Laundry LLC. We are
presently party to a supply agreement with Alliance which obligates us to
purchase substantially all of our washers, dryers and replacements parts for
stores we develop, rather than acquire, from Alliance until August 31, 2001.
Therefore, through that date we will be substantially dependent upon Alliance to
supply our laundry equipment.

THE OWNERSHIP INTEREST IN OUR COMPANY OF WHICH HOLDERS OF OUR WARRANTS COULD OWN
UPON EXERCISE OF WARRANTS FOR OUR COMMON STOCK IS INSUBSTANTIAL

The percentage ownership interest of holders of our warrants upon exercise
of the warrants for our common stock is approximately 7.0%, assuming exercise of
all outstanding stock options. With such a small percentage ownership interest
in SpinCycle, the warrant holders, even as a group, would be unlikely to effect
any change in our management or operations.

10
<PAGE> 12

WE DO NOT EXPECT TO PAY DIVIDENDS

We have never paid any dividends on any of our capital stock, and we do not
have any plans to pay any dividends on any of our capital stock in the
foreseeable future. We currently intend to retain all earnings, if any, for
reinvestment in our business and repayment of indebtedness. Further, the Heller
credit facility and our indenture restrict our payment of dividends.

WE FACE CONSIDERABLE COMPETITION FROM MANY LOCAL AND REGIONAL OPERATORS IN ALL
OF OUR MARKETS

Our local and regional competitors typically own one or two stores and
operate their facilities with a lower cost structure than SpinCycle, typically
employing fewer people and offering less service. These operators often own the
real estate where they are located and have the ability to lower prices
significantly in order to compete. In addition to the local and regional
operators, at least one privately-owned laundromat chain was started in 1998
with the intention of becoming a national branded chain and we anticipate more
competition from this and future national laundromat chains. We compete directly
with this company in South Florida. In addition, we compete with route service
operators, who provide coin-operated laundry facilities in multi-unit apartment
complexes. There are two publicly traded companies in the route business,
Coinmach Corporation and Mac-Gray Corporation. Both of these entities have
substantially greater resources than we have and could enter the retail
laundromat business on a national scale at any time. There can be no assurance
that we will be able to compete effectively with current or future competitors
or that, when faced with such competitive pressures, we will be able to generate
sufficient cash flow or otherwise obtain funds in the future to cover interest
and principal payments associated with the senior discount notes or any other of
our debts.

WE ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS IN THE CONDUCT OF OUR BUSINESS AS A
RESULT OF THE COVENANTS INCLUDED IN OUR DEBT FACILITIES

The indenture governing our senior discount notes and the Heller loan
documents contain numerous financial and operating covenants, including, but not
limited to, restrictions on our ability to:

- incur indebtedness;

- create liens;

- sell assets;

- engage in mergers and acquisitions except those meeting specified
criteria;

- pay dividends;

- make investments; and

- enter new lines of business.

These covenants could materially limit or exclude potentially profitable
activities in which we might otherwise engage. In addition, in the event of a
change of control, we will be required to offer to purchase all outstanding
senior discount notes at a price equal to 101% of the accreted value of the
notes at that time plus accrued interest, if any. This restriction may inhibit
our ability to enter into or adversely affect the likelihood that we will enter
into a transaction resulting in a change of control. The LaSalle and Alliance
facilities also restrict our ability to enter into transactions with our
affiliates or make payments under the indenture that are not regularly scheduled
and limits our ability to prepay our senior discount notes following an
underwritten public offering of our common stock to an amount equal to 35% of
the principal, interest and fees outstanding with respect to the notes.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL OR OBTAIN ADDITIONAL DEBT AND THE TERMS
OF ANY ADDITIONAL FINANCING MAY DILUTE THE VALUE, RIGHTS, PREFERENCES OR
PRIVILEGES OF OUR CAPITAL STOCK

We anticipate that we may require substantial working capital to fund our
business. We currently anticipate that the capital we need will be generated by
our operations or we will borrow it from third party lenders. As of March 19,
2000, we had drawn approximately $7.5 million under the LaSalle facility and had

11
<PAGE> 13

approximately $4.5 million available to us under this facility. LaSalle has the
ability to limit our availability by up to $1.0 million since we obtained only
95% of the required landlord consents to LaSalle's liens on or before December
26, 1999. We have completely drawn down our Alliance facility. Further expansion
would require additional borrowings and/or additional capital. If we raise
additional funds through the issuance of equity, equity-related or debt
securities, any or all of these securities may have rights, preferences or
privileges senior to those of the rights of our common stock and our
stockholders may experience additional dilution. We cannot be certain that
additional financing or capital will be available to us on favorable terms when
required, or at all.

BREACHES OF SECURITY IN OUR STORES MAY RESULT IN HARM TO US AND OUR CUSTOMERS

Because individual stores operate in large urban centers and involve public
access and cash on the premises, there is a material risk of robbery and other
crimes. Although we have attempted to address this by investing in systems and
procedures to enhance security for our employees and customers, there can be no
assurance that we and our customers will not experience security problems in our
stores.

12
<PAGE> 14

USE OF PROCEEDS

We will not receive any proceeds from the sale of the warrants or the
shares of common stock issuable upon exercise of the warrants offered by this
prospectus.

CAPITALIZATION

Our actual capitalization at March 19, 2000, is set forth below.

<TABLE>
<CAPTION>
MARCH 19,
2000
--------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................. $ 4,462
========
Notes(1).................................................. $120,739
Miscellaneous debt........................................ 10,924
--------
Total long-term debt.............................. 131,663
--------
Stockholders' equity (deficit):
Convertible preferred stock............................ 50,846
Common stock........................................... --
Additional paid-in-capital............................. 1,430
Common stock warrants(2)............................... 5,625
Accumulated deficit.................................... (80,889)
--------
Total stockholders' equity (deficit)................. (22,988)
--------
Total capitalization.............................. 108,675
========
</TABLE>

---------------
(1) Reflects the accreted value ascribed to the senior discount notes net of the
value ascribed to the warrants.

(2) Reflects the gross proceeds ascribed to the warrants when they were sold in
the private placement.

13
<PAGE> 15

SELECTED FINANCIAL AND OTHER DATA

The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" have been derived from our
historical financial statements. Our 1995 fiscal year was for the period from
October 10, 1995 (inception) through December 31, 1995. On December 1, 1997, we
changed our financial reporting to a 13 period fiscal year, comprised of 13 four
week periods. Our 1997 fiscal year was the period January 1, 1997 through
December 28, 1997, our 1998 fiscal year was from December 29, 1997 through
December 27, 1998 and our 1999 fiscal year was from December 28, 1998 through
December 26, 1999. The summary financial and other data as of and for the fiscal
quarters ended March 19, 2000 and March 21, 1999, have been derived from our
unaudited financial statements and, in our opinion, include all adjustments
necessary for a fair presentation of such information. When you read this
selected financial data it is important that you read along with it our
historical financial statements and related notes included in this prospectus,
as well as the section of this prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL QUARTERS ENDED
------------------------------------------------------------------------ ---------------------
DECEMBER 31, DECEMBER 31, DECEMBER 28, DECEMBER 27, DECEMBER 26, MARCH 21, MARCH 19,
1995 1996 1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ -- $ 1,015 $ 8,653 $ 30,936 $ 52,174 $ 11,606 $ 13,298
Store operating expenses,
excluding depreciation and
amortization................. -- 1,193 7,983 24,508 39,088 8,712 8,836
---------- -------- -------- -------- ---------- -------- --------
Gross operating profit (loss),
excluding depreciation and
amortization................. -- (178) 670 6,428 13,086 2,894 4,472
Preopening costs............... -- 473 457 692 117 113 --
Depreciation and
amortization................. -- 568 2,341 9,562 14,310 3,152 3,369
Selling, general and
administrative expenses...... 5 2,654 10,729 11,421 10,433 2,516 2,313
Loss on disposal of property
and equipment and disposal of
long-lived assets............ -- -- 480 23 2,178 32 --
---------- -------- -------- -------- ---------- -------- --------
Operating income (loss)........ (5) (3,873) (13,337) (15,270) (13,953) (2,919) (1,220)
Interest income................ -- 29 433 1,300 128 37 25
Interest expense, net.......... -- (50) (892) (10,351) (15,839) (3,376) (4,012)
---------- -------- -------- -------- ---------- -------- --------
Net income (loss) before
extraordinary loss........... (5) (3,894) (13,796) (24,321) (29,663) (6,257) (5,207)
Extraordinary loss from early
extinguishment of debt....... -- -- -- (334)(1) (782)(2) -- --
---------- -------- -------- -------- ---------- -------- --------
Net income (loss).............. (5) (3,894) (13,796) (24,655) (30,445) (6,257) (5,207)
Repricing of Series C preferred
stock........................ -- -- -- (1,459)(3) -- -- --
Accretion of mandatorily
redeemable preferred stock... -- -- (1,941) (756) -- -- --
---------- -------- -------- -------- ---------- -------- --------
Net income (loss) applicable to
holders of common stock...... $ (5) $ (3,894) $(15,737) $(26,870) $ (30,445) $ (6,257) $ (5,207)
========== ======== ======== ======== ========== ======== ========
Net loss per common share...... $(1,362.75) $(117.42) $(412.76) $(937.60) $(1,096.60) $(225.37) $(187.54)
========== ======== ======== ======== ========== ======== ========
Weighted average number of
common shares outstanding.... 4 33,162 38,127 28,658 27,763 27,763 27,763
========== ======== ======== ======== ========== ======== ========
SELECTED OPERATING DATA:
Cash flows provided by (used
in) operating activities..... $ (33) $ 2,380 $ (8,973) $ (3,877) $ (618) $ (1,077) $ 973
Cash flows provided by (used
in) investing activities..... (18) (8,504) (22,862) (58,936) (9,092) (5,691) (498)
Cash flows provided by (used
in) financing activities..... 56 6,479 39,724 58,803 9,597 5,690 (139)
EBITDA(4)...................... (5) (3,305) (10,516)(5) (5,685)(5) 2,536(5) 265(5) 2,150
Store EBITDA(6)................ -- (651) 213 5,736 12,969 2,781 4,462
Capital expenditures(7)........ $ 18 $ 13,391 $ 53,892 $ 67,960 9,683 $ 5,737 $ 508
Stores open at end of period... -- 14 71 163 172 172 $ 172
</TABLE>

14
<PAGE> 16

<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 28, DECEMBER 27, DECEMBER 26, MARCH 19,
1995 1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................ $(31) $(5,344) $ 5,409 $ (931) $ 1,749 $ 2,816
Property and equipment................... 18 12,841 53,969 100,657 95,242 92,602
Total assets............................. 55 13,809 75,496 128,256 119,544 116,967
Total debt............................... -- 4,592 35,926 103,432 128,148 131,663
Total liabilities........................ 60 10,890 46,330 115,593 137,326 139,955
Mandatorily redeemable preferred stock... -- 6,810 48,793 --(8) -- --
Convertible preferred stock.............. -- -- -- 50,846(8) 50,846 50,846
Shareholders' equity (deficit)........... (5) (3,891) (19,627) 12,663 (17,782) (22,988)
</TABLE>

---------------

(1) Our net loss for the fiscal year ended December 27, 1998 includes the
extraordinary loss associated with the writeoff of approximately $334 of
unamortized deferred financing costs related to two of our former credit
facilities.

(3) We have recognized the fair value of the 7,295 shares of our common stock
issued pursuant to the repricing of the series C convertible preferred
stock as a return to our series C preferred stockholders. Accordingly, this
amount has been deducted from our net loss in determining the net loss
available to common stockholders for purposes of calculating basic and
diluted earnings per share. See also Note 9 to our financial statements.

(4) EBITDA is defined as earnings before interest expense, taxes, depreciation
and amortization. EBITDA is presented because management believes it is a
widely accepted financial indicator of an entity's ability to incur and
service debt. While EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles and
should not be considered as an indicator of operating performance or an
alternative to cash flow, as measured by generally accepted accounting
principles, as a measure of liquidity, it is included to provide additional
information with respect to our ability to meet our future debt service,
capital expenditures and working capital requirements.

(8) Concurrently with the closing of the sale of our senior discount notes, the
put rights previously associated with our three classes of preferred stock
were terminated, therefore, those shares are no longer mandatorily
redeemable.

15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

SpinCycle is a specialty retailing company engaged in the coin laundry
business. We were founded in October 1995 to develop and implement SpinCycle's
unique concept of a national chain of branded coin-operated laundromats and to
serve as a platform for a nationwide consolidation in the coin-operated
laundromat industry. We were formed with the goal of becoming the leading
operator of high quality coin-operated laundromats in the United States by
establishing SpinCycle as a national brand, providing a superior level of
customer service and by exercising disciplined management control in our
expansion and business plan.

During 1999, we began to explore the demand for and viability of a pick-up
and delivery service for home laundry. We began offering this service in the
greater Miami area in August of 1999. Customers can order this service by
calling a toll free number or accessing our web site at www.cleanwave.com which
will be available after May 22, 2000. Our objective is to pick-up, wash, dry,
fold, package and return each customer's laundry within 24 hours. The laundry is
currently being processed at two of our Miami locations during the hours these
stores are closed to retail customers, thus allowing us to leverage our in-place
assets. Our results to date have been promising and we expect to expand this
service to the entire Miami market and expand to other SpinCycle markets as
demand dictates and resources permit.

To date, our primary use of capital has been for the development and
acquisition of laundromats and for general corporate purposes. Our store count
has grown rapidly since our first store was opened in April 1996, and at year
end 1996, 1997, 1998 and 1999 we had 14, 71, 163 and 172 stores, respectively.
We are also party to three leases for property that we do not intend to develop
as stores by year-end 2000. We have not made any further commitments for
acquisitions or new store developments.

To date we have closed four stores: one during 1998, following a lease
buyout by our landlord at that location and three additional stores during 1999
due to poor performance. We do not intend to close any further stores. We are
actively pursuing the sale or alternative use of two of the businesses that we
closed during 1999.

Our rapid development and acquisition of laundromats has required
significant capital resources. To date, we have not been profitable and have
generated net operating losses and negative cash flow from operations. As such,
our expansion has been facilitated through private equity investments, proceeds
from the issuance of our senior discount notes, borrowings from our credit
facilities and revenue generated from our stores. Until such time as we can
access the public equity markets with a favorable valuation, or access other
sources of expansion capital, we have elected to proceed cautiously with our
expansion, slowing our development or acquisition to judiciously utilize
available sources of growth capital.

We do not expect to sign any additional commitments to develop stores prior
to procuring additional growth capital or generating sufficient cash flow from
operations. This lack of significant growth capital prompted a significant
decrease in our growth rate, and in February 1999 and again in April 1999 we
implemented a reduction in force. These reductions in force were primarily
focused on our growth-related and administrative personnel, including regional
directors of development and acquisitions and corporate and field level
construction managers.

Fiscal 1999 was a very exciting year for us, as we achieved several
financial milestones. We realized positive EBITDA in all 1999 periods. We
experienced approximately 7.7% same store sales growth for our mature (both
acquired and developed) stores. Our average Store EBITDA increased from
approximately $36,000 for fiscal 1998 to approximately $75,000 for fiscal 1999.
In addition to achieving many financial goals, we were also able to replace our
former bank credit facility with other credit facilities which better fit our
capital needs and provide for additional borrowing capacity at reduced cost (see
"-- Liquidity and Capital Resources" below). We ended the first quarter of 2000
with approximately $2.1 million of EBITDA. The EBITDA generated in the first
quarter of 2000 was the highest that we have ever achieved and marked the

16
<PAGE> 18

fifth consecutive quarter that we achieved positive EBITDA. For the remainder of
2000, we will continue to focus on strategies to improve unit level economics
and reduce general and administrative expenses.

RESULTS OF OPERATIONS

EBITDA is defined as earnings before interest expense, taxes, depreciation
and amortization. EBITDA is presented because we believe it is a widely accepted
financial indicator of an entity's ability to incur and service debt. While
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles ("GAAP") and should not be considered
as an indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, it is included herein to provide
additional information with respect to our ability to meet our future debt
service, capital expenditures and working capital requirements.

Store EBITDA is defined as EBITDA before allocation of any selling, general
or administrative expenses. While Store EBITDA is not intended to represent
operating income or loss as defined by GAAP (as GAAP operating income or loss
includes such allocation of selling, general and administrative expenses) and
should not be considered as an indicator of operating performance as measured by
GAAP, it is included herein to provide additional information with respect to
store-level cash operating margins.

First Quarter 2000 Compared to First Quarter 1999

Revenues. Our revenues were approximately $13.3 million for the first
quarter of 2000, an increase of approximately $1.7 million from approximately
$11.6 million in the corresponding period in 1999. Our growth in revenue was
primarily attributable to the continued maturation of our developed and acquired
stores.

Store operating expenses, excluding depreciation and amortization. Our
store operating expenses, excluding depreciation and amortization were
approximately $8.8 million in the first quarter of 2000, an increase of
approximately $100,000 from approximately $8.7 million in the corresponding
period in 1999. The increase in our store operating expenses, excluding
depreciation and amortization was primarily attributable to the increased
customer volume indicated by our increase in revenues. Operating expenses as a
percentage of revenues were approximately 75% for the first quarter 1999.
Operating expenses as a percentage of revenues decreased to approximately 66%
for the first quarter of 2000, which is a result of the maturation of our
stores' revenue and our implementation of initiatives designed to reduce store
operating expenses.

Gross operating profit, excluding depreciation and amortization. Our gross
operating profit, excluding depreciation and amortization was approximately $4.5
million in the first quarter of 2000, an increase of approximately $1.6 million
from approximately $2.9 million in the corresponding period in 1999. The
increase was primarily attributable to our aforementioned increase in revenues
during the period. Our gross margin percentage increases as revenues increase
due to the fixed nature of many of the store level expenses.

Preopening costs. We had no preopening costs in the first quarter of 2000,
a decrease of approximately $113,000 from the corresponding period in 1999. We
expense preopening costs as incurred. During the first quarter of 1999 we opened
nine stores and had three stores under construction. During the first quarter of
2000 we did not open any stores or have any stores under construction. We have
delayed indefinitely the opening of three stores which we have under lease.

Store EBITDA. Our store EBITDA was approximately $4.5 million in the first
quarter of 2000, an increase of approximately $1.7 million from approximately
$2.8 million for the corresponding period in 1999. The increase was primarily
attributable to increased revenue from the maturation of our stores. Our store
EBITDA increases as revenues increase due to the fixed nature of many of the
store level expenses.

Depreciation and amortization. Our depreciation and amortization expense
was approximately $3.4 million in the first quarter of 2000, an increase of
approximately $200,000 from approximately $3.2 million for the corresponding
period in 1999. The increase was principally due to property and equipment
acquired in connection with our 1999 expansion.

17
<PAGE> 19

Selling, general and administrative expenses. Our selling, general and
administrative expenses were approximately $2.3 million in the first quarter of
2000, a decrease of approximately $200,000 from approximately $2.5 million in
the corresponding period of 1999. Selling, general and administrative expenses
decreased as a percentage of revenues from 22% for the first quarter of 1999 to
17% for the first quarter of 2000. The decrease was due to the maturation of our
stores and our implementation of certain initiatives to reduce these expenses,
including our 1999 reductions in force.

EBITDA. Our EBITDA in the first quarter of 2000 was approximately $2.1
million, an increase of approximately $1.8 million from our EBITDA of
approximately $265,000 for the corresponding period in 1999. The increase was
primarily attributable to the continued maturation of our stores.

Interest income and interest expense, net. Our interest income decreased
to approximately $25,000 in the first quarter of 2000, a decrease of
approximately $12,000 from approximately $37,000 in the first quarter of 1999.
The decrease in interest income was primarily attributable to a lower average
cash balance during the first quarter of 2000 compared to the first quarter of
1999. Our interest expense, net of capitalized interest was approximately $4.0
million in the first quarter of 2000, an increase of approximately $600,000 from
approximately $3.4 million in the corresponding period in 1999. The increase in
interest expense, net was primarily attributable to the increase in accretion of
interest expense related to our April 1998 offering of senior discount notes and
warrants and interest expense accrued for borrowings under our existing credit
facility. We had approximately $5.8 million in borrowings under our former
credit facility at the end of the first quarter of 1999 and had approximately
$10.5 million in borrowings at the end of the first quarter of 2000 under our
existing credit facilities.

Net loss. Our net loss recorded in the first quarter of 2000 was $5.2
million, a decrease of approximately $1.1 million from our $6.3 million net loss
recorded in the corresponding period of 1999. The decreased loss was primarily
attributable to the additional income provided by our operations, partially
offset by the increase in interest expense related to our April 1998 offering of
senior discount notes and warrants, and the interest expense associated with our
outstanding borrowings under our credit facilities.

Year Ended December 26, 1999 Compared to Year Ended December 27, 1998:

Revenues. Our revenues were approximately $52.2 million for 1999, an
increase of approximately $21.3 million from approximately $30.9 million in
1998. Our growth in revenue was primarily attributable to the continued
maturation of our developed and acquired stores and a net increase of nine
stores since the end of 1998.

Store Operating Expenses, excluding depreciation and amortization. Our
store operating expenses, excluding depreciation and amortization ("store
operating expenses") were approximately $39.1 million in 1999, an increase of
approximately $14.6 million from approximately $24.5 million in 1998. The
increase in store operating expenses was primarily attributable to the 93 stores
that we added during 1998 being operational for all of 1999 and a net increase
of nine stores in 1999. Our store operating expenses as a percentage of revenues
decreased from 79% in 1998 to approximately 75% in 1999. This decrease is a
result of the maturation of certain developed stores and our slowed growth in
1999 which has enabled us to further concentrate our efforts toward operating
efficiencies.

Gross Operating Profit, excluding depreciation and amortization. Our gross
operating profit, excluding depreciation and amortization was approximately
$13.1 million in 1999, an increase of approximately $6.7 million from
approximately $6.4 million in 1998. This increase was primarily attributable to
our aforementioned increase in revenues during the period and our focus on
improving operating efficiencies.

Pre-opening Costs. Our pre-opening costs were approximately $117,000 in
1999, a decrease of approximately $575,000 from approximately $692,000 in 1998.
We expense our pre-opening costs as incurred. This decrease was the result of
our slowed growth during 1999.

Store EBITDA. Our Store EBITDA was approximately $13.0 million in 1999, an
increase of approximately $7.3 million from Store EBITDA of $5.7 million in
1998. This increase was primarily attributable to a net increase of nine stores
during 1999, a full year's operating results from the 93 stores that were opened

18
<PAGE> 20

during 1998, increased revenue from the operations and maturation of both new
and existing stores and increased control of store operating expenses.

Depreciation and Amortization. Our depreciation and amortization expense
was approximately $14.3 million in 1999, an increase of approximately $4.7
million from approximately $9.6 million in 1998. This increase was principally
due to our purchases of property and equipment in connection with our 1998 and
1999 expansion.

Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were approximately $10.4 million in 1999, a decrease of
approximately $1.0 million from approximately $11.4 million in 1998. The
decrease was primarily attributable to two reductions in force that were
initiated in February and April of 1999 in which 28 general and administrative
employees were released from their employment. Selling, general and
administrative expenses decreased as a percentage of revenue to 20% in 1999 from
37% in 1998. This decrease was due to increased revenue generated from a larger
base of mature and maturing stores opened in 1998 and 1999 and the initiation of
the two reductions in force during 1999.

Losses on impairment and disposal of long-lived assets. Losses on
impairment and disposal of long-lived assets totalled approximately $2.2 million
for 1999 and included losses on store closures of approximately $1.0 million,
impairment of underperforming stores of $585,000, a loss on sale-leaseback
transaction of $390,000 and other losses on asset dispositions in the normal
course of business of $199,000. (See notes 2 and 3 to our financial statements
for further details.) These transactions included writedowns of leasehold
improvements and goodwill associated with the closed and impaired stores. The
balance sheet at December 26, 1999 includes accrued lease obligations
aggregating $528,000 relating to the closed stores.

Interest Income and Interest Expense, net. Our interest income was
approximately $128,000 in 1999, a decrease of approximately $1.2 million from
approximately $1.3 million in 1998. The decrease in interest income was
primarily attributable to a lower average cash balance during 1999 as compared
to 1998 when we had the proceeds of our senior discount notes on hand. Interest
expense, net of capitalized interest was approximately $15.8 million in 1999, an
increase of approximately $5.4 million from approximately $10.4 million in 1998.
Our increase in interest expense, net was primarily attributable to the
accretion of interest expense related to our senior discount notes outstanding
since April 1998 and interest expense for borrowings on our bank credit
facility. Our outstanding borrowings under the LaSalle facility were
approximately $7.5 million at the end of fiscal year 1999. Our outstanding
borrowings under the Alliance facility were $3.0 million at the end of fiscal
1999.

Net Loss before Extraordinary Loss. The net loss before extraordinary loss
recorded in 1999 was approximately $29.7 million, an increase of approximately
$5.4 million from the $24.3 million net loss recorded in 1998. Our increased
loss was primarily attributable to depreciation and amortization associated with
the number of new stores both acquired and developed since the end of 1997, the
increase in interest expense discussed above and the increase in losses on
impairment and disposal of long-lived assets of approximately $2.2 million.

Extraordinary Loss from Early Extinguishment of Debt. The extraordinary
loss relates to the write-off of the unamortized balance of debt issuance costs
that were paid in connection with our former bank credit facility. (See note 15
to our financial statements.) These costs were written off as a result of the
replacement of our Heller facility with the LaSalle Bank National Association
and Alliance Laundry Systems LLC facilities.

Year Ended December 27, 1998 Compared to Year Ended December 28, 1997:

Revenues. Our revenues were approximately $30.9 million for 1998, an
increase of approximately $22.2 million from approximately $8.7 million in 1997.
Our growth in revenue was primarily attributable to the addition of 93 stores
since the end of 1997 and the maturation of our developed stores, which were
opened in 1996.

Store Operating Expenses, excluding depreciation and amortization. Our
store operating expenses, excluding depreciation and amortization were
approximately $24.5 million in 1998, an increase of approxi-

19
<PAGE> 21

mately $16.5 million from approximately $8.0 million in 1997. The increase in
store operating expenses, excluding depreciation and amortization, was primarily
attributable to our addition of 93 stores since the end of 1997. Our store
operating expenses, excluding depreciation and amortization, as a percentage of
revenues decreased from 92% in 1997 to approximately 79% in 1998. This is a
result of the maturation of certain developed stores, our acquisition of
additional stores and the implementation of our initiatives designed to reduce
store operating expenses, excluding depreciation and amortization. We began
implementing these initiatives in the first quarter of 1998.

Gross Operating Profit, excluding depreciation and amortization. Our gross
operating profit, excluding depreciation and amortization was approximately $6.4
million in 1998, an increase of approximately $5.7 million from approximately
$670,000 in 1997. This increase was primarily attributable to our aforementioned
increase in revenues during the period and our initiatives to reduce store
operating expenses, excluding depreciation and amortization.

Pre-opening Costs. Our pre-opening costs were approximately $692,000 in
1998, an increase of approximately $235,000 from approximately $457,000 in 1997.
We expense our pre-opening costs as incurred. This increase was the result of
our acquisition and development of 93 additional stores, which opened during
1998.

Store EBITDA. Our Store EBITDA was approximately $5.7 million in 1998, an
increase of approximately $5.5 million from Store EBITDA of $213,000 in 1997.
This increase was primarily attributable to the addition of 93 developed or
acquired stores during 1998, increased revenue from the operations and
maturation of both new and existing stores and increased control of store
expenses.

Depreciation and Amortization. Our depreciation and amortization expense
was approximately $9.6 million in 1998, an increase of approximately $7.3
million from approximately $2.3 million in 1997. This increase was principally
due to our purchases of property and equipment in connection with our expansion.

Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were approximately $11.4 million in 1998, an increase of
approximately $700,000 from approximately $10.7 million in 1997. The increase
was primarily attributable to the increase in our corporate infrastructure in
the last half of 1997 in order to allow us to manage our anticipated nationwide
expansion. Specifically, during the last half of 1997, we hired additional
professionals to provide for nationwide operations and real estate development
and to establish a dedicated acquisitions department. However, selling, general
and administrative expenses decreased as a percentage of revenue to 37% in 1998
from 123% in 1997. This decrease was due to increased revenue generated from a
larger base of mature and maturing stores opened in 1997 and 1998, the
acquisition of additional stores and the implementation of our initiatives to
reduce these costs.

Interest Income and Interest Expense, net. Our interest income increased
to approximately $1.3 million in 1998, an increase of approximately $867,000
from approximately $433,000 in 1997. The increase in interest income was
primarily attributable to our investment of the proceeds from our April 1998
private offering of approximately $145.0 million aggregate principal amount of
12.75% senior discount notes and warrants to purchase common stock which were
ultimately used for capital investment and to fund operations. Interest expense,
net of capitalized interest was approximately $10.4 million in 1998, an increase
of approximately $9.5 million from approximately $892,000 in 1997. Our increase
in interest expense, net was primarily attributable to accretion of the original
issue discount related to the private offering.

Net Loss before Extraordinary Loss. The net loss before extraordinary loss
recorded in 1998 was approximately $24.3 million, an increase of approximately
$10.5 million from the approximately $13.8 million net loss recorded in 1997.
Our increased loss was primarily attributable to depreciation and amortization
associated with the number of new stores both acquired and developed since the
end of 1997 and the increases in selling, general and administrative expenses
and interest expense discussed above.

Extraordinary Loss from Early Extinguishment of Debt. The extraordinary
loss of approximately $334,000 relates to the write-off of the unamortized
balance of debt issue costs that were paid in connection with our former bank
and, to a lesser extent, our former equipment and acquisition credit facilities.
See

20
<PAGE> 22

Note 15 to the financial statements. These costs were written off as a result of
the early repayment and termination of these credit facilities with the proceeds
of the offering.

Re-pricing of Series C Preferred Stock. On April 14, 1998, we issued 7,295
shares of our common stock to series C stockholders in connection with the
re-pricing of the series C convertible preferred stock offering, originally
priced at $220 per share. Pursuant to a stockholder consent dated March 18, 1998
and obtained as of April 14, 1998, the series C offering was converted to a unit
offering, whereby each series C unit offered was comprised of ten shares of
series C preferred stock and one share of common stock for $2,200 per unit. In
accordance with existing authoritative guidance, the additional fair value of
the consideration transferred to series C stockholders of $1,459,000 (i.e., the
7,295 shares of common stock issued in connection with the conversion of the
original offering to a unit offering multiplied by $200 per share) has been
treated as a return to series C stockholders. Accordingly, $1,459,000 has been
deducted from our net loss for the year-to-date period ended December 27, 1998
in determining the net loss applicable to common shareholders for the
calculation of earnings per share.

LIQUIDITY AND CAPITAL RESOURCES

At March 19, 2000, we had total assets of approximately $117.0 million,
including current assets of approximately $7.8 million. Cash and cash
equivalents were approximately $4.5 million.

Our cash provided by operations during the quarter ended March 19, 2000 was
approximately $970,000, a $2.1 million increase from our cash used in operations
during the corresponding period in 1999 of approximately $1.1 million. Our cash
provided by operations in the first quarter of 2000 was primarily attributable
to the gross operating profit realized during the quarter. The increase in our
cash provided by operating activities in the quarter ended March 19, 2000 was
the result of the continued maturation of our stores and reductions in our
selling, general and administrative expenses.

Our cash used in investing activities during the quarter ended March 19,
2000 was approximately $500,000, a $5.2 million decrease from our cash used in
investing activities of approximately $5.7 million for the corresponding period
in 1999. Our reduced spending on investing activities in the quarter ended March
19, 2000 is due to the substantial decrease in our expansion activities.

Our cash used in financing activities was approximately $140,000 during the
quarter ended March 19, 2000, a decrease of approximately $5.8 million from our
cash provided by financing activities of approximately $5.7 million during the
corresponding period in 1999. We borrowed funds primarily to pay for our capital
expenditures related to our 1999 store rollout plan. The funds were obtained
primarily from our credit facility.

We generated approximately $2.1 million of positive EBITDA during our first
quarter of fiscal 2000. We expect to generate positive EBITDA in all 13 periods
of 2000. As of March 19, 2000 we had drawn approximately $10.5 million from our
existing facilities, and had $4.5 million additional borrowing capacity on these
credit facilities based on the applicable financial covenants. Going forward, we
expect to be able to meet our current obligations with cash flows from our store
operations. We believe that our cash flow from operations will provide us with
sufficient capital resources through March of 2001. Significant variances in
budgeted store revenue or Store EBITDA or unforeseen capital requirements could
result in insufficient capital resources if they exceed our cash flow from
operations or our availability on our credit facilities.

On November 17, 1999 we entered into a $12.0 million secured revolving
credit facility with LaSalle Bank National Association to replace our facility
with Heller Financial, Inc. Availability under the Heller facility was based
upon a borrowing base formula determined by income from store operations and net
book value of laundry equipment. At the closing of the LaSalle facility, we
repaid the $9.3 million outstanding on the Heller facility, which was the
maximum we could have borrowed on the facility at the time as a result of the
financial covenants contained in the Heller facility.

The LaSalle facility has less restrictive financial covenants than the
Heller facility. The financial covenants include minimum tangible net worth, a
senior interest coverage ratio and a minimum net book value of laundry equipment
covenant. The LaSalle facility will mature on September 30, 2001, and requires
monthly payment of interest only until that date. All principal and interest
accrued but unpaid at maturity are payable

21
<PAGE> 23

on the maturity date. As of May 17, 2000, we have made all monthly interest
payments due on the LaSalle facility on a timely basis.

Obligations under the LaSalle facility bears interest with reference to
either the "Reference Rate" or the "LIBOR Rate" as we determine at the time we
incur each obligation. "Reference Rate Loans" shall bear interest at the rate of
prime (as set by LaSalle from time to time) plus 1.0%. "LIBOR Rate Loans" shall
bear interest at the rate of 3.0% plus the interest rate per annum equal to the
quotient obtained by dividing (x) the rate of interest determined by LaSalle to
be the average of the rate per annum at which deposits in U.S. dollars are
generally offered to LaSalle in the London Interbank Market at 11:00 A.M. London
time, two business days before the first day of such interest period, for a
period equal to such interest period and in the amount of the applicable "LIBOR
Rate Loan" by (y) the difference between 100% and any applicable reserve
requirements (rounded upward to the nearest whole multiple of 1/100 of one
percent per annum), including without limitation, any statutory maximum
requirement for LaSalle to hold reserves for "Eurocurrency Liabilities" under
Regulation D of the Board of Governors of the of the Federal Reserve System (or
any similar reserves under any successor regulation or regulations).

Simultaneous with the closing of the LaSalle facility, we entered into a
revolving credit facility with Alliance Laundry Systems LLC in the maximum
principal amount of $3.0 million. Alliance is our main laundry equipment
supplier. The Alliance facility requires monthly payments of interest only,
until and including the first business day of September, 2001. Thereafter, the
facility requires 59 monthly payments comprised of $50,000 of principal plus the
accrued interest on the unpaid principal balance and a sixtieth payment of
accrued interest only. Obligations under the Alliance facility bear interest at
the rate of prime (as set by LaSalle from time to time) plus 1.0%. The financial
covenants under the Alliance facility include minimum tangible net worth, a
senior interest coverage ratio and a minimum net book value of laundry
equipment. As of May 17, 2000, we have made all monthly interest payments due on
the Alliance facility on a timely basis.

We used the $3.0 million of proceeds from the Alliance facility to pay down
the LaSalle line to approximately $7.1 million and to finance amounts we owed to
Alliance. Additionally, we drew approximately $350,000 to cover accrued interest
on the Heller line and costs associated with the closing of the LaSalle and
Alliance facilities. The principal balance on the LaSalle facility on March 19,
2000 was approximately $7.5 million. We currently have $4.5 million of borrowing
availability under the LaSalle facility. LaSalle has reserved the right to
reduce our total availability under the facility by not more than $1.0 million
if we did not obtain appropriate consents from the landlords of all of our
stores on or before December 26, 1999. Obtaining these consents was a closing
condition which LaSalle waived at closing. As of December 26, 1999 we had
obtained approximately 95% of the required consents. LaSalle has not notified us
that our ability has been limited by $1.0 million. During the fourth quarter of
1999, we were required to write off deferred financing charges which had been
capitalized in connection with the Heller facility.

The LaSalle and Alliance facilities specify customary events of default
including non-payment of principal, interest or fees, violation of covenants,
inaccuracy of representations and warranties, cross defaults to other
agreements, bankruptcy and insolvency events and material judgments and
liabilities. We have obtained waivers of our default on one of our financial
covenants from both LaSalle and Alliance for the quarters ended December 26,
1999 and March 19, 2000. We are discussing revisions to the terms of the
financial covenants with our lenders.

We believe that our cash flow from operations and availability under our
credit facility will provide us with sufficient capital resources through fiscal
2000. Significant variances in budgeted store revenue or Store EBITDA or
unforeseen capital requirements could result in insufficient capital resources.

22
<PAGE> 24

Beginning on November 1, 2001, we will be required to make semi-annual cash
payments of approximately $9.24 million on our senior discount notes.
Additionally, on September 30, 2001, we will be required to repay the principal
balance owing on the LaSalle facility. These payments, which are substantially
in excess of any historic net cash flow we have generated, will be in addition
to our selling, general and administrative expense and any other interest or
other expenses we may have at that time. Absent our ability to obtain additional
sources of funding or to significantly modify these required debt service
obligations, it is unlikely that we will be able to make these required cash
payments when due.

On April 29, 1998, we completed an offering of unsecured senior discount
notes, selling $144,990,000 aggregate principal amount at maturity 12.75%
unsecured senior discount notes and warrants to purchase 26,661 shares of our
common stock with an exercise price of $0.01 per share. From that offering, we
received gross proceeds of $100,001,053. The proceeds of that offering, net of
selling expenses, were approximately $96.8 million, and were used to repay
approximately $46.9 million in existing indebtedness, and to provide funds for
investment in new stores and for general corporate purposes.

Pursuant to the terms of the registration rights agreement entered into in
connection with the senior discount notes offering, we were obligated to
commence an exchange offer for the notes and warrants no later than October 27,
1998. Commencement of the exchange offer required that our exchange offer
registration statement be declared effective by the Securities and Exchange
Commission by that date. Failure to do so resulted in the requirement, pursuant
to the registration rights agreement between SpinCycle and the noteholders, to
pay additional interest of 0.50% per annum based upon the accreted value of the
notes as of each relevant interest payment date. Therefore, we were obligated to
pay additional interest in the amount of $7,392 on November 1, 1998, for the
period from October 27, 1998 through October 31, 1998 to the noteholders of
record on October 15, 1998. The payment was sent to the bond trustee on March
18, 1999. Although the payment was not made on November 1, 1998, the
registration rights agreement provides the noteholders with no further remedy
beyond the additional interest payment. A second additional interest payment of
approximately $34,692 for the period from November 1, 1998 until the effective
date of the exchange offer of November 23, 1998 was payable to the noteholders
of record on April 15, 1999. The payment was sent to the bond trustee on April
27, 1999 in connection with the May 1, 1999 interest payment date. Thereafter,
no further payments of additional interest will be required with respect to our
failure to timely commence the exchange offer.

Concurrently with the closing of the senior discount note offering, we
closed a secured, revolving credit facility in an aggregate principal amount of
$40.0 million with Heller Financial, Inc. that would have matured on April 28,
2002. The Heller Facility was collateralized by a first priority security
interest upon all of our then owned and thereafter acquired real and personal
property and all proceeds from that property and all of our general intangibles
and other intangible assets, including, without limitation, trademarks and trade
names and any proceeds from that property. We repaid the $9.3 million
outstanding under the Heller facility, plus a $60,000 fee, in November 1999 with
the proceeds of a new credit facility from LaSalle Bank National Association.

On December 30, 1997, we entered into a sale-leaseback transaction with
SpinDevCo, L.L.C. pursuant to which we sold our fee simple interest in 11
properties to SpinDevCo for approximately $6.4 million. SpinDevCo is a
wholly-owned subsidiary of McMahon-Oliphant, Inc. and is not an affiliate of
SpinCycle. Concurrently, we entered into leases of those sites. We also provided
SpinDevCo with a note for this purchase in the amount of approximately $4.9
million, including principal and accrued but unpaid interest, which was due on
April 30, 1998. The note was secured by mortgages on the 11 properties sold to
SpinDevCo. As of April 30, 1998, the original note was renegotiated to extend
the maturity date through September 30, 1998 to allow SpinDevCo additional time
to either find a substitute source of financing or sell the properties. In
connection with the extension, we received $125,000 in payment of accrued and
unpaid interest due under the original note through May 30, 1998. Prior to
September 30, 1998, SpinDevCo approached us to discuss various repayment
options. On October 15, 1998, we received approximately $4.9 million in cash
from SpinDevCo in repayment of outstanding principal and interest on the
extended note. Simultaneously, we purchased three sites from SpinDevCo for
approximately $1.75 million in cash, the same amount for which we had previously
sold them to SpinDevCo. We are currently operating stores at these three sites.
We had

23
<PAGE> 25

previously expected to sell these three sites to a third party. We were not,
however, able to close that sale on terms which we believed were in SpinCycle's
best interests.

To date, we have not generated positive cash flow from operations and have
historically funded our operations through sales of securities and borrowings
under our credit facilities. As of the close of the thirteenth period of 1998 we
have been generating positive EBITDA on a per period basis. As of November 1,
2001, we will be required to satisfy substantially higher periodic cash debt
service obligations because, as of that date, cash interest on the senior
discount notes will be payable semi-annually at the rate of 12 3/4% per annum.
This interest will be approximately $18.5 million per year.

The proceeds from the private placement were sufficient to complete the
1998 expansion plan to finish 1998 with 163 stores. We believe we will have
sufficient positive cash flow provided by operating activities and the Heller
facility to meet our capital requirements to develop the nine additional
committed stores in 1999 and fund general corporate purposes. We intend to
continue to pursue our growth through the addition of new acquired stores and
developed stores, but will not commit to this growth without the immediate
availability of funds required for such development or acquisitions under
existing credit facilities or gross operating profit.

POTENTIAL LOSS OF NET OPERATING LOSSES

As of March 19, 2000, we had net operating losses ("NOLs") of approximately
$49.1 million for U.S. federal income tax purposes. These NOLs, if not utilized
to offset taxable income in future periods, will begin to expire in 2011.
Section 382 of the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder, impose limitations on the ability of corporations to use
NOLs if the corporation experiences a more than 50% change in ownership during
any three-year period. It is probable that we have experienced one or more
ownership changes in 1996, 1997 and 1998 as a result of raising various rounds
of private equity or that such an ownership change may have occurred or be
deemed to have occurred due to events beyond our control (such as transfers of
common stock by certain stockholders or the exercise or treatment of our issued
and outstanding warrants, conversion rights or stock options). Further, there
can be no assurance that we will not take additional actions, such as the
issuance of additional stock, that would cause an ownership change to occur. In
addition, the NOLs are subject to examination by the Internal Revenue Service,
and are thus subject to adjustment or disallowance resulting from any such IRS
examination.

SEASONALITY

Coin-operated laundromat industry data, as well as data generated from our
mature and maturing stores, indicates that the coin operated laundry business
experiences seasonal variations in operating performance during the later spring
and summer seasons. We believe this seasonality is a result of the reduced
volume of heavier clothing worn during the spring and summer months, which
results in lower laundry machine usage. We observed the effect of such
seasonality in the 90 stores opened for the entire 1999 fiscal year. During the
13 periods ended December 26, 1999, revenues in these stores fluctuated
approximately 8.8%, from a peak during the third period to a low in the eighth
period. These 90 stores experienced a significant increase in revenues in the
final quarter of the year, completing the seasonal cycle.

24
<PAGE> 26

BUSINESS

THE COMPANY

SpinCycle was founded in October 1995 to develop and implement our unique
concept of a national chain of branded coin-operated laundromats and to serve as
a platform for a nationwide consolidation in the coin-operated laundromat
industry. Our goal is to become the leading operator of high quality
coin-operated laundromats in the United States by establishing SpinCycle as a
national brand, providing a superior level of customer service and by exercising
disciplined management control in our expansion and business plan. In sharp
contrast to many existing laundromats, a SpinCycle laundromat is an inviting,
spacious and well-equipped facility that is conveniently located, clean and
well-lighted and always attended. As of March 19, 2000, we had opened a total of
172 stores in 25 markets, 109 of which we developed and 63 of which we acquired.
SpinCycle stores are located in densely populated urban markets, including
Chicago, Los Angeles, Miami, Houston, Cleveland, Dallas, Washington and
Philadelphia. Of those 172 stores, we lease 166 and own six of these sites.
Since opening our first store in April 1996, we have acquired and developed
stores at a rapid pace. By year-end 1996 we had opened 14 stores, in 1997 we
added 57 stores, in 1998 we added 93 stores (in 1998 we closed one store
following a lease buyout by a landlord) and in 1999 we had a net increase of
nine stores (in 1999 we opened 12 stores and closed three stores that were
purchased in previous years as part of multi-location acquisitions). Our stores
are located primarily in densely populated urban markets. We expect our growth
during 2000 to be significantly less than our growth in previous years, as
future growth will be contingent upon raising additional growth capital.

We believe our equipment configuration and store design is unique and
maximizes customer convenience and in-store experience. As evidence of our
superior concept, we believe, based upon survey data we compiled, that over 90%
of the customers who first visit our stores will return as customers. SpinCycle
stores are between 3,500 and 5,500 square feet, significantly larger than the
1,500 to 2,500 square feet of a typical laundromat, and generally contain 50
washers of varied capacities and 54 large capacity dryers. Each store is staffed
during operating hours by at least one customer service representative who
assists customers, maintains the facility, closes retail sales of laundry
products and performs "wash and fold" and dry cleaner depot services, if
offered. Customers can sort and fold laundry while watching color television
with cable programming at 12 to 14 folding stations and purchase food, beverages
and laundry supplies from vending machines. Our acquired stores typically
conform to a SpinCycle developed store in terms of location (physical location
and area demographics), store size and machine mix and converted to a SpinCycle
store with new signage, fresh paint and installation of our computer and point
of sale systems.

For the three periods ended March 19, 2000, on average, our 50 developed
mature stores which had been mature for all of 1999 generated approximately
$28,055 of per period revenue, approximately $9,979 of per period Store EBITDA
and approximately $3,116 of per period gross operating profit after depreciation
of approximately $6,863. Our 40 acquired mature stores which had been mature for
all of 1999, generated approximately $25,286 of per period revenue, $8,133 of
per period Store EBITDA and approximately $3,823 of per period gross operating
profit after depreciation of approximately $4,310 for the same three periods.
There can be no assurance that these results are indicative of future results.

INDUSTRY OVERVIEW

The retail coin-operated laundromat industry is over 50 years old and has
been characterized by steady, non-cyclical demand and a relatively minimal
degree of technological innovation. According to the 1997 coin laundry industry
survey there are approximately 25,000 laundromats nationwide, 89% of which are
owned by owners of one or two stores, and only 4% of which are owned by owners
of more than five stores. Based on that survey, we estimate that retail
coin-operated laundromats comprise a $2.0-$3.0 billion industry. Nationwide,
over 84% of the coin-operated laundromats are less than 4,000 square feet, with
the average laundromat size being approximately 2,480 square feet.

According to the 1997 coin laundry industry survey, the average annual
revenue generated by a laundromat in the United States is approximately
$151,000, the median laundromat generates approximately $93,700 in annual
revenue, and only 6% of laundromats generate greater than $300,000 in annual
revenues.

25
<PAGE> 27

The average store has 33 washers and 19 dryers and the typical washer equipment
mix includes over 58% top load machines. We believe that top load machines have
a significantly shorter life and are less profitable to operate than front load
machines.

We believe the lack of any substantial owner-operators of coin-operated
laundromats has created an industry characterized by stores lacking in
consistency, security, cleanliness and service capability. Additionally, typical
operators rarely reinvest in their stores after making their initial investment,
resulting in a deteriorating stock of retail coin-operated laundromats.

MARKET OPPORTUNITY

We believe the coin-operated laundromat industry, unlike other retail
concepts, is virtually unaffected by consumer fads and technological change, as
laundry represents a basic consumer necessity. We also believe the industry is
characterized by fragmented store ownership, small, unattractive stores and
limited customer service. Our research indicates that typical laundromats
generally contain poorly maintained, aging equipment and are often dirty and
considered unsafe by their customers. We therefore believe that the typical
laundromat user is significantly underserved. Further, because we believe our
targeted consumer group is growing in size and market power, we believe that the
coin-operated laundromat industry presents favorable growth opportunities.

We believe that by combining superior store design and site selection,
disciplined professional management and financial resources, SpinCycle will be
able to successfully consolidate a highly fragmented industry while delivering a
superior product to consumers. We design our stores to provide an inviting
atmosphere focused on customer convenience and satisfaction. Unlike many of our
competitors, we also staff our locations during operating hours and install
security devices to promote safety. We believe that our innovative format can
transform the retail laundromat industry and become the standard by which
laundromats are judged.

BUSINESS STRATEGY

Continue to Improve Store Operations. We believe that a key component of
our success is to continue upgrading the quality of the customer experience in
our stores. There is a uniformed attendant available to customers at all times
in each of our stores. Our training department instructs employees to be
receptive to and respectful of our customers. Training also focuses on the areas
we view as most important to our customer's experience, including keeping the
store clean, assisting customers with questions and resolving problems. We
evaluate the performance of our customer service managers regularly and replace
under-performers promptly.

In addition to well trained customer service managers, we focus on laundry
machine maintenance in each of our stores. Our current standard is to maintain
over 95%, on average, of our washers and dryers in working order on any given
day throughout the SpinCycle system. In addition we are focused on maintaining
other aspects of our store facilities. Problems with air conditioning systems,
leaky roofs and other facility problems are generally resolved very quickly.

Generate Increased Ancillary Revenues in Our Stores. Our costs are
relatively fixed. We believe that every incremental dollar of revenue generated
after a store reaches a break even point results in significant incremental cash
flow at the store level. Therefore, generating incremental revenues is very
important for our success. In 1998 we launched a wash and fold program where our
customer service personnel wash, dry and fold laundry brought to them by our
customers. We charge an average of approximately $0.75 per pound for this
service. Revenues generated from this business have increased significantly over
the past year and are expected to continue to increase. As of the date of this
prospectus, 138 of our stores offer this service.

In addition to wash and fold, we introduced the retail sale of full size
laundry soap, bleach and fabric softener to our stores in 1998. Previously these
products were only available in single use sizes from our vending machines. As
of the date of this prospectus, 122 of our stores offer these products. Revenues
from our retail sales have increased significantly over the past year and are
expected to continue to increase.

26
<PAGE> 28

In late 1998 we also launched our Total Laundry Care program whereby we
partner with dry cleaners throughout the United States to offer wash and fold
services to their dry cleaning customers. Customers drop off their laundry with
their local dry cleaner. The laundry is then transported to a nearby SpinCycle
store where our employees perform our branded wash and fold service and then the
laundry is returned to the dry cleaner for return to the customer. This service
is being tested in our Houston and Miami markets. Although we do not presently
expect to offer this service in additional markets, we may try additional
extensions of the TLC business. For example, we may offer the TLC program in
grocery stores or other venues where people stop regularly and where they might
find it convenient to drop off and pick up laundry.

Maintain and Build Upon Existing Market Position. Our strategy is to
maintain and build upon our position in the national retail coin-operated
laundromat industry. By consolidating our position in existing markets we have
developed the highest average per store revenues of any national or regional
chain. We have selected markets which we believe have populations sufficiently
large and dense to support a large number of SpinCycle stores which can generate
model mature store revenues. We have used two primary methods to roll out our
concept:

- developing retail locations; and

- acquiring and converting existing laundromats to our format.

As of March 19, 2000 we had signed leases for three additional stores. We
do not expect to begin construction on these stores until we are able to raise
additional capital. The pre-construction permitting process varies from market
to market but takes, on average, from 30 to 60 days to complete. Once
construction begins, it takes us approximately 12 weeks to open the store.

Maintain Focus on Target Markets. Our market strategy is to develop a
"critical mass" of stores in our targeted markets by opening stores in
SpinCycle-defined trade areas that contain at least 15,000 households of over
two occupants with median household incomes between $25,000 and $35,000 and in
which at least 50% of such households rent their homes or apartments. Our
primary customer is a working mother or female head of household living in an
apartment complex or other multi-unit housing that lacks adequate on-site
laundry facilities. We believe this demographic is substantially underserved and
possesses growing market power, and thus affords an attractive long-term
opportunity for our core services as well as an opportunity to strategically
expand into additional service and product offerings. From time to time, we may
pursue strategic alliances to leverage our knowledge base and brand strength in
our target markets.

Leverage unused store capacity and corporate overhead. During 1999 we
began test marketing a pick-up and delivery service for home laundry in Miami.
Customers of the service have their everyday laundry picked-up, professionally
laundered and returned to them at their home or office. In addition to everyday
laundry, the subscribers to this service can have their dry cleaning picked-up,
processed by a third-party dry cleaning partner, and returned to them. In order
to initiate the service, customers can visit a web site (www.cleanwave.com) or
call a toll free number.

On May 1, 2000, we entered into an agreement with Shell Chemical Company,
one of the world's largest suppliers of surfactants used in customer laundry.
Shell acquired 30% of CleanWave, LLC, a subsidiary of our wholly-owned
subsidiary, CleanWave, Inc. CleanWave laundry is processed at SpinCycle
facilities, during the hours the stores are closed to retail customers, thus
allowing us to leverage our fixed assets. We will be compensated for laundry
processing pursuant to a laundry services agreement we entered into with
CleanWave, LLC pursuant to which we will be paid an amount per pound of laundry
processed, a management fee and a facility fee. We also entered into an
administrative services agreement pursuant to which we will be paid a fee for
providing administrative services such as accounting, human resources, payroll
and information technology support.

We expect CleanWave to expand this service further within our Miami market
and to later be expanded to other SpinCycle markets as demand dictates and
resources permit.

Leverage National Brand. SpinCycle plans to continue to leverage our
national brand for laundry service by establishing partnerships with dry
cleaners and other institutions, which we refer to as our dry

27
<PAGE> 29

cleaner depot service. In the fourth quarter of 1998, we launched our Total
Laundry Care or TLC program whereby dry cleaners agree to serve as drop off
locations for our branded laundry service.

Continue Superior Site Selection. Based upon our knowledge and experience
in site selection for other multi-unit retail concepts, as well as our
experience in opening the first 172 SpinCycle stores, we believe that operating
from superior real estate is an essential element in our ability to generate
revenue in excess of industry averages and gain and maintain market share. We
identify both development sites and acquisition targets using a systematic
market analysis and a "Main and Main" strategy, whereby we seek to locate stores
near intersections of major thoroughfares in high profile neighborhood shopping
centers or freestanding buildings in order to maximize customer traffic and
brand exposure. Our real estate/acquisitions department will continue to employ
disciplined criteria in order to ensure that we secure the best available
locations in each of our markets.

COMPETITIVE STRENGTHS

We believe SpinCycle is the leading owner-operator of nationally branded
coin-operated laundromats. We believe SpinCycle has the following competitive
strengths:

Superior Facility and Customer Service. SpinCycle stores have high
visibility to traffic, bright, colorful exteriors and signage and are finished
with large windows to optimize visibility into the store while providing a
bright and secure interior. SpinCycle stores are designed with a unique
equipment mix to optimize customer convenience and satisfaction and to maximize
profitability. Our stores are always staffed with at least one customer service
representative trained to follow our SpinCycle-prescribed operations program,
which emphasizes cleanliness, customer responsiveness and equipment maintenance.
SpinCycle stores are air conditioned and have multiple color televisions with
cable programming and numerous folding stations, as well as children's play
areas, bathrooms, pay telephones, snack and beverage and laundry supply vending
machines. Based upon survey data we compiled we believe that over 90% of the
customers who first visit our stores will return as customers. We believe that
this statistic is the direct result of our superior facilities and customer
service. This data also indicates that more than 20% of our customers have
laundry equipment in their homes, which we believe indicates that the SpinCycle
concept has increased the number of potential customers rather than merely
capturing market share from existing laundromats.

Industry Leader. We believe SpinCycle is the first owner-operator to
launch a disciplined national consolidation in the retail coin-operated
laundromat industry and we have gained valuable experience in opening our first
172 stores. By being the first nationally branded operator of superior
laundromat facilities, and by effectively promoting and clustering stores in
prime locations in our targeted markets, we expect to achieve market leading
positions in each of our markets. We expect the ongoing support of our leading
national brand to drive significant additional revenue and store profit as
SpinCycle increasingly becomes the laundromat of choice for consumers. Landlords
and other retail tenants have begun to actively encourage SpinCycle to become a
tenant because of direct and observed experiences that SpinCycle stores can
increase customer traffic as our customers typically spend two hours in and
around the store while doing their laundry. In addition, as we became more
widely known, we began to receive unsolicited offers from laundromat owners who
wish to sell their stores and to realize purchasing economies on equipment and
supplies.

Advanced Systems and Controls. SpinCycle brings superior management
information systems and cash controls to a highly fragmented, unprofessionally
managed industry. Our advanced systems allow us to monitor daily revenue and
machine utilization in each of our stores, exercise centralized cash and
management control and compile and analyze critical marketing and operations
data. For example, we have refined the mix of machines in our stores based on
data gathered from existing stores and we are poised to implement remote
variable pricing to boost off-peak customer traffic, revenues and profitability.
Additionally, Brinks Incorporated and other service companies work in concert
with us to further mitigate the risk inherent in a cash business.

Experienced Management. We have achieved our leadership position and
established a national presence by hiring a management team with experience in
finance, development, operations and multi-unit rollouts on a national scale.
SpinCycle is professionally managed as three integrated business segments: real

28
<PAGE> 30

estate/acquisitions, operations and management information systems. Members of
management have significant expertise in all of these disciplines. Our real
estate/acquisitions department includes professionals with significant site
selection experience at several other multi-unit concepts, some of which were
rapidly rolled out. The operations department includes senior management from
Rent-A-Center, a rent-to-own multi-unit operation whose target customer closely
mirrors SpinCycle's target customer. Our management information systems
department includes several professionals with extensive experience in building
a "hub and spoke" wide area network and in developing computer systems for
operations. We believe this experience affords us a competitive advantage in
rolling out and managing a nationwide chain.

SPINCYCLE CUSTOMERS

We believe that identification and satisfaction of our customers is
paramount to our success. SpinCycle has devoted significant resources to the
identification of our core customer and we have tailored our operations, store
construction and marketing to the needs of these customers. We believe that we
are the first owner-operator of coin-operated laundromats which has devoted such
attention to the identification and satisfaction of our core customer base.
Specifically, we have gathered data on our core customer base through in-store
customer surveys and focus group surveys of potential, existing and previous
SpinCycle customers. We have utilized in-store promotions to encourage
participation in our surveys and have used nationally recognized third-party
consulting firms to assist in our focus group surveys. These studies have been
undertaken in several of our existing markets with the focus on identification
of current and potential customers and the ranking of their needs and
preferences pertaining to coin-operated laundromat usage.

A November 1997 analysis of approximately 21,000 SpinCycle customers
revealed the following characteristics:

- Approximately 70% are female, many of which are the head of their
household;

- Approximately 73% are between 18 and 39 years old;

- Over 70% live in households that have more than two children;

- Approximately 78% rent their dwellings;

- Approximately 62% live in apartment units;

- Approximately 20% own a washer and dryer;

- On average, 61% reside within one mile and approximately 75% reside
within three miles of the SpinCycle store visited;

- Average annual household incomes range between $25,000 and $35,000;

- Visit a SpinCycle store for approximately two hours and approximately
every ten days, and

- Spend an average of approximately $10 per visit.

Our research regarding our existing customers, potential customers and past
customers is undertaken in order to allow us to continue to deliver a superior
facility and superior customer service. We have also used this information to
tailor our store design and the services we provide to accommodate market
specific needs of our customers. It is our attention to customer needs that we
believe results in our ability to retain customers.

29
<PAGE> 31

CURRENT MARKETS AND OPERATIONS

The following map summarizes the current states and markets in which we
operate:

[SPIN CYCLE MAP]

Once a store is opened, we believe that our manner of operations
distinguishes us from our competition. Key components of SpinCycle's operating
strategy include:

- heavy emphasis on customer satisfaction and superior facility
maintenance;

- facility security; and

- loss prevention through management controls.

We consider customer satisfaction paramount in our efforts to build a successful
chain of branded coin-operated laundromats. To ensure customer satisfaction, we
expend significant resources training store employees to provide consistent and
reliable store appearance, extraordinary customer service and facility
maintenance.

Customer Satisfaction and Facility Maintenance. We have established high
quality standards in an industry characterized by its lack of attention to
customer service and satisfaction. We believe our equipment configuration and
store design is unique and ensures customer satisfaction by providing a pleasant
in-store experience and minimizing the time necessary to complete full laundry
cycles. Stores generally are open from 7:00 a.m. to 11:00 p.m. daily, with some
stores open 24 hours per day.

Facility cleanliness and customer service are hallmarks of our operations.
Store employees regularly clean all elements of our facilities. Employees are
trained according to our prescribed program to execute precisely a scheduled and
highly structured daily cleaning program of the machines and the entire physical
plant and to provide superior levels of customer service by assisting customers
with all matters of machine usage and laundry care, thus further enhancing our
customers' satisfaction.

We also strive to keep all of our equipment in good working order. Our
success in machine maintenance results from our insistence upon purchasing high
quality commercial washers and dryers and training in-store staff to execute
routine maintenance programs. Approximately 80% of the washers in a SpinCycle
store are front load washers, which we believe are more durable and more
efficient to operate than top loaders. Store employees are also trained to
troubleshoot machine problems before referring matters to service technicians.

30
<PAGE> 32

Facility Security. SpinCycle places significant emphasis on providing a
store that is safe and secure both for customers and employees. A substantial
component of SpinCycle's target customers are women in urban neighborhoods who
have indicated that safety is a paramount concern. To provide a secure facility
and thereby promote employee and customer safety, we typically use the following
precautionary measures: video surveillance and monitoring systems, armored car
services to collect cash, panic buttons which can be used to alert our local
security companies in every store, safety training and well-lighted interiors
and exteriors. In addition, SpinCycle's store attendants monitor the safety and
security of the store.

Management Controls. Our management information systems allow us to
monitor daily revenue and machine utilization in each of our stores, exercise
cash and management controls and compile and analyze critical marketing and
operations data. This tracking also enables the real estate and operations
departments to evaluate overall market strategy and make necessary adjustments
in the site criteria used to make future real estate decisions.

Cash management involves a process of coin collection by employees four
times per week, strict key controls and auditing against various cash control
ratios. Collected cash is then deposited in a safe within the store. The cash is
then collected by Brinks Incorporated or another armored car service. Our cash
handling procedures are designed to minimize the risk to employees as well as
the potential for theft. Previously we relied on computerized polling devices to
aid us in detecting theft. This system is very expensive to install and
maintain. We do not intend to rely on this system in the future. The
implementation of these cash handling procedures has allowed us to maintain
annual shrinkage of less than 0.50%. In addition to providing an effective
auditing mechanism, the system also assists management in making staffing,
operating and security decisions, as well as determining optimal machine mix and
configuration.

MARKETING

We believe that a significant amount of our per store customer base is
generated through brand identification and word of mouth, but SpinCycle also
actively markets to increase a store's market penetration. SpinCycle's store
marketing strategy typically includes a grand opening program, in-store signage
and ongoing promotions. A store's grand opening program generally commences four
weeks prior to opening a store and includes banners, facility tours with
community leaders and promotional partnerships with local businesses and civic
organizations, including the United Negro College Fund, the Boys and Girls Club
and community churches. A direct mail promotional incentive is generally sent to
potential customers to raise awareness and interest in the SpinCycle concept.
After a store has been operating for several months, we may run additional
promotions such as a "Half Off Wash" or "Free Dry" to generate additional
customer visits. We have found that such promotions drive significant additional
customer traffic and result in a permanent increase in our customer base, thus
increasing revenue following such promotions. We use in-store signage to teach
our customers about the advantages of SpinCycle's unique facility and machine
mix, for example, using a double load front load washer versus a single load top
loader. We also actively promote off-peak usage by offering mid-week specials
such as reduced wash or dry prices. Other marketing initiatives have included
focus groups, billboard advertising and community outreach programs.

COMPETITION

Although there is no single chain of laundromats with which we compete on a
national basis, we experience significant competition in all of our markets from
local "mom and pop" operators and, in some markets, from regional chains. For
example, in Texas, we compete against KwikWash, which is a chain of over 150
stores owned by Coinmach Corporation, a publicly traded company. While Coinmach
Corporation has substantially greater resources than we do, KwikWash stores are
on average smaller and, we believe, deliver significantly inferior service than
we deliver. We also compete against other laundry services available to
potential customers, including laundry facilities available in their homes or
apartment buildings (including those serviced by route service operators) and
independently owned neighborhood coin-operated laundromats. Laundry facilities
at apartment buildings are often maintained by route operators whose resources
are also often substantially greater than ours.

31
<PAGE> 33

We believe that the principal competitive factors in the retail coin
laundry industry are convenient location, adequate parking, varied equipment
mix, functioning machines, attended facilities and customer satisfaction. We
believe we are superior to our competitors in each regard.

EMPLOYEES

As of March 19, 2000, we had 1,006 total employees of whom 510 are full
time and 496 are part-time. Each of our full-time employees is eligible for
medical benefits, which we believe helps us hire and retain the best available
employees. Our part-time employees work primarily in our stores and are engaged
primarily in customer service functions.

FACILITIES

We lease an approximately 15,500 square foot corporate office in
Scottsdale, Arizona pursuant to a five year lease, expiring July 2002. Of this
approximately 15,500 square feet we are presently subleasing approximately 4,000
square feet to an unrelated third party.

32
<PAGE> 34

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the age and position of the executive
officers and directors of SpinCycle:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter L. Ax.................... 41 Chief Executive Officer and Chairman of the Board
Christopher A. Lombardi........ 39 Chief Development Officer
Matthew B. Campbell............ 44 Chief Operating Officer
Alfredo Brener................. 48 Director
Dean Buntrock.................. 68 Director
James E. Hutton................ 62 Director
John H. Muehlstein............. 45 Director
Peer Pedersen.................. 75 Director
John Wallace................... 39 Director
</TABLE>

Peter L. Ax has been the Chief Executive Officer since January 1998 and the
Chairman of the Board since March 1998. From December 1996 to January 1998 Mr.
Ax was Chief Financial Officer and was Vice Chairman of the Board from December
1996 until March 1998. From March 1995 to December 1996, Mr. Ax served as Head
of the Private Equity Division and Senior Vice President of Lehman Brothers.
From March 1994 to March 1995, Mr. Ax was responsible for the private placement
of fixed income securities on the fixed income syndicate desk at Lehman
Brothers. From September 1991 to March 1994, Mr. Ax served in the Investment
Banking Division of PaineWebber, Inc. Since March 1999 Mr. Ax has served as the
Chairman of Takes.com, Inc. Mr. Ax has an M.B.A. from The Wharton School at the
University of Pennsylvania, a J.D. from the University of Arizona and a B.S.
from the University of Arizona and is a C.P.A.

Christopher A. Lombardi has been the Chief Development Officer since March
1996. From May 1994 to March 1996, Mr. Lombardi served as Vice President of
Development of Northstar Restaurants, Inc., a franchise area developer for
Boston Chicken, Inc., where he coordinated and directed the real estate
selection and construction in developing 54 stores in 22 months. From May 1990
to May 1994, Mr. Lombardi served as Franchise Operations Manager for Blockbuster
Video, Inc. During his four years at Blockbuster, Mr. Lombardi's territory grew
from 29 to 79 stores in the midwestern United States and western Canada. Mr.
Lombardi has a B.A. from the University of Chicago.

Matthew B. Campbell has been the Chief Operating Officer since February
1999. From July 1998 to February 1999 Mr. Campbell was Vice President,
Operations and from November 1997 to July 1998 he was Chief Learning Officer.
From September 1990 through November 1997 Mr. Campbell was employed by Thorn
Americas where he served as the Senior Director of Training, Management and
Development. Prior to joining Thorn Americas, Mr. Campbell served as a professor
of Political Science at Troy State University. Mr. Campbell has a B.A. from
Southwest Texas State University, an M.A. from the University of Toledo and a
Ph.D. (ABD) from the University of Virginia.

Alfredo Brener has been a Director since June 1996. Since 1987 Mr. Brener
has been President and Chief Executive Officer of Breco Holdings, Inc., a
Houston-based diversified holding company. Mr. Brener is the former Chairman of
the Board of Boys Market, Inc., a Los Angeles-based supermarket chain; Grupo
Mexicano de Video, S.A. de C.V., the Blockbuster Mexico franchisee; Discovery
Zone de Mexico, S.A. de C.V., the Discovery Zone Mexico franchisee; and a
director of Fiesta Mart Supermarket, a Houston-based supermarket chain. Mr.
Brener is also a director of E-Stamp Corp. and chairman of the board of Super
Stand Entertainment Co.

Dean Buntrock has been a Director since January 1998. Mr. Buntrock was the
founder and Chairman of the Board of Waste Management, Inc. from 1968 to July
1997 and was its Chief Executive Officer from 1968 until June 1996 and from
February 1997 until August 1997. Mr. Buntrock was Chairman of the Board of

33
<PAGE> 35

Wheelabrator Technologies, Inc. from March 1997 until December 1997. Mr.
Buntrock was also a director of Boston Chicken, Inc., WM International, First
National Bank of Chicago and Stone Container Corp.

James E. Hutton has been a Director since April 1996. Since June 1993, Mr.
Hutton has been Vice President of Operations for Burrel Professional Labs, Inc.
Mr. Hutton serves on the boards of Indiana Federal Savings Bank; North Coast
Distributing Company, a Miller Beer distributor; and T. P. Orthodontics, a
manufacturer of orthodontic prosthesis devices. From 1973 to 1993, Mr. Hutton
was a tax partner with Geo. S. Olive & Co., a public accounting firm.
Previously, Mr. Hutton was with the accounting firm of Dogan, Roby & Company.
Mr. Hutton is a C.P.A.

John H. Muehlstein has been a Director since April 1997. Since 1986, Mr.
Muehlstein has been a partner of Pedersen & Houpt, P.C., Chicago, Illinois,
counsel to the Company. Mr. Muehlstein's practice focuses on private capital
transactions and corporate finance. Mr. Muehlstein is a director of Blue Rhino
Corporation and several other closely held companies, including CleanWave, LLC,
our indirect majority-owned subsidiary. Mr. Muehlstein is a nephew of Mr.
Pedersen, another director of SpinCycle.

Peer Pedersen has been a Director since November 1997. Mr. Pedersen has
been a partner of the law firm Pedersen & Houpt, P.C. for the past 40 years and
is its Chairman and Managing Partner. Mr. Pedersen is also a director of Tennis
Corporation of America, Extended Stay America, Inc. and Spraying Systems Co. Mr.
Pedersen is an uncle of Mr. Muehlstein, another director of SpinCycle.

John Wallace has been a Director since June 1996. From June 1996 to
September 1997, Mr. Wallace was a Regional Vice President, Real Estate for
SpinCycle. From March 1994 to March 1996, Mr. Wallace served as a Director in
the Corporate Finance/Merchant Banking Department at First Southwest Company. In
1986, Mr. Wallace founded and, from 1986 to 1989, he served as the President of
Houston Video Enterprises, which had the rights to Blockbuster Video franchises
for the Houston area. During this period Mr. Wallace assisted with the opening
of 12 company-owned video superstores and 40 additional franchise stores. In
1990, Mr. Wallace and several equity partners formed Grupo Mexicano de Video,
S.A. de C.V. which held the franchise rights to Blockbuster Video in Mexico. Mr.
Wallace served as the General Director from 1990 through 1993, during which time
Grupo Mexicano de Video opened in excess of 80 stores throughout Mexico.

DIRECTOR COMPENSATION

Currently, our directors receive no cash compensation for serving on our
board of directors. They do, however, receive reimbursement for expenses
reasonably incurred in connection with their service to us as directors. There
is also a non-employee director stock option plan pursuant to which as of July 1
of each year each non-employee director is entitled to a grant of an option to
purchase 20 shares of common stock which vest over three years on each
anniversary of the grant date. The initial grants under the plan vested
immediately. Options to purchase 80 shares per the initial grants to directors
and 240 shares per the 1998 and 1999 grants are outstanding. Of the 320 stock
options granted, 122 options are vested as of March 19, 2000. The remaining 198
options vest in the following manner: 79 on July 1, 2000, 79 on July 1, 2001 and
40 on July 1, 2002. There are a total of 2,000 shares reserved for grant under
the plan.

COMMITTEES OF THE BOARD OF DIRECTORS

Our board of directors has an audit committee, a compensation and
organization committee and a finance committee. The audit committee is composed
of Messrs. Hutton and Brener. The audit committee is responsible for reviewing
the scope of the independent auditors' examinations of our financial statements
and receiving and reviewing their reports. The audit committee also meets with
the independent auditors, receives recommendations or suggestions for changes in
accounting procedures and initiates or supervises any special investigations it
may choose to undertake. The compensation committee is composed of Messrs.
Buntrock, Muehlstein and Pedersen. Messrs. Muehlstein and Pedersen are members
of the law firm of Pedersen & Houpt, P.C. which serves as counsel to SpinCycle.
See "Certain Transactions." The compensation committee determines our policies
with respect to the nature and amount of all compensation of our executive
officers and

34
<PAGE> 36

administers our employee option plans. The finance committee is composed of
Messrs. Buntrock, Pedersen and Wallace. The finance committee is responsible for
overseeing our borrowing and capital raising activities.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table includes the compensation
paid by us during the year ended December 26, 1999 to our named executive
officers: our Chief Executive Officer and our two other executive officers with
annual compensation of $100,000 or more. We did not grant stock appreciation
rights or stock options to any named executive officer during the year ended
December 26, 1999.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ------------------------------
------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL STOCK ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) (#)(3) ($)
--------------------------- ------ ------ ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter L. Ax.................. 1999 250,000 100,000 --(3) -- --
Chief Executive Officer and 1998 252,007 -- --(3) 3,000 --
Chairman 1997 150,000 450,000(4) --(3) 8,038(5)(6) --
Christopher A. Lombardi...... 1999 150,000 25,000 --(3) -- --
Chief Development Officer 1998 147,884 -- --(3) 2,000 --
1997 110,640 25,000 32,300 38(6) --
Matthew B. Campbell.......... 1999 150,000 50,000 -- -- --
Chief Operating Officer 1998 128,076 -- --(3) 1,400 --
1997 13,846 21,000 --(3) 600 --
</TABLE>

---------------

(1) Bonuses, unless otherwise noted, are recorded in the year earned. Bonuses
for 1999 were paid in January 2000.

(2) The amounts presented for each of the named executive officers are
comprised primarily of relocation compensation related to SpinCycle's move
to Arizona and automobile allowances.

(3) Received perquisites and other personal benefits in addition to salary,
cash bonuses and other annual compensation. The amounts of these
perquisites and other personal benefits are not shown because the aggregate
amount of the compensation, if any, did not exceed the lesser of $50,000 or
10% of total salary and bonus reported for the executive officer.

(4) In April 1997, we paid Mr. Ax $400,000 for services rendered prior to
joining SpinCycle in connection with the private offer and sale of our
series B convertible preferred stock. Mr. Ax was engaged by us in lieu of
engaging an investment bank as the placement agent. Mr. Ax was also paid a
bonus of $50,000 in 1997.

(5) Each of Messrs. Ax and Lombardi were granted fully vested options to
purchase 38 shares of common stock in connection with their agreements to
relocate to Arizona.

(6) As a founder of SpinCycle, Mr. Ax was granted an option to purchase 8,000
shares of common stock at $125.00 per share. These options vest over time
upon attaining certain performance goals, provided, however, that if these
goals are not attained by January 30, 2002, the options will be fully
vested.

35
<PAGE> 37

OPTION GRANTS

We did not grant any stock options to any of the three named executive
officers in 1999.

OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES

The following table includes certain information with respect to the value
of the stock options held by the named executive officers at December 26, 1999.
No named executive officer exercised any stock options or stock appreciation
rights during the year ended December 26, 1999 or had any stock appreciation
rights outstanding at December 26, 1999.

FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 26, AT DECEMBER 26,
1999(#)(1) 1999($)(2)
--------------------- --------------------
VESTED UNVESTED VESTED UNVESTED
------ -------- ------ --------
<S> <C> <C> <C> <C>
Peter L. Ax.............................. 638(3) 10,400(4) -- --
Christopher A. Lombardi.................. 1,638(3) 2,400 -- --
Matthew B. Campbell...................... 520 1,480 -- --
</TABLE>

---------------
(1) All of the options granted to the named executive officers were granted
under our 1995 employee option plan. The options granted were for shares of
our common stock. Unless otherwise noted, the options granted to the named
executive officers vest 20% on each anniversary of the grant.

(2) Options to purchase 8,000 shares of common stock were granted to Mr. Ax and
options to purchase 2,000 shares of common stock were granted to Mr.
Lombardi. These options have an exercise price of $125.00 per share. The
balance of the options granted to the named executive officers are
exercisable at a price of $200.00 per share.

(3) Each of Messrs. Ax and Lombardi were granted fully vested options to
purchase 38 shares of common stock in connection with their respective
agreements to relocate to Arizona.

(4) 8,000 of Mr. Ax's options vest upon attainment of certain performance goals,
provided, however that if these goals are not attained by December 15, 2001,
the options will be fully vested.

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with each of Messrs. Ax and
Lombardi. Mr. Ax's agreement, effective as of December 1, 1996 has a term of
four years with automatic one year extensions after the initial term, subject to
the provision of at least six months written notice by either party. The
agreement includes a one year post-termination non-competition clause. If Mr. Ax
is terminated by us for any other reason except for "cause" as defined in the
agreement, Mr. Ax is entitled to salary and benefits for the remainder of the
term of the agreement, including any bonuses accrued but unpaid as of the date
of termination. In the event of a merger, consolidation or sale of all or
substantially all of our assets, or a reorganization or recapitalization
pursuant to which at least a majority of the equity investment and voting
control is the same as ours, we may assign our obligations under the agreement
to the surviving or purchasing entity. The terms of the employment agreement
with Mr. Lombardi are substantially the same as with Mr. Ax except that upon
termination other than for "cause" Mr. Lombardi is entitled to salary and
benefits for only one year. The initial term of Mr. Lombardi's agreement ended
on June 1, 2000. Because neither party gave notice, the current term of his
agreement is through June 1, 2001.

36
<PAGE> 38

1995 AMENDED AND RESTATED STOCK OPTION PLAN

We adopted a stock option plan in 1995, which was amended and restated in
1997, to help us attract, retain and motivate selected employees and officers of
SpinCycle. The plan was approved by our stockholders in June 1997. Pursuant to
the plan, options to purchase up to 69,270 shares of our common stock may be
granted to our employees or consultants. The plan is administered by our
compensation committee which determines the persons who are to receive options
and the number of shares subject to each option. As of March 19, 2000, options
covering an aggregate of 51,694 shares of common stock were outstanding, of
which 14,684 were vested and none had been exercised. Of the outstanding and
vested options, 660 are non-plan options.

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

In 1997, we adopted a non-employee director stock option plan to help us
attract and compensate our non-employee directors. The plan was approved by our
stockholders in June 1997. We have reserved 2,000 shares of common stock for
issuance under the plan. Pursuant to the plan, all non-employee directors as of
the effective date of the plan, July 1, 1997, and as of the first board meeting
after the annual stockholders meeting of each year beginning in 1998 are
entitled to a grant of options to purchase 20 shares of common stock at a price
per share equal to the fair market value per share of the common stock as of the
grant date. The initial grants under the plan vested immediately; subsequent
grants vest over three years on each anniversary of the grant dates. As of March
19, 2000, options to purchase 320 shares had been granted under the plan, of
which approximately 122 are vested and the other approximately 198 vest over
three years, one third on each anniversary of the grant date.

PRINCIPAL STOCKHOLDERS

The following table includes information known to us with respect to the
beneficial ownership of the 303,165 shares of our common stock, series A
convertible preferred stock, series B convertible preferred stock and series C
convertible preferred stock outstanding plus the 26,661 shares of our common
stock which are issuable upon exercise of the warrants as of the date of this
prospectus and options vested or vesting within 60 days of the date of this
prospectus, by:

- each stockholder known by us to own beneficially more than 5% of our
common stock;

- each of our directors;

- each of our named executive officers as of the date of this prospectus;
and

- all directors and executive officers as a group.

37
<PAGE> 39

Beneficial ownership is determined under the rules of the Securities and
Exchange Commission. Except as indicated in the footnotes to this table and as
provided by applicable community property laws, the stockholders named in the
table have sole voting and investment power with respect to the shares shown
opposite each stockholder's name. Unless otherwise indicated, the address of our
directors, officers and 5% stockholders is 15590 Greenway/Hayden Loop, Suite
400, Scottsdale, Arizona 85260.

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CAPITAL STOCK
BENEFICIALLY PERCENT OF
NAME OWNED(1) VOTING RIGHTS
---- ---------------- -------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Dean Buntrock(2)....................................... 25,689 8.47%
Peer Pedersen(3)....................................... 25,365 8.37
Peter L. Ax(4)......................................... 9,255 3.01
John Wallace(5)........................................ 3,574 1.17
Christopher A. Lombardi(6)............................. 3,238 1.06
Matthew B. Campbell(7)................................. 520 *
James E. Hutton(8)..................................... 1,087 *
John H. Muehlstein(9).................................. 818 *
Alfredo Brener(10)..................................... 34 *
------- -----
Total for directors and executive officers... 69,580 22.69%
======= =====
OTHER BENEFICIAL OWNERS:
Howard C. Warren(11)................................... 23,681 7.81
------- -----
Total for All Beneficial Owners (10
persons)................................... 93,261 30.41%
======= =====
</TABLE>

---------------
* Less than 1%.

(1) Includes shares of common stock, series A stock, series B stock, series C
stock, vested options to purchase common stock and options to purchase
common stock, which will vest within 60 days of May 17, 2000.

(2) Includes 2,096.5 shares of series C stock and 432 shares of common stock
held by Mr. Buntrock, 386 shares of series A stock and 2,421 shares of
series B stock held by Mr. Buntrock's wife, and 772 shares of series A
stock, 4,842 shares of series B stock, 11,366 shares of series C stock and
1,137 shares of common stock held by The Butterfield Group L.L.C., of which
Mr. Buntrock's wife is the manager, 2,222.5 shares of series C stock held
by Big Sky Limited Partnership, of which Mr. Buntrock is the sole general
partner and vested options to purchase 14 shares of common stock held by
Mr. Buntrock. The business address of Mr. Buntrock is Oakbrook Terrace
Tower, One Tower Lane, Suite 2242, Oakbrook Terrace, Illinois 60181.

(3) Includes 4,352 shares of series A stock, 9,684 shares of series B stock,
9,559 shares of series C stock, 1,756 shares of common stock and vested
options to purchase 14 shares of common stock. The business address of Mr.
Pedersen is 161 North Clark Street, Suite 3100, Chicago, Illinois 60601.

(4) Includes 450 shares of series C stock, 8,167 shares of common stock and
vested options to purchase 638 shares of common stock held by Mr. Ax.

(5) Includes 2,880 shares of series A stock and vested options to purchase 694
shares of common stock held by Mr. Wallace. The business address of Mr.
Wallace is 3624 Piping Rock, Houston, Texas 77027.

(6) Includes 1,200 shares of common stock and vested options to purchase 2,038
shares of common stock held by Mr. Lombardi.

(7) Includes vested options to purchase 520 shares of common stock held by Mr.
Campbell.

38
<PAGE> 40

(8) Includes 800 shares of series A stock, 230 shares of series C stock, 23
shares of common stock and vested options to purchase 34 shares of common
stock held by Mr. Hutton. The business address of Mr. Hutton is 1311
Merrilville Road, Crown Point, Indiana 46307.

(9) Includes 484 shares of series B stock, 273 shares of series C stock and 27
shares of common stock held jointly by Mr. Muehlstein and his wife. Mr.
Muehlstein also has vested options to purchase 34 shares of common stock.
Mr. Muehlstein's business address is 161 North Clark Street, Suite 3100,
Chicago, Illinois 60601.

(10) Includes vested options to purchase 34 shares of Common Stock held by Mr.
Brener. The business address of Mr. Brener is 5298 Memorial Drive, Houston,
Texas 77007.

(11) Includes 4,351 shares of series A stock, 9,684 shares of series B stock,
8,769 shares of series C stock and 877 shares of common stock. Mr. Warren's
business address is c/o Absolute Ventures, 420 Green Bay Road, Suite 103,
Kenilworth, Illinois 60043.

CERTAIN TRANSACTIONS

As part of our settlement of our former chief operating officer's claim
against us, we agreed to seek out a buyer for his 800 shares of our common
stock. Mr. Pedersen, one of our directors and the managing partner of our
outside counsel, purchased those shares in a private transaction on March 12,
1999, for $120,000.

Messrs. Muehlstein and Pedersen are partners and members of the management
committee of the law firm of Pedersen & Houpt, a Professional Corporation, which
has served as our counsel since March 1997. In that connection, the firm has
been paid fees for services rendered. In 1999 we paid Pedersen & Houpt
approximately $840,000 in fees.

DESCRIPTION OF CAPITAL STOCK

As of March 19, 2000, we had 27,763 shares of common stock, 76,974 shares
of series A convertible preferred stock, $.01 par value, 125,498 shares of
series B convertible preferred stock, $.01 par value and 72,930 shares of series
C convertible preferred stock, $.01 par value outstanding, held of record by 173
holders. As of March 19, 2000, no shares of capital stock were held as treasury
shares. In addition, as of March 19, 2000, we had outstanding option grants
exercisable for 51,694 shares of common stock of which 14,684 were vested. The
following summary of all material provisions of our capital stock, but does not
purport to be complete and is subject to, and qualified in its entirety by, our
certificate of incorporation, as amended to date, our by-laws and by the
provisions of applicable law.

COMMON STOCK

We are authorized to issue up to 630,000 shares of common stock, $.01 par
value. Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the board of directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
SpinCycle, the holders of common stock are entitled to receive ratably our net
assets available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock. Holders of
common stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of common stock are, and the shares issuable upon
exercise of the warrants will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of series A stock, series B stock, and series C stock and any series of
preferred stock which we may designate and issue in the future.

The shares of common stock held by some of the current and former members
of management are subject to a stock transfer restriction agreement according to
which we have a right of first refusal to purchase any of these shares which a
holder desires to transfer before the shares may be transferred to any other
person.

39
<PAGE> 41

PREFERRED STOCK

We are authorized to issue up to 100,000 shares of series A stock, 150,000
shares of series B stock and 120,000 shares of series C stock. Holders of
preferred stock are entitled to one vote for each share held on all matters and
do not have cumulative voting rights. Accordingly, holders of a majority of the
shares of preferred stock entitled to vote in any election of directors may
elect a majority of the directors standing for election. Concurrently with the
closing of our private placement of senior discount notes and warrants, the
rights of the holders of all three classes of our preferred stock to require us
to purchase their shares at any time on or after June 1, 2001 if we have not yet
completed a qualified initial public offering following notice to us by the
holders of 51% or more of our preferred stock were terminated.

Series A, B and C Convertible Preferred Stock. We have 76,974 shares of
series A, 125,498 shares of series B and 72,930 shares of series C stock
outstanding. Holders of our outstanding series A and series B stock are entitled
to vote as a class to elect one person to our board of directors. Holders of our
series C stock are entitled to vote as a class to elect one person to our board
of directors. Our preferred stock is convertible into our common stock on a
one-for-one basis and will be converted into common stock concurrently with any
qualified public offering of our common stock. Holders of our preferred stock
have preemptive rights with respect to our issuance of any equity securities in
the future. The outstanding shares of our preferred stock are fully paid and
nonassessable and are equal to each other with respect to liquidation
preference.

REGISTRATION RIGHTS

Our preferred stockholders have both demand and "piggyback" registration
rights. At any time after the expiration of any lock up period in connection
with an initial public offering by SpinCycle, the holders of 51% of the shares
of preferred stock outstanding may demand that we use our best efforts to
register their shares at our expense. Our preferred stockholders may make up to
three such demands upon us. Our preferred stockholders also have "piggyback"
registration rights which allow them to participate in any registration of
shares other than a registration on Form S-8 or similar form, subject to typical
underwriter reductions in shares permitted to be sold.

DELAWARE LAW AND CHARTER PROVISIONS

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation also limits the liability of directors to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:

-- any breach of their duty of loyalty to the corporation or its
stockholders;

-- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

-- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

-- any transaction from which the director derived an improper personal
benefit.

This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in that capacity, regardless of whether the bylaws would
permit indemnification. We believe that these provisions are necessary to
attract and retain qualified persons as directors and executive officers. At
present, we are not aware of any pending or threatened litigation or proceeding
involving a director, officer, employee or agent in which indemnification would
be required or permitted.

40
<PAGE> 42

CHARTER PROVISIONS WHICH COULD INHIBIT A CHANGE IN CONTROL OF SPINCYCLE

Some of the provisions of our certificate of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of SpinCycle. Such provisions include:

-- the right of our series A and B stockholders, voting as a single
class, to elect one member of our board of directors;

-- the right of our series C stockholders to elect one member of our
board of directors; and

-- the necessity of obtaining the consent of 76% of the holders of our
series A stock to any merger, sale of substantially all of our assets
or similar transaction.

Because these provisions could have the effect of discouraging a third
party from acquiring control of SpinCycle, they could deprive our stockholders
of an opportunity to realize a takeover premium. These provisions also may have
the effect of limiting the price that certain investors might be willing to pay
in the future for shares of our capital stock and of preventing changes in our
management of SpinCycle.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our capital stock is Norwest Bank
Minnesota, N.A., Minneapolis, Minnesota.

DESCRIPTION OF THE WARRANTS

The warrants were issued under an agreement between SpinCycle and a third
party. The following is a summary of the primary provisions of the warrant
agreement and is qualified in its entirety by reference to all of the provisions
of the warrant agreement, including the definitions of terms contained in the
agreement.

GENERAL

Each warrant, when exercised, entitles the holder to purchase .1839 shares
of our common stock from us at an exercise price of $.01 per share. The exercise
price and the number of shares of common stock issuable upon exercise of a
warrant are both subject to adjustment in some cases. The warrants currently
entitle warrant holders to acquire, in the aggregate, 26,661 shares of our
common stock representing approximately 6.6% of our common stock outstanding,
calculated on a fully-diluted basis assuming the conversion of all securities
convertible or exchangeable into or exercisable for, with or without the passage
of time, shares of common stock and the exercise of all granted options.

The warrants may be exercised at any time. Unless earlier exercised, the
warrants will expire on May 1, 2005. We will give notice of expiration not less
than 90 nor more than 120 days prior to the expiration date to the registered
holders of the then outstanding warrants. If we fail to give such notice, the
warrants will nevertheless expire and become void on the expiration date.

At our option, fractional shares of common stock may be issued upon
exercise of the warrants. If any fraction of a share of common stock would be
issuable upon the exercise of any warrants, we may pay an amount in cash equal
to the current market value per share of our common stock, as determined on the
day immediately preceding the date the warrant is presented for exercise,
multiplied by this fraction of a share, computed to the nearest whole cent.

Certificates for warrants have been and will be issued in fully registered
form only. No service charge will be made for registration of transfer or
exchange upon surrender of any warrant certificate at the office of Norwest
Bank, Minnesota, N.A., the warrant agent. We may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of warrant
certificates.

In the event a bankruptcy or reorganization is commenced by or against us,
a bankruptcy court may hold that unexercised warrants are executory contracts
which may be subject to rejection by us with approval of the bankruptcy court.
As a result, holders of the warrants may, even if sufficient funds are
available, not be entitled to receive any consideration or may receive an amount
less than they would be entitled to if they had exercised their warrants prior
to the commencement of the bankruptcy or reorganization.

41
<PAGE> 43

TERMS OF THE WARRANTS

Exercise. In order to exercise all or any of the warrants, the holder is
required to surrender to the warrant agent the related warrant certificate and
pay in full the exercise price for each share of common stock or other
securities issuable upon exercise of the tendered warrants. The exercise price
may be paid in cash or by certified or official bank check or by wire transfer
to an account designated by us for this purpose or in a cashless exercise
without the payment of cash, by reducing the number of shares of common stock
that would be obtainable upon the exercise of a warrant and payment of the
exercise price in cash so as to yield a number of shares of common stock upon
the exercise of the warrant equal to the product of (a) the number of shares of
common stock for which the warrant is exercisable as of the date of exercise if
the exercise price were being paid in cash and (b) the cashless exercise ratio.
The "cashless exercise ratio" shall equal a fraction, the numerator of which is
the excess of the current market value per share of our common stock on the date
which the warrant is exercised over the exercise price per share as of the
exercise date and the denominator of which is the current market value per share
of our common stock on the exercise date. Upon surrender of a warrant
certificate representing more than one warrant in connection with the holder's
option to elect a cashless exercise, the number of shares of common stock
deliverable upon a cashless exercise shall be equal to the number of shares of
common stock issuable upon the exercise of warrants that the holder specifies
are to be exercised pursuant to a cashless exercise multiplied by the cashless
exercise ratio. All provisions of the warrant agreement will be applicable with
respect to a surrender of a warrant certificate pursuant to a cashless exercise
for less than the full number of warrants represented thereby.

No Rights As Stockholders. The holders of unexercised warrants are not
entitled, by virtue of being warrant holders, to receive dividends, to vote, to
consent, to exercise any preemptive rights or to receive notice as SpinCycle
stockholders in respect of any stockholders meeting for the election of
directors or any other purpose, or to exercise any other rights whatsoever as
stockholders of SpinCycle.

Mergers, Consolidations, etc. In the event that we consolidate with, merge
with or into, or sell all or substantially all of our assets to, another person,
each warrant thereafter shall entitle the warrant holder to receive upon
exercise, per share of common stock for which the warrant is exercisable, the
number of shares of common stock or other securities or property which the
holder of a share of common stock is entitled to receive upon completion of the
consolidation, merger or sale of assets. However, if we consolidate with, merge
with or into, or sell all or substantially all of our assets to, another person
and, in connection therewith, the consideration payable to the holders of common
stock in exchange for their shares is payable solely in cash or there is a
dissolution, liquidation or winding-up of SpinCycle, then the holders of the
warrants will be entitled to receive distributions on an equal basis with the
holders of our common stock or other securities issuable upon exercise of the
warrants, as if the warrants had been exercised immediately prior to such event,
less the exercise price. Upon receipt of such payment, if any, the warrants will
expire and the rights of the warrant holders will cease. In the case of any such
merger, consolidation or sale of assets, the surviving or acquiring person and,
in the event of any dissolution, liquidation or winding-up of SpinCycle, we must
deposit promptly with the warrant agent the funds, if any, required to pay to
the holders of the warrants. After the funds and the surrendered warrant
certificates are received, the warrant agent is required to deliver a check in
such amount as is appropriate, or, in the case of consideration other than cash,
such other consideration as is appropriate, to such persons as it may be
directed in writing by the holders surrendering such warrants.

ADJUSTMENTS

The number of shares of our common stock issuable upon the exercise of the
warrants and the exercise price are subject to adjustment in some instances:

- payment by us of dividends or other distributions on our common stock,
including stock dividends;

- subdivisions, combinations and some reclassifications of our common
stock;

- issuance to all of our common stockholders of rights, options and
warrants entitling them to subscribe for shares of our common stock, or
of securities convertible into or exchangeable or exercisable for

42
<PAGE> 44

shares of our common stock, for consideration which is less than the then
current market value of our common stock;

- issuance of shares of our common stock for less than the then current
market value of our common stock; and

- distribution to all of our common stockholders of any of our assets, debt
securities or any rights or warrants to purchase securities except any
rights which may be issued under a stockholder rights plan and cash
dividends and other cash distributions from current or retained earnings.

No adjustment to the number of shares of common stock issuable upon the exercise
of the warrants and the exercise price will be required in some instances
including:

- issuance of shares of our common stock in an underwritten public
offering;

- issuance of options or shares of our common stock pursuant to any option
or employee benefit plans approved by our board of directors; and

- issuance of share of our common stock in connection with acquisitions of
products, technologies and other businesses as long as the issuance is
not to be one of our affiliates.

In the event of a distribution to our common stockholders which results in
an adjustment to the number of shares of common stock or other consideration for
which a warrant may be exercised, the holders of the warrants may be deemed to
have received a distribution subject to United States federal income tax as a
dividend. See "Federal Income Tax Consequences."

No adjustment in the exercise price is required unless such adjustment
would require an increase or decrease of at least one percent in the exercise
price; provided, however, that any adjustment which is not made as a result of
this paragraph will be carried forward and taken into account in any subsequent
adjustment.

AMENDMENT

From time to time, we and the warrant agent, without the consent of the
holders of the warrants, may amend or supplement the warrant agreement for
certain purposes, including curing defects or inconsistencies or making any
change that does not adversely affect the rights of any holder. Any amendment or
supplement to the warrant agreement that has an adverse effect on the interests
of the holders of the warrants shall require the written consent of the holders
of a majority of the then outstanding warrants. The consent of each holder of
the warrants affected shall be required for any amendment pursuant to which the
exercise price would be increased or the number of shares of common stock
issuable upon exercise of warrants would be decreased other than pursuant to
adjustments provided in the warrant agreement.

REGISTRATION RIGHTS

Registration of Warrants. We are required under the warrant agreement to
use our reasonable best efforts to cause the registration statement of which
this prospectus is a part to remain effective until the earliest of:

- such time as all of the warrants have been sold pursuant to this
registration statement;

- November 24, 2000; or

- such time as the warrants can be sold without restriction under the
Securities Act of 1933.

Each holder of warrants that sells them pursuant to this registration
statement is required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to the purchaser, will be subject to
certain of the civil liability provisions under the Securities Act of 1933 in
connection with such sales and will be bound by provisions of the warrant
agreement which are applicable to such holder, including certain indemnification
obligations. In addition, each holder of warrants is required to deliver
information to be used

43
<PAGE> 45

in connection with the registration statement in order to have its warrants
included in the registration statement.

During any consecutive 365-day period, we are entitled to suspend the
availability of this registration statement for up to two 45 consecutive-day
periods, except for the 45 consecutive-day period immediately prior to the
expiration date, if the board of directors determines in the exercise of its
reasonable judgment that there is a valid business purpose for the suspension
and provides notice that the determination was made to the holders of the
warrants; provided, however, that in no event shall we be required to disclose
the business purpose for the suspension if we determine in good faith that the
business purpose must remain confidential. There can be no assurance that we
will be able to keep a registration statement continuously effective until all
of the warrants have been exercised or have expired.

DESCRIPTION OF OUR CREDIT FACILITIES

GENERAL

On November 17, 1999, we entered into a revolving credit facility with
LaSalle Bank National Association in the aggregate principal amount of $12.0
million that will mature on September 30, 2001. Concurrently, we entered into a
revolving credit facility with Alliance Laundry Systems LLC in the aggregate
principal amount of $3.0 million that requires monthly payments of interest only
until and including the first business day of September 2001. Thereafter, the
facility requires 59 monthly payments comprised of $50,000 of principal plus
accrued interest on the unpaid principal balance and a sixtieth payment of
interest only.

Indebtedness under the LaSalle facility is secured by a first priority
security interest upon all of our then owned and thereafter acquired inventory,
equipment, accounts receivable, real and personal property and all proceeds
thereof and all of our general intangibles and other intangible assets,
including trademarks and trade names, if any, and proceeds thereof except for
certain real property which secures the Alliance facility pursuant to an
agreement between LaSalle and Alliance.

REVOLVING CREDIT FACILITIES

The LaSalle facility is a revolving credit facility in an aggregate
principal amount of $12.0 million. We are entitled to draw amounts under the
LaSalle facility in order to fund ongoing working capital and general corporate
purposes. As of March 19, 2000, we had approximately $7.5 million outstanding
under the LaSalle facility and had approximately $4.5 million of remaining
borrowing availability. As a condition of the closing of the LaSalle facility,
we were required to obtain consents to LaSalle's lien from all of our landlords
whose property secures the LaSalle facility. LaSalle waived this condition at
closing, but reserved the right to limit our borrowing capacity by up to $1.0
million if the consents were not obtained by December 26, 1999. As of that date
we had obtained only 95% of the required consents. LaSalle has not, however,
advised us that they intend to limit our borrowing availability.

The Alliance facility was fully drawn down in connection with the repayment
of Heller Financial, Inc.

INTEREST RATES

Obligations under the credit facilities shall bear interest with reference
to either the "Base Rate" or the "LIBOR Rate," as determined by us at the time
each obligation is incurred. "Base Rate Loans" shall bear interest at the rate
of 0.50% plus the greater of (a) the "Bank Prime Loan" rate published by the
Board of ]Governors of the Federal Reserve System or (b) 0.50% plus the Federal
Funds Effective Rate. "LIBOR Rate Loans" shall bear interest at the rate of
2.75% plus the rate determined by dividing (a) the rate at which U.S. dollar
deposits for the relevant interest period are being offered based upon
information presented on the Reuters Screen LIBOR Page as of 11:00 A.M. (London
time) on the day which is two business days prior to the first day of such
interest period by (b) 1.0 minus the aggregate (without duplication) of the
rates (expressed as a decimal) of reserve requirements on the day which is two
business days prior to the beginning

44
<PAGE> 46

of such interest period for Eurocurrency funding required to be maintained by a
member bank of the Federal Reserve System, rounded to the nearest 1/16 of 1%.

COVENANTS

The credit facilities contains certain covenants, the most restrictive of
which is the limitation on capital expenditures, and other requirements of
SpinCycle. In general, the affirmative covenants provide for mandatory reporting
of financial and other information to the agent and notice by us to the agent
upon the occurrence of certain events.

The credit facilities also contains certain negative covenants and
restrictions on actions by us including, without limitation, restrictions on
indebtedness, liens, guarantee obligations, mergers, asset dispositions, certain
payments, transactions with affiliates, entering other lines of business and
amendments of the terms of other indebtedness. In connection with the closing of
the CleanWave transaction on May 1, 2000, we were required to and did receive
waivers from LaSalle and Alliance with respect to certain covenants. In addition
we obtained waivers from LaSalle and Alliance with respect to one financial
covenant for the quarters ended December 26, 1999 and March 19, 2000.

EVENTS OF DEFAULT

The LaSalle facility specifies certain customary events of default
including, without limitation, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default to certain other indebtedness and agreements,
bankruptcy and insolvency events, material judgments and liabilities and
unenforceability of certain documents under the LaSalle facility. In addition, a
"change of control" of SpinCycle, which is defined in the LaSalle facility by
referring to the definition of that term in our senior note indenture,
constitutes an event of default under the LaSalle facility. The events of
default under the LaSalle facility are substantially similar to the events of
default under the indenture with certain exceptions.

The description of the credit facilities set forth above is qualified in
its entirety by the complete text of the documents entered into in connection
therewith.

INTERCREDITOR AGREEMENT

45
<PAGE> 47

DESCRIPTION OF THE NOTES

GENERAL

We issued 144,990 senior discount notes under an indenture, dated as of
April 29, 1998, between us and Norwest Bank Minnesota, N.A., as trustee. The
following summary of some provisions of the indenture and the notes does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the indenture, and those terms made a part
of the indenture by reference to the Trust Indenture Act, and the notes,
including the definitions of some terms in the Trust Indenture Act.

TERMS OF THE NOTES

The notes are unsecured senior obligations of ours, limited to $144,990,000
aggregate principal amount at maturity, and will mature on May 1, 2005. Except
as described below, no cash interest will accrue on the notes prior to May 1,
2001, although for U.S. federal income tax purposes a significant amount of
original issue discount, taxable as ordinary income, will be recognized by a
holder of the notes as the discount accrues from April 29, 1998 through May 1,
2005. Cash interest will accrue on the notes at the rate of 12 3/4% per annum
from May 1, 2001 or from the most recent date to which interest has been paid,
payable semi-annually commencing November 1, 2001 to holders of record at the
close of business on the April 15 or October 15 immediately preceding the
interest payment date on May 1 and November 1 of each year. Interest will be
calculated on the basis of a 360-day year consisting of 12 30-day months. We are
obligated to pay interest on overdue principal at 13 3/4% per annum, and we are
obligated to pay interest on overdue installments of cash interest at 13 3/4% to
the extent lawful. If we fail to keep our exchange offer registration statement
effective or usable in certain circumstances cash interest may accrue on the
notes other than as just described.

OPTIONAL REDEMPTION

The notes will not be redeemable prior to May 1, 2002. Thereafter, the
notes will be redeemable, at our option, in whole or in part, at any time or
from time to time, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each holder's registered address, at the following
redemption prices, plus accrued interest to the redemption date, subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date, if redeemed during the 12-month period
commencing on May 1 of the years set forth below:

<TABLE>
<CAPTION>
REDEMPTION PRICE
EXPRESSED IN
PERCENTAGES OF
PRINCIPAL AMOUNT
PERIOD AT MATURITY
------ ----------------
<S> <C>
2002......................................... 106.375%
2003......................................... 103.188
2004 and thereafter.......................... 100.000
</TABLE>

However, at any time and from time to time prior to May 1, 2001, we may
redeem up to 35% of the accreted value of the notes with the proceeds of one or
more public equity offerings meeting criteria described in the indenture
following which there is a public market for our common stock, at a redemption
price of 112.750% of the accreted value to the date of redemption; provided,
however, that at least $94.2 million of the aggregate principal amount at
maturity of the notes must remain outstanding after each such redemption.

RANKING

The indebtedness evidenced by the notes are our senior unsecured
obligations ranking equally in right of payment with all of our other senior
unsecured indebtedness and senior to all subordinated obligations. The notes
will be subordinated to all of our secured indebtedness, if any, to the extent
of the value of the assets

46
<PAGE> 48

securing such indebtedness and to all indebtedness and other obligations,
including trade payables, of our future subsidiaries, if any. We do not
presently intend to operate through subsidiaries and the ability of such
subsidiaries to incur any indebtedness is restricted by the indenture.

CHANGE OF CONTROL

Upon the occurrence of a change of control of SpinCycle, each holder shall
have the right to require that we repurchase each holder's notes at a purchase
price in cash equal to 101% of the accreted value of their SpinCycle notes plus
accrued and unpaid interest, if any, to the date of purchase which is subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date.

CERTAIN COVENANTS

The indenture contains covenants that restrict our ability to, among other
things:

- incur additional indebtedness and issue preferred stock;

- incur liens;

- enter into sale/leaseback transactions;

- make dividend or other distributions to stockholders or subsidiaries;

- make distributions;

- enter into transactions with affiliates;

- sell shares of the capital stock of a restricted subsidiary; and

- consolidate with or merge with or into any person.

EVENTS OF DEFAULT

The indenture provides for customary events of default including:

- default for 30 days or more in the payment when due of interest on the
notes;

- default in payment of principal of any note when due, upon optional
redemption, upon required repurchase, upon acceleration or otherwise;

- our failure to comply with the covenants in the indenture;

- default under our other indebtedness or other indebteness of our
restricted subsidiaries, subject to certain grace periods and minimum
thresholds;

- our failure to comply for 60 days after notice with our other agreements
contained in the indenture;

- our indebtedness or the indebtedness of any significant subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders of that debt because of a default and the
total amount of the indebtedness unpaid or accelerated exceeds $10.0
million and the non-payment continues or the acceleration is not
rescinded within ten days after notice thereof;

- our bankruptcy, insolvency or reorganization;

- any judgment or decree not covered by insurance or an indemnity by a
person other than us or a restricted subsidiary, which indemnitor is
solvent, for the payment of money in excess of $10.0 million is entered
against us or any significant subsidiary, remains outstanding for a
period of 60 days following such judgment and is not discharged, waived
or stayed within 30 days after notice.

47
<PAGE> 49

AMENDMENTS AND WAIVERS

The indenture may be amended with the consent of the holders of a majority
in principal amount at maturity of the notes then outstanding and any past
default or compliance with any provisions may also be waived with the consent of
the holders of a majority in principal amount at maturity of the notes then
outstanding.

DEFEASANCE

We may at any time terminate substantially all of our obligations under the
notes and the indenture including our obligations to abide by the covenants in
the indenture. In order to exercise either defeasance option, we must
irrevocably deposit in trust with the Trustee money or U.S. government
obligations for the payment of principal of and interest on the notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions.

REGISTRATION RIGHTS

Pursuant to a registration rights agreement dated April 29, 1998 between us
and CS First Boston, we agreed to (a) file with the SEC, within 60 days after
April 29, 1998, an exchange offer registration statement with respect to an
offer to exchange the originally issued notes for new notes with terms
substantially identical to the originally issued senior discount notes except
that the new notes generally do not contain terms with respect to restrictions
on the resale or transfer thereof and (b) use all best efforts to cause such
exchange offer registration statement to become effective under the Securities
Act by October 27, 1998. The exchange offer registration statement was timely
filed but was not declared effective until November 23, 1998. Because the
exchange offer registration statement was not effective on October 27, 1998, we
paid additional interest to the holders in the aggregate amount of $34,692 as of
May 1, 1999. Upon the effectiveness of the exchange offer registration
statement, we offered the new notes in exchange for surrender of the originally
issued senior discount notes. The exchange offer was completed on December 23,
1998.

48
<PAGE> 50

FEDERAL INCOME TAX CONSEQUENCES

The following is a general discussion of material U.S. federal income tax
considerations applicable to holders and prospective purchasers of the warrants
or the shares of common stock issuable upon exercise of the warrants. This
summary is based upon provisions of the Internal Revenue Code of 1986, as
amended, Treasury Regulations, including temporary and proposed regulations,
rulings and decisions currently in effect, all of which are subject to change,
possibly with retroactive effect. The discussion does not purport to deal with
all aspects of federal taxation that may be relevant to particular investors in
light of their personal investment circumstances, nor does it discuss federal
income tax considerations applicable to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, tax-exempt organizations and financial institutions). In addition,
the discussion does not consider the effect of any foreign, state, local, gift,
estate or other tax laws that may be applicable to a particular investor. The
discussion assumes that investors will hold the warrants and shares of common
stock issuable upon exercise of the warrants as capital assets within the
meaning of Section 1221 of the Code. A prospective purchaser is strongly urged
to consult his, her or its tax advisor regarding the particular tax consequences
to the prospective purchaser of purchasing, holding and disposing of the
warrants and the shares.

A "U.S. Holder" means a beneficial owner of the warrants or shares of
common stock issuable upon exercise of the warrants who or that is:

- a citizen or resident of the United States;

- a corporation or other entity created or organized in or under the laws
of the United States or a political subdivision of the United States;

- an estate the income of which is subject to U.S. federal income taxation
regardless of its source;

- a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have authority
to control all substantial decisions of the trust; or

- otherwise subject to U.S. federal income taxation on a net income basis
in respect of the warrants.

A "Non-U.S. Holder" means a holder that is not a U.S. Holder.

ISSUE PRICE

On the date the senior discount notes and warrants were issued, the issue
price was allocated between the notes and the warrants based on their relative
fair market values. With respect to the $689.71 issue price per unit, we
allocated $38.79 to each warrant as the issue price of each warrant. This
allocation reflects our judgement as to the relative value of the notes and
warrants at the time of issuance. This allocation of purchase price is binding
on a U.S. Holder unless the U.S. Holder explicitly discloses a different
allocation on an attachment to its tax return for the taxable year that includes
the acquisition date of the unit comprised of a senior discount note and a
warrant. The allocation is not, however, binding on the Internal Revenue Service
and there can be no assurance that the Internal Revenue Service would not
challenge this allocation or that such a challenge, if made, would not be upheld
in court.

TAX TREATMENT OF WARRANTS

Characterization of the Warrants. Although the form of the warrants may be
respected for federal income tax purposes, it is possible that the warrants
would be treated for federal income tax purposes as shares of our common stock
which such warrants entitle the holder to purchase due to, among other things,
their minimal exercise price and lack of any meaningful contingency. Although it
is thus unclear whether the warrants will be treated as warrants or stock for
federal income tax purposes, the following discussion assumes that the warrants
would be properly characterized as warrants and describes, as appropriate, any
differing federal income tax treatment that would result if the warrants are
treated as stock.

Initial Tax Basis. A U.S. Holder's tax basis in a warrant is equal to the
portion of the issue price of the unit allocable to such warrant, $38.79.

49
<PAGE> 51

Sale or Redemption. The sale, exchange or redemption of a warrant will
result in the recognition of gain or loss to a U.S. Holder in an amount equal to
the difference between the amount realized and his or her adjusted basis
therein. A sale, exchange or redemption of a warrant will result in capital gain
or loss. This capital gain or loss will be classified as long-term capital gain
or loss if the warrants being sold or exchanged have been held for more than 12
months at the time of the sale or exchange.

Adjustments. Under Section 305 of the Code, some actual or constructive
distributions of stock may be taxable to our stockholders. Adjustments in the
exercise price of the warrants, or the number of shares purchasable upon
exercise of the warrants, in each case made under the antidilution provisions of
the warrants, may result in a constructive distribution if and to the extent
that there is an increase in the proportionate interest of a U.S. Holder of a
warrant in the fully diluted warrant shares or all common shares, whether or not
the warrant is exercised. This distribution may be taxable as a dividend under
the Code to U.S. Holders of the warrants.

Exercise. No gain or loss will be recognized to a U.S. Holder of warrants
on his, her or its purchase of the shares for cash upon exercise of the
warrants, other than any gain or loss attributable to the receipt of cash in
lieu of a fractional share of common stock upon exercise. The adjusted initial
basis of the shares so acquired would be equal to the adjusted basis of the
exercised warrants plus the exercise price (less any cash received in lieu of a
fractional share). A U.S. Holder who exercises warrants in connection with a
cashless exercise will not recognize gain or loss upon that exercise, and a U.S.
Holder's basis in the shares received in the cashless exercise will equal the
holder's basis in the warrants surrendered. For tax purposes, the holding period
of the shares acquired upon the exercise of the warrants will not include the
holding period of the warrants.

Constructive Exercise. Because, among other things, the exercise price of
each warrant may be regarded as a nominal amount and we may waive payment of the
exercise price, a warrant may be considered to be constructively exercised for
federal income tax purposes on the day on which the warrant first becomes
exercisable. In that event,

- no gain or loss would be recognized to a U.S. Holder upon either the
deemed exercise or actual exercise of the warrant;

- the adjusted tax basis of the shares deemed to be received would
equal the adjusted tax basis of the warrant until the warrant was
actually exercised, at which time the adjusted tax basis of the
warrant shares would be increased by the exercise price paid; and

- the holding period of the warrant shares would begin on April 30,
1999;

then the federal income tax consequences of the ownership and disposition of the
warrant would be the same as if the warrant were the shares for which it is
exercisable.

Lapse. If the warrants are not exercised and are allowed to expire, the
warrants will be deemed to have been sold or exchanged on the expiration date
resulting in a loss equal to the U.S. Holder's tax basis in the warrants. Any
loss to the U.S. Holder will be a capital loss, and the classification of the
loss as long-term or short-term will depend upon the date the warrants were
acquired and the length of time the warrants were held.

Tax Treatment to SpinCycle. We will not recognize any gain or loss upon
the termination, exercise or expiration of any warrants.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Under federal income tax law, a U.S. Holder of warrants or shares issued
upon exercise of the warrants may, under certain circumstances, be subject to
"backup withholding" unless the U.S. Holder is a corporation, or is otherwise
exempt and, when required, demonstrates this fact or provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. The withholding rate is 31% of "reportable payments," which
include dividends or proceeds from a sale or redemption.

50
<PAGE> 52

FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO FOREIGN HOLDERS

The following discussion summarizes United States federal income tax
consequences generally applicable to a Non-U.S. Holder who owns and disposes of
the warrants. This discussion does not purport to deal with all aspects of
United States federal income taxation that may be relevant to a Non-U.S. Holder
and does not describe any tax consequences arising out of the laws of any state,
locality or foreign jurisdiction or out of United States federal estate and gift
tax laws. Non-U.S. Holders are advised to consult their tax advisors regarding
the United States federal, state, local and foreign tax consequences of their
participation in this offering.

Dividends. Generally, any dividends we pay on shares paid to a Non-U.S.
Holder will be subject to withholding of United States federal income tax at the
rate of 30% unless the dividend is effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder, in which case
the dividend will be subject to the United States federal income tax on net
income that applies to United States persons generally and, with respect to
corporate holders under certain circumstances, the branch profits tax. Non-U.S.
Holders should consult any applicable income tax treaties, which may provide for
a lower rate of withholding or other rules different from those described above.
Under the Treasury Regulations, a payor of dividends can no longer rely upon the
presumption that dividends paid to an address in a foreign country are paid to a
resident of that country for purposes of determining the applicability of a
treaty rate. Instead, effective for dividends paid after December 31, 1999,
Non-U.S. Holders are required to satisfy certain certification requirements in
order to obtain a reduced rate of withholding under a tax treaty.

Gain on Disposition. A Non-U.S. Holder generally will not be subject to
United States federal income tax, subject to the discussion under
"-- Information Reporting and Backup Withholding" below, on gain realized on a
sale or other disposition, including a redemption of warrants or the shares
issued upon exercise of the warrants unless the gain is effectively connected
with the conduct of a trade or business within the United States by the Non-U.S.
Holder or if the holder is a nonresident alien individual and holds the warrants
or shares as a capital asset, the holder is present in the U.S. for 183 or more
days in the taxable year of the sale or disposition.

Information Reporting and Backup Withholding. In the case of payments of
interest to Non-U.S. Holders, Treasury Regulations provide that the 31% backup
withholding and other reporting will not apply to these payments with respect to
which either the requisite certification, as described above, has been received
or an exemption has otherwise been established, provided that neither SpinCycle
nor its paying agent has actual knowledge that the holder is a United States
person or the conditions of any other exemption are not in fact satisfied. Under
Treasury Regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a foreign person
upon the disposition of the warrants or shares by or through a United States
office of a United States or foreign broker, unless the holder certifies to the
broker under penalties of perjury as to its name, address and status as a
foreign person or the holder otherwise establishes an exemption. Information
reporting requirements, but not backup withholding will also apply to a payment
of the proceeds of a disposition of the warrants or shares by or through a
foreign office of a United States broker, a foreign broker 50% or more of whose
gross income for certain periods is effectively connected with the conduct of a
trade or business in the United States or a foreign broker that is a "controlled
foreign corporation," unless the broker has documentary evidence in its records
that the holder is a Non-U.S. Holder and certain other conditions are met, or
the holder otherwise establishes an exemption. Neither information reporting nor
backup withholding will generally apply to a payment of the proceeds of a
disposition of the warrants or shares by or through a foreign office of a
foreign broker not subject to the preceding sentence.

We must report annually to the Internal Revenue Service the total amount of
federal income taxes withheld from dividends, including constructive dividends,
distributed to Non-U.S. Holders. In addition, we must report annually to the
Internal Revenue Service and to each Non-U.S. Holder the amount of dividends
distributed to and the tax withheld with respect to such holder. These
information reporting requirements apply regardless of whether withholding was
reduced by an applicable treaty.

51
<PAGE> 53

The 31% backup withholding tax will not generally apply to dividends
distributed to Non-U.S. Holders outside the United States that are subject to
the 30% withholding discussed above or that are not so subject because a tax
treaty applies that reduces or eliminates this withholding. These backup
withholding and information reporting requirements may apply to the gross
proceeds paid by or through a broker to a foreign holder upon the disposition of
warrants or shares under the rules described above.

REFUNDS

Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a refund or a credit against the holder's United
States federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.

OTHER TAX CONSIDERATIONS

There may be other federal, state, local or foreign tax considerations
applicable to the circumstances of a particular holder or prospective purchaser
of Warrants or Warrant Shares. ACCORDINGLY, EACH HOLDER OR PROSPECTIVE PURCHASER
OF WARRANTS OR SHARES ISSUED UPON EXERCISE OF THE WARRANTS SHOULD CONSULT HIS,
HER OR ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE HOLDER OR
PROSPECTIVE PURCHASER OF PURCHASING, HOLDING AND DISPOSING OF WARRANTS OR
SHARES.

SELLING STOCKHOLDERS

We issued and sold Warrants to CS First Boston in a transaction exempt from
the registration requirements of the Securities Act of 1933. CS First Boston
placed the warrants with qualified institutional buyers. Persons, which, in the
future, may include CS First Boston, may from time to time offer and sell the
warrants and the shares issued upon exercise of the warrants under this
prospectus. Thus, CS First Boston may, in certain circumstances, be deemed to be
an "underwriter" as defined in Section 2(11) of the Securities Act of 1933. In
these circumstances, CS First Boston is obligated to and will deliver a copy of
this prospectus in connection with any resale. Persons who may sell their
SpinCycle securities pursuant to this prospectus includes the holders listed
below and their transferees, pledgees, donees or successors.

The following table sets forth information with respect to:

- persons who owned the warrants as of April 19, 2000;

- the number of warrants beneficially owned by each of them; and

- the number of shares of our common stock that each may purchase upon
exercise of each holder's warrants.

We are obligated by the warrant agreement to keep the registration statement of
which this prospectus is a part up-to-date. Each holder may offer and sell all
of the securities pursuant to this registration statement. Inclusion on this
list does not imply that any person or entity will actually offer or sell any of
the warrants or shares registered on his, her or its behalf.

<TABLE>
<CAPTION>
WARRANT
WARRANTS SHARES(1)
-------- ---------
<S> <C> <C>
Bank of New York............................................ 15,960 2,935.04
Boston Safe Deposit and Trust............................... 3,000 551.70
State Street Bank and Trust Company......................... 41,885 7,702.65
Lehman Brothers, Inc. ...................................... 750 137.91
Northern Trust Company...................................... 1,080 198.61
Bankers Trust Co. .......................................... 870 159.99
Chase Manhattan Bank........................................ 5,850 1,075.82
</TABLE>

52
<PAGE> 54

<TABLE>
<CAPTION>
WARRANT
WARRANTS SHARES(1)
-------- ---------
<S> <C> <C>
CS First Boston............................................. 63,845 11,741.10
Investors Bank & Trust/M.F. Custody......................... 11,750 2,160.61
------- ---------
Total............................................. 144,990 26,661.00
======= =========
</TABLE>

---------------
(1) At our option, fractional shares of common stock may not be issued upon
exercise of the warrants. If any fraction of a share of common stock would,
except for the previous provision, be issuable upon the exercise of any
warrants, we have agreed to pay an amount in cash equal to the current
market value per share of common stock, as determined on the day immediately
preceding the date the warrant is presented for exercise, multiplied by the
fraction, computed to the nearest whole cent.

Except as shown above, none of the selling holders has, or within the past
three years has had, any position, office or other material relationship with us
or any of our predecessors or affiliates. Because the selling holders may,
pursuant to this prospectus, offer all or some portion of the warrants and/or
the shares for which the warrants are exercisable, no estimate can be given as
to the amount of the warrants and/or warrant shares that will be held by the
selling holders upon termination of any sales. In addition, the selling holders
identified above may have sold, transferred or otherwise disposed of all or a
portion of their warrants since the date as of which we were able to obtain
information regarding their holdings, in transactions exempt from the
registration requirements of the Securities Act of 1933, including transactions
pursuant to Rule 144 under the Securities Act of 1933.

PLAN OF DISTRIBUTION

The warrants and the shares for which the warrants are exercisable may be
sold from time to time to purchasers directly by the selling holders.
Alternatively, the selling holders may from time to time offer the warrants or
the shares to or through underwriters, broker/dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the selling holders or the purchasers of the securities for whom they may
act as agents. The selling holders and any underwriters, broker/dealers or
agents that participate in the distribution of warrants or the shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933 and
any profit on the sale of the securities and any discounts, commissions,
concessions or other compensation received by any the underwriter, broker/dealer
or agent may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933.

The warrants and the shares for which the warrants are exercisable may be
sold from time to time in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at varying prices determined at
the time of sale or at negotiated prices. The sale of the warrants and the
shares may be effected in transactions, which may involve crosses or block
transactions:

- on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;

- in the over-the-counter market;

- in transactions otherwise than on such exchanges or in the
over-the-counter market; or

- through the writing of options.

At the time a particular offering of the warrants or the shares is made, a
supplement to this prospectus, if required, will be distributed which will
include the aggregate amount of warrants or shares being offered and the terms
of the offering, including the name or names of any underwriters, broker/dealers
or agents, any discounts, commissions and other terms constituting compensation
from the selling holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers. Each broker/dealer that receives the
warrants or shares for its own account pursuant to this prospectus must
acknowledge that it will deliver the prospectus and any prospectus supplement in
connection with any sale of the warrants or shares.

53
<PAGE> 55

The warrants and shares for which they are exercisable will be offered or
sold only through registered or licensed brokers or dealers in the jurisdictions
which require it. In addition, in some jurisdictions the warrants and the shares
for which they are exercisable may not be offered or sold unless they have been
registered or qualified for sale in the jurisdictions or any exemption from
registration or qualification is available and is complied with.

The selling holders will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the warrants or
shares for which they are exercisable by the selling holders. This may affect
the marketability of the warrants or the shares.

Pursuant to the warrant agreement, substantially all of the expenses of the
registration of the warrants and shares for which they are exercisable will be
paid by us. However, the selling holders will pay all underwriting discounts,
selling commissions and transfer taxes, if any, applicable to any sales pursuant
to the registration statement. We have agreed to indemnify the selling holders
against certain civil liabilities, including certain liabilities under the
Securities Act of 1933, and the selling holders will be entitled to contribution
in connection with any such registration and any sales pursuant thereto. We will
be indemnified by the selling holders severally against certain civil
liabilities, including certain liabilities under the Securities Act of 1933, or
will be entitled to contribution in connection with any registration and sales
pursuant to the registration statement of which this prospectus is a part.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the warrants and shares for which they are exercisable
in Canada is being made only on a private placement basis exempt from the
requirement that we prepare and file a prospectus with the securities regulatory
authorities in each province where trades of warrants and shares are effected.
Accordingly, any resale of the warrants and shares in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or under a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Holders are advised
to seek legal advice prior to any resale of the warrants and shares.

REPRESENTATIONS OF PURCHASERS

Each purchaser of warrants and shares for which they are exercisable in
Canada who receives a purchase confirmation will be deemed to represent to us
and the dealer from whom the purchase confirmation is received that such
purchaser is entitled under applicable provincial securities laws to purchase
the warrants and shares without the benefit of a prospectus qualified under the
securities laws, where required by law, that the purchaser is purchasing as
principal and not as agent and that the purchaser has reviewed the text above
under "Resale Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws. Following a
decision of the U.S. Supreme Court, it is possible that Ontario purchasers will
not be able to rely upon the remedies set out in Section 12(2) of the United
States Securities Act of 1933 where securities are offered under a U.S.
prospectus such as this document.

54
<PAGE> 56

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of warrants and shares for which they are exercisable to whom
the Securities Act (British Columbia) applies is advised that the purchaser is
required to file with the British Columbia Securities Commission a report within
ten days of the sale of any warrants and warrant shares acquired by the
purchaser in this offering. This report must be in the form attached to British
Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be
obtained from us. Only one report must be filed in respect of warrants and
shares acquired on the same date and under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of warrants and shares for which they are exercisable
should consult their own legal and tax advisors with respect to the tax
consequences of an investment in the warrants and shares in their particular
circumstances and with respect to the eligibility of the warrants and shares for
investment by the purchaser under relevant Canadian legislation.

LEGAL MATTERS

Legal matters in connection with the registration of the warrants and the
shares for which they are exercisable were passed upon for the SpinCycle by
Pedersen & Houpt, P.C., Chicago, Illinois. Peer Pedersen and John H. Muehlstein,
members of our board of directors, are also partners of Pedersen & Houpt, P.C.

EXPERTS

The financial statements as of December 26, 1999 and as of December 27,
1998 and for each of the three years in the period ended December 26, 1999
included in this Prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act of 1933,
with respect to the warrants and shares for which they are exercisable to which
this prospectus relates. As permitted by the rules and regulations of the SEC,
this prospectus omits certain information contained in the registration
statement. For further information with respect to SpinCycle, the warrants and
the shares to which this prospectus relates, reference is made to the
registration statement and the exhibits and schedules filed therewith.
Statements contained in this prospectus concerning the contents of any contract
or any other document referred to are not necessarily complete; reference is
made in each instance to the copy of the contract or document filed as an
exhibit to the registration statement. Each of these statements is qualified in
all respects by reference to these exhibits. The registration statement,
including exhibits and schedules thereto, may be inspected without charge at the
SEC's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from this office after payment of fees prescribed by the
SEC. The SEC also maintains a Web site that contains reports, proxy statements
and other information regarding registrants, including SpinCycle, that file such
information electronically with the SEC. The address of the SEC's Web site is
http://www.sec.gov.

55
<PAGE> 57

INDEX TO FINANCIAL STATEMENTS

SPINCYCLE, INC.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Balance Sheets as of December 26, 1999 and December 27,
1998...................................................... F-3
Statements of Operations for the Years Ended December 26,
1999, December 27, 1998 and December 28, 1997............. F-4
Statements of Mandatorily Redeemable Preferred Stock and
Shareholders' Equity (Deficit) for the Years Ended
December 26, 1999, December 27, 1998 and December 28,
1997...................................................... F-5
Statements of Cash Flows for the Years Ended December 26,
1999, December 27, 1998 and December 28, 1997............. F-6
Notes to Financial Statements............................... F-7
UNAUDITED FINANCIAL STATEMENTS
Balance Sheets as of March 19, 2000 and December 26, 1999... F-21
Statements of Operations for the Quarters Ended March 19,
2000 and March 21, 1999................................... F-22
Statements of Cash Flows for the Quarters Ended March 19,
2000 and March 21, 1999................................... F-23
Notes to Unaudited Financial Statements..................... F-24
</TABLE>

F-1
<PAGE> 58

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
SpinCycle, Inc.

In our opinion, the accompanying balance sheets and the related statements
of operations, of mandatorily redeemable preferred stock and shareholders'
equity (deficit) and of cash flows present fairly, in all material respects, the
financial position of SpinCycle, Inc. at December 26, 1999 and December 27,
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 26, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Phoenix, Arizona

March 24, 2000

F-2
<PAGE> 59

SPINCYCLE, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,125,919 $ 4,239,099
Landlord allowances....................................... 176,340 781,628
Prepaid expenses.......................................... 92,490 582,006
Inventory................................................. 298,477 112,964
Land held for sale-leaseback.............................. 1,919,209 2,194,533
Other current assets...................................... 685,508 687,483
------------ ------------
Total current assets.................................... 7,297,943 8,597,713
Property and equipment, net................................. 95,241,610 100,657,304
Goodwill, net............................................... 12,634,520 13,610,471
Other assets................................................ 4,370,021 5,390,972
------------ ------------
Total assets....................................... $119,544,094 $128,256,460
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... 885,231 $ 4,986,996
Construction payables..................................... -- 389,393
Accrued utilities......................................... 1,296,144 1,003,766
Accrued expenses.......................................... 2,666,326 2,626,384
Current portion of deferred rent.......................... 493,335 311,557
Current portion of long-term debt......................... 207,460 210,275
------------ ------------
Total current liabilities............................... 5,548,496 9,528,371
Long-term debt.............................................. 127,940,845 103,221,752
Deferred rent............................................... 3,407,741 2,650,724
Other liabilities........................................... 428,520 192,308
------------ ------------
Total liabilities.................................. 137,325,602 115,593,155
------------ ------------
Shareholders' equity (deficit):
Series A, Series B and Series C convertible preferred
stock, $.01 par value, 370,000 shares authorized,
275,402 shares issued and outstanding................... 50,845,810 50,845,810
Common stock, $.01 par value, 630,000 shares authorized,
27,763 shares issued and outstanding.................... 278 278
Common stock warrants..................................... 5,625,000 5,625,000
Additional paid-in capital -- common stock................ 1,430,259 1,430,259
Accumulated deficit....................................... (75,682,855) (45,238,042)
------------ ------------
Total shareholders' equity (deficit)...................... (17,781,508) 12,663,305
------------ ------------
Total liabilities, convertible preferred stock and
shareholders' equity (deficit).......................... $119,544,094 $128,256,460
============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 60

SPINCYCLE, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------
DECEMBER 26, 1999 DECEMBER 27, 1998 DECEMBER 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues.................................. $ 52,173,829 $ 30,936,080 $ 8,652,888
Cost of revenues -- store operating
expenses, excluding depreciation and
amortization............................ 39,087,921 24,508,404 7,982,566
------------ ------------ ------------
Gross operating profit (loss), excluding
depreciation and amortization........ 13,085,908 6,427,676 670,322
Preopening costs.......................... 116,882 691,890 456,920
Depreciation and amortization............. 14,310,352 9,561,742 2,340,647
Selling, general and administrative
expenses................................ 10,433,310 11,420,877 10,729,663
Loss on impairment and disposal of
long-lived assets....................... 2,177,972 22,913 479,500
------------ ------------ ------------
Operating loss.......................... (13,952,608) (15,269,746) (13,336,408)
Interest income........................... 128,017 1,299,615 432,812
Interest expense, net of amount
capitalized............................. (15,838,664) (10,351,341) (891,913)
------------ ------------ ------------
Net loss before extraordinary loss...... $(29,663,255) (24,321,472) (13,795,509)
Extraordinary loss from early
extinguishment of debt.................. (781,558) (333,596) --
------------ ------------ ------------
Net loss................................ $(30,444,813) $(24,655,068) $(13,795,509)
Repricing of Series C preferred stock..... -- (1,459,000) --
Accretion of redeemable preferred stock... -- (755,667) (1,941,878)
------------ ------------ ------------
Net loss applicable to holders of common
stock................................ $(30,444,813) $(26,869,735) $(15,737,387)
============ ============ ============
Net loss per common share (both basic and
diluted):
Net loss applicable to holders of common
stock before extraordinary loss...... $ (1,068.45) $ (925.96) $ (412.76)
Extraordinary loss from early
extinguishment of debt............... (28.15) (11.64) --
------------ ------------ ------------
Net loss applicable to holders of common
stock................................ $ (1,096.60) $ (937.60) $ (412.76)
============ ============ ============
Weighted average number of common shares
outstanding............................. 27,763 28,658 38,127
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 61

SPINCYCLE, INC.

STATEMENTS OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
MANDATORILY
COMMON STOCK REDEEMABLE CONVERTIBLE
WARRANTS PREFERRED STOCK PREFERRED STOCK STOCK
------------------- ----------------------- --------------------- SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE
------ ---------- -------- ------------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... -- $ -- 54,478 $ 6,809,700 -- $ -- $ --
Issuance of Series A Redeemable
Preferred Stock, net............ 21,350 2,598,750 (2,668,750)
Issuance of Series A Redeemable
Preferred Stock for services.... 1,146 143,300
Issuance of Series B Redeemable
Preferred Stock, net............ 125,498 24,382,912 (24,999,912)
Issuance of Common Stock for
services........................
Accretion of Series A and Series B
Redeemable Preferred Stock...... 1,941,878
Issuance of Series C Redeemable
Preferred Stock, net............ 59,741 12,916,265 (13,272,265)
Payments of stock subscriptions... 40,940,927
Net loss..........................
------ ---------- -------- ------------ ------- ----------- ------------
Balance at December 28, 1997....... -- -- 262,213 48,792,805 -- -- --
Repurchase of common stock........
Issuance of Series C Redeemable
Preferred Stock, net............ 13,189 2,904,500
Accretion of Series A and Series B
Redeemable Preferred Stock...... 755,667
Issuance of Common Stock
Warrants........................ 26,661 5,625,000
Issuance of 7,295 shares of common
stock (Series C repricing @ $200
per share)...................... (1,459,000)
Series C Redeemable Preferred
Stock Issuance Costs Paid....... (93,448)
Cancellation of put rights on
Mandatorily Redeemable Preferred
Stock........................... (275,402) (50,900,524) 275,402 50,900,524
Series C Convertible Preferred
Stock Issuance Costs Paid....... (54,714)
Common Stock Issuance Costs
Paid............................
Net loss..........................
------ ---------- -------- ------------ ------- ----------- ------------
Balance at December 27, 1998....... 26,661 5,625,000 -- -- 275,402 50,845,810 --
Net loss..........................
Balance at December 26, 1999....... 26,661 $5,625,000 -- $ -- 275,402 $50,845,810 $ --
====== ========== ======== ============ ======= =========== ============

COMMON STOCK ADDITIONAL
---------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------- ------ ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996....... 34,280 $ 343 $ 8,227 $ (3,899,374)
Issuance of Series A Redeemable
Preferred Stock, net............
Issuance of Series A Redeemable
Preferred Stock for services....
Issuance of Series B Redeemable
Preferred Stock, net............
Issuance of Common Stock for
services........................ 4,207 42 1,046
Accretion of Series A and Series B
Redeemable Preferred Stock...... (1,941,878)
Issuance of Series C Redeemable
Preferred Stock, net............
Payments of stock subscriptions...
Net loss.......................... (13,795,509)
------- ----- ---------- ------------
Balance at December 28, 1997....... 38,487 385 9,273 (19,636,761)
Repurchase of common stock........ (18,019) (180) (9,273) (190,546)
Issuance of Series C Redeemable
Preferred Stock, net............
Accretion of Series A and Series B
Redeemable Preferred Stock...... (755,667)
Issuance of Common Stock
Warrants........................
Issuance of 7,295 shares of common
stock (Series C repricing @ $200
per share)...................... 7,295 73 1,458,927
Series C Redeemable Preferred
Stock Issuance Costs Paid.......
Cancellation of put rights on
Mandatorily Redeemable Preferred
Stock...........................
Series C Convertible Preferred
Stock Issuance Costs Paid.......
Common Stock Issuance Costs
Paid............................ (28,668)
Net loss.......................... (24,655,068)
------- ----- ---------- ------------
Balance at December 27, 1998....... 27,763 278 1,430,259 (45,238,042)
Net loss.......................... (30,444,813)
Balance at December 26, 1999....... 27,763 $ 278 $1,430,259 $(75,682,855)
======= ===== ========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 62

SPINCYCLE, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------
DECEMBER 26, 1999 DECEMBER 27, 1998 DECEMBER 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss................................................ $(30,444,813) $(24,655,068) $(13,795,509)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 14,310,352 9,561,742 2,340,647
Loss on impairment and disposal of long-lived assets.... 2,186,911 -- 479,500
Extraordinary loss from early extinguishment of debt.... 781,558 333,596 --
Issuance of stock for services.......................... -- -- 144,388
Amortization of debt issuance costs..................... 979,923 728,719 --
Amortization of discount on long-term debt.............. 14,243,841 8,584,476 --
Changes in assets and liabilities:
Landlord allowances................................... 605,288 299,768 (911,396)
Prepaid expenses...................................... 489,516 (98,180) (282,393)
Inventory............................................. (185,513) (41,447) (22,308)
Other current assets.................................. 1,975 265,398 (912,819)
Other assets.......................................... (74,829) (412,660) (269,200)
Accounts payable...................................... (4,101,765) (963,090) 1,129,879
Construction payables................................. (389,393) (561,849) 188,395
Accrued utilities..................................... 292,378 386,987 607,938
Accrued expenses...................................... (252,059) 957,851 1,238,395
Deferred rent......................................... 938,795 1,736,553 1,091,462
------------ ------------ ------------
Net cash provided by (used in) operating activities... $ (617,835) (3,877,204) (8,973,021)
------------ ------------ ------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of fixed assets................................ (9,518,380) (38,624,850) (10,470,529)
Proceeds from sale of fixed assets...................... 55,260 94,253 --
Net proceeds from sale -- leaseback transactions........ 534,333 6,827,018 --
Acquisition of businesses, net of cash acquired......... -- (26,880,283) (12,063,521)
Capitalized interest.................................... (163,332) (351,787) (327,727)
------------ ------------ ------------
Net cash used in investing activities................. $ (9,092,119) (58,935,649) (22,861,777)
------------ ------------ ------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Advances to shareholder................................. -- -- (150,000)
Payment of debt......................................... (9,575,834) (47,689,160) (23,974)
Debt issuance costs paid................................ (711,443) (6,016,805) --
Increase in debt........................................ 19,884,051 104,156,083 --
Proceeds from issuance of common stock warrants......... -- 5,625,000 --
Proceeds from issuance of stock......................... -- 2,904,500 --
Proceeds from stock subscriptions, net.................. -- -- 39,897,927
Stock issuance costs paid............................... -- (176,827) --
------------ ------------ ------------
Net cash provided by financing activities............. $ 9,596,774 58,802,791 39,723,953
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents...... (113,180) (4,010,062) 7,889,155
Cash and cash equivalents, beginning of period............ 4,239,099 8,249,161 360,006
------------ ------------ ------------
Cash and cash equivalents, end of period.................. $ 4,125,919 $ 4,239,099 $ 8,249,161
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Stock subscriptions for issuance of redeemable preferred
stock................................................. $ -- $ -- $ 40,940,927
Equipment financed with long-term debt.................. $ 164,219 $ 2,454,840 $ 31,357,918
Repurchase of common stock.............................. $ -- $ 199,999 $ --
Accretion of mandatorily redeemable preferred stock..... $ -- $ 755,667 $ 1,941,878
Issuance of common stock (Series C repricing)........... $ -- $ 1,459,000 $ --
CASH FLOW DURING THE YEAR FOR THE FOLLOWING:
Interest paid........................................... $ 654,611 $ 1,370,023 $ 1,173,236
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 63

SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

SpinCycle, Inc. ("SpinCycle" or the "Company") is a specialty retailing
company engaged in the coin laundry business. The Company currently operates 172
stores in 25 markets throughout the United States. The Company was incorporated
under the laws of the state of Minnesota on October 10, 1995 and subsequently
reincorporated under the laws of the State of Delaware. The Company was in the
developmental stage from October 10, 1995 (inception) to June 30, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The financial statements include all accounts of SpinCycle. On October 1,
1997, the Company dissolved its wholly-owned subsidiary, Pinnacle Financial,
Inc., a commercial equipment leasing company. This dissolution had no effect on
the Company's financial statements.

Fiscal year change

As of December 1, 1997, the Company changed its fiscal year previously
ended December 31 to a thirteen period fiscal year, comprised of thirteen four
week periods ending on the last Sunday in December. This change in fiscal
year-end had an immaterial effect on the Company's 1997 results of operations
and financial condition.

Cash and cash equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying value
of cash equivalents approximates fair value. At December 26, 1999, $181,317 of
time deposits were pledged as collateral on outstanding letters of credit
related to agreements in place with suppliers and as collateral for the
Company's corporate office lease agreement.

Concentration of risk

The Company places its cash with high credit quality institutions. At
times, cash balances may be in excess of the FDIC insurance limit. The Company
has not experienced any losses on its cash balances.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Landlord allowances and deferred rent

Landlord allowances represent incentives received by the Company on certain
of its store leases. Deferred rent represents the related unearned incentive
recorded at lease inception and is amortized as a reduction to rent expense over
the term of the related leases.

Inventory

Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) basis.

F-7
<PAGE> 64
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Property and equipment

Property and equipment are stated at cost. Capitalized amounts include
expenditures which materially extend the useful lives of existing facilities and
equipment. Expenditures for repairs and maintenance which do not materially
extend the useful lives of the related assets are charged to expense as
incurred. During construction, the Company capitalizes interest monthly by
applying the effective interest rate on certain borrowings to the average
balance of expenditures. Interest capitalized during the years 1999, 1998, and
1997 was $163,332, $327,727, and $327,727, respectively.

During fiscal 1999 the Company closed three stores and recognized a loss of
$1,003,653 including the writedown of leasehold improvements and the accrual of
lease obligations remaining for these stores through the conclusion of their
lease terms. This loss has been included in the caption "Loss on impairment and
disposal of long-lived assets" in the accompanying income statements. At
December 26, 1999, the Company has also included $99,693 in accrued expenses and
$428,520 in other noncurrent liabilities representing the obligations remaining
under the related leases.

Depreciation and amortization

Depreciation is provided principally on the straight-line method over the
following useful lives:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Laundry equipment.............................. 7 to 15
Leasehold improvements......................... Shorter of economic life or lease term.
Computer and office equipment.................. 5
Store equipment (other than laundry
equipment)................................... 5
</TABLE>

Goodwill and impairment of long lived assets

Goodwill represents the excess of cost over the net tangible and
identifiable intangible assets of acquired businesses. Goodwill is stated at
cost and is amortized on a straight-line basis over fifteen years. Pursuant to
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," the Company evaluates the recoverability
of goodwill and its other long-lived assets whenever a significant change in the
business environment indicates that expected future net cash flows (undiscounted
and without interest) would become less than the carrying amount of the asset.
Accumulated amortization of goodwill amounted to $1,591,100 at December 26, 1999
and $642,576 at December 27, 1998.

During the fourth quarter of fiscal 1999 the Company updated its evaluation
of the recoverability of goodwill and other long-lived assets associated with
certain underperforming stores that continue in operation. Based on this
analysis, the Company determined that the long-lived assets associated with two
stores were substantially impaired and, as a result, recorded an impairment loss
of $585,000. The impairment losses were determined based on estimated net
realizable values and projections of net cash flows. This loss has been included
in the caption "Losses on impairment and disposal of long-lived assets" in the
accompanying income statement. This loss has been applied against goodwill and
leasehold improvements associated with these stores.

Revenue recognition

The Company recognizes revenue upon performance of services.

Stock compensation

The Company measures compensation cost related to employee stock options
using the intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The

F-8
<PAGE> 65
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

fair value based method of accounting is used for equity instruments issued to
non employees for goods or services.

Income taxes

The Company accounts for income taxes under the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using currently enacted tax rates.

As a result of the current uncertainty as to the future realizability of
the tax benefits associated with approximately $44.2 million of net operating
losses incurred to date, no income tax benefit has been recorded in the
financial statements.

Advertising costs

The Company expenses advertising costs as incurred. The Company incurred
$320,485, $1,026,193 and $1,574,839 in advertising costs for the years ended
December 26, 1999, December 27, 1998 and December 28, 1997, respectively.

Preopening costs

The Company expenses preopening costs as incurred. The Company incurred
$116,882, $691,890 and $456,920 in preopening costs during the years ended
December 26, 1999, December 27, 1998 and December 28, 1997, respectively.

Earnings per Share

Net loss per common share is computed using the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which requires the
presentation of basic earnings per share ("EPS") and diluted EPS. Basic earnings
per share is computed by dividing the net loss applicable to holders of common
stock by the weighted average number of common shares outstanding during each
period. Diluted earnings per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period adjusted
for dilutive stock options and warrants and dilutive common shares assumed to be
issued on conversion of preferred stock to common stock. Diluted earnings per
share has not been presented as the computation is anti-dilutive due to the
Company's net loss in each period.

Liquidity

During fiscal 1999, the Company experienced a net loss of $30,444,813 and
at December 26, 1999 had an accumulated deficit of $75,682,855. The Company's
history of losses has been largely due to the large general and administrative
infrastructure it put in place to handle the rapid growth it has experienced, as
well as depreciation and the accretion of interest on its senior discount notes.
Management believes that the availability of funds from the LaSalle credit
facility (see Note 7) and operating revenues from its 172 units opened as of
fiscal year end 1999, will enable the Company to maintain operations for the
foreseeable future.

Beginning on November 1, 2001, the Company will be required to make
semi-annual cash payments of approximately $9.24 million on its senior discount
notes. Additionally, on September 30, 2001, the Company will be required to
repay the principal balance owing on the LaSalle facility. The principal balance
on the LaSalle facility on December 26, 1999 was approximately $7.5 million.
These payments, which are substantially in excess of any historic net cash flow
the Company has have generated, will be in addition to the Company's selling,
general and administrative expense and any other interest or other expenses the
Company

F-9
<PAGE> 66
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

may have at that time. Absent the Company's ability to obtain additional sources
of funding or to significantly modify these required debt service obligations,
it is unlikely that the Company will be able to make these required cash
payments when due.

3. SALE-LEASEBACK TRANSACTION

On December 31, 1997, the Company entered into a sale-leaseback transaction
with newly formed SpinDevCo, L.L.C. (SpinDevCo), a subsidiary of
McMahon-Oliphant, Inc. SpinDevCo, McMahon-Oliphant, Inc. and their affiliates
have no relationship or connection with the Company or any of its affiliates
other than the transaction described in this note. Eleven properties consisting
of land of $2.4 million and improvements of $4.0 million thereon that were
previously acquired by the Company were sold to SpinDevCo for approximately $6.4
million, then leased back under an operating lease with a 20 year term. The
Company received approximately $1.5 million in cash and a note in the principal
amount of approximately $4.9 million, which was originally due and payable on
April 30, 1998. The note was secured by mortgages on the properties. The
transaction also required the Company to contribute in cash approximately
$2,450,000 to be applied towards additional tenant improvements for the
properties. SpinDevCo requested, and on May 30, 1998 the Company granted, an
extension (the "Extended Note") of the maturity date of the note through
September 30, 1998 in return for the payment of $125,000 of accrued interest and
additional interest payments through that date. The purpose of this extension
was to allow SpinDevCo additional time to obtain the permanent financing with
which to repay the Company's note. On October 15, 1998, the Company received
approximately $4.9 million in cash from SpinDevCo in repayment of outstanding
principal and interest on the Extended Note. Simultaneously, the Company
purchased three sites from SpinDevCo for approximately $1.75 million in cash,
the same amount for which it had previously sold them to SpinDevCo. The Company
is currently operating stores at these three sites.

On June 17, 1999, the Company entered into a sale-leaseback transaction
with MBI Leasing, Inc. One property consisting of land of $220,000 and
improvements of $750,000 thereon that was previously acquired by the Company was
sold to MBI Leasing, Inc. for approximately $535,000, then leased back under an
operating lease with a 20 year term. The Company received cash for this
transaction. The transaction qualifies for sale-leaseback accounting in
accordance with Statement of Financial Accounting Standards No. 98, "Accounting
for Leases -- Sales-Leaseback Transactions Involving Real Estate." The Company
recognized a loss on the sale of approximately $390,000. Land held for
sale-leaseback of $1,919,209 at December 26, 1999 was stated at cost which
approximates estimated net realizable value.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
1999 1998
------------ ------------
<S> <C> <C>
Leasehold improvements.................................. $ 61,753,822 $ 56,540,640
Laundry equipment....................................... 41,678,878 40,412,479
Construction in progress................................ 1,880,916 2,566,227
Store equipment......................................... 6,856,352 5,882,432
Computer and office equipment........................... 8,062,340 7,038,919
------------ ------------
120,232,308 112,440,697
Less: Accumulated depreciation and amortization......... (24,990,698) (11,783,393)
------------ ------------
$ 95,241,610 $100,657,304
============ ============
</TABLE>

F-10
<PAGE> 67
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Effective June 15, 1998, the Company revised its estimate of the useful
lives of its laundry equipment. Laundry equipment was previously depreciated
over ten years and those lives have now been changed to periods that range from
seven up to 15 years. The useful life changes for laundry equipment were made to
better reflect the estimated periods during which these assets will remain in
service. The revised lives have been adopted for previously recorded assets and
newly acquired assets. The effect of the change was a reduction to depreciation
expense and a corresponding decrease to the net loss applicable to holders of
common stock for the year ended December 27, 1998 of approximately $538,823, or
$18.80 per share.

Depreciation expense was $13,361,828, $8,917,958 and $2,310,647 for the
years ended December 26, 1999, December 27, 1998 and December 28, 1997,
respectively.

5. ACQUISITIONS

During the year ended December 27, 1998, the Company acquired 40 existing
coin laundry businesses for a total cash outlay of $26,880,283, net of cash
acquired. These acquisitions were accounted for under the purchase method of
accounting. In connection with these acquisitions, the Company recorded goodwill
of $7,710,115 and did not assume any material liabilities of the sellers other
than, in certain cases, assuming the leases of the related real property.
Goodwill is amortized on a straight-line basis over 15 years.

During the year ended December 28, 1997, the Company acquired 27 existing
coin laundry businesses for a total cash outlay of $12,063,521, net of cash
acquired. These acquisitions were accounted for under the purchase method of
accounting. In connection with these acquisitions, the Company recorded goodwill
of $6,180,839 and did not assume any material liabilities of the sellers other
than, in certain cases, assuming the leases of the related real property.
Goodwill is amortized on a straight-line basis over 15 years.

The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the acquired coin laundry
businesses as if the acquisitions had occurred January 1, 1997.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 27, DECEMBER 28,
1998 1997
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
Net sales............................................... $ 37,897,974 $ 25,524,222
Net loss................................................ $(25,389,546) $(16,273,242)
Net loss per common share............................... $ (963.23) $ (477.75)
</TABLE>

These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional depreciation
expense as a result of a step-up in the basis of fixed assets, additional
amortization expense as a result of goodwill and other intangible assets, and
increased interest expense on acquisition debt. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combination been in effect on January 1, 1997 or of future results of
operations of the entities.

6. OTHER ASSETS

In connection with the issuance of the senior discount notes ("Notes"), as
discussed in Note 7, the Company paid approximately $4,600,000 of debt issue
costs, which are being amortized over the term of the Notes. In connection with
the LaSalle and Alliance credit facilities, as discussed in Note 7, the Company
paid approximately $270,000 of debt issue costs which are being amortized over
the terms of these facilities. The unamortized balance of these debt issue costs
is included as a component of other assets on the Company's balance sheet at
December 26, 1999.

F-11
<PAGE> 68
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT

At December 26, 1999 and December 27, 1998, long-term debt included:

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
12.75% Senior Discount Notes Due 2005 ($144,990,000
principle amount), net of unamortized discount............ $117,204,370 $102,960,529
Alliance Laundry Systems LLC Credit Facility; interest at
prime plus 1.0%, paid in installments through 2006........ 3,000,000 --
LaSalle Bank National Association Credit Facility; interest
at either prime plus 1.0% or LIBOR plus 3.0%; due
September 30, 2001........................................ 7,494,051
Other notes payable; interest at 11% due in various
installments through September 2001....................... 449,884 471,498
------------ ------------
128,148,305 103,432,027
Less current portion........................................ (207,460) (210,275)
------------ ------------
$127,940,845 $103,221,752
============ ============
</TABLE>

Long-term debt is scheduled to mature during future fiscal years as
follows:

<TABLE>
<S> <C>
2000........................................................ $ 207,460
2001........................................................ 7,936,475
2002........................................................ 600,000
2003........................................................ 600,000
2004........................................................ 600,000
Thereafter.................................................. 145,990,000
------------
$155,933,935
============
</TABLE>

On April 29, 1998, the Company completed the offering of $144,990,000
aggregate principal amount at maturity of 12.75% unsecured senior discount notes
(the "Notes") and warrants (the "Warrants") to purchase 26,661 shares of the
Company's common stock with an exercise price of $0.01 per share for gross
proceeds to the Company of $100,001,053 (the "Offering"). The net proceeds from
the Offering of approximately $96.8 million, net of underwriting expenses, were
used principally to pay certain other expenses of the Offering, repay
approximately $46.9 million in existing indebtedness, to provide funds for
investment in new stores and for general corporate purposes. The Notes will
mature on May 1, 2005. No cash interest will accrue on the Notes prior to May 1,
2001. The Notes will begin to accrue cash interest at a rate of 12.75% per annum
commencing May 1, 2001, and cash interest will be payable thereafter on November
1 and May 1 of each year, commencing November 1, 2001. The Notes will be
redeemable at the option of the Company, in whole or in part, on or after May 1,
2002, at the following redemption prices if redeemed during the 12-month period
commencing on May 1 of the years set forth below:

<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002........................................................ 106.375%
2003........................................................ 103.188%
2004 and thereafter......................................... 100.000%
</TABLE>

In addition, at any time and from time to time prior to May 1, 2001, the
Company may redeem in the aggregate up to 35% of the Accreted Value of the Notes
with the proceeds of one or more Public Equity Offerings following which there
is a Public Market, at a redemption price of 112.75% of the Accreted Value to
the date of redemption; provided, however, that at least $94.2 million of the
aggregate principal amount of the Notes at maturity remain outstanding after any
such redemption. Upon a Change of Control, each holder of the Notes (a "Holder")
will have the right to require the Company to purchase all or any part of such

F-12
<PAGE> 69
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Holder's Notes at a purchase price equal to 101% of the Accreted Value thereof,
plus accrued and unpaid interest, if any, to the date of purchase.

The Notes are senior, unsecured obligations of the Company ranking pari
passu in right of payment of principal and interest with all other existing and
future senior unsecured obligations of the Company and will rank senior to all
future subordinated debt of the Company. The Notes will be effectively
subordinated to all Secured Indebtedness of the Company, if any, to the extent
of the value of the assets securing such indebtedness and to all indebtedness
and other obligations (including trade payables) of the Company's future
subsidiaries, if any. The Warrants became exercisable on April 29, 1999 and will
expire on May 1, 2005.

Prior to the Offering, the Company had in place a $45.0 million credit
facility from Raytheon Commercial Laundry, LLC ("Raytheon"), one of the largest
commercial laundry equipment vendors, which had most recently provided the
Company with approximately $30.0 million of equipment financing and $15.0
million of acquisition financing. This facility provided 100% financing for
commercial laundry equipment purchases (based upon list prices) and store
acquisitions. The Company procured a bank credit facility with LaSalle National
Bank ("LaSalle") in March 1998, which provided the Company with $15.0 million
for acquisitions and general corporate purposes. On April 29, 1998, the Company
repaid all indebtedness outstanding under these two facilities with the net
proceeds from the Offering and terminated the related loan agreements (see Note
15.)

On April 29, 1998, the Company also closed a secured revolving credit
facility in the maximum principal amount of $40.0 million with Heller Financial,
Inc. (the "Heller Facility"). As of December 26, 1999, the Company has no
amounts outstanding to Heller.

On November 17, 1999 the Company entered into a $12.0 million secured
revolving credit facility with LaSalle Bank National Association to replace its
secured revolving credit facility from Heller Financial, Inc. Availability under
the Heller facility was based upon a borrowing base formula determined by income
from store operations and net book value of laundry equipment. At the time, the
Company had borrowed $9.3 million and had no additional borrowing capacity on
the $40.0 million Heller Facility.

The LaSalle facility has less restrictive financial covenants than the
Heller facility. The financial covenants include minimum tangible net worth, a
senior interest coverage ratio and a minimum net book value of laundry
equipment. The LaSalle facility will mature on September 30, 2001, and requires
monthly payment of interest only until that date. All principal and interest
accrued but unpaid at maturity are payable on the maturity date.

F-13
<PAGE> 70
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

comprised of $50,000 of principal plus accrued interest on the unpaid principal
balance and a sixtieth payment of accrued interest only. Obligations under the
Alliance facility shall bear interest at the rate of prime (as set by LaSalle
from time to time) plus 1.0%. The financial covenants under the Alliance
facility include minimum tangible net worth, a senior interest coverage ratio
and a minimum net book value of laundry equipment.

In connection with these loans, LaSalle and Alliance entered into an
intercreditor agreement pursuant to which they agreed to allocate between them
first priority security interest upon (I) all of the Company's now owned and
hereafter acquired real and personal property and all proceeds thereof and (II)
all of the Company's general intangibles and other intangible assets (including,
without limitation, trademarks and trade names), if any, and the proceeds
thereof such that Alliance has first priority with respect to those assets at
and in connection with 15 of the Company's stores and LaSalle has a first
priority security interest in the balance of the Company's assets. The Company
used the $3.0 million of proceeds from the Alliance facility to pay down the
LaSalle line to approximately $7.1 million and to finance amounts it owed to
Alliance. Additionally, the Company drew approximately $350,000 to cover accrued
interest on the Heller facility and costs associated with the closing of the
LaSalle and Alliance facilities. The Company currently has $4.5 million of
borrowing availability under the LaSalle facility. LaSalle has reserved the
right to reduce the Company's availability under the facility in an amount not
to exceed $1.0 million if the Company has not obtained appropriate consents from
the landlords of all of its leased stores on or before December 26, 1999.
Obtaining these consents was a closing condition which LaSalle waived at
closing. As of December 26, 1999 the Company had obtained approximately 95% of
the required consents. LaSalle has not notified the Company that its ability has
been limited by $1.0 million. During the fourth quarter of 1999, the Company was
required to write off deferred financing charges which had been capitalized in
connection with the Heller Facility.

On September 18, 1998, the Company entered into an agreement with
PeopleSoft USA, Inc. ("PeopleSoft") for the purchase of a new accounting
software system and the related hardware, installation and training fees. The
transaction was financed through several installments of a note payable to
Newcourt Financial USA, Inc. The Company began utilizing the software for
substantially all of its accounting processes at the beginning of its fiscal
1999 second quarter. PeopleSoft has verified to the Company that its products
are Year 2000 compliant. As of December 26, 1999, the Company owed $449,884 on
this note. The note bears interest at a rate of 11% and is due in several
installments, the last of which is due September 18, 2001. The note agreement
contains no financial covenants.

F-14
<PAGE> 71
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

Deferred income tax assets (liabilities) consist of the following:

<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $17,694,768 $11,771,636
OID Interest....................................... 8,358,631 3,016,241
Other.............................................. 2,088,594 400,290
----------- -----------
$28,141,993 $15,188,167
----------- -----------
Deferred tax liabilities:
Depreciation....................................... -- (371,437)
Other.............................................. (23,272) (4,490)
----------- -----------
(23,272) (375,927)
----------- -----------
Net deferred tax asset.................................... 28,118,721 14,812,240
Less: valuation allowance............................ (28,118,721) (14,812,240)
=========== ===========
$ -- $ --
=========== ===========
</TABLE>

In assessing the realizability of its deferred tax assets, the Company
considers whether it is more likely than not that some or all of such assets
will be realized. As a result of historical operating losses, the Company has
fully reserved its net deferred tax assets as of December 26, 1999. The Company
will consider release of the valuation allowance once profitable operations have
been sustained.

As of December 26, 1999, the Company had net operating loss carryforwards
of approximately $44.2 million which will begin to expire in 2011. In the event
of a change in ownership as defined by section 382 of the Internal Revenue Code,
a significant limitation may be imposed on the availability of the Company's net
operating loss carryforwards. It is probable that the Company has experienced
one or more ownership changes in prior years as a result of the Company raising
various rounds of private equity or that such an ownership change may have
occurred or be deemed to have occurred.

9. CAPITAL STOCK

The Company has issued 76,974 shares of series A, 125,498 shares of series
B, and 72,930 shares of series C convertible preferred stock (collectively, the
Preferred Stock). Concurrently with the closing of its 1998 senior discount note
offering, the redemption rights of the holders of the "Preferred Stock" were
terminated. The previous put rights could have required the Company to purchase
all of the Preferred Stock at any time after June 1, 2001, at a redemption price
equal to the greater of the purchase price of the shares plus accrued but unpaid
dividends, if any, or, the appraised value of the shares.

Holders of the Preferred Stock are entitled to one vote for each share held
on all matters and do not have cumulative voting rights. Dividends on the
preferred stock are payable only when declared by the Board of Directors and are
not cumulative. Each share of the Preferred Stock is convertible into one share
of common stock on a one-for-one basis and will be converted into common stock
concurrently with a qualified public offering of the Company's common stock. The
Company has reserved common shares equivalent to the outstanding preferred
shares. The Preferred Stock has a liquidating preference over the common stock.
In the event of liquidation, the holders of Preferred Stock are entitled to
receive an amount equal to the price paid for the shares to the Company and
participate on a pro rata basis with common stock shareholders for the remaining
assets of the Company. In connection with the issuance of the Preferred Stock,
the Company incurred approximately $1,043,000 of issuance costs.

F-15
<PAGE> 72
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

On April 14, 1998, 7,295 shares of the Company's common stock were issued
to series C stockholders in connection with the re-pricing of the series C
convertible preferred stock offering, originally priced at $220 per share.
Pursuant to a stockholder consent dated March 18, 1998 and obtained as of April
14, 1998, the series C offering was converted to a unit offering, whereby each
series C unit offered was comprised of ten shares of series C preferred stock
and one share of common stock for $2,200 per unit. In accordance with existing
authoritative guidance, the additional fair value of the consideration
transferred to series C stockholders of $1,459,000 (i.e. the 7,295 shares of
common stock issued in connection with the conversion of the original offering
to a unit offering multiplied by $200 per share) has been treated as a return to
series C stockholders. Accordingly, $1,459,000 has been deducted from the
Company's net loss for the year-to-date period ended December 27, 1998 in
determining the net loss applicable to common shareholders for the calculation
of earnings per share.

On June 30, 1997, the Company effected a one-for-twenty-five reverse stock
split of its preferred and common stock. Per share par value did not change as a
result of this event. Accordingly, all references to shares issued and
outstanding in the financial statements have been retroactively restated to give
effect to this stock split.

10. STOCK OPTIONS

The SpinCycle, Inc. 1995 Amended and Restated Stock Option Plan (the
"Plan") provides for the issuance of employee stock options. Under the
provisions of the Plan, the Compensation and Organization Committee (the
"Committee"), which is appointed by the Board of Directors of the Company has
the discretion to determine, among other things, the employees to whom options
may be granted; the number of options to be granted; the vesting period assigned
to the options; and such other terms and conditions, consistent with the terms
of the Plan, as the Committee deems appropriate. Substantially all options
currently outstanding at December 27, 1998 vest ratably over a five year period
from the date granted. The Committee also has the discretion to determine
whether options granted shall be Incentive Stock Options ("ISOs") within the
meaning of section 411 (a) of the Internal Revenue Code or non-qualified stock
options. The Company has reserved 69,270 shares of its common stock for issuance
in connection with the Plan.

During 1997, the Company's Board of Directors approved a similar stock
option plan for non-employee directors (the "Director Option Plan"). As of
December 27, 1998, 220 options have been granted under this plan. The Company
has reserved 2,000 shares of its common stock for issuance in connection with
this plan.

The option price for all non-qualified stock options is also determined by
the Committee, provided that in no event shall it be less than 85% of the fair
market value of the stock at the time the option is granted. The option price
for each option which is intended to qualify as an ISO shall be 100% of the fair
market value of the stock at the time the option is granted (110% if the
participant owns at least 10% of the stock immediately before the ISO is
granted). A summary of option activity under both the Plan and the Director
Option Plan for each of the fiscal years ended December 28, 1997, December 27,
1998 and December 26, 1999 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION SHARES EXERCISE PRICE
------------- --------------
<S> <C> <C>
Outstanding at December 31, 1996.......................... 10,616 $125.00
Activity during Fiscal Year 1997:
Granted................................................. 21,287 152.27
Exercised............................................... -- --
Expired/terminated...................................... (774) 178.29
------- -------
Outstanding at December 28, 1997.......................... 31,129 $142.33
</TABLE>

F-16
<PAGE> 73
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION SHARES EXERCISE PRICE
------------- --------------
<S> <C> <C>
Activity During Fiscal Year 1998:
Granted................................................. 21,173 $200.00
Exercised............................................... -- --
Expired/Terminated...................................... (11,629) 146.84
------- -------
Outstanding at December 27, 1998.......................... 40,673 171.00
------- -------
Activity during fiscal year 1999:
Granted................................................. 3,276 200.00
Exercised............................................... -- --
Expired/terminated...................................... (9,925) 198.79
------- -------
Outstanding at December 26, 1999.......................... 34,024 $166.19
======= =======
Exercisable at December 26, 1999.......................... 14,284 $165.64
Exercisable at December 27, 1998.......................... 7,680 $153.23
Exercisable at December 28, 1997.......................... 6,456 $148.79
Weighted average grant-date fair value of options granted
during fiscal 1999...................................... 3,276 $ --
Weighted average grant-date fair value of options granted
during fiscal 1998...................................... 21,173 $ 45.27
Weighted average grant-date fair value of options granted
during fiscal 1997...................................... 21,287 $ 39.15
</TABLE>

The following table summarizes information about our stock options
outstanding as of December 26, 1999:

<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING -------------------------------
--------------------------------------------------- NUMBER
NUMBER WEIGHTED-AVERAGE EXERCISABLE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE AT WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/26/99 CONTRACTUAL LIFE EXERCISE PRICE 12/26/99 EXERCISE PRICE
------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$125.00 15,536 7.31 $125.00 6,544 $125.00
$200.00 18,488 8.67 $200.00 7,740 $200.00
</TABLE>

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
stock option agreements. Had compensation cost for the Company's agreements been
determined based on the fair value at the grant date for awards in 1998, 1997
and 1996 consistent with the provisions of SFAS No. 123, the Company's net loss
and net loss per common share would have been increased to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net loss -- as reported..................... $30,444,813 $24,655,068 $13,795,509
Net loss -- pro forma....................... $30,469,360 $24,862,349 $13,924,560
Net loss per common share -- as reported.... $ (1,096.60) $ (937.60) $ (412.76)
Net loss per common share -- pro forma...... $ (1,097.48) $ (944.83) $ (416.15)
</TABLE>

F-17
<PAGE> 74
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model applying the following assumptions:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield................................. 0.00% 0.00% 0.00%
Risk-free interest rate................................. 4.96% 5.26% 6.15%
Expected life of options................................ 5 years 5 years 5 years
</TABLE>

11. COMMITMENTS

The Company leases substantially all of its stores and corporate offices
under operating leases that are not cancelable. The leases expire at various
dates through 2024. The Company has the option to extend the terms of the leases
for periods ranging from five to 26 years. Certain leases require payment of
property taxes, utilities, common area maintenance costs and insurance. Minimum
lease payments due under the agreements for future fiscal years are as follows:

<TABLE>
<S> <C>
2000............................................ $10,596,244
2001............................................ 10,517,467
2002............................................ 9,841,311
2003............................................ 9,285,030
2004............................................ 8,470,423
Thereafter...................................... 44,338,579
-----------
$93,049,054
===========
</TABLE>

Rent expense totaled $10,133,620 $7,280,216 and $2,518,937 for the years
ended December 26, 1999, December 27, 1998 and December 28, 1997, respectively.

The Company has entered into employment agreements with two of its key
executive officers. These agreements do not exceed four years in term, provide
for a covenant not to compete for a term of one year subsequent to termination
of the agreements, and provide for the payment of one year of base salary in the
event that the employees are terminated.

12. EXECUTIVE SEVERANCE AGREEMENTS

As a result of the resignation of the Company's former CEO and Chairman of
the Board of Directors in January 1998, and in accordance with the terms of the
related employment agreement, the Company was obligated to pay this executive
$400,000 over the remaining two-year term of his employment agreement. This
amount, including related payroll taxes, was accrued at December 28, 1997. In
addition, in March of 1998, the Company agreed to repurchase 18,019 shares of
common stock owned by this executive for a sum of $200,000 to be paid as salary
in the third year after his resignation. The current and long-term portions of
this liability are included in accrued expenses and other liabilities,
respectively, on the Company's balance sheet at December 27, 1998 and December
26, 1999.

In addition, the Company forgave a loan outstanding to the executive of
$50,000, plus any interest accrued thereon. The expense associated with this
forgiveness of debt is included in general and administrative expenses in the
Company's statement of operations. This executive also relinquished rights to
any stock options previously granted to him by the Company as well as his
subordinate right of first refusal with respect to certain other common shares.

In July 1998, the Company and Mr. Bruce Mosby, the Company's former Chief
Operating Officer, agreed that Mr. Mosby would leave the Company's employ.
Later, a legal dispute arose concerning his

F-18
<PAGE> 75
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

departure. In October 1998, the Company and Mr. Mosby agreed to submit their
dispute regarding their employment separation agreement to mediation. While
mediation did not resolve the matter, the dispute was settled in February 1999.
As a result of the settlement, Mr. Mosby received $125,000 from the Company to
be paid as salary over one year and another $170,000 from the Company's
insurance carrier which was paid in February of 1999.

13. RELATED PARTY TRANSACTIONS

Two directors of the Company are partners in a law firm which provides
legal services to the Company. The Company paid approximately $840,000, $2.3
million and $400,000 in legal fees to this firm during the fiscal years ended
December 26, 1999, December 27, 1998 and December 28, 1997, respectively. No
payments were made to this firm prior to 1997.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The carrying amounts for cash and
cash equivalents, landlord allowances, accounts payable and accrued expenses
reported in the Company's balance sheet approximate fair value based on the
short maturity of those instruments. The carrying value of the other note
payable is a reasonable estimate of fair value as the risk is commensurate with
the terms and collateral of the agreement. The fair value of the Company's
publicly traded debt was approximately $46.4 million based on the bid prices in
the public bond market as of December 26, 1999.

15. EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT

In connection with the termination of the Raytheon and LaSalle loan
agreements (as discussed in Note 7), the Company recognized an extraordinary
loss of approximately $334,000 for the write-off of the unamortized balance of
debt issue costs related to these agreements. This amounted to a net loss per
share amount of $11.64. There was no tax effect on this loss, based on the
Company fully reserving against the deferred tax asset.

In connection with the termination of the Heller facility (as discussed in
Note 7), the Company recognized an extraordinary loss of approximately $782,000
for the write-off of the unamortized balance of debt issue costs related to this
agreement. This amounted to a net loss per share amount of $28.15. There was no
tax effect on this loss, based on the Company fully reserving against the
deferred tax asset.

16. REDUCTION IN FORCE

On February 8, 1999, eight general and administrative employees were
released from their employment with the Company as part of a reduction in force.
This reduction in force was primarily focused on the Company's growth related
personnel, including regional directors of development and acquisitions and
corporate and field level construction managers. In connection with this
reduction in force, the Company paid approximately $55,000 in severance and
approximately $11,000 in accrued vacation benefits to these eight employees.
These expenses were recorded in the first quarter of 1999.

On April 23, 1999, 20 general and administrative employees, including the
Company's Chief Information Officer, Mr. Patrick Boyer, were released from their
employment with the Company as part of a reduction in force. In connection with
this reduction in force, the Company paid approximately $72,000 in severance and
approximately $20,000 in accrued vacation benefits to these employees. These
expenses were recorded in the second quarter of 1999.

F-19
<PAGE> 76
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

As a result of the Company's slowed expansion and development and public
equity offering prospects, the Company's Chief Financial Officer, Mr. James
Puckett, left the Company effective May 6, 1999. In the Company's current state
of slowed growth, the day to day financial responsibilities will be assumed by
Mr. Peter Ax, the Company's Chairman and Chief Executive Officer. Additionally,
Mr. John S. Banas, III, the company's general counsel, was terminated June 10,
1999. The Company has no plans to hire another general counsel.

F-20
<PAGE> 77

SPINCYCLE, INC.

BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 19, DECEMBER 26,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,461,689 $ 4,125,919
Landlord allowances....................................... 77,250 176,340
Prepaid expenses.......................................... 339,998 92,490
Inventory................................................. 305,763 298,477
Land held for sale-leaseback.............................. 1,919,209 1,919,209
Other current assets...................................... 665,050 685,508
------------ ------------
Total current assets.................................... 7,768,959 7,297,943
Property and equipment, net................................. 92,602,133 95,241,610
Goodwill, net............................................... 12,402,130 12,634,520
Other assets................................................ 4,193,456 4,370,021
------------ ------------
Total assets....................................... $116,966,678 $119,544,094
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,127,022 $ 885,231
Accrued utilities......................................... 1,219,446 1,296,144
Accrued expenses.......................................... 1,815,926 2,666,326
Current portion of deferred rent.......................... 493,335 493,335
Current portion of long-term debt......................... 297,460 207,460
------------ ------------
Total current liabilities............................... 4,953,189 5,548,496
Long-term debt.............................................. 131,365,220 127,940,845
Deferred rent............................................... 3,233,063 3,407,741
Other liabilities........................................... 403,494 428,520
------------ ------------
Total liabilities.................................. 139,954,966 137,325,602
------------ ------------
Shareholders' equity (deficit):
Series A, Series B and Series C convertible preferred
stock, $.01 par value, 370,000 shares authorized,
275,402 shares issued and outstanding................... 50,845,810 50,845,810
Common stock, $.01 par value, 630,000 shares authorized,
27,763 shares issued and outstanding.................... 278 278
Common stock warrants..................................... 5,625,000 5,625,000
Additional paid-in capital -- common stock................ 1,430,259 1,430,259
Accumulated deficit....................................... (80,889,635) (75,682,855)
------------ ------------
Total shareholders' equity (deficit)...................... (22,988,288) (17,781,508)
------------ ------------
Total liabilities and shareholders' equity................ $116,966,678 $119,544,094
============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-21
<PAGE> 78

SPINCYCLE, INC.

STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------
MARCH 19, MARCH 21,
2000 1999
----------- -----------
<S> <C> <C>
Revenues.................................................... $13,297,898 $11,605,515
Cost of revenues -- store operating expenses, excluding
depreciation and amortization............................. 8,835,640 8,711,615
----------- -----------
Gross operating profit, excluding depreciation and
amortization........................................... 4,462,258 2,893,900
Preopening costs............................................ -- 113,372
Depreciation and amortization............................... 3,369,459 3,151,607
Selling, general and administrative expenses................ 2,312,475 2,515,957
Loss on disposal of property and equipment.................. -- 31,500
----------- -----------
Operating loss............................................ (1,219,676) (2,918,536)
Interest income............................................. 25,322 37,126
Interest expense, net of amount capitalized................. (4,012,426) (3,375,663)
----------- -----------
Net loss.................................................. $(5,206,780) $(6,257,073)
Net loss applicable to holders of common stock............ $ (187.54) $ (225.37)
=========== ===========
Weighted average number of common shares outstanding........ 27,763 27,763
----------- -----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-22
<PAGE> 79

SPINCYCLE, INC.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
YEAR-TO-DATE
--------------------------
MARCH 19, MARCH 21,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss.................................................. $(5,206,780) $(6,257,073)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 3,369,459 3,151,607
Loss on disposal of property and equipment............. -- 31,500
Amortization of debt issuance costs.................... 195,592 256,514
Amortization of discount on long-term debt............. 3,534,967 3,123,966
Changes in assets and liabilities:
Landlord allowances.................................. 99,090 (267,460)
Prepaid expenses..................................... (157,508) 336,811
Inventory............................................ (7,286) (136,911)
Other current assets................................. 20,458 25,573
Other assets......................................... 10,004 (36,177)
Accounts payable..................................... 241,791 (440,021)
Construction payables................................ -- (389,393)
Accrued utilities.................................... (76,698) (120,438)
Accrued expenses and other liabilities............... (875,426) (934,085)
Deferred rent........................................ (174,678) 578,389
----------- -----------
Net cash provided by (used in) operating
activities..................................... 972,985 (1,077,198)
----------- -----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (496,196) (5,613,837)
Proceeds from sale of fixed assets........................ -- 2,000
Capitalized interest...................................... (1,612) (79,186)
----------- -----------
Net cash provided by (used in) investing
activities..................................... (497,808) (5,691,023)
----------- -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Payments of debt.......................................... (122,012) (79,477)
Debt issuance costs paid.................................. (17,395) (129,753)
Increase in debt.......................................... -- 5,890,000
Stock issuance costs paid................................. -- 9,600
----------- -----------
Net cash provided by (used in) financing
activities..................................... (139,407) 5,690,370
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 335,770 (1,077,851)
Cash and cash equivalents, beginning of period.............. 4,125,919 4,239,099
----------- -----------
Cash and cash equivalents, end of period.................... $ 4,461,689 $ 3,161,248
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Equipment financed with long-term debt.................... $ 11,420 $ 122,694
Insurance premium financing............................... $ 90,000 $ --
CASH FLOW DURING THE YEAR FOR THE FOLLOWING:
Interest paid............................................. $ 210,707 $ --
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-23
<PAGE> 80

SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS

1. UNAUDITED FINANCIAL INFORMATION -- BASIS OF PRESENTATION

The unaudited financial information presented herein has been prepared in
accordance with the instructions to Form 10-Q and Regulation S-X and does not
include all of the information and note disclosures required by generally
accepted accounting principles. This information reflects all adjustments that
are, in the opinion of management, necessary for a fair statement of the
Company's financial position, results of operations and cash flows for the
interim periods reported. These adjustments are of a normal and recurring
nature.

2. UNAUDITED INTERIM RESULTS OF OPERATIONS

The results of operations for the periods ended March 19, 2000 and March
21, 1999 are not necessarily indicative of the results to be expected for a full
fiscal year.

3. EARNINGS PER SHARE

Net loss per common share is computed using the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
requires the presentation of basic earnings per share ("EPS") and diluted EPS.

Basic EPS is computed by dividing the net loss applicable to holders of
common stock by the weighted average number of common shares outstanding during
each period. Diluted EPS is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period adjusted for
dilutive stock options and warrants and dilutive common shares assumed to be
issued on conversion of preferred stock to common stock. Diluted EPS has not
been presented, as the computation is anti-dilutive due to the Company's net
loss in each period.

4. INTEREST EXPENSE, NET OF AMOUNT CAPITALIZED

The Company's interest expense, net of amount capitalized, consists of the
following:

<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------
MARCH 19, MARCH 21,
2000 1999
---------- ----------
<S> <C> <C>
Accretion of Senior Discount Notes.......................... $3,534,967 $3,123,966
Interest expense on Alliance and LaSalle debt............... 232,070 --
Interest expense on Heller.................................. -- 61,918
Amortization of debt issue costs............................ 195,592 256,515
Other interest expense...................................... 51,409 12,450
Capitalized interest........................................ (1,612) (79,186)
---------- ----------
Interest expense, net....................................... $4,012,426 $3,375,663
========== ==========
</TABLE>

F-24
<PAGE> 81
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT

At March 19, 2000 and December 26, 1999, long-term debt included the
following:

<TABLE>
<CAPTION>
MARCH 19, DECEMBER 26,
2000 1999
------------ ------------
<S> <C> <C>
12.75% Senior Discount Notes Due 2005 ($144,990,000
principal amount), net of unamortized discount........ $120,739,337 $117,204,370
Alliance Laundry Systems LLC Credit Facility; interest
at prime plus 1.0%; due in installments through
2006.................................................. 3,000,000 3,000,000
LaSalle Bank National Association Credit Facility;
interest at either prime plus 1.0% or LIBOR plus 3.0%;
due September 30, 2001................................ 7,494,051 7,494,051
Other notes payable; interest at 11% due in various
installments through September 2001................... 429,292 449,884
------------ ------------
131,662,680 128,148,305
Less current portion.................................... (297,460) (207,460)
------------ ------------
$131,365,220 $127,940,845
============ ============
</TABLE>

6. SUBSEQUENT EVENTS

On May 1, 2000, the Company's majority owned subsidiary, Cleanwave, LLC, a
Delaware limited liability company, entered into an amended and restated limited
liability company agreement and a unit purchase agreement, among other
transaction documents, with Shell Chemical Company ("Shell"). E-Wash, LLC was
formed on February 28, 2000 and was re-named Cleanwave, LLC on March 6, 2000 and
was then re-named Cleanwave, LLC on May 30, 2000. Its only member upon formation
was CleanWave, Inc., a Delaware corporation and a wholly owned subsidiary of the
Company, which was formed on January 7, 2000 as E-Wash, Inc. and was re-named on
March 6, 2000 and was then re-named Cleanwave, Inc. on May 30, 2000. Cleanwave
will be accounted for under the consolidation method of accounting. As of March
19, 2000, Cleanwave did not have amounts to consolidate.

Cleanwave, LLC will conduct the pick up and delivery laundry business which
the Company has been testing in Miami since August 1999. Pursuant to the unit
purchase agreement, Shell acquired units representing a 30% interest in
Cleanwave, LLC. The balance of Cleanwave, LLC units are owned by Cleanwave, Inc.
(52.5%) and seven members of the Company's senior management (17.5% in the
aggregate). The seven members of senior management of the Company collectively
own their Cleanwave, LLC units pursuant to restricted unit agreements by and
among Cleanwave, LLC, Cleanwave, Inc. and each of the individuals. The
restricted unit agreements vest one-third of each individual's units as of the
date of grant (February 28, 2000) and vest an additional one-third on each of
the first two anniversaries of the grant date. The grant of these restricted
units is subject to approval by the Company's stockholders.

Shell received one-third (10%) of its 30% interest in Cleanwave, LLC in
exchange for services rendered and expenses undertaken prior to closing; these
expenses related primarily to market research. Shell purchased the remaining
two-thirds (20%) of its interest for $5.0 million in cash. The $5.0 million is
expected to be used to operate the Cleanwave business in the Miami market for
approximately the next 12 months and to pay certain expenses incurred by the
parties prior to closing, such as branding and capital expenditures. Shell also
has the opportunity to earn up to an additional 11% of the limited liability
company units of Cleanwave if and when Cleanwave, LLC enters into certain
strategic relationships with specified third parties and/or Shell provides
certain services to Cleanwave, LLC pursuant to the terms of an option for
additional units issued to Shell.

Cleanwave, LLC and Shell and certain related parties of each concurrently
entered into an intellectual property transfer and license agreement regarding
the ownership and licensing of existing intellectual property

F-25
<PAGE> 82
SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

owned by the Company and/or contributed to Cleanwave, LLC and future
intellectual property created by and/or on behalf of the Company, Cleanwave, LLC
or Shell. CleanWave and Shell also entered into an interim services and products
agreement pursuant to which CleanWave agrees to grant Shell a right of first
refusal to provide certain products and services to CleanWave.

The Company will be providing the laundry processing services (personnel
and facilities) to Cleanwave, LLC for a two year period, subject to extension
and termination as agreed by the parties. All personnel previously hired to
drive vans and staff the call center shall become Cleanwave employees. Going
forward, SpinCycle will be compensated for providing laundry processing services
on a price per pound basis as well as with fees to offset training and field
management expenses and to offset occupancy costs. The terms of this agreement
are set forth in a laundry services agreement between the Company and Cleanwave,
LLC. The Company has also agreed to provide certain administrative services,
such as payroll processing, human resources, executive staffing and information
systems, to Cleanwave, LLC for a term of one year, subject to extension by the
parties.

Currently, Cleanwave, LLC's only officers are Peter Ax and Christopher
Lombardi, who are also officers of the Company. Cleanwave, LLC has a board of
directors, currently comprised of Peter Ax, Christopher Lombardi, John H.
Muehlstein, Daniel K. Carlson and R. Krug Fenz. Messrs. Carlson and Fenz are
Shell's representatives on the board.

The Company was required to and did obtain a waiver from its lenders,
LaSalle Bank National Association and Alliance Laundry Systems LLC in connection
with this transaction.

F-26
<PAGE> 83

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

[SPINCYCLE LOGO]

SPINCYCLE, INC.

144,990 WARRANTS
TO PURCHASE 26,661 SHARES
OF COMMON STOCK
AND 26,661 SHARES
OF COMMON STOCK

------------------------
PROSPECTUS
------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 84

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following expenses (other than the SEC filing fee) are estimated:

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ --
Accounting Fees............................................. $ 25,000
Printing and Engraving Expenses............................. $ 85,000
Legal Fees and Expenses (other than blue sky)............... $ 35,000
Blue Sky Fees and Expenses.................................. $ --
Transfer Agent and Registrar Fees........................... $ --
Miscellaneous Expense....................................... $ --
--------
Total............................................. $145,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law (the "Delaware Act")
authorizes indemnification of directors, officers, employees and agents of the
Company; allows the advancement of costs of defending against litigation; and
permits companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees and agents against liabilities whether or not in
the circumstances such companies would have the power to indemnify against such
liabilities under the provisions of the statute.

The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides for indemnification of the Company's officers and
directors to the fullest extent permitted by Section 145 of the Delaware Act.
The Company intends to obtain directors and officers insurance covering its
executive officers and directors.

The Certificate eliminates, to the fullest extent permitted by Delaware
law, liability of a director to the Company of its stockholders for monetary
damages for a breach of such director's fiduciary duty of care except for
liability where a director: (a) breaches his or her duty of loyalty to the
Company or its stockholders; (b) fails to act in good faith or engages in
intentional misconduct or knowing violation of law; (c) authorizes payment of an
illegal dividend or stock repurchase; or (d) obtains an improper personal
benefit. While liability for monetary damages has been eliminated, equitable
remedies such as injunctive relief or rescission remain available. In addition,
a director is not relieved of his or her responsibilities under any other law,
including the federal securities laws.

Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, the Company has been advised that in the opinion of the
Securities and Exchange Commission (the "Commission"), such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In November 1997, the Company commenced an offering of up to $25 million of
its Series C Convertible Preferred Stock ("Series C Stock") at an offering price
of $220 per share. Due to actual results and revised projections of Company
revenues, management determined in February 1998 that the offering should be
terminated and repriced to $200 per share. This repricing was to be achieved by
the issuance of one share of the Company's Common Stock for every ten shares of
Series C Stock subscribed for. The repricing required approval of 51% of the
holders of the Company's Common and Series B Stock and 76% of the holders of the
Company's Series A Stock. The repricing was also affirmed by all subscribers for
Series C Stock. The requisite approvals were obtained as of April 14, 1998 and
the "Series C Units," comprised of ten shares of Series C

II-1
<PAGE> 85

Stock and one share of Common Stock were then issued to the subscribers in the
Series C offering. The Series C Units were offered to "accredited investors"
only. In connection with the sale of Series C Units, the Company relies upon the
exemptions from the Section 5 registration requirements set forth in Section
4(2) of the Securities Act and pursuant to the safe harbor provided in Rule 506
of Regulation D. This offering was conducted without any general solicitation
and the investors were required to represent that they were purchasing for
investment and not with a view toward resale. The Series C Units were offered
through officers and directors of the Company and to existing stockholders of
the Company. As of the close of this offering on April 14, 1998, a total of
approximately $16.0 million was raised in the sale of 72,930 shares of Series C
Stock and 7,293 shares of Common Stock.

On April 3, 1998, the Company commenced the offering of Senior Discount
Notes (the "Old Notes") to "qualified institutional buyers" (as defined in Rule
144A promulgated pursuant to the Securities Act) only. This offering (the
"Private Placement") was closed on April 29, 1998 with the sale of 144,990 units
(the "Units"), with each Unit comprised of 12 3/4% Senior Discount Notes in the
principal amount at maturity of $1,000 and a warrant (the "Warrants") to
purchase .1839 shares of the Company's Common Stock. An exchange offer
registration statement was filed on June 26, 1998 regarding the exchange of the
Old Notes for registered notes (the "New Notes"). This registration statement
provides the holders of the Warrants and the shares of Common Stock issuable
upon the exercise of those Warrants to sell those securities for their own
accounts.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The exhibits to the Registration Statement are listed in the Exhibit Index
which appears elsewhere in this Registration Statement and is incorporated
herein by this reference.

All other schedules are omitted because of the absence of the condition
under which they are required or because the information is included in the
consolidated financial statements or notes thereto.

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-2
<PAGE> 86

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 14 above or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer, or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

II-3
<PAGE> 87

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Post Effective Amendment No. 3 to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Scottsdale, in the State of Arizona, on June 1,
2000.

SPINCYCLE, INC.

By: /s/ PETER L. AX
------------------------------------
Peter L. Ax
Chairman and Chief Executive Officer

II-4
<PAGE> 88

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post Effective Amendment No. 3 has been signed below by the following
persons in the capacities indicated on June 1, 2000.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PETER L. AX Chairman and Chief Executive Officer
----------------------------------------------------- (Principal Executive, Financial and
Peter L. Ax Accounting Officer)

/s/ ALFREDO BRENER* Director
-----------------------------------------------------
Alfredo Brener

/s/ DEAN L. BUNTROCK* Director
-----------------------------------------------------
Dean L. Buntrock

/s/ JAMES E. HUTTON* Director
-----------------------------------------------------
James E. Hutton

/s/ JOHN H. MUEHLSTEIN* Director
-----------------------------------------------------
John H. Muehlstein

/s/ PEER PEDERSEN* Director
-----------------------------------------------------
Peer Pedersen

/s/ JOHN WALLACE* Director
-----------------------------------------------------
John Wallace
</TABLE>

* Signed by Peter L. Ax pursuant to power of attorney.

II-5
<PAGE> 89

EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
1.1* Purchase Agreement, dated April 24, 1998 between the Company
and Credit Suisse First Boston Corporation, as Initial
Purchaser.
3.1* Amended and Restated Certificate of Incorporation of the
Company as filed on April 27, 1998.
3.2* Bylaws of the Company.
4.1* Warrant Agreement dated as of April 29, 1998 between the
Company and Norwest Bank Minnesota, N.A., as Trustee.
4.2* Amendment of Warrant Agreement dated as of June 9, 1998
between the Company and Norwest Bank Minnesota, N.A., as
Trustee.
5.1* Legal Opinion of Pedersen & Houpt, P.C.
10.1* Loan and Security Agreement dated as of April 29, 1998 among
the Company, as Borrower, various financial institutions, as
Lenders, and Heller Financial, Inc., as Agent and as Lender.
10.2* Collateral Assignment of Leases dated as of April 29, 1998
between the Company, as Borrower, and Heller Financial,
Inc., as Agent for the Lenders under the Loan and Security
Agreement.
10.3* Assignment for Security of Patents, Trademarks and
Copyrights dated as of April 29, 1998 between the Company,
as Assignor, and Heller Financial, Inc., as Agent for the
Lenders under the Loan and Security Agreement.
10.4* Amended and Restated Supply Agreement dated as of February
19, 1998 between the Company, as Buyer, and Raytheon
Commercial Laundry LLC, as Seller.
10.5* Employment Agreement dated December 1, 1996 between the
Company and Peter Ax.
10.6* Employment Agreement dated June 1, 1997 between the Company
and Chris Lombardi.
10.7* Indenture dated as of April 29, 1998 between the Company and
Norwest Bank Minnesota, N.A., as Trustee.
10.8* Registration Rights Agreement dated April 29, 1998 between
the Company and Credit Suisse First Boston Corporation, as
Initial Purchaser.
10.9* Second Amended and Restated Supply Agreement dated as of
September 1, 1998 between the Company, as Buyer and Alliance
Laundry Systems LLC, as Seller.
10.10* First Amendment to Loan and Security Agreement dated as of
July 7, 1998.
10.11* Amendment No. 2 to Loan and Security Agreement between the
Company, several lenders and Heller Financial, Inc., as
agent for the Lenders dated February 9, 1999 effective as of
December 27, 1999
10.12 Amended and Restated Loan and Security between the Company
and LaSalle Bank National Association dated as of November
17, 1999
10.13 Revolving Loan Note by the Company to LaSalle Bank National
Association dated November 17, 1999
10.14 Loan and Security Agreement between the Company and Alliance
Laundry Systems LLC dated as of November 17, 1999
10.15 Note by the Company to Alliance Laundry Systems LLC dated
November 17, 1999
10.16 Intercreditor Agreement between LaSalle Bank National
Association and Alliance Laundry Systems LLC dated November
17, 1999
10.17 Form of Restricted Unit Agreement by and among the Company,
E-Wash, Inc. (n/k/a Cleanwave, Inc.), E-Wash, LLC (n/k/a
Cleanwave, LLC) and certain senior executive officers dated
February 28, 2000.
10.18 Restricted Unit Agreement by and among the Company, E-Wash,
Inc. (n/k/a Cleanwave, Inc.), E-Wash, LLC (n/k/a Cleanwave,
LLC) and Peter Ax dated February 28, 2000
23.1 Consent of Pedersen & Houpt, P.C.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Coin Laundry Association.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>

---------------
* Previously filed.

II-6