PRECISION AUTO CARE INC, 10-K/A, 1998-10-28

PRECISION AUTO CARE INC
10-K/A, 1998-10-28
AUTOMOTIVE REPAIR, SERVICES & PARKING

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The following items were the subject of
a Form 12b-25 and are included herein:
6, 7, 7A, 8 and portions of item 14.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K/A

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 1998
Commission file number 1-14510

PRECISION AUTO CARE, INC.
(Exact name of registrant as specified in its charter)

Virginia 54-1847851
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(State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)

748 Miller Drive, S.E.
Leesburg, Virginia 20175
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (703) 777-9095
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Securities registered pursuant to Section 12(b) of the Act: None
----

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share
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(Title of class)

Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---

<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Corporation at September 18, 1998 was $16,726,031 based on the closing price of
$7.00 per share. As of that date, 6,120,543 shares of Common Stock were issued
and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------

The information required by Part III is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A.

<PAGE>

TABLE OF CONTENTS

Explanatory Note: In this Form 10-K/A, the registrant has added the information
omitted from items 10, 11, 12 and 13 of the Form 10-K originally filed by the
registrant on September 28, 1998 and as amended October 13, 1998.

<TABLE>
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Page
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PART I Item 1. Business 1
Item 2. Properties 20
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22

PART II Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 23
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
Item 7A. Quantitative and Qualitative Disclosure about Market Risk 36
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 36

PART III Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management 48
Item 13. Certain Relationships and Related Transactions 50

PART IV Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 54
</TABLE>

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Forward-Looking Statements

This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934. When used in this report, the words
"anticipate," "believe," "estimate," "expect," "intend" and "plan" as they
relate to Precision Auto Care, Inc. or its management are intended to identify
such forward-looking statements. All statements regarding Precision Auto Care,
Inc. or Precision Auto Care, Inc.'s expected future financial position, business
strategy, cost savings and operating synergies, projected costs and plans, and
objectives of management for future operations are forward-looking statements.
Although Precision Auto Care, Inc. believes the expectations reflected in such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements herein include, among
others, the factors set forth under the caption "Business -- Risk Factors,"
general economic and business and market conditions, changes in federal and
state laws, increased competitive pressure in the automotive aftermarket
services business, and costs or difficulties relating to the integration of
acquired businesses (including the businesses the Company acquired in connection
with its November 1997 initial public offering), including difficulties in
achieving expected cost savings and operating synergies.

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PART I

Item 1. Business
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Overview
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Precision Auto Care, Inc. ("Precision Auto Care" or the "Company") is a provider
of automotive maintenance services with franchised and Company-operated centers
located in the United States and in certain international locations. The
Company's services are provided to automobile owners and focus on those high
frequency items required to properly maintain the vehicle on a periodic basis.
The Company offers these services through three "Precision" brands that are
intended to be complementary:

* Precision Tune Auto Care provides automotive maintenance services
which require relatively short service times including engine
performance, oil change and lubrication and brake services. At June
30, 1998, these services were provided at 556 Precision Tune Auto
Care centers owned and operated by franchisees and 8 owned and
operated by the Company.

* Precision Auto Wash provides self-service and touchless automatic car
wash services. The advanced operating systems used at prototype
Precision Auto Wash centers permit remote monitoring and
administration of operations. The no-touch car wash technology
employed in Precision Auto Wash centers also provides a high-quality
wash with less risk of vehicle damage than traditional car wash
systems. At June 30, 1998, there were 36 Company-owned car wash
centers and 9 franchised car wash centers.

* Precision Lube Express provides convenient fast oil change and lube
services. Because Precision Lube Express centers consist of "above
ground" configured modular buildings manufactured and sold by the
Company, operations can commence more quickly and with less
capital investment than is the case for many competitors. At
June 30, 1998, there were 7 Precision Lube Express centers owned
and operated by franchisees and 7 owned and operated by the
Company. As of that date there were also 19 Lube Depot centers
operated by franchisees, some of which are expected to become
Precision Lube Express centers.

The Company supports its franchisees and Company-owned centers by distributing
certain automotive and car washing parts and supplies, and manufacturing and
distributing pre-fabricated modular buildings and car wash equipment and
chemicals.

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The Company, a Virginia corporation, was incorporated in April 1997, but through
predecessors has been in the automotive maintenance services business for over
twenty years. The first Precision Tune was established in 1976 to provide quick,
convenient and inexpensive engine tune-ups. Franchising of Precision Tune
centers began the next year. As changes in automotive technology reduced the
need for traditional tune-ups, Precision Tune expanded its menu of offered
automotive maintenance services to include oil changes, fuel injection service,
air conditioning service, cooling system service, brake service and more
diagnostic services. In September 1996, Precision Tune's name was changed to
Precision Tune Auto Care to reflect the shift in emphasis.

The Company is the result of the November 1997 combination of WE JAC Corporation
(the owner of Precision Tune Auto Care) and nine other automotive maintenance
services companies in connection with the Company's initial public offering (the
"IPO Combination"). The nine companies joined with WE JAC Corporation in the IPO
Combination were: Miracle Industries, Inc.; Lube Ventures, Inc.; Rocky Mountain
Ventures, Inc.; Rocky Mountain Ventures II, Inc.; Prema Properties, Ltd.;
Miracle Partners, Inc.; Ralston Car Wash Ltd.; KBG, LLC and Worldwide Drying
Systems, Inc. (referred to individually as a "Predecessor Company" or
collectively, the "Predecessor Companies"). With the IPO Combination, the
"Precision" family of brands was expanded to include car wash and quick oil
change and lube services. In March 1998, the Company acquired Promotora de
Francquicias Praxis S.A. de C.V., previously a holder of a master franchise
agreement for Precision Tune Auto Care in Mexico and Puerto Rico.

Operations
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Precision Tune Auto Care

Precision Tune Auto Care is an automotive maintenance service provider
specializing in quality maintenance services that require relatively short
service times. At June 30, 1998, these services were provided at 556 Precision
Tune Auto Care centers owned and operated by franchisees and 8 owned and
operated by the Company. The automotive care services provided by Precision Tune
Auto Care centers include the diagnosis, maintenance and repair of ignition
systems, fuel systems, computerized engine control systems, cooling systems,
starting/charging systems, emissions control systems, engine drive train
systems, electrical systems, air conditioning systems, oil and other fluid
systems, and brake systems.

Prototype Center. The current prototype Precision Tune Auto Care center is a
free-standing building with six to eight service bays, two to four of which are
drive-through and include pits to facilitate fast oil change and lubrication
services. Approximately 42% of the Company's existing domestic Precision Tune
Auto Care centers have at

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least six service bays. The center is designed to be located on a half-acre lot,
in a high-traffic commercial area. Each center has Precision Tune Auto Care
signage to create a consistent image and heightened customer recognition.
Precision Tune Auto Care centers are generally open six days a week. Each center
maintains a broad inventory of parts and accessories, including oil and other
automotive fluids, having an aggregate average value of approximately $15,000.
The design and operation of each center is intended to provide the customer with
a superior experience by offering the customer high quality services quickly in
clean, well-run facilities. Exclusive of real estate, the estimated initial
capital required to open a prototype Precision Tune Auto Care center ranges from
$126,000 to $200,000.

Franchisees typically develop Precision Tune Auto Care centers either by
entering into a build-to-suit lease, under which the landlord constructs the
center and leases it to the franchisee, or by purchasing land and building the
facility. The Company typically seeks sites in commercial areas with a minimum
population of 50,000 people within a five mile radius and 24-hour drive-by
traffic of at least 20,000 cars. The Company aims to saturate existing markets
before opening centers in markets where Precision Tune Auto Care has no presence
in order to create and take advantage of advertising, managerial and operating
support efficiencies. The Company actively assists franchisees with site
selection and evaluation of proposed sites, and the Company has the right to
reject sites selected by franchisees.

Retail Marketing. Precision Tune Auto Care's marketing objectives at the retail
level are to increase sales, enhance first-time customers' experiences, and
bolster customer retention efforts. To further these objectives, Precision Tune
Auto Care has developed and implemented a marketing plan containing programs and
materials for use by Precision Tune Auto Care centers. The plan includes
targeted marketing programs designed to reach key market segments, in-store
merchandising materials designed to enhance retail sales and first time customer
trials, and other local marketing materials (e.g., second car discounts, service
reminder cards, and ATM receipt coupons) designed to generate customers and
improve customer retention. The Company's current data base includes
approximately three million names. The Company uses this data to analyze
services provided by Precision Tune Auto Care centers. Moreover, franchisees can
access the data for the purpose of issuing service reminder notices and other
promotional purposes. Precision Auto Care, in conjunction with an advertising
cooperative funded by franchisees, provides a variety of marketing materials to
franchisees, including television and radio commercials, newspaper, direct mail
material, and in store promotional material. In addition, a number of sales
promotion program packages, including grand opening, anniversary and peak season
promotional packages, have been developed.

Training and Operational Support. A significant element of Precision Tune Auto
Care's commitment to service is its training program for franchisees. New
franchisees are required to successfully complete 80 hours of initial training
at the Company's

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national training center in Leesburg, Virginia. The Company also offers a full
line of technical training, including courses on engine performance, fuel
systems and emissions, automotive electronics, fuel injection, and brake
certification. These courses, which include both classroom and hands-on
training, are designed to allow franchisees and service center technicians to
maintain and update their technical capability to service today's more
technically complex vehicles. Additionally, the Company offers a program through
which trainers are available to franchisees onsite. Generally, area developers
also are required to maintain a training facility and have one certified trainer
on staff to provide local technical training and certification. Upon opening a
new center, training crews are onsite for at least the first two business days
to assist in the startup process.

The Company has designed a policies and procedures manual to simplify the
management and operational challenges faced by a franchisee, maximize the
franchisee's revenue and earnings, and provide a consistent customer experience
throughout the Precision Tune Auto Care system. At a minimum, each center in the
system receives an evaluation utilizing a standard evaluation report on a
quarterly basis. In addition, an independent service is retained to "mystery
shop" approximately one-third of Precision Tune Auto Care centers each year and
supply independent feedback on the quality of service provided.

Management also has developed the Precision Information Network ("PIN"), a
proprietary point of sale computer system, and has made this system available to
franchisees. The latest version of PIN is a Windows-based system which employs
touch-screen technology and is designed to be user friendly. The PIN system
provides reports on productivity, cost of goods, labor, inventory and line of
service information, and includes a marketing database module that facilitates
the tracking of customer information for the development of direct mail
marketing campaigns and other marketing strategies. Remote-location polling of
information and electronic ordering from the Company's parts and equipment
division are features currently under development. Approximately 38% of the
Company's domestic franchised centers have installed a version of the PIN
system.

Franchise Marketing. The Company (through a Predecessor Company) has marketed
franchises for Precision Tune Auto Care centers since 1977. The Company's
franchise sales process includes advertising in appropriate franchise and
business publications, conducting franchise sales seminars, and maintaining a
home page on the Internet through which interested parties may submit a
franchise inquiry. Prospective franchisees are asked to complete a Confidential
Qualifications Report, which serves as the initial screen to determine whether a
prospect is qualified. The Company seeks individuals with management experience
who will commit full time to the operation of their franchise and who have a
minimum of $50,000 and $150,000 in liquid assets and net worth, respectively.

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Precision Tune Auto Care's area development system has played a significant role
in the Company's franchise development efforts. Under this system, Precision
Tune Auto Care has entered into area development agreements that grant area
developers the right and obligation to develop franchises on Precision Tune Auto
Care's behalf within specific geographic regions for stated periods of time.
Franchise agreements within the area are between the Company and the franchisee.
The area developer typically receives up to one-half of the initial franchise
fee, one-half of the subsequent royalty revenues and one-half of franchise
renewal and transfer fees. After the creation of a franchise, the area developer
performs most of Precision Tune Auto Care's franchisor obligations. Generally,
the Company is free to establish and operate Company-owned centers in areas in
which it has granted development rights to area developers. In that event the
Company is required to pay the area developer amounts equal to the royalty
payments that the area developer would otherwise receive if the center was being
operated by a franchisee. As of June 30, 1998, 25 area developers had an
ownership interest in a total of 131 Precision Tune Auto Care centers
(representing 29% of the total number of centers) and provided support to
another 228 centers.

Open Area Development. Precision Tune Auto Care's current strategy is also to
pursue the direct development of open areas in which area developers have not
been granted rights. To facilitate this strategy, the Company has formed a
franchise development team to pursue Precision Tune Auto Care's open area
development plan. This plan, which includes direct franchising and the
development of Company-owned stores for ultimate sale under the Turnkey Program
discussed below, addresses such factors as market demographics, development
resources (e.g., advertising and public relations vehicles, developers of
commercial real estate), criteria for initial center development, and criteria
for additional center development. Based on these factors, a specific expansion
strategy for each target area is developed. The Company believes that
significant expansion potential exists in areas not controlled currently by area
developers.

Precision Auto Wash

The Company is the owner, operator and franchisor of technologically-advanced
self-service and touchless automatic car wash centers. At June 30, 1998, there
were 36 Precision Auto Wash centers owned and operated by the Company. As of
that date, there were 9 franchised car wash centers.

The Company believes that the Precision Auto Wash system represents the
state-of-the-art in modern touchless automatic and self-service car washing
capabilities.

The computer-based operating system the Company developed for use in its car
wash centers includes the following features:

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* Computerized control of the wash system which allows the operator to
change time cycles, and equipment functions, and to monitor the
status of operations, quickly, easily and cost-effectively, from a
remote location on a laptop personal computer.

* The ability for customers to quickly and easily contact a central
national customer help center on a dedicated toll-free number in the
event of an equipment malfunction.

* A frequent wash card system, utilizing bar-code technology, rewards
customers with free washes based upon wash frequency, while
collecting valuable marketing data.

* Through its exclusive integrated voice, LED display and video
instruction features, the system provides the customer with
step-by-step instructions on how to operate the system.

* A grace period feature permits the customer to continue the wash
cycle by inserting additional quarters after his or her initial time
has expired.

* A bonus time feature allows customers more time per coin during
off-peak hours.

The system also includes several important mechanical features which provide the
motorist with a superior car wash. In the automatic bay, the HydroSpray unit
travels around the vehicle in a heated, galvanized track enabling the car wash
to be open 24 hours a day, 365 days a year. Motorized wash wands and high
pressure nozzles continuously sweep dirt and grime from the vehicle. Each wash
is finished with a spot-free rinse and dried using proprietary dryers. In the
self-service bay, the customer controls the entire wash process by means of a
wash wand and foaming brush system. Many motorists prefer self-service car
washing because they maintain total control over the entire wash process and the
amount of money they spend. Used properly, the self-serve wash produces results
similar to those of the automatic wash. Because the system is operated by an
integrated computer control system, the foregoing features may be modified and
tailored to each specific location, depending on customer needs and market
conditions.

Centers generally include powerful vacuums that deliver maximum cleaning power
and feature clear, graphic instructions. A timer offers a "Last Coin Alert,"
"Extra-Time" service, and a "Count-Down" display of time remaining. All
Precision Auto Wash centers also offer a complete line of auxiliary vending
items such as towels, wet towels and protective sealants. Depending on market
conditions and requirements, other services may be offered as well such as
fragrance-dispensing machines and carpet shampooers.

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The Company is continuing the process begun upon the completion of its initial
public offering of outfitting acquired car wash centers with its proprietary
operating system and marketing features of the Precision Auto Wash system, and
the Precision brand signage. This conversion will also generally be necessary in
connection with any auto wash companies or centers the Company may acquire in
the future. Nine of the Company-owned centers have the complete proprietary
operating system.

Prototype Center. There are two types of prototype Precision Auto Wash centers:
(i) the "Classic," a stand-alone facility consisting of one automatic and four
self-service car wash bays; and (ii) the "Junior," a one-bay automatic car wash
facility to be located on the same site as a Precision Tune Auto Care center or
a Precision Lube Express center. The "Classic" Precision Auto Wash Center is
designed to be placed on a half-acre lot. Exclusive of real estate, the
estimated initial investment to open a "Classic" Precision Auto Wash center
ranges from $360,000 to $462,000. The initial investment required for a "Junior"
Precision Auto Wash, exclusive of real estate, ranges from $128,000 to $177,000.

Retail Marketing. The Company believes that Precision Auto Wash will enjoy
significant benefits from consumer recognition of the "Precision" brand name. At
present, marketing initiatives at the retail level include (i) a grand opening
ceremony to publicize the opening of each new center, (ii) frequent usage/swipe
card system to encourage repeat business, (iii) direct mail marketing, (iv)
quarterly newsletter publication and distribution to customers, (v) advertising
on the back of grocery store receipts, (vi) customer appreciation days, and
(vii) fleet account solicitation.

Training and Operational Support. A three-day formal pre-opening training
program is required for all Precision Auto Wash franchisees prior to the opening
of a center. Precision Auto Wash provides its franchisees with an operations
policy and procedures manual, and performs a thorough center evaluation on a
quarterly basis. Precision Auto Wash centers participate in "mystery shopper"
and customer service programs. Field operations, marketing and training support
are provided by Company personnel.

Franchise Marketing. Prospective Precision Auto Wash franchisees are recruited
and granted franchises in accordance with the same processes and techniques that
are used to recruit and license prospective Precision Tune Auto Care
franchisees. Area developers who agree to become a Precision Auto Wash area
developer in their territory are paid a portion of the initial franchisee fee
and continuing royalty in consideration for assisting in the development and
ongoing support of a Precision Auto Wash center. It is anticipated that
Precision Auto Wash franchisees generally will purchase equipment manufactured
by the HydroSpray Car Wash Equipment Co., Ltd. ("HydroSpray") and Worldwide
Drying Systems, Inc. ("Worldwide"), subsidiaries of the Company, and the
operational system package from the Company.

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Precision Lube Express

Precision Lube Express is the owner, operator and franchisor of centers which
provide fast automobile oil change, lubrication, filter replacement and related
basic services. Precision Lube Express centers also check and fill vital fluids,
and conduct vehicle safety inspections, including inspection of exhaust systems.
Precision Lube Express offers its customers air filters, PCV valves, breather
filters, wiper blades and assorted engine additives. Precision Lube Express
centers top off vital fluids between customer's oil changes at no charge. At
June 30, 1998, there were 7 Precision Lube Express centers owned and operated by
franchisees and 7 owned and operated by the Company. As of that date there were
also 19 Lube Depot centers operated by franchisees, some of which are expected
to become Precision Lube Express centers.

The Company believes that the "above-ground" configuration of the modular
Precision Lube Express building manufactured and sold by the Company enables
Precision Lube Express operators to commence operations more quickly and with
lower levels of initial investment than many of its competitors. Unlike
traditionally constructed fast oil change and lube centers which include an
in-ground service pit, the Company's modular centers can be relocated or
expanded quickly. In addition, the modular Lube Express building can be located
on a relatively small piece of property. Unlike certain of its competitors,
Precision Lube Express centers generally do not perform differential fluid
changes, radiator flushes or other automotive maintenance or repair work.
Accordingly, the Company believes that this enables Precision Lube Express
operators to provide services more inexpensively than their competitors because
Precision Lube Express operations require less skilled labor. Because the
Precision Lube Express building is modular and relatively small, it can
sometimes be located on the same site as a Precision Auto Wash center, as well
as other retail locations.

Precision Lube Express marketing emphasizes the basic "hassle-free" fast oil
change and lube services provided by Precision Lube Express.

Prototype Center. The prototype Precision Lube Express Center consists of a one
or two bay unit. The size of the site will depend on the size of the center,
with 50 feet by 100 feet the minimum required for a one-bay unit. Exclusive of
real estate, the estimated initial investment to open a Precision Lube Express
prototype Center ranges from $132,000 to $253,000.

Retail Marketing. The Company believes that Precision Lube Express will enjoy
significant benefits from consumer recognition of the "Precision" brand name.
The Company believes retail sales should be further stimulated by cross
marketing opportunities generated through Precision Lube Express's association
with Precision Tune Auto Care and Precision Auto Wash.

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Specific marketing initiatives at the retail level include (i) VIP cards,
granting customers special rates and other benefits, (ii) point-of-sale
marketing materials, including frequent usage cards that provide customers with
free oil changes to encourage repeat business, (iii) radio and print media
advertising, and (iv) direct mail marketing.

Training and Operational Support. Precision Lube Express provides a one-week
training program that franchisees are required to complete successfully before
opening a Precision Lube Express center. The program addresses the following
areas: computer system operations, lubrication equipment training, center
operations, customer service, and advertising.

The Company actively supports its Precision Lube Express franchisees. Each
center receives operational visits similar to Precision Tune Auto Care centers
and are included in mystery shopper and customer service programs. Field
operations, marketing and training support are provided using the existing
Precision Tune Auto Care structure, with area developer personnel or corporate
personnel, as applicable.

Franchise Marketing. Prospective Precision Lube Express franchisees are
recruited and granted franchises in accordance with the same processes and
techniques that are used to recruit and license prospective Precision Tune Auto
Care franchisees.

Manufacturing and Distribution
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The Company's manufacturing and distribution operations account for a
significant portion of the Company's revenues. As more fully described below,
these operations allow the Company to promote uniform quality of supplies and
equipment used in each "Precision" center. The Company does not rely heavily on
any single supplier for the supply of any materials, such as oil, equipment or
raw materials or components the Company utilizes in its manufacturing
operations.

Precision Tune Auto Care. Precision Automotive Components ("PAC"), a distributor
of automotive parts and equipment located in Winchester, Virginia, has been an
integral part of the Precision Tune Auto Care system since its inception. PAC
sells a complete line of quality ignition parts, oil and air filters, brake
parts, diagnostic equipment, signage, and other items necessary and incidental
to the outfitting and operation of Precision Tune Auto Care centers. PAC carries
an inventory of approximately 5,500 stock keeping units ("SKUs"), many of which
are private labeled for the Precision brand and provides two-day delivery to
centers anywhere in North America. PAC supplies oil and air filters, spare parts
and other supplies to Precision Lube Express centers and Precision Auto Wash
centers.

Precision Auto Wash. HydroSpray, a Company subsidiary, manufactures, distributes
and sells the car wash equipment used in the Precision Auto Wash system. The

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Company believes that the HydroSpray equipment package is a leading car wash
equipment package on the market because it includes such unique features as an
integrated computer system that controls the auto wash system and allows remote
dial-in access for system status reports and the diagnosis of maintenance
problems along with its recently redesigned automatic tower and track which
adjusts to the size of each vehicle. HydroSpray will sell equipment to Precision
Auto Wash franchisees and to other third parties for installation in car wash
centers that are not franchised or otherwise affiliated with Precision Auto
Wash. HydroSpray's operations principally include the assembly of parts that
have been manufactured by suppliers to HydroSpray specifications. This assembly
process is conducted at HydroSpray's 40,000 square foot manufacturing facility
located in Cedar Falls, Iowa.

National Auto Chemicals blends and distributes the chemical solutions used in
Precision Auto Wash centers including the "Mean Green" presoak and other
solutions of the type which are required in the Precision Auto Wash system.
National Auto Chemicals makes its chemicals and supplies available to Precision
Auto Wash franchisees and other third parties who are not franchisees or
otherwise affiliated with Precision Auto Wash.

Worldwide manufactures and distributes drying systems for installation in
automatic car washes. Worldwide's dryers are available to Precision Auto Wash
franchisees and other third parties who are not franchisees or otherwise
affiliated with Precision Auto Wash. Worldwide's operations are conducted out of
a 9,600 square foot leased plant outside Denver, Colorado.

Precision Lube Express. Precision Building Solutions Incorporated ("PBSI")
manufactures and installs the modular building and equipment system used by
Precision Lube Express centers. PBSI conducts these manufacturing operations at
a 27,000 square foot facility located in Mansfield, Ohio. PBSI also sells its
modular buildings to third parties for various commercial applications. The
buildings are delivered, installed, field-tested, and outfitted with all of the
supplies and tools necessary to commence operations immediately. Most
installations are complete within three to five business days from the date of
receipt, thus providing competitive time and cost advantages over traditional
construction. PBSI purchases parts from third-party suppliers which are
manufactured to the PBSI's specifications.

The Company is not dependent upon any single supplier and the parts and
materials the Company uses in connection with its manufacturing process can be
obtained from a variety of suppliers.

Franchising Activities
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Precision Tune Auto Care. As of June 30, 1998, substantially all of the
Company's Precision Tune Auto Care centers were owned and managed by
franchisees. Precision

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Tune Auto Care's franchises have been sold during the preceding years under
franchise agreements that vary in detail as the Precision Tune Auto Care's
franchise program has evolved. Royalty rates in existing franchise arrangements
range from 6% to 7.5%. Currently, the Precision Tune Auto Care's standard
franchise agreement requires payment to the Company of an initial franchise fee
of $25,000 and a continuing royalty of 7.5% of weekly gross receipts. In
addition, the franchisee is required to contribute to or expend 9% of weekly
gross receipts on advertising, 1.5% of which is currently paid into the national
advertising fund and 7.5% of which is spent locally. The current standard form
franchise agreement has an initial term of ten years and provides for five year
renewal options.

The Company has implemented a program under which qualified franchisees are
eligible to have their royalty rate reduced to 6% if they satisfy certain
criteria. Under the program, franchisees are also provided with an incentive to
purchase additional Precision Tune Auto Care franchises. Any franchisee who has
owned and operated a center for at least one year in accordance with this
program will be charged an initial franchise fee of $15,000 for a second
franchise and $10,000 for each additional franchise purchased, provided certain
conditions are met.

Under its current form of franchise agreement, the Company has a continuing
obligation to provide technical and administrative support, supervisory
services, centralized advertising, and training and related support to its
franchisees. In certain regions, the Company has delegated these duties to area
developers under its area developer system.

Upon non-renewal and transfer, the Company has the first right to purchase the
operating assets and obtain an assignment of leased facilities in certain cases.
In certain situations, the Company will repurchase franchise rights. The
decision to repurchase is made solely at the Company's discretion and is not a
contractual obligation. The Company also periodically obtains possession of some
franchisees' franchise rights by exchanging for such rights notes payable or
other consideration, or by exercising rights outlined in the Franchise
Agreements.

The Company also enters into master franchise agreements to develop
international markets. At the present time, the Company has master franchise
agreements in Taiwan, Singapore, Indonesia, Oman, the Bahamas, Curacao/Aruba,
Jamaica, the Dominican Republic, St. Croix, Peru, and Brazil. Generally, the
master franchisee pays a license fee and is required to develop Precision Tune
Auto Care centers in accordance with an agreed upon schedule within the defined
area. Franchise agreements within the area are between the master franchisee and
the unit franchisee. The master franchisee is required to perform all of the
obligations of the franchisor including training, administrative and operational
support, and the Company generally receives 20% of the initial franchise fee and
up to one-third of ongoing royalty fees.

-11-

<PAGE>

Precision Auto Wash. The Company sold six car wash centers to franchisees under
its Turnkey Program in the year ended June 30, 1998. The Company is also
aggressively marketing Precision Auto Wash franchises. The standard franchise
agreement for Precision Auto Wash franchisees will require the payment of an
initial franchise fee of $20,000. The initial franchise fee includes a $5,000
credit that may be applied towards parts and supplies purchased from the
Company. Franchisees will be required to pay continuing royalties of 5% of
weekly gross receipts.

Franchisees will also be required to contribute an amount equal to 2% of their
monthly gross receipts to a national advertising fund and an additional amount
of their gross receipts royalties to a local advertising cooperative. In
addition, a franchisee will receive franchise protection within a specified
area. Precision Auto Wash franchise agreements have an initial term of ten years
and provide for five-year renewal options.

Precision Lube Express. The standard franchise agreement for Precision Lube
Express franchisees requires the payment of an initial franchise fee of $12,500.
Franchisees are required to pay continuing royalties of 5% of weekly gross
receipts. Precision Lube Express franchisees also are required to contribute an
amount equal to 2% of their monthly gross receipts to a national advertising
fund and an additional amount of their gross receipts royalties to a local
advertising cooperative. The franchise agreements have an initial term of ten
years and provide for five-year renewal options. Certain Precision Lube Express
franchise agreements (namely those inherited in connection with the IPO
Combination) have terms that vary with the standard agreement now in use.

Precision Turnkey Program. In addition to the direct franchising activities
discussed above, pursuant to which franchisees select a site and subsequently
develop a Precision Auto Care center on the site, the Company operates a
Precision Turnkey Program. Under this program, franchisees purchase either
existing Company-owned centers or recently-developed centers from the Company.
At the time the franchisee purchases the center, the franchisee also purchases a
franchise license (pursuant to which the franchisee agrees to pay royalties to
the Company on the same basis as franchisees who execute the Company's current
standard form of franchising agreement) as well as the center's assets and
goodwill. The program is designed to enhance franchising sales by providing
readily available and immediately operational sites of Company-selected
locations.

Competition
- -----------

The Company encounters competition in all aspects of its business, including the
sale by Precision Tune Auto Care, Precision Auto Wash and Precision Lube Express
centers of automotive maintenance and repair services, self-service and
automatic car wash services and fast oil and lubrication services, respectively.
The Company believes that automobile dealerships, including recently emerging
national and regional new and used

-12-

<PAGE>

auto dealerships, represent Precision Tune Auto Care's principal competitors.
Other Precision Tune Auto Care competitors include tire companies and regional
under-the-hood service specialists. National competitors within Precision Tune
Auto Care's market include Sears Auto Center and the automotive maintenance
centers operated by Goodyear, Firestone and Penske, among others. Its regional
competitors include All Tune and Lube (East Coast), EconoLube and Tune (West
Coast), Tunex International, Inc. (Rocky Mountain region), Tune-Up Masters and
Speedee Oil Change and Tune-Up (Southern region), among others. The Company
believes that the greater technical complexity of today's vehicles provides a
substantial barrier to entry for competitors in the "under-the-hood" segment of
the automotive care services industry.

Precision Auto Wash competes not only with other self-service automobile car
washes but with car wash services provided by full-service tunnels, exterior
only tunnels, hand washes, oil company washes, and do-it-yourself car washing.

Precision Lube Express also competes in the service segment of the automotive
aftermarket industry. According to the American Oil Change Association, an
estimated 650 million oil changes are performed annually in cars and light
trucks. These oil changes are performed by individuals or are performed
professionally. Professional oil changes are performed in all types of
automotive aftermarket outlets including fast oil change and lubrication
facilities such as those operated by the Company, car dealerships, and gasoline
stations. On a national level, Precision Lube Express competes with a number of
major oil manufacturers dominating the fast lube market. These include Pennzoil
Company (Jiffy Lube International, Inc.), Quaker State Corp. (Q-Lube Inc.),
Valvoline Company/Ashland Oil Inc. (Instant Oil Change) and Texaco Inc. (Express
Lube), among others. In addition, Precision Lube Express competes with regional
fast oil and lubrication operations including All Tune and Lube, EconoLube and
Tune, Tunex International Inc. and Speedee Oil Change and Tune-Up, among others.

The Company believes that the Precision Tune Auto Care, Precision Auto Wash and
Precision Lube Express centers all compete on the basis of customer awareness
through advertising, service, convenience and location and, to a lesser extent,
on price. The Company believes that the potential ability to offer all of the
services provided by each of the operations at one center or in centers in close
proximity to one another will be a significant competitive advantage.

The Company's HydroSpray subsidiary competes with many other manufacturers of
self-service and touchless automatic car wash equipment manufacturers. Many of
these competitors are larger and well-established. The Company's competitors
include, but are not limited to, Mark VII Industries, Inc., Ryko, PDQ and many
smaller businesses. Some of these companies are well capitalized and have long
standing relationships with large oil companies who frequently purchase their
equipment for installation at car washes located on or adjacent to gasoline
stations.

-13-

<PAGE>

Governmental Regulation
- -----------------------

Franchising Regulation. The Company is subject to federal, international and
state laws and regulations, including the regulations of the Federal Trade
Commission as well as similar authorities in individual states, in connection
with the offer, sale and termination of franchises and the regulation of the
franchisor/franchisee relationship. The failure by the Company to comply with
these laws could subject the Company to liability to franchisees and to fines or
other penalties imposed by governmental authorities. From time to time, the
Company experiences periods during which sales are restricted while it registers
updates of its disclosure material with various states. Such delays may have an
adverse effect on the Company's ability to offer and sell franchises. In
addition, the Company may become subject to litigation with, or other claims
filed with state, federal or international authorities by, franchisees or area
developers based on alleged unfair trade practices, implied covenants of good
faith and fair dealing or express violations of agreements. Accordingly, the
failure of the Company to comply with applicable franchise laws and regulations
could have a material adverse effect on the Company's financial condition and
results of operations.

Environmental Regulation. Precision Tune Auto Care and Precision Lube Express
centers store new oil and handle large quantities of used automotive oils and
fluids. Precision Auto Wash centers use chemicals in the washing process. These
chemicals, along with oils, fluids and other chemicals washed off of the vehicle
are collected with the waste water from the car wash process. As a result of
these activities, the Company, its franchisees and area developers are subject
to various federal, state and local environmental laws and regulations dealing
with the transportation, storage, presence, use, disposal and handling of
hazardous materials and hazardous wastes, discharge of stormwater, and
underground fuel storage tanks. If any such substances were improperly released
or improperly stored on the Company's property or the property of any
franchisee, including leased properties, or if the Company were found to be in
violation of applicable environmental laws and regulations, the Company could be
responsible for clean-up costs, property damage and fines or other penalties,
any one of which could have a material adverse effect on the Company's financial
condition and results of operations.

Trademarks
- ----------

The Company has registered (subject to certain limited exceptions) a number of
trademarks and service marks with the United States Patent and Trademark Office,
including "Precision Tune Auto Care," and has filed trademark and service mark
applications with respect to the names "Precision Auto Wash" and "Precision Lube
Express." The Company's failure to obtain trademark and service mark
registration could have a material adverse effect on the Company's operations.
The Company has also registered and made application to register trademarks in
foreign countries where master franchise licenses have been granted.

-14-

<PAGE>

Seasonality
- -----------

Seasonal changes may impact various sectors of the Company's businesses and,
accordingly, the Company's operations may be adversely affected by seasonal
trends in certain periods. In particular, severe weather in winter months may
make it difficult for consumers in affected parts of the country to travel to
Precision Tune Auto Care, Precision Lube Express and Precision Auto Wash centers
and obtain services. Severe winter weather and rainy conditions also can
adversely impact the Company's sale, installation and use of car wash equipment.
Conversely, the Precision Auto Wash business is favorably impacted by less
severe winter weather conditions as demand for the Company's car wash service
increases substantially in winter months.

Risk Factors
- ------------

The Companies business and an investment in its Common Stock are
subject to certain risks, including the following:

Limited Operating History. The Company has not yet completed a full year of
operations as a combined entity. While a predecessor of the Company has been in
business since 1976, the Company as currently constituted, acquired the majority
of its assets in November 1997 as the result of a combination of nine automotive
maintenance services companies in connection with its initial public offering.
In addition, since the IPO Combination, the Company has completed additional
acquisitions in the fiscal year ended June 30, 1998. The integration process
relating to all of the Company's acquisitions is not fully completed and there
can be no assurance that the Company's management will be able to successfully
manage the operations of the combined entity.

Management of Growth. The Company's growth and expanding operations will likely
continue to place a significant strain on the Company's management,
administrative, operational, and financial resources as well as demands on its
operating, financial and management systems and controls. To manage its growth
successfully, the Company will need to: (i) integrate successfully the
operations of any acquired businesses (including the business the Company
acquired in the IPO Combination) with the Company's operations; (ii) enhance
further its operational, financial and management systems, marketing and
franchising programs; (iii) manage and retain its current employees; and (iv)
identify, hire and train additional employees. Growth and expansion into new
markets will require the Company to establish and maintain new parts and
equipment distribution channels and local and regional support services for new
franchisees. The failure of the Company to manage its growth on an effective
basis would have a material adverse effect on the Company's business, financial
condition and operating results.

Liquidity. At the end of the fiscal year ended June 30, 1998 the Company was not
in compliance with certain covenants contained in its bank credit agreement. As
a result of certain acquisitions the Company had been pursuing, but terminated
during the quarter ended September 30, 1998, and increased working capital
requirements, the Company had borrowed substantially all amounts available
under its credit facility. The Company recently amended its bank credit
agreement. The amendment to the Company's credit agreement requires the Company
to obtain additional debt financings in a timely fashion and to apply certain
proceeds from such financings against amounts outstanding under the credit
agreement. In the event that the Company fails to obtain this financing or fails
to satisfy the revised financial and other covenants set forth in the amended
credit agreement, the Company's liquidity, financial condition and results of
operations could be materially adversely affected and the Company would be in
default of its bank credit agreement. For a discussion of the Company's
liquidity position and a description of the terms of the amendment to the bank
credit facility, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".

Competition. The automotive services industry is highly competitive. Direct
competitors exist for each of the Company's businesses, Precision Tune Auto
Care, Precision Auto Wash, Precision Lube Express and the Company's
manufacturing and distribution divisions and subsidiaries.

-15-

<PAGE>

The Company believes that automobile dealerships, including recently emerging
national and regional new and used auto dealerships, represent the principal
competitors for Precision Tune Auto Care and Precision Lube Express; however,
the Company also competes with national and regional fast oil change and lube
companies, major oil manufacturers, local service stations, and local, regional
and national automobile maintenance and repair service providers. "See Business
- -- Competition." Competitors for the services provided by Precision Auto Wash
include regional and local car wash operators. The Company believes the
principal competitive factors in the markets serviced by each of its business
units are location, name recognition and reputation, quality of service and
price.

The Company also competes with some of those noted above and with other parties
in the sale of franchises. Competitive factors include startup costs, royalty
rates, franchisee support and the financial performance of existing centers.
With respect to the sales of supplies and equipment for franchisees, competition
is based on availability, price, ability to provide prompt delivery and the
quality of support services.

The Company's manufacturing and distribution division competes with a number of
manufacturers and distributors of automotive and car wash supplies and
equipment. Many of these competitors are large and have a substantially longer
operating history than the Company. In addition, although the Company does not
intend to sell its complete proprietary automated car wash system to
unaffiliated car wash centers, the Company sells certain car wash equipment to
car wash centers unaffiliated with the Company. The sale of car wash equipment
to unaffiliated car wash centers could increase the level of competition in the
Company's car wash business, allow the Company's competitors to compete more
effectively with the Company or reduce the Company's ability to distinguish
itself from its competitors. See "Business -- Operations -- Manufacturing and
Distribution."

Certain competitors in each of the areas discussed above have greater
financial resources than the Company, and there can be no assurance that the
Company or individual Precision centers will be able to compete effectively.
See "Business -- Competition."

Reliance on Franchising. Franchise royalties are a significant component of the
Company's revenue base. Therefore, the Company depends upon the ability of its
franchisees to promote and capitalize upon the "Precision" brand and the
reputation the Company believes it enjoys for quality and value. There can be no
assurance that the Company or its area developers will be able to recruit and
retain franchisees with the business abilities or financial resources necessary
to open Precision Tune Auto Care, Precision Auto Wash and Precision Lube Express
centers on schedule or that the franchisees will conduct operations profitably.
In addition, to the extent that franchisees finance their operations with
secured indebtedness, the Company's rights to receive franchise royalties would
be effectively subordinated to the rights of franchisees' lenders. See "Business
- -- Operations."

-16-

<PAGE>

Automotive Technology Advances. The demand for the services offered by the
Company's Precision Tune Auto Care and Precision Lube Express centers could be
adversely affected by continuing developments in automotive technology.
Automotive manufacturers are producing cars that last longer and require service
and maintenance at less frequent intervals. For example, some manufacturers now
recommend that consumers change oil at 10,000 mile intervals and replace spark
plugs and other engine components at 100,000 miles, a significant increase from
the mileage intervals recommended for earlier models and those currently
recommended by most manufacturers. The demand for the Company's services also
could be adversely affected by longer and more comprehensive warranty programs
offered by automobile manufacturers. The Company believes that a majority of new
automobile owners have their cars serviced by a dealer during the period the car
is under warranty. In addition, advances in automotive technology may require
the Company to incur additional costs to update its technical training program
and upgrade the diagnostic capabilities of its centers.

Labor Availability. The provision of high quality maintenance services by
Precision Tune Auto Care centers requires an adequate supply of skilled labor.
In addition, the operating costs and operating revenues of such centers may be
adversely affected by high turnover in skilled technicians. Trained and
experienced automotive technicians are in high demand. Accordingly, a center's
ability to increase productivity and revenues could be affected by its inability
to maintain the employment of skilled technicians necessary to provide the
center's services. There can be no assurance that Precision Tune Auto Care or
its franchisees will be able to attract and maintain an adequate skilled labor
force necessary to efficiently operate these centers or that labor expenses will
not increase as a result of a shortage in the supply of skilled technicians,
thereby adversely impacting the Company's financial performance.

Dependence on Management and Key Personnel. The Company's success depends to a
significant extent on the performance and continued services of senior
management and certain key personnel. The Company believes these individuals
possess the necessary experience in acquiring, integrating, developing,
financing and operating the various types of Precision Auto Care centers and the
Company's related franchising and manufacturing and distribution activities, as
well as managing a company intending to implement an aggressive acquisition
program. The loss of the services of one or more of these key employees could
have a material adverse impact on the Company's financial condition and results
of operations. The Company has employment agreements with certain key
executives. Each of the employment agreements contains certain noncompetition
provisions that survive the termination of employment in certain circumstances.
The Company also has obtained certain noncompetition agreements from several
other members of management and key personnel who are not subject to employment
agreements. However, there can be no assurance that such noncompetition
agreements will be enforceable.

-17-

<PAGE>

Reliance on Area Developers. The Company relies, in part, on the assistance of
area developers to identify and recruit franchisees, to assist in the
development of a center, and to support franchisees' continuing operations. Most
area development agreements specify a schedule for opening the respective
"Precision" centers in the territory covered by the agreement. In the past, the
Company has selectively agreed to extend or waive the development schedules for
certain of its area developers and there can be no assurance that area
developers will be able to meet their contractual development schedules.
Although the Company also has added the resources to directly franchise in open
areas, the development schedules of the Company's area developers will remain a
part of the basis of the Company's expectations regarding the number and timing
of new center openings.

The Company will depend on its area developers to promote the Precision Tune
Auto Care, Precision Auto Wash and Precision Lube Express franchises in their
territories. The Company initially encountered some resistance to the
introduction of the Precision Auto Wash and Precision Lube Express brands. For
example, some area developers resisted the Company's efforts to offer Precision
Lube Express franchises or open Company-owned centers in areas covered by
Precision Tune Auto Care area subfranchisor agreements.

The Company believes that its area developers and the Company have substantially
resolved any concerns expressed by its area developers. There can be no
assurance, however, that the Company will not become subject to legal
proceedings or otherwise expend Company resources in connection with disputes
concerning the Company's ability to offer and sell Precision Lube Express and
Precision Auto Wash franchises or open Company-owned centers in areas covered by
Precision Tune Auto Care area subfranchisor agreements. It also may be difficult
for the Company to enforce its area subfranchisor agreements or to terminate the
rights of area subfranchisors who fail to meet development schedules or other
standards and requirements imposed by the Company, limiting the ability of the
Company to develop the territories of such subfranchisors. Any such disputes or
difficulties could increase the costs of the Company's operations or otherwise
adversely affect the Company's financial condition and results of operations.
See "Business -- Operations."

Seasonal Nature of Portions of the Business. Seasonal changes may impact various
sectors of the Company's businesses and, accordingly, the Company's operations
may be adversely affected by seasonal trends in certain periods. In particular,
severe weather in winter months may make it difficult for consumers in affected
parts of the country to travel to Precision Tune Auto Care, Precision Lube
Express and Precision Auto Wash centers and obtain services. Severe winter
weather and rainy conditions also can adversely impact the Company's sale,
installation and use of car wash equipment. Conversely, the Precision Auto Wash
business is favorably impacted by less severe winter weather conditions as
demand for the Company's car wash service increases substantially in winter
months.

-18-

<PAGE>

Control by Management and Principal Shareholders. As of September 18, 1998,
directors of the Company, executive officers of the Company, and shareholders
beneficially-owning more than 5% of the Company's outstanding Common Stock, in
the aggregate beneficially owned approximately 61% of the Company's outstanding
Common Stock. Accordingly, these persons have substantial influence over the
affairs of the Company, including the ability to influence the election of
directors, the outcome of votes by the Company's shareholders on major corporate
transactions, including mergers, sales of substantial assets, acquisitions and
going-private transactions, and other matters requiring shareholder approval.

Risks of Acquisitions/Integration of Acquisitions. To the extend that a portion
of the Company's future growth occurs through acquisitions, the success of the
Company will depend on a number of factors, including (i) the Company's ability
to locate existing automotive maintenance services businesses or centers for
acquisition that meet the Company's operating and financial criteria, (ii) the
availability of adequate financing to acquire or develop such additional
businesses and centers, and (iii) the Company's ability to integrate
successfully the operations of businesses or centers acquired in the future into
the Company's operations. There can be no assurance that any acquisition
strategy pursued by the Company will be successful, that modifications to any
such strategy will not be required, or that the Company will be able to obtain
adequate financing on reasonable terms to acquire or develop additional
businesses or centers. There can be no assurance that any suitable acquisitions
can be identified or consummated or that the Company's lender will give its
consent to any such acquisition. Further, there can be no assurance that the
Company will be able to integrate successfully the operations of the acquired
businesses, including their franchising activities. In addition, increased
competition for acquisition candidates may increase purchase prices for
acquisitions to levels beyond the Company's financial capability or assessment
of value and the Company may be competing for acquisitions and expansion
opportunities with companies that have substantially greater resources. The
size, cost, timing and integration of any future acquisitions may cause
substantial fluctuations in operating results from quarter to quarter.
Consequently, operating results for any quarter may not be indicative of the
results that may be achieved for any subsequent fiscal quarter or for a full
fiscal year. The Company may experience delays, complications and unforeseen
losses and expenses in implementing and integrating acquisitions, which could
also have a material adverse effect on the Company's operations and financial
results.

The integration of newly-acquired companies may also lead to a diversion of
management attention from other ongoing business concerns which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

-19-

<PAGE>

The Company expects that it will conduct due diligence reviews of businesses to
be acquired and receive representations and warranties regarding acquired
businesses. There can be no assurance, however, that unforeseen liabilities will
not arise in connection with the operation of the businesses acquired to date,
or other future acquired businesses or that any contractual purchase price
adjustments, rights or set-off, or other remedies available to the Company will
be sufficient to compensate the Company in the event unforeseen liabilities
arise. Once integrated, acquired operations may not achieve levels of revenues
or profitability comparable with those achieved by the Company's existing
operations, or achieve standards otherwise expected.

Risks Related to Acquisition Financing; Additional Dilution; Leverage. To the
extent that the Company's lender consents to an acquisition and the Company
pursues acquisitions, the Company currently intends financing any future
acquisitions it may consummate by using shares of its Common Stock, cash,
borrowed funds or a combination thereof. If the Company's Common Stock does not
maintain a sufficient market value, or if potential acquisition candidates are
otherwise unwilling to accept Common Stock as part of the consideration for the
sale of their businesses, the Company may be required to use more of its cash
resources or more borrowed funds, in each case, if available, in order to follow
its acquisition strategy.

Franchising Regulation. The Company is subject to federal, international and
state laws and regulations, including the regulations of the Federal Trade
Commission as well as similar authorities in individual states, in connection
with the offer, sale and termination of franchises and the regulation of the
franchisor/franchisee relationship. See "Business -- Government Regulation." The
failure by the Company to comply with these laws could subject the Company to
liability to franchisees and to fines or other penalties imposed by governmental
authorities. From time to time, the Company experiences periods during which
sales are restricted while it registers updates of its disclosure material with
various states. Such delays may have an adverse effect on the Company's ability
to offer and sell franchises. In addition, the Company may become subject to
litigation with, or other claims filed with state, federal or international
authorities by, franchisees or area developers based on alleged unfair trade
practices, implied covenants of good faith and fair dealing or express
violations of agreements. Accordingly, the failure of the Company to comply with
applicable franchise laws and regulations could have a material adverse effect
on the Company's financial condition and results of operations.

-20-

<PAGE>

underground fuel storage tanks. If any such substances were improperly released
or improperly stored on the Company's property or the property of any
franchisee, including leased properties, or if the Company were found to be in
violation of applicable environmental laws and regulations, the Company could be
responsible for clean-up costs, property damage and fines or other penalties,
any one of which could have a material adverse effect on the Company's financial
condition and results of operations. See "-- Government Regulation."

Risks of International Operations. International operations comprised
approximately 6% of the Company's pro forma consolidated net revenue during the
fiscal year ended June 30, 1998. The Company intends to expand its international
operations through acquisitions and master licenses in targeted areas.
International operations are subject to risks such as currency exchange rate
fluctuations, unique legal and regulatory requirements, political and economic
uncertainties, difficulties in staffing and managing foreign operations,
differences in financial reporting, differences in the manner in which different
cultures do business, operating difficulties and other factors. The many
difficulties and risks inherent in international operations could result in a
material adverse impact on the Company's business, financial condition and
results of operation.

Year 2000 Compliance. The Company has assessed and will continue to assess the
impact the Year 2000 issue will have on its reporting and operating systems. In
connection with upgrading its operational, financial and management systems, the
Company is in the process of converting its financial and operations software
from a system that the Company believes is not Year 2000 compliant to a
LAN-based system the manufacturer of which has represented is Year 2000
compliant. Although the Company does not anticipate that the Year 2000 issue
will have a significant impact on its business, unanticipated Year 2000
compliance problems of the Company, its vendors or suppliers could potentially
have a material adverse effect on the Company's business, financial condition
and operating results.

Item 2. Properties
----------

The Company's corporate headquarters are located in approximately 24,000 square
feet of leased office space in Leesburg, Virginia pursuant to a lease that
expires in 2002. The Company also leases 32,000 square feet in Winchester,
Virginia pursuant to a lease that expires in 2002. The Winchester facility
houses PAC, which warehouses the parts that are distributed to the Company's
Precision Tune Auto Care operation.

The Company conducts its HydroSpray car wash equipment manufacturing operations
from a 40,000 square foot Company-owned facility located in Cedar Falls, Iowa.

The Company conducts its Worldwide Drying Systems car wash drying equipment
manufacturing operations from a 9,600 square foot leased facility outside of
Denver, Colorado.

-21-

<PAGE>

The Company conducts its car wash chemical blending and distribution operations
from an 8,000 square foot Company-owned facility located in Columbus, Ohio and
operates its modular building manufacturing facility from a 27,000 square foot
Company-owned building located in Mansfield, Ohio.

The Company believes that the manufacturing facilities described above will
provide the Company with sufficient manufacturing capacity for the foreseeable
future.

The Company's rental obligations on its headquarters and leased warehouse and
manufacturing facilities was approximately $412,000 for the year ended June 30,
1998. The Company owns the underlying real estate for 45 Company-owned centers
and 2 franchised centers. The remaining 6 Company-owned centers are leased. The
Company-owned real estate for franchised centers is subleased to franchisees.
The rent expense associated with Company-owned centers for the year ended June
30, 1998 of $209,000 is the net amount after allowing for $790,000 of sublease
income.

In the opinion of management, the Company's current space is adequate for its
operating needs.

Item 3. Legal Proceedings
-----------------

The Company and its subsidiaries are subject to routine
litigation in the ordinary course of business, including contract, franchisee
and employment-related litigation. In the course of enforcing its rights under
existing and former franchisee agreements, the Company is subject to complaints
and letters threatening litigation concerning the interpretation and applicable
of these agreements, particularly in case of defaults and terminations. None of
these routine matters, individually or in the aggregate, are believed by the
Company to be material to its business or financial condition or results of
operations.

Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------

None.

-22-

<PAGE>

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
-----------------------------------------------------

The Company's common stock, par value $.01 per share ("Common Stock") is
publicly traded on the Nasdaq Stock Market ("Nasdaq") and is quoted under the
symbol "PACI."

As of September 18, 1998, there were 223 record holders of Common Stock. The
number of record holders was determined from the records of the Company's
transfer agent and does not include beneficial owners of Common Stock whose
shares are held in the names of various securities brokers, dealers and
registered clearing agencies. The Company estimates that there are approximately
1,050 shareholders.

The following table sets forth the high and low sales prices on the Nasdaq for
the Common Stock during the fiscal year ended June 30, 1998 following the
completion of its initial public offering in November, 1997. To date, the
Company has not paid any dividends and does not anticipate paying any dividends
in the foreseeable future. The terms of the Company's credit agreement also
restrict the Company from paying any dividends.

<TABLE>
Fiscal Year Ended June 30, 1998

<CAPTION>
Quarter High Low
- ------- ---- ---
<S> <C> <C>
First* n/a n/a
Second* $ 9 1/16 $ 7
Third 11 8 5/8
Fourth 11 9 3/4

- ----------
* The Company's Common Stock began trading on the Nasdaq on November 6, 1997.
</TABLE>
-23-

<PAGE>

Item 6. Selected Financial Data
-----------------------

<TABLE>
<CAPTION>
Actual
------

1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $41,776 $27,457 $26,734 $26,579 $24,814
Net Income (loss) from operations $ 1,228 $ 1,255 $ 1,070 $ (225) $ 757
Net EPS (diluted) $0.28 $0.82 $0.73 $(0.11) $0.54
Total assets $86,549 $26,694 $25,654 $24,810 $25,325
Total debt $24,243 $ 9,379 $ 8,462 $ 8,633 $ 9,011
Cash dividends declared per common share (1) $- $- $- $- $-

(1) In conjunction with the Company's initial public offering, in 1998 a cash dividend totaling approximately
$360,000 was declared and paid to the former shareholders of WE JAC Corporation, but is not included in
the per share amounts.
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------

Introduction
- ------------

The following discussion should be read in conjunction with the Actual
and Pro Forma Financial Statements of the Company and related notes thereto
included elsewhere in this Form 10-K.

The Company, a Virginia corporation, was incorporated in April 1997 and
is the result of the November 1997 combination of WE JAC Corporation (the owner
of Precision Tune Auto Care) and nine other automotive maintenance services
companies in connection with the Company's initial public offering (the "IPO
Combination"). The nine companies joined with WE JAC Corporation in connection
with the IPO Combination were: Miracle Industries, Inc.; Lube Ventures, Inc.;
Rocky Mountain Ventures, Inc.; Rocky Mountain Ventures II, Inc.; Prema
Properties, Ltd.; Miracle Partners, Inc.; Ralston Car Wash Ltd.; KBG, LLC and
Worldwide Drying Systems, Inc. (referred to individually as a "Predecessor
Company" or collectively, the "Predecessor Companies"). In March, 1998 the
Company acquired Promotora de Francquicias Praxis S.A. de C.V. ("Praxis"), a
company which operates five company-owned centers and served as the holder of a
master franchise agreement for Mexico and Puerto Rico. The

-24-

<PAGE>

results presented herein as "Actual" consist of WE JAC for the full fiscal year
ending June 30, 1998 ("Fiscal 1998"), and, beginning with the IPO Combination,
the results of operations from the Predecessor Companies and the results of
Praxis from its date of acquisition. The results presented herein as Pro Forma
Combined consist of the combined results of WE JAC and the Predecessor Companies
as if these entities had been combined for all periods presented herein. The Pro
Forma Combined results do not reflect any results of Praxis for periods of time
prior to the date on which it was acquired.

Company revenues are derived from four primary areas: franchise
development, royalties, manufacturing and distribution and Company-owned
centers. Franchise development revenues include sales of franchises and master
licenses along with revenue from the Company's turnkey program, under which the
Company sells retail centers to franchisees. Royalty revenues are derived from
royalty fees paid by individual franchisees to the Company based on qualified
retail sales by the franchisee. Manufacturing and distribution revenues are
derived from the manufacture and sale of automotive parts and equipment and car
wash parts, supplies and chemicals. Company-owned center revenue is derived from
Precision Tune Auto Care, Precision Auto Wash and Precision Lube Express centers
owned and operated by the Company.

Direct costs consist of the cost of parts and equipment, fees paid to
area developers for the sale of new franchises and for supporting franchisees on
an ongoing basis, corporate costs associated with directly supporting the
franchise system, and the cost of operating Company-owned centers. General and
administrative expenses include all legal, accounting, general overhead,
information technology and corporate staff expenses. Other income and expense
items consist of depreciation and amortization, interest income and expense and
the operating results of Precision Tune Auto Care centers held for resale by the
Company.

During the year ended June 30, 1998, the Company negotiated the terms
of seven acquisitions that would have added approximately 470 retail centers
producing approximately $210 million in system-wide retail sales to the
Company's existing retail system. System-wide retail sales include sales of both
franchise stores, only a portion of which is recognized by the Company as
royalty revenue, and Company-owned centers. The Company had been arranging
approximately $150 million of financing for the proposed acquisitions. As
previously announced, the Company has determined that it will not proceed with
the proposed acquisitions. As a result, the Company recognized a charge to
earnings of $600,000 in the quarter ending June 30, 1998 and an estimated charge
of approximately $700,000 will be made in the quarter ended September 30, 1998
relating to professional fees, deposits and other costs relating to the proposed
acquisitions.

-25-

<PAGE>

Presentation of Pro Forma Combined Results
- ------------------------------------------

To obtain Pro Forma Results, the historical results of operations of
the Predecessor Companies have also been adjusted to reflect certain purchase
accounting adjustments, including (i) the amortization of goodwill arising from
the IPO Combination, (ii) the elimination of management fees charged between
certain Predecessor Companies, (iii) the elimination of intercompany
transactions and (iv) adjustments to interest expense based upon the assumed
reduction in debt from the proceeds of the Company's initial public offering.

Results of Operations - Pro Forma Combined
- ------------------------------------------

The following table sets forth certain income statement items as a
percentage of net revenue for the years ended June 30, 1997 and 1998.

<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net revenue 100% 100%
Direct cost 74 74
-- --
Contribution 26 26
General and administrative expense 9 9
Depreciation and amortization expense 6 6
-- --
Operating income 11 11
Other expense (2) (2)
-- --
Income before taxes 9 9
Provision for income taxes 5 5
-- --
Net income 4% 4%
== ==
</TABLE>

-26-

<PAGE>

Pro Forma: Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
- -------------------------------------------------------------------------

Pro Forma Revenue. Pro forma revenues for the year ended June 30, 1998
were $48.0 million, an increase of $4.9 million or 11%, compared with revenues
of $43.1 million for the prior year. Revenues from manufacturing and
distribution operations for the year ended June 30, 1998 increased $1.7 million,
or 7%, over 1997, principally as a result of improved sales performance in
Hydrospray, the Company's car wash equipment manufacturer. Revenues from
Company-owned centers for the year ended June 30, 1998 increased $1.4 million,
or 37%, relative to the same period in 1997 as the result of the acquisition of
additional centers following the IPO Combination along with upgrades to the
centers and the application of the Company's management and marketing programs,
which generally have increased same store sales. Royalty revenues increased
$896,000, or 7%, from the prior year reflecting increases in retail sales at
domestic centers and the addition of Praxis, the Company's Mexican subsidiary.
Franchise development sales for the year ended June 30, 1998 increased $591,000
from the prior year as the result of $495,000 of sales under the turnkey sales
program and $260,000 from the sale of property, offset by a net decline in
franchise revenues of $164,000. This net decline is comprised of increases in
sales of Precision Auto Wash and Precision Lube Express franchises (which were
new in fiscal 1998) and Praxis franchise sales in the fourth quarter less
decreases in international master license sales in fiscal 1998 versus 1997 and a
slight decrease in revenues from Precision Tune Auto Care franchises related to
a lower number of store openings in fiscal 1998 versus 1997.

Pro Forma Direct Cost. Pro forma direct costs for the year ended June
30, 1998 were $35.3 million, an increase of $3.2 million, or 10%, compared with
direct costs of $32.0 million for the prior year. Overall direct costs increased
at a slightly lower rate than revenues, resulting in an increase in contribution
from Fiscal 1997 to Fiscal 1998 of $1.6 million, or 15%.

Pro Forma General & Administrative Expenses. Pro forma general and
administrative expenses were $4.4 million for the year ended June 30, 1998, an
increase of $615,000, or 16%, from $3.8 million for the prior year. This
increase was related to continued development of the Company's infrastructure to
execute its growth plan.

Pro Forma Amortization and Depreciation Expense. Pro forma amortization
and depreciation expense for the year ended June 30, 1998 was $2.7 million, an
increase of $41,000, or 2%, from expense of $2.6 million for the same period in
1997. This increase was related to amortization and depreciation for the
businesses acquired during the fiscal year.

Pro Forma Operating Income. Pro forma operating income for the year
ended June 30, 1998 of $5.6 million represented an increase of $1.0 million, or
21%, from the operating income of $4.6 million a year earlier. This increase is
largely the result of an increase in contribution margin of $1.6 million which
was partially offset by an increase in general and administrative expenses of
$615,000.

-27-

<PAGE>

Pro Forma Interest Income. Pro forma interest income for the year ended
June 30, 1998 of $143,000 declined $26,000, or 5%, from interest income of
$169,000 for the same period in 1997 as the result of lower average cash
balances.

Pro Forma Interest Expense. Pro forma interest expense for the year
ended June 30, 1998 was $791,000, an increase of $350,000, or 79%, from interest
expense of $442,000 for the same period a year earlier as the result of higher
borrowing levels partially offset by a decline in applicable interest rates.

Pro Forma Other Expense. Pro forma other expense for the year ended June
30, 1998 was $808,000, an increase of $267,000 or 49%, from $541,000 the prior
year. This increase was the result of a $600,000 charge incurred in connection
with the Company's acquisition activities and the related financing effort, both
of which were suspended during September 1998.

Pro Forma Provision for Income Taxes. The pro forma provision for
income taxes for the year ended June 30, 1998 of $2.3 million resulted in an
effective tax rate of 56%, which is caused by the impact of the portion of
amortization of goodwill that is not deductible for tax purposes relative to pro
forma pre-tax income.

Pro Forma Net Income/Earnings per Share. Pro forma net income for the
year ended June 30, 1998 was $1.8 million, an increase of $9,000 or 0.5% over
the pro forma net income of $1.8 million for the same period in 1997. Pro forma
earnings per share of $0.32 for the year ended June 30, 1998 decreased by $0.01
from pro forma earnings per share of $0.33 for the prior year.

Results of Operations - Actual
- ------------------------------

The following table sets forth certain income statement items as a
percentage of net revenue for the year ended June 30, 1996, 1997 and 1998.

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenue 100% 100% 100%
Direct cost 74 74 74
-- -- --
Contribution 26 26 26
</TABLE>

-28-

<PAGE>

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
General and administrative expense 8 9 10
Depreciation and amortization expense 4 4 5
-- -- --
Operating income 14 13 11
Other expense (6) (4) (4)
-- -- --
Income before taxes 8 9 7
Provision for income taxes 4 5 4
-- -- --
Net income 4% 4% 3%
-- -- --
</TABLE>

Actual: Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
- ---------------------------------------------------------------------

Revenue. Actual revenues for the year ended June 30, 1998 were $41.8
million, an increase of $14.3 million, or 52%, compared with revenues of $27.5
million for the prior year. This increase relates principally to the results of
the companies acquired simultaneous with and after the IPO Combination.

Direct Cost. Actual direct costs for the year ended June 30, 1998 were
$30.7 million, an increase of $10.4 million, or 51%, compared with direct costs
of $20.3 million for the prior year. This increase in direct costs was
approximately commensurate with the increase in revenues. Overall direct costs
increased at a slightly lower rate than revenues, resulting in an increase in
contribution from fiscal 1997 to fiscal 1998 of $3.9 million, or 54%.

General & Administrative Expenses. Actual general and administrative
expenses for the year ended June 30, 1998 were $4.1 million, an increase of $1.8
million, or 77%, from $2.3 million for the prior year. This increase primarily
relates to the results of the companies acquired simultaneous with and after the
IPO Combination. The Company also incurred expenses in 1998 associated with the
development of infrastructure to execute its growth plan.

Amortization and Depreciation Expense. Actual amortization and
depreciation expense for the year ended June 30, 1998 was $2.2 million, an
increase of $1.1 million, or 96%, from expense of $1.1 million for the prior
year. This increase was related to amortization and depreciation related to the
businesses acquired or merged during the fiscal year.

Operating Income. The actual operating income for the year ended June
30, 1998 of $4.7 million was an increase of $1.0 million, or 27%, from the
operating income of $3.7 million in the prior year. This increase is largely the
result of an increase in contribution margin of $3.9 million offset by an
increase in general and administrative expenses of $1.8 million and depreciation
and amortization expenses of $1.1 million.

-29-

<PAGE>

Interest Income. Actual interest income for the year ended June 30,
1998 of $159,000 was an increase of $11,000, or 8%, from interest income of
$148,000 for the prior year as the result of slightly higher average cash
balances offset by lower interest rates.

Interest Expense. Actual interest expense for the year ended June 30,
1998 was $1.0 million, a decrease of $18,000, or 2%, from interest expense of
$1.1 million for the prior year as the result of higher borrowing levels
partially offset by a decline in applicable interest rates.

Other Expense. Actual other expense for the year ended June 30,
1998 of $803,000 increased $562,000 or 233% from other expense for the prior
year. This increase was the result of a charge of $600,000 to expense
acquisition and financing costs incurred in conjunction with the Company's
acquisition activities and related financing effort, both of which were
suspended during September 1998.

Provision for Income Taxes. The provision for income taxes for the year
ended June 30, 1998 of $1.8 million results in an effective tax rate of 59%,
which largely results from the impact of the portion of amortization of goodwill
that is not deductible for tax purposes relative to the pretax income. The tax
provision for the same period a year earlier of $1.3 million represented an
effective tax rate of 50%.

Net Income/Earnings per Share. Actual net income for the year ended
June 30, 1998 was $1.2 million, a decrease of $27,000 or 2% over the net income
of $1.3 million for the prior year. Diluted earnings per share of $0.28 for the
year ended June 30, 1998 decreased by $0.54 from diluted earnings per share of
$0.82 for the prior year as the result of the additional shares issued in
connection with the IPO Combination and the Praxis acquisition.

Actual: Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
- ----------------------------------------------------------------------

Revenue. Revenue increased $723,000 or 3% to $27.5 million for the year
ended June 30, 1997 from $26.7 million for the year ended June 30, 1996. This
reflects increases of $757,000 in royalty revenue, $235,000 in franchise revenue
and $82,000 in other revenues which were offset by a $351,000 decrease in sales
of equipment and parts. The increase in royalty revenue resulted from an
increase in system-wide sales reflecting the Company's emphasis on a wider range
of vehicle maintenance services instead of specialty tune ups. While this has
resulted in a lower average price per service visit, the volume of service
visits increased during the period. The Company's emphasis on providing a wider
range of vehicle maintenance services has resulted in a lower average cost per
service and a corresponding decrease in average parts sales per visit. The
increase in franchise revenue reflects the sale of international master
licenses, consistent with the Company's strategy to expand into international
markets. Including master license fees, franchise fees and royalties, total
revenues derived from international operations were $937,000 for the year ended
June 30, 1997 compared to $636,000 for the year ended June 30, 1996.

-30-

<PAGE>

Direct Cost. Direct cost increased $583,000, or 3%, to $20.3 million
for the year ended June 30, 1997 from $19.7 million for the year ended June 30,
1996. Direct cost as a percentage of revenue remained constant at 74% for 1997
and 1996, notwithstanding a $400,000 increase in expenses associated with
franchisee field operations and training support, marketing and communication
costs focused on the strategic repositioning of the business, and international
and domestic sales development costs. Equipment and parts costs decreased
$196,000 which was consistent with the decline in related sales.

Contribution. Contribution increased $140,000, or 2%, to $7.2 million
for the year ended June 30, 1997 from $7.0 million for the year ended June 30,
1996. Contribution margin as a percentage of revenue remained constant at 26%
for 1997 and 1996.

General and Administrative Expenses. General and administrative
expenses increased $288,000, or 14%, to $2.3 million for the year ended June 30,
1997 from $2.1 million for the year ended June 30, 1996. General and
administrative expenses as a percentage of revenue increased to 9% for the year
ended June 30, 1997 from 8% for the year ended June 30, 1996. This increase was
primarily due to the hiring of additional personnel and improvements made to the
Company's management information system.

Operating Income. Operating income decreased $110,000, or 3%, to $3.7
million for the year ended June 30, 1997 from $3.8 million for the year ended
June 30, 1996. Operating income as a percentage of revenues decreased to 13% for
the year ended June 30, 1997 from 14% for the year ended June 30, 1996. This
decrease reflects the divestiture of Company-owned stores which were operated by
the Company in 1996.

Other Income (Expense), Net. Other expense decreased $387,000, or 25%,
to $1.2 million for the year ended June 30, 1997 from $1.5 million for the year
ended June 30, 1996. A decrease in other expense of $332,000 and an increase in
interest income of $80,000 were partially offset by increased interest expense
of $25,000.

Income (Loss) Before Taxes. Income before taxes increased $278,000, or
12% to $2.5 million for the year ended June 30, 1997 from $2.2 million for the
year ended June 30, 1996. Income before taxes as a percentage of revenue
increased to 9% for the year ended June 30, 1997 from 8% for the year ended June
30, 1996.

Provision for Income Taxes. Provision for income taxes increased
$93,000, or 8%, to $1.3 million for the year ended June 30, 1997 from $1.2
million for the year ended June 30, 1996 due to the increase in income before
taxes.

Net Income. Net income increased $185,000, or 17%, to $1.3 million for
the year ended June 30, 1997 from $1.1 million for the year ended June 30, 1996.
Net income as a percentage of revenue remained at 4%.

-31-

<PAGE>

Liquidity and Capital Resources
- -------------------------------

Historically, the operations and growth of the Company and its
subsidiaries have been financed through private equity capital, internally
generated working capital, and borrowings from commercial banks or other
lenders. These borrowings were generally secured by substantially all of the
assets of the respective company as well as the personal guarantees of the
respective owners. Approximately $14.2 million of the net proceeds of the
Company's initial public offering was used to repay certain outstanding
indebtedness of the Predecessor Companies. A portion of the remaining balance
was refinanced with borrowings under the Company's revolving credit facility.

The following table sets forth selected information from the Statements
of Cash Flows for Precision Auto Care, Inc. and its subsidiaries for the time
periods during which they were members of the consolidated group and do not
include the effect of pro forma adjustments.

<TABLE>
<CAPTION>
Year ended June 30,
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Net cash (used in)/provided by operating activities $ (2,132) $ 2,207
Net cash used in investing activities (15,047) (891)
Net cash provided by/(used in) financing activities 18,673 (1,491)
-------- -------
Change in cash $ 1,494 $ (175)
======== =======
</TABLE>

During the twelve months ended June 30, 1998 the Company's operations
used $2.1 million in cash principally due to increases in accounts receivable
and inventory related to companies acquired during the year. The increase in
accounts receivable of $5.0 million was comprised, in substantial part, of
approximately $2.0 million in turnkey sales and approximately $1.0 million in
car wash equipment sales in the fourth quarter. Additionally, the Company
increased its inventory by approximately $1.2 million during the latter part of
the year in anticipation of increased sales levels. Finally, the timing of
required income tax payments used approximately $2.9 million in cash from
operations.

Cash used in investing activities during the twelve months ended June
30, 1998 was $15.0 million compared with $891,000 for the prior year. The $15.0
million of fiscal 1998 investments were comprised of $11.0 million related to
acquisitions of businesses and area rights, $800,000 in purchases of real
estate, and $3.2 million in capital expenditures (including approximately $1.2
million in PIN system and signage upgrades to the retail system, $800,000 for
company owned car wash upgrades, and $1.2 million in other corporate capital
expenditures).

-32-

<PAGE>

Cash provided by financing activities was $18.4 million for the year
ended June 30, 1998 compared with a net cash outflow of $1.5 million for the
prior year. The cash inflow is principally the result of the issuance of common
stock in conjunction with the Company's initial public offering which resulted
in an inflow of $19.6 million net of transaction costs. The remaining inflow of
cash represents advances under the Company's bank credit facilities net of
payments made to extinguish debt assumed in the Company's acquisitions.

As the Company recently announced, the Company has drawn substantially
all of the amounts available under its bank credit facility principally as a
result of its acquisition activities and the working capital requirements
described above. The Company presently has borrowed approximately $24 million
under its bank credit agreement, of which $14 million of these borrowings
represents amounts extended under a portion of the bank credit facility that was
dedicated to funding acquisitions (the "Acquisition Line of Credit") and $10
million represents funds advanced under a general revolving credit portion of
the credit facility (the "Line of Credit Loan"). At June 30, 1998 the Company
was not in compliance with various covenants contained in its bank credit
agreement which its lender subsequently waived in connection with a recently
negotiated amendment to such agreement.

On October 12, the Company and the bank executed an amendment to its
credit agreement with an effective date of October 1, 1998 pursuant to which
amounts available under the Acquisition Line of Credit and the Line of Credit
Loan will be reduced to $10 million and $5 million, respectively, for a total of
$15 million. These reductions will become effective on the earlier of February
1, 1999 or the execution of certain real estate mortgage financing transactions
which the Company has initiated recently. The Company expects that these
mortgages will yield approximately $15 million in net cash proceeds and will
require monthly payments of interest (at an annual rate of approximately 8%) and
principal (amortized over a 20 year period). If the real estate transactions are
accomplished on such terms, the Company expects that the Acquisition Line of
Credit will have a $10 million balance and the $5 million Line of Credit Loan
will be available for general working capital purposes. Pursuant to the
amendment, loans extended by the bank under the Acquisition Line of Credit and
the Line of Credit Loan will mature on September 30, 1999 instead of the
November 1, 2000 date which was in effect prior to the amendment. Additionally,
subsequent to September 28, 1998, amounts repaid under the Acquisition Line of
Credit may not be reborrowed.

The terms of the amendment also require the Company to obtain $2
million in the form of equity financing or debt financing that is subordinate to
the bank, in each case on terms acceptable to the bank, no later than October
15, 1998. Substantially all of the members of the Company's Board of Directors
have signed pledges to provide the Company with $2 million of subordinated debt
financing in order to satisfy this requirement and the Company expects that it
will complete this financing by the October 15, 1998 deadline. The Company
presently expects that the subordinated debt will bear interest at a rate of up
to 14% and that the terms of the subordinated debt will call for increases in
the interest rates if the Company defaults on the subordinated debt or any of
the Company's senior indebtedness. In the event that the Company fails to secure
the $2 million of equity or subordinated debt financing required by October 15,
1998 the Company will have to seek to renegotiate the terms of its credit
facility and there can be no assurance that the Company will be able to
renegotiate the credit facility or negotiate the facility on terms that may be
satisfactory to the Company.

-33-

<PAGE>

While the Company has initiated the process pursuant to which it
expects to obtain the real estate financing described above, the Company has not
yet received a commitment letter or other binding agreement with respect to such
financing and there can be no assurance that the Company will consummate real
estate financing on the terms described above. In the event that the Company
fails to consummate the real estate mortgage transactions, the Company will need
to seek alternative sources of financing. The Company has initiated a
sale/leaseback financing effort as one such alternative. Also, to the extent
that the Company realizes less than $10 million in net cash proceeds from any
such financings the Company will be obligated to reduce the Acquisition Line of
Credit and the Line of Credit Loan to the required levels from other sources and
there can be no assurance that other sources will be available or the terms on
which such sources may be available.

As amended, the Credit Agreement requires the Company to comply with
various loan covenants, which include maintenance of certain financial ratios,
restrictions on, among other things, additional indebtedness, liens, guarantees,
advances, capital expenditures, sale of assets and dividends. In addition, the
Company will not be permitted to make any acquisitions without the bank's prior
consent. Accordingly, the Company does not expect that it will be in a position
to pursue acquisitions or significant capital investments until its working
capital position has improved significantly. Interest on the outstanding
balances under the credit facility will continue to be computed based on either
the bank's floating and fluctuating prime portion lending rate or the London
Interbank Offered Rate (Libor) plus a margin ranging from 0.25% to 2.50% pending
on certain financial ratios. Availability fees ranging from 0.25% to 0.5% will
be payable on the unused portion of the Line of Credit Loan. The Company
subsidiaries are joint and several obligors with respect to all amounts due
under the credit facility.

During the year ended June 30, 1999 ("Fiscal 1999"), the Company
intends to spend approximately $750,000 in recurring capital expenditures and
may spend approximately $3.25 million in new investments depending on cash flow
availability to make such investments. These expenditures include amounts to
upgrade substantially all of the Company-owned car wash facilities with the full
complement of HydroSpray car wash equipment and the proprietary operating and
marketing features of the Precision Auto Wash System, amounts for investments in
productivity improvements, investments in management information and accounting
systems at the retail and corporate level, investments in centers included in
the Precision Turnkey Program and general corporate capital expenditures. The
Company intends to fund these expenditures through internally generated funds
and, if necessary, borrowings under the revolving credit facility to the extent
available.

The Company believes that the lending arrangements discussed above
combined with expected cash flow from operations will be sufficient to support
its existing operations; provided the Company obtains the subordinated debt
financing and obtains approximately $15 million in net cash proceeds from the
real estate financing transactions discussed above. If the Company fails to
obtain the subordinated debt financing or the real estate financing on the terms
described above (and fails to arrange alternative financing on a timely basis)
or fails to satisfy the revised financial and other covenants set forth in the
Credit Agreement as it has been amended, the Company's liquidity, financial
condition and results of operations could be materially adversely affected and
the Company would be in default of the Amendment to the Credit Agreement. Also,
to the extent that the Company seeks to grow materially through the acquisition
of additional businesses the Company will be required to obtain additional
capital from outside sources. There can be no assurance that the Company will be
able to obtain such capital on satisfactory terms and conditions.

-34-

<PAGE>

Seasonality and Quarterly Fluctuations
- --------------------------------------

Seasonal changes may impact various sectors of the Company's business
differently and, accordingly, the Company's operations may be affected by
seasonal trends in certain periods. In particular, severe weather in winter
months can adversely affect the Company because such weather makes it difficult
for consumers in affected parts of the country to travel to Precision Auto Care,
Precision Lube Express, and Precision Auto Wash centers. Severe winter weather
and rainy conditions may also adversely impact the Company's sale and
installation of car was equipment. Conversely, the Precision Auto Wash business
is favorably impacted by normal winter weather conditions as demand for the
Company's car wash service increases substantially in winter months.

Year 2000 (Y2K) Compliance
- --------------------------

The Company has conducted a review of its computer systems and has
identified the systems that could be affected by the "Year 2000" issue. The Year
2000 issue is principally the result of computer programs that have
time-sensitive software which may recognize a date using "00" as the year
1900 rather than the year 2000. The Year 2000 issue may also affect the systems
and applications of the Company's vendors or customers.

While the Company has not performed a detailed analysis of the Y2K
capabilities of its primary vendors, management believes that sufficient
alternative sources of supplies and services are available to be called upon in
the event one of the Company's vendors suffers a Y2K related disruption of its
operations.

As part of management's proactive review of internal telecommunications
and computer systems, a decision was reached in 1997 to replace a portion of the
Company's current computer system, which is not Y2K compliant, with a new
management information system (MIS) system starting in 1998 for completion in
1999. New software and hardware were identified and a new system purchased in
the first quarter of 1998. The new MIS system is certified to be Y2K compliant.
Hardware and software costs were approximately $180,000 in FY98. Additional
programming costs are expected to reach $250,000 during FY99 representing 33%
of the MIS budget. The new software has been loaded on the new computer and is
currently being integrated into the Company's existing network. The Company
expects initial trial conversion to the new system to take place by December 31,
1998 for corporate headquarters based activities. Field activities are scheduled
to be brought on-line during the remainder of 1999. Potential risks of this
conversion include the lack of adequate internal personnel resources to perform
the conversion and unanticipated delays in software modifications specific to
managing franchise royalty accounting.

-35-

<PAGE>

Item 7A. Quantitative and Qualitative Disclosure about Market Risks
----------------------------------------------------------

The Company's major market risk exposure is to changing interest rates.
The Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate debt. The table below provides
information about the Company's debt obligations that are sensitive to changes
in interest rates.

<TABLE>

Principal Payments and Interest Rate Detail by Contractual Maturity Dates
(In $Thousands)

1999 2000 2001 2002 2003 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term debt:
Term loan $2,353 - - - - - $ 2,353
Variable rate LIBOR + 0.25 - 2.50%

Long-term debt:
Term loan - $ 2,353 $2,353 $2,353 $1,986 - $ 9,045
Variable rate LIBOR + 0.25 - 2.50%

Line of credit - $10,333 - - - - $10,333
Variable rate Prime + 0.25 - 2.50%
</TABLE>

Item 8. Financial Statements and Supplementary Data
-------------------------------------------

The financial statements and schedules listed in Item 14 are filed as
part of this report and appear on pages F-1 through F-25.

Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
-----------------------------------------------------------

Not applicable.

-36-

<PAGE>
PART III

Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------

Directors
- ---------

The Company's Articles of Incorporation classifies the Board of Directors
into three classes, as nearly equal in number as possible, with initial terms
expiring at the Annual Meetings of Shareholders in 1998, 1999 and 2000,
respectively. After this initial rotation is complete, one class of directors
will be elected at each subsequent Annual Meeting of Shareholders to serve
three-year terms.

The terms of four directors expire at this year's Annual Meeting: Messrs.
Dunlap, Deal, Johnson and Pappas ("Class I Directors"). John (Jay) F. Ripley,
formerly the President and Chief Executive Officer, resigned from his position
as an officer and as a member of the Board of Directors of the Company on
October 21, 1998. Charles L. Dunlap, Mr. Ripley's successor, was appointed by
the Board to serve out the remainder of Mr. Ripley's term as a Class I Director.
The Board of Directors has not yet determined the Class I Director nominees for
the upcoming Annual Meeting of Shareholders. Dates of service listed below
include service with predecessors of the Company.

Directors Whose Terms Expire in 1998
------------------------------------
Principal
Name Occupation Additional Information
- ---- ---------- ----------------------
<S> <C> <C>
Charles L. Dunlap(1) President and Mr. Dunlap previously served as
New Director Chief Executive President, Chief Operating Officer and
Age 55 Officer Director of Crown Central Petroleum
Corporation. Additional biographic
information appears on page 9.

Clarence E. Deal Commercial Real Mr. Deal previously served as President
Director since 1997 Estate Investor, of Miracle Partners from 1988. He also
Age 53 Mansfield, OH served as President of Lube Ventures
from 1994. Both companies became
wholly-owned subsidiaries of the
Company as a result of the IPO
Combination in November 1997.

Richard O. Johnson President, Mr. Johnson serves as a Director of the
Director since 1997 JJ-AGRO, Inc., following companies: First National
Age 70 Zanesville, OH Bank of Zanesville, National Gas and
(farming and farm Oil Company, and Muskingun Livestock,
services) Inc.

Harry G. Pappas, Jr.(2) Chief Financial Mr. Pappas served as Chief Financial
Director since 1996 Officer, Partners Officer of WE JAC Corporation, the
First Holdings, Company's predecessor, from February
LLC, Linthicum, MD to May 1997. He currently serves Age 51
(credit card 1997 as a Director of Creditrust Corporation.
company)
</TABLE>

-37-

<PAGE>

<TABLE>
<CAPTION>
Directors Whose Terms Expire in 1999
------------------------------------
<S> <C> <C>
Woodley A. Allen President, Allen Mr. Allen served as Chief Financial
Director since 1991 Management Officer of EZ Communications, Inc. from
Chairman-Audit Committee Services, Oakton, March 1973 to May 1992.
Age 51 VA (management
consulting firm)

Bassam N. Ibrahim(3) Partner, Burns, From June 1994 to August 1996, Mr.
Director since 1993 Doane, Swecker & Ibrahim was with Popham, Haik,
Age 36 Mathis, LLP, Schnobrich & Kaufman. From June 1990
Alexandria, VA to June 1994, Mr. Ibrahim was with
(law firm) Mason, Fenwick & Lawrence.

Arthur Kellar(1)(2) Retired Mr. Kellar served as Chairman of the
Director since 1991 Board of WE JAC Corporation, the
Chairman-Organization and Company's predecessor, from April 1992
Compensation Committee to September 1994. Mr. Kellar served
Age 76 as Chairman of the Board of EZ
Communications, Inc. from June 1992 to
April 1997.

Gerald A. Zamensky Manufacturing Mr. Zamensky served as a Director of
Director since 1997 Consultant Miracle Industries, a predecessor
Age 57 (self-employed) company from 1991 to November 1997. He
also served as President and Chief
Executive Officer of Southeastern
Plastics, Inc. from 1975 to 1995.

Directors Whose Terms Expire in 2000
------------------------------------

Lynn E. Caruthers(3) General Partner, Ms. Caruthers has served as Chairperson
Director since 1991 Caruthers of the Board of WE JAC Corporation, the
Chairperson of the Properties, Ltd., Company's predecessor, since September
Board; Chairperson of Arlington, VA 1994.
the Executive (commercial real
Committee estate developer)
Age 46

William R. Klumb Vice President, Mr. Klumb served as President of Rocky
Director since 1997 Precision Auto Mountain Ventures, Inc. and Rocky
Age 40 Wash Operations Mountain Ventures II, Inc. since their
formation in 1987 and 1988,
respectively. He also served as
Managing Member of Ralston Car Wash
Ltd. since its formation in 1991. Each
of these entities became wholly-owned
subsidiaries of the Company as a result
of the IPO Combination in November 1997.
</TABLE>

-38-

<PAGE>

<TABLE>
<S> <C> <C>
George A. Bavelis(1) Chairman, Mr. Bavelis has served as Chairman and
Director since 1997 President and President of Coin Op. Vending Co. since
Age 61 Chief Executive 1983. He also serves as a Director of
Officer, Pella Heartland Bancorp, First Family Bank
Co., Columbus, OH and Sterling BanCorp.
(real estate
development firm)

Bernard H. Clineburg(1) President, United Mr. Clineburg served as a Director of
Director since 1993 Bankshares; George Mason Bankshares, Inc. and The
Age 49 Chairman and CEO, George Mason Bank from October 1990 to
United Bank April 1998.
(Virginia),
Fairfax, VA

Effie L. Eliopulos Owner and operator Ms. Eliopulos serves as Vice President
Director since 1997 of retail rental of National Automotive Chemical Inc.
Age 59 centers, (previously known as Miracle
Cambridge, OH Industries, Inc.), a predecessor
company. She also served as
Chairperson of that entity from 1991 to
November 1997.
</TABLE>

[FN]
- ---------------
(1) Member - Executive Committee
(2) Member - Finance and Audit Committee
(3) Member - Organization and Compensation Committee
</FN>

Executive Officers
- ------------------

CHARLES L. DUNLAP, age 55, was named President and Chief Executive Officer
in October 1998, and has been a member of the Board of Directors from that date.
From April 1997 until October 1998, Mr. Dunlap was an independent business
consultant. From June 1996 to April 1997, Mr. Dunlap served as a director of the
Clipper Group, a wholly-owned subsidiary of Credit Suisse - First Boston. Mr.
Dunlap also served as an advisor to the Chairman of the Board of the Clipper
Group during this period. In this capacity, he initiated and developed a
comprehensive plan to merge TruckStops of America and National Auto/Truckstops
to create one of the nation's largest networks of truckstops with revenues of
$967 million. From 1991 to 1996, he served as President, Chief Operating Officer
and a Director of Crown Central Petroleum, a petroleum refiner and retail
marketer with annual revenues of approximately $1.8 billion.

JAMES A. HAY, age 42, was named Executive Vice President -- North America
in July 1998. From April 1997 to July 1998 he was Senior Vice President of
Retail Operations. From 1993 until joining WE JAC Corporation, the Company's
predecessor, he was Chief Operating Officer with Decorating Den Systems, Inc.
Mr. Hay was Chief Executive Officer with Window Works of Annapolis from 1987 to
1993. He also held positions with Pepsi-Cola, Inc. and Procter and Gamble.

ARNOLD JANOFSKY, age 55, joined WE JAC Corporation, the Company's
predecessor, as Senior Vice President, Secretary and General Counsel in October
1995. From 1992 to September 1995, Mr. Janofsky was with The Structure Group,
specializing in franchise consulting. From 1981 to 1991, he was Vice President
and General Counsel of Jiffy Lube International, Inc.

ERNEST S. MALAS, age 33, was named Senior Vice President -- Business
Development in July 1998. From November 1997 to July 1998, Mr. Malas was a
business consultant to the Company. From 1991 until November 1997, Mr. Malas was
President of Miracle Industries, Inc., a predecessor company.

JOHN F. MOYNAHAN, age 41, was named Senior Vice President and
Chief Financial Officer in June 1998. From September 1994 to June 1998, Mr.
Moynahan served as Senior Vice President and Chief Financial Officer of
Xybernaut Corporation and was a member of the company's Board of Directors.
From November 1992 to September 1994, he was Vice President and Treasurer of
Joy Technologies, Inc. He also held positions with Sym-Tek Systems, Inc.
and Fisher Scientific Group, Inc. Mr. Moynahan began his career with Ernst &
Young LLP in 1979.

-39-

<PAGE>

GRANT G. NICOLAI, age 52, was named Senior Vice President -- International
in July 1998. From October 1995 to July 1998 he was Senior Vice
President-International Development and Operations. Before that he served as
Director of International Development and Operations of WE JAC Corporation
beginning in October 1994. Prior to his employment with the Company's
predecessor, Mr. Nicolai was involved in international business development for
six years with LTV Aerospace and Defense, which later became Vought Aircraft
Company. Prior to that, he served in the U.S. Air Force.

WILLIAM E. ROLLER, age 36, was named Senior Vice President --
Manufacturing and Distribution in July 1998. From November 1997 to July 1998, he
was Vice President - Manufacturing and Distribution. Between May 1991 to
November 1997, he served in various capacities with AMF Reece Corp., most
recently serving as Vice President of Manufacturing.

JAIME J. VALDES, age 40, was named Senior Vice President -- Latin America
in April 1998. From July 1992 until March 1998 Mr. Valdes was the Operating
Partner of Promotora de Francquicias Praxis S.A. de C.V., the Precision Tune
Auto Care master franchisee for Mexico and Puerto Rico.

PETER J. KENDRICK, age 44, joined WE JAC Corporation, the Company's
predecessor, in May 1997 as Vice President-Finance and Treasurer. Until May
1997, he was a principal with Corporate Finance of Washington, a private
investment banking firm serving companies in the Washington metropolitan area.
Mr. Kendrick was Vice President and Chief Financial Officer with Capital
Carousel, a closely-held wholesale distributor of wall coverings and fabrics,
from 1991 to 1995. Capital Carousel filed for bankruptcy protection in 1995.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers to file reports of ownership and
changes of ownership with the SEC and the Nasdaq Stock Market. The Company
believes that during the period from November 6, 1997, the date on which its
securities began to be publicly traded, through June 30, 1998, its directors and
executive officers complied with all applicable Section 16(a) filing
requirements, except as follows: (i) initial Form 3's for each of the Company's
directors and executive officers were not filed on a timely basis; (ii) James A.
Hay, an executive officer of the Company was delinquent in reporting a purchase
on Form 4; (iii) William R. Klumb, an executive officer of the Company was
delinquent in reporting a sale on Form 4; (iv) Clarence E. Deal, a director of
the Company, was delinquent in reporting a disposition on Form 4; and (v) Effie
L. Eliopulos, a director of the Company, was delinquent in reporting a
disposition on Form 4.

-40-

<PAGE>

Item 11. Executive Compensation
----------------------

SUMMARY COMPENSATION TABLE

The table below sets forth the compensation earned and paid to each Named
Executive Officer who earned $100,000 or more during the periods presented.
Amounts shown for 1996 and for a portion of 1997 represent compensation for
employment by WE JAC Corporation, the Company's predecessor. Options grants
shown for 1996, 1997 and a portion of 1998 represent grants by WE JAC
Corporation which were assumed by the Company in connection with the IPO
Combination.

<TABLE>
<CAPTION>
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation(1)
------------------ ---- ------ ----- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John F. Ripley 1998 $199,654 $100,000 87,762 $2,594
Former President and 1997 181,734 63,438 100,000
Chief Executive Officer(2) 1996 169,131 34,000 80,338

James A. Hay 1998 117,692 $15,000(3) 35,000 1,765
Executive Vice President--
North America

Arnold Janofsky 1998 127,308 3,500 1,841
Senior Vice President and 1997 117,269 9,646 4,000
General Counsel 1996 80,385 17,500

Grant G. Nicolai 1998 117,115 7,700(4) 25,000 1,076
Senior Vice President-- 1997 110,809 8,577 17,175(4)
International 1996 85,769 8,625

Peter J. Kendrick 1998 124,231 7,500 1,846
Vice President--Finance 1997 15,577(5) 5,000
</TABLE>

[FN]
- --------------------
(1) Amounts represent the Company's matching contributions to the 401(k)
Savings Plan.
(2) Mr. Ripley resigned from the Company on October 21, 1998.
(3) Mr. Hay's employment with WE JAC Corporation, the Company's
predecessor commenced on July 1, 1997. The amount shown is for the
reimbursement of relocation expenses.
(4) The amount shown is for commissions on the sale of franchises.
(5) Mr. Kendrick's employment with WE JAC Corporation, the Company's
predecessor commenced on April 21, 1997.
</FN>

-41-

<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Potential Realized Value
Number of at Assumed Annual Rates
Securities % of Total Weighted of Stock Price Appreci-
Underlying Options Granted Average ation for Option Term(4)
Options to Employees in Exercise Expiration ------------------------
Name Granted(1) Fiscal Year Price(2) Date(3) 5% 10%
---- ---------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John F. Ripley(5) 268,100 33.61% $8.99 06/17/08 $1,520,933 $3,848,041
James A. Hay 40,000 5.02% $9.41 06/17/08 210,150 557,350
Arnold Janofsky 25,000 3.13% $8.64 11/12/07 150,625 367,625
Grant G. Nicolai 25,000 3.13% $8.63 11/12/07 150,875 367,875
Peter J. Kendrick 12,500 1.57% $9.40 11/12/07 65,750 174,250
</TABLE>

[FN]
- ----------------
(1) Stock options exercisable into 797,600 shares of Common Stock were granted
to all employees, non-employee directors of the Company and related parties
as a group during the fiscal year ended June 30, 1998. Total includes
options granted by a Predecessor Company and assumed by the Company during
fiscal 1998.
(2) The exercise price is the "fair market value" of the Company's Common Stock
at the date of grant as determined in good faith by the Company's Board of
Directors.
(3) Date shown is expiration date of latest grant. Options generally vest and
become exercisable in annual installments of 33% of the shares covered by
each grant commencing on the first anniversary of the grant date, and expire
ten years after the grant date. The vesting of 193,100 of Mr. Ripley's
options was accelerated in connection with the IPO Combination and such
options are therefore fully exercisable.
(4) The dollar amounts under the potential realizable values column use the 5%
and 10% rates of appreciation permitted by the SEC, and are not intended to
forecast actual future appreciation in the stock price. Actual gains, if
any, on stock option exercises are dependant on the future performance of
the Company's Common Stock. There can be no assurance that the amounts
reflected in this table will be achieved. The assumed rates are compounded
annually to the full ten-year term of the options.
(5) Mr. Ripley resigned from the Company on October 21, 1998.
</FN>

-42-

<PAGE>

YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities Value of the Unexercised
Underlying Unexercised Options In-the-Money Options at
at June 30, 1998 June 30, 1998(1)
------------------------------ ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
John F. Ripley(2) 193,100 75,000 $241,805 9,375
James A. Hay 1,667 38,333 0 19,375
Arnold Janofsky 12,999 12,001 18,957 12,543
Grant G. Nicolai 8,333 16,667 13,540 17,711
Peter J. Kendrick 1,667 10,833 0 6,563
</TABLE>

- --------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
Stock Market on June 30, 1998 was $9.875. Value is calculated on the basis
of the difference between the option exercise price and $9.875, multiplied
by the number of shares of Common Stock underlying the option.
(2) Mr. Ripley resigned from the Company on October 21, 1998.

Compensation of Directors
- -------------------------

Directors who are employees receive no additional compensation for serving
as directors. All non-employee directors receive fees for each meeting of the
Board of Directors they attend, $1,000 for each meeting attended in person and
$500 for each meeting attended via telephone. Non-employee directors who also
serve as members of Committees of the Board of Directors receive $200 per
committee meeting attended. In light of the Company's recent cash flow
difficulties, at the Board of Directors meeting held on October 21, 1998, the
Board decided to indefinitely suspend payment of their compensation.

-43-

<PAGE>

Report of the Organization and Compensation Committee on Executive Compensation
- -------------------------------------------------------------------------------
The Organization and Compensation Committee of the Board of Directors,
which is composed of outside directors of the Company, is responsible for
developing and recommending to the Board of Directors the Company's general
compensation policies. The Committee approves the compensation plans for the
Company's executive officers, including the Chief Executive Officer (CEO), and
determines the compensation to be paid to the executive officers. The
Organization and Compensation Committee also is responsible for the granting of
stock options to the executive officers and the administration of the Company's
various stock option plans.

The Organization and Compensation Committee has furnished the following
report for fiscal year 1998:

Compensation Philosophy. The Company's philosophy with respect to
executive compensation is reflective of the principle that the compensation of
its executive officers should be competitive with compensation of senior
executives at comparable companies, and that a meaningful portion of the
compensation received should be closely tied to the performance of the Company
and, in certain instances, to the achievement of individual goals. Through this
link between pay and performance, it is the intent of the Company to provide
direct incentives for the Company's financial success and the creation of
incremental shareholder value.

Executive Officer Compensation. The key components of compensation
for the executive officers consists of annual compensation provided by base
salary and annual performance bonuses, and long-term compensation provided by
stock options. With the exception of the former President and Chief Executive
Officer, none of the senior executive officers, were paid a bonus based upon
fiscal 1998 performance.

Members of the Committee believe they have a general awareness of
pay practices among companies of roughly comparable size, complexity, and/or
industry focus. In addition, in setting the compensation for the former
President and Chief Executive Officer, an unrelated third party was engaged to
review compensation for this position at comparable companies. Based upon the
Committee's general knowledge and the commissioned study, it is believed that
the Company's compensation levels are generally commensurate with those of
similar companies. Other than as indicated above, compensation of the executive
officers is a subjective determination and has not been determined by reference
to any specific criteria or factors related to corporate performance.

Stock Options. Stock options are granted to executive officers, as
well as other employees, based upon the subjective evaluation of employees'
general overall performance and upon their relative rank within the Company. No
specific performance criteria are considered, and there is no fixed formula for
differentiating the number of options granted to an individual or to all
employees in the aggregate. The Company's approach to long-term incentives
provided by stock options has been a flexible one, in which the effort is to
attract and retain able key employees by giving them an opportunity for stock
ownership. A total of 797,600 options were awarded in fiscal 1998 (including
options assumed from WE JAC Corporation, the Company's predecessor), of which
370,600 were granted to the named executives.

-44-

<PAGE>

Compensation of the Current and Former Chief Executive Officer. John
(Jay) F. Ripley, the Company's President and Chief Executive Officer, resigned
from the Company on October 21, 1998. Mr. Ripley had served as President and
Chief Executive Officer of the Company since the November 1997 IPO Combination
and prior to that had served as President and Chief Executive Officer of WE JAC
Corporation, the Company's predecessor, since July 1995. Mr. Ripley's base
salary for the fiscal year ended June 30, 1998, including salary paid by WE JAC
Corporation, the Company's predecessor was $199,654. In determining Mr. Ripley's
base salary, reliance was made on the study mentioned above and the general
knowledge and business judgment of the members of the Committee and the Board. A
bonus in the amount of $100,000 was awarded for fiscal 1998 based upon financial
performance of the Company in accordance with Mr. Ripley's employment agreement.

Mr. Ripley was also granted stock options for 75,000 shares of
the Company's Common Stock during the fiscal year. These unvested options
expired upon Mr. Ripley's resignation from the Company.

Charles L. Dunlap, the current President and Chief Executive
Officer, joined the Company on October 21, 1998. His compensation package,
including salary and the grant of stock options, was established by the
Organization and Compensation Committee and is consistent with the Company's
philosophy for executive compensation set out above. The Committee relied on the
previously mentioned study and their general knowledge and business judgment in
setting Mr. Dunlap's compensation.

The Committee believes its approach to compensation for the
President and Chief Executive Officer is consistent with the Company's ongoing
effort to achieve a responsible balance between short-term and long-term
performance for the Company and its shareholders, and to provide compensation
incentives for its senior executives that encourage those results.

Tax Compliance Policy. Section 162(m) of the Internal Revenue Code
generally limits to $1 million the tax deductible compensation paid to a
company's Chief Executive Officer and to each of the four highest-paid
executives employed as executive officers on the last day of the fiscal year.
However, the limitation does not apply to performance-based compensation
provided certain conditions are satisfied. The Committee does not anticipate
that in the foreseeable future any officer of the Company will earn compensation
in excess of $1 million that would not qualify as performance-based
compensation. Therefore, the Committee has not yet determined a policy with
respect to Section 162(m). The Committee intends to review the implications of
Section 162(m) when it becomes more relevant with respect to the Company's
executive compensation policies.

All members of the Organization and Compensation Committee concur in this
report to the shareholders.

The Organization and Compensation Committee

Arthur Kellar, Chairman
Lynn E. Caruthers
Bassam N. Ibrahim

-45-

<PAGE>

EMPLOYMENT ARRANGEMENTS

Each of Messrs. Hay, Janofsky, Kendrick and Nicolai entered into
employment agreements to serve as vice presidents for a period of three years
commencing August 1, 1997. Mr. Klumb entered into an employment agreement to
serve as a vice president for a period of three years commencing November 12,
1997. The agreements provide that Messrs. Hay, Janofsky, Kendrick and Nicolai
will each receive a base salary of $120,000 per annum, Mr. Klumb will receive a
base salary of $90,000 per annum, and each of them are entitled to receive a
performance bonus under the plan developed for all of the Company's vice
presidents. Under the terms of each employment agreement, each vice president is
required to maintain the confidentiality of proprietary business or technical
information obtained during the course of employment with the Company. Messrs.
Hay, Janofsky, Kendrick and Nicolai are each prohibited from competing with the
Company in the United States during the time each is employed by the Company and
for a period of two years thereafter. Mr. Klumb is prohibited from competing
with the Company in the United States during the time he is employed by the
Company and for a period of one year thereafter. The employment agreements
provide that in the event the vice president's employment is terminated by the
Company other than for cause, or is terminated by the vice president for good
reason, the vice president will be entitled to receive a severance benefit and
will be entitled to receive any salary and benefits accrued, vested or unpaid as
of the date of termination as well as any other benefits to which the employee
is entitled under any benefit plan, policy or program maintained by the Company
in which the vice president participated. The severance benefit provided in the
agreements of Messrs. Hay, Janofsky, Kendrick and Nicolai is 18 months of base
salary in effect of the time of termination. Mr. Klumb's agreement provides for
a severance benefit equal to 12 months of his base salary in effect at the time
of termination.

The Company entered into an employment agreement with John Moynahan on
June 8, 1998, pursuant to which Mr. Moynahan agreed to serve as Senior Vice
President and Chief Financial Officer for a period of three years. The agreement
provides that Mr. Moynahan will receive a base salary of $135,000 per annum and
may also be awarded a performance bonus in accordance with the Senior Management
Incentive Bonus Plan. The other terms of Mr. Moynahan's agreement are
substantially the same as the agreements for the other vice presidents described
above. Mr. Moynahan was also granted stock options for 25,000 shares of the
Company's Common Stock on June 8, 1998 with an exercise price of $9.75. The
options vest in three equal annual installments commencing one year from the
date of grant. The options expire on June 8, 2008.

On October 19, 1998, Mr. Moynahan submitted his resignation. At the
request of the Company, he has agreed to stay in his current position through
mid-January 1999 to allow the Company time to locate a suitable replacement and
insure an orderly transition.

As previously disclosed on October 21, 1998, John (Jay) F. Ripley resigned
from his positions as President, Chief Executive Officer and Director of the
Company and Charles L. Dunlap was appointed as his replacement. The Company is
in the process of finalizing the terms of Mr. Ripley's separation agreement and
Mr. Dunlap's employment agreement and these agreements will be described in a
future filing with the Commission.

-46-

<PAGE>

SHAREHOLDER RETURN COMPARISON

Set forth below is a table comparing the cumulative shareholder return on
the Company's Common Stock, on an indexed basis, against the cumulative total
returns of the Nasdaq Stock Market (U.S. Index), an index composed of peer
companies, the Russell 200 Index, the S&P Small Cap 600 Index, the S&P Auto
Parts & Equipment Index and the Nasdaq Retail Trade Index since the Company's
initial public offering (November 6, 1997 = 100):

<TABLE>
<CAPTION>
Cumulative Total Return
----------------------------------------------------------------------------
11/6/97 11/97 12/97 1/98 2/98 3/98 4/98 5/98 6/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Precision Auto Care, Inc. 100.00 100.00 100.00 100.00 118.06 120.83 119.44 118.06 109.72
Peer Group (1) 100.00 97.11 98.51 94.96 104.65 107.87 101.41 101.26 98.14
Nasdaq Stock Market (U.S.) 100.00 100.50 98.90 102.00 111.57 115.69 117.65 111.19 119.03
Russell 2000 100.00 99.35 101.09 99.49 106.84 111.25 111.86 107.90 108.12
S&P Small Cap 600 100.00 99.27 101.28 99.30 108.35 112.48 113.15 107.16 107.47
S&P Auto Parts & Equipment 100.00 100.02 102.42 100.57 114.65 123.40 126.53 147.05 152.79
Nasdaq Retail Trade 100.00 102.26 101.96 103.42 112.82 122.37 122.64 118.14 124.59
</TABLE>

[FN]
- ----------------
(1) The peer group index prepared for the purposes of this chart includes the
following companies: Auto Zone, Inc., Genuine Parts Co., O'Reilly
Automotive, Inc., Discount Auto Parts, Inc., Monro Muffler & Brake, Inc.,
Pep Boys, Inc., and Pennzoil Company.
</FN>

-47-

<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------

INFORMATION WITH RESPECT TO CERTAIN SHAREHOLDERS

The shareholders named in the following table are those known to the
Company to be the beneficial owners of 5% or more of the Company's Common Stock.
For purposes of this table, the term "beneficial owner" means any person who,
directly or indirectly, has or shares the power to vote, or to direct the voting
of a security or the power to dispose, or to direct the disposition of, a
security. Except as otherwise indicated, the Company believes that each
individual owner listed below exercises sole voting and dispositive power over
their shares.

<TABLE>
<CAPTION>
Percentage of
Amount of Beneficial Outstanding
Name and Address Ownership (Shares) Common Stock
- ---------------- -------------------- -------------
<S> <C> <C>
SAFECO Corporation(1)
SAFECO Plaza
Seattle, Washington 98185 950,500 15.79%

William P. Stiritz(2)
10401 Clayton Road,
Suite 101
St. Louis, Missouri 63131 500,000 8.31%

Avenir Corporation(3)
1725 K Street, N.W.,
Suite 410
Washington, DC 20006 302,100 5.02%
</TABLE>

[FN]
- -----------
(1) As reported in Schedule 13G (Amendment No. 1) filed with the Commission
on June 10, 1998.
(2) As reported on Schedule 13D filed with the Commission on December 31,
1997. Does not include 10,000 shares owned by Mr. Stiritz's son, of which
Mr. Stiritz disclaims beneficial ownership.
(3) As reported in Schedule 13G filed with the Commission on January 15, 1998.
</FN>

-48-

<PAGE>

SECURITIES OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 30, 1998 by: (i) each
director of the Company, (ii) each executive officer named in the table above
labeled Summary Compensation Table, and (iii) all directors and executive
officers of the Company as a group. This table is based on information provided
by the Company's directors and executive officers. Unless otherwise indicated in
the footnotes below, and subject to community property laws where applicable,
each of the named persons exercises sole voting and dispositive power over his
or her shares.

<TABLE>
<CAPTION>
Amount of Percentage of Outstanding
Name of Beneficial Owner Beneficial Ownership Common Stock
- ------------------------ -------------------- -------------------------
<S> <C> <C>
Lynn E. Caruthers(1) 135,381 2.23%
Charles L. Dunlap 0 *
John F. Ripley(2) 205,050 3.37
James A. Hay(3) 11,495 *
Arnold Janofsky(4) 23,725 *
Ernest S. Malas(5) 258,065 4.24
John F. Moynahan 0 *
Grant G. Nicolai(6) 25,816 *
William E. Roller(7) 4,167 *
Jamie J. Valdes 49,421 *
Peter J. Kendrick(7) 4,755 *
William R. Klumb(7) 42,263 *
Woodley A. Allen(8) 13,000 *
George A. Bavelis 83,817 1.38
Bernard H. Clineburg(8) 12,500 *
Clarence E. Deal 200,135 3.29
Effie L. Eliopulos 249,104 4.10
Bassam N. Ibrahim(8) 13,850 *
Richard O. Johnson 56,497 *
Arthur Kellar(8) 155,029 2.55
Harry G. Pappas, Jr.(9) 27,500 *
Gerald A. Zamensky(10) 111,298 1.83

All directors and executive
officers as a group (22
persons) 1,682,868 27.67
</TABLE>

[FN]
- ---------------
*Represents less than 1%.
(1) Includes 24,500 shares held by CARFAM Associates and 77,938 shares held by
Caruthers Properties, Ltd., limited partnerships in which Ms. Caruthers
holds limited partnership interests and options to purchase 10,000 shares
which Ms. Caruthers may exercise within 60 days.
(2) Mr. Ripley resigned from the Company on October 21, 1998. Includes options
to purchase 193,100 shares Mr. Ripley may exercise within 60 days.
(3) Includes options to purchase 8,334 shares that are exercisable
within 60 days.
(4) Includes options to purchase 20,000 shares that are exercisable
within 60 days.
(5) Includes 5,295 shares held by Mr. Malas' son and options to purchase 8,333
shares that are exercisable within 60 days.
(6) Includes options to purchase 16,667 shares that are exercisable
within 60 days.
(7) Includes options to purchase 4,167 shares that are exercisable
within 60 days.
(8) Includes options to purchase 10,000 shares that are exercisable
within 60 days.
(9) Includes options to purchase 12,500 shares that are exercisable
within 60 days.
(10) Includes 47,176 shares held by Mr. Zamensky's spouse.
</FN>

-49-

<PAGE>

Item 13. Certain Relationships and Related Transactions
----------------------------------------------

In November 1997, in connection with the IPO Combination, certain
directors and officers of the Company received shares of the Company's Common
Stock in exchange for shares or membership interests held in predecessor
companies as follows: Woodley A. Allen - 2,000 shares; George A. Bavelis -
83,817 shares; Lynn E. Caruthers - 125,381 shares; Bernard H. Clineburg - 2,500
shares; Clarence E. Deal - 205,229 shares; Effie L. Eliopulos - 251,551 shares;
Bassam N. Ibrahim - 3,850 shares; Arnold Janofsky - 1,961 shares; Richard O.
Johnson - 56,497 shares; Arthur Kellar - 199,029 shares; William R. Klumb -
56,086 shares; Grant G. Nicolai - 7,752 shares; Harry G. Pappas, Jr. - 15,000
shares; John F. Ripley - 11,950 shares; and Gerald A. Zamensky - 106,003 shares.

In November 1997, in connection with the IPO Combination, certain
directors and officers of the Company had stock options for shares of WE JAC
Corporation, a predecessor company, converted into options for shares of the
Company's Common Stock on a one for one basis, and the vesting for certain of
these options was accelerated. The following officers and directors had the
number of options listed below converted into options for shares of the
Company's Common Stock and the vesting for such options accelerated upon the
consummation of the IPO Combination: Woodley A. Allen - 10,000; Lynn E.
Caruthers - 10,000; Bernard Clineburg - 10,000; Bassam N. Ibrahim - 10,000;
Arthur Kellar - 10,000; Harry G. Pappas, Jr. - 12,500; and John F. Ripley -
193,100. The following officers had the number of options listed below converted
into options for shares of the Company's Common Stock: James A. Hay - 5,000;
Arnold Janofsky - 21,500; and Grant G. Nicolai - 12,500. In addition, Mr. Klumb
and Ms. Eliopulos were each granted additional options to purchase 12,500 shares
of the Company's Common Stock.

In November 1997, in connection with the IPO Combination, certain
directors and officers either directly or through affiliated entities, were
granted options to purchase certain properties and lease them back to the
Company. The options may only be exercised during a one-year period which will
commence on the second anniversary date of the Combination. If the options are
exercised in whole or in part, the related party would purchase the parcels of
real estate at a purchase price equal to their then-current fair market value.
The Company would then be required to lease the real estate back from the
related party on a triple net basis and at a base rent equal to the fair rental
value of the property. The leases would have an initial term of ten years and
the Company would have the right to renew the leases for two successive ten year
terms. Hellenic, LLC, a limited liability company partially owned by directors
George A. Bavelis (15.12%), Clarence E. Deal (15.12%) and Effie L. Eliopulos
(15.12%) and executive officer Ernest S. Malas (6.61%) holds an option on the
real estate relating to nine car wash centers. 4 Real, LLC, a limited liability
company owned by Mr. Deal (50%) and Ms. Eliopulos (25%) and Mr. Malas (25%)
holds an option on the real estate relating to the modular building
manufacturing facility. Mr. Deal individually holds an option on the real estate
relating to five car wash centers.

-50-

<PAGE>

In November 1997, in connection with the IPO Combination, certain
directors through various affiliated partnerships and companies, were sold six
Precision Auto Wash franchises and eight Precision Lube Express franchises. Five
of the Precision Auto Wash and Precision Lube Express centers will be combined
and operated on five sites. The other four franchises will be operated on four
sites. The other four franchises will be operated as stand-alone operations. Mr.
Deal, a director of the Company, has interests ranging from 16.5% to 33% in five
of the companies which will own, in the aggregate, five of the Precision Lube
Express franchises and three of the Precision Auto Wash franchises. Ms.
Eliopulos, a director of the Company, has interests ranging from 16.5% to 75% in
companies which will own, in the aggregate, four of the Precision Lube Express
franchises and four of the Precision Auto Wash franchises. Mr. Klumb, a director
of the Company, owns a 25% interest in a company that will operate one of the
Precision Lube Express franchises. Mr. Bavelis, a director of the Company, owns
a 25% interest in a company that will operate one of the Precision Auto Wash
franchises. While these related parties paid standard initial franchise fees and
are obligated to pay standard royalties, they received discounts on Precision
Auto Wash equipment and the Precision Lube Express modular buildings which
totaled approximately $250,000 in the aggregate.

In November 1997, in connection with the IPO Combination, certain
directors had debt of certain predecessor companies that they had personally
guaranteed discharged. Messrs. Bavelis, Deal, Klumb, Zamensky, and Ms. Eliopulos
had personally guaranteed indebtedness in the principal amount of $2.6 million,
$3.4 million, $2.4 million, $2.4 million, and $7.6 million, respectively, that
was discharged at the closing of the IPO Combination.

In March 1998, the Company acquired Promotora de Franquicias Praxis, S.A.
de C.V. ("Praxis"), the holder of the Precision Auto Care master franchise in
Mexico. The owners of Praxis included Jamie J. Valdes, who became an executive
officer of the Company on April 1, 1998. The purchase price of 619,265 shares of
the Company's Common Stock and the assumption of $3.4 million in debt, was
approved by a majority of the Company's Board of Directors. Also in March 1998,
the Company sold licenses to develop 10 Precision Auto Care franchises in Mexico
for $25,000 per franchise or $250,000 to an investor group that included Mr.
Valdes. The per franchise amount charged by the Company represents the standard
initial franchise fee. The Company has been paid in full.

In June 1998, the Company purchased the remaining fifty percent (50%)
ownership interest in Indy Ventures, Inc. ("Indy Ventures") which it did not
already own. Half of this ownership interest (25%) was purchased from Gerald A.
Zamensky, a director of the Company, for $525,000 and the assumption by the
Company of debt in the amount of $303,400, Mr. Zamensky's proportionate share of
the $1.2 million of Indy Venture's debt then outstanding. The fairness of the
negotiated purchase price was approved at the time of the transaction by John F.
Ripley, an executive officer of the Company. Mr. Zamensky has been paid in full.
The full amount of the outstanding debt of Indy Ventures of $1.2 million was
subsequently repaid by the Company, including $275,000 paid to Magna National
Financial LLC, which is owned by directors George A. Bavelis (33%) and Effie L.
Eliopulos (33%), and executive officer Ernest S. Malas (33%).

-51-

<PAGE>

In June 1998, the Company sold three Company-owned car wash centers
(including the underlying real estate for one) and a Company-owned fast oil
change and lube center for $700,000 to Sandusky Lube, LLC ("Sandusky"). Harriet
Malas, the mother of Ernest S. Malas owns 50% of Sandusky. Mr. Malas became an
executive officer of the Company on July 1, 1998. The Company acquired the four
centers as part of the IPO Combination in November 1997. Of the total purchase
price, $490,000 was allocated to these four centers. The gain on these sales was
recorded as a reduction to the goodwill recorded as part of the IPO Combination.
Sandusky subleases the facilities for three of the centers from the Company for
an aggregate amount of $3,550 per month. The fairness of the negotiated sales
price and the rental amounts under the subleases was approved at the time of the
transactions by John F. Ripley, an executive officer of the Company. To date,
$680,000 of the sales price has been paid. The balance is due upon the delivery
of the final shipment of equipment.

In June 1998, the Company sold a parcel of real-estate located in
Greenwood, Indiana to Precision Ventures, LLC. ("Precision Ventures") for
$260,000. Precision Ventures also purchased two franchises from the Company to
operate at that location for $26,000. Precision Ventures is partially owned by
Ernest S. Malas, an executive officer of the Company (25%), and Andrew Zamensky
(25%) who is the son of Gerald Zamensky, a director of the Company. The Company
acquired the property in December 1997 for $220,000. The fairness of the
negotiated sales price was approved at the time of the transaction by John F.
Ripley, an executive officer of the Company. To date $26,000 of the sales price
for the real estate has been paid. The balance is due on or before November 30,
1998 under a promissory note. No interest is being charged on the note due to
the fact that the land is not yet zoned for the operation of a car wash and
quick oil change and lube business.

In June 1998, the Company sold a Company-owned auto care center located in
Denver Colorado to Inter-Ventures, LLC ("Inter-Ventures") for $220,000.
Inter-Ventures is partially owned by William B. Klumb (25%), Ernest S. Malas
(16.67%), Clarence E. Deal (16.67%), and Effie L. Eliopulos (16.67%). Mr. Malas
is an executive officer, Mr. Klumb is an officer and director, and Mr. Deal and
Ms. Eliopulos are directors of the Company. The Company acquired the center
which it had been operating under a management agreement since February 1997 in
June 1998 for $106,200. The fairness of the negotiated sales price was approved
at the time of the transaction by James A. Hay, an executive officer of the
Company. The Company has been paid the purchase price in full.

In October 1998, all of the Company's directors except Messrs. Clineburg
and Pappas participated in the creation of a limited liability company formed
for the purpose of loaning the Company $2 million in a subordinated debt
financing. The loan was initiated by these directors and subsequently
incorporated as a requirement of the Company's existing credit facility. The
loan bears interest at a rate of 14% per annum and its terms call for the rate
of interest to be increased in the event of a default by the Company on this
loan or on any of the Company's senior indebtedness.

-52-

<PAGE>

Bassam N. Ibrahim, a director of the Company, is a partner in Burns,
Doane, Swecker & Mathis, LLP, an Alexandria, Virginia law firm that performs
legal services for the Company related to intellectual property protection. Fees
paid to the firm by the Company in the fiscal year ended June 30, 1998 did not
exceed five percent of the firm's gross revenues.

Clarence E. Deal, a director of the Company, is the owner of Commercial
Supply of Mansfield, Inc. ("CSMI"). The Company purchases certain manufacturing
supplies for the construction of modular buildings from CMSI. The aggregate
total amount of supplies purchased by the Company from CMSI in the fiscal year
ended June 30, 1998 was approximately $143,000.

Gerald A. Zamensky, a director of the Company, serves as a consultant to
National Automotive Chemical, Inc. (previously known as Miracle Industries,
Inc.), a predecessor company. Under an agreement which expires in August 1999,
Mr. Zamensky is to be paid $30,000 per year for consulting services and up to
$5,000 per year for medical insurance coverage.

Effie L. Eliopulos, a director of the Company, serves as a Vice President
of National Automotive Chemical, Inc. (previously known as Miracle Industries,
Inc.), a predecessor company. Her annual salary for the fiscal year ended June
30, 1998 was $75,000. Her annual salary was subsequently reduced and is
currently $25,000 per year.

Ernest S. Malas, prior to becoming an executive officer of the Company in
July 1998, served as a consultant to the Company from November 1997 through June
1998. Pursuant to an Independent Contractor Agreement dated November 12, 1997,
Mr. Malas was paid $60,000 for consulting services rendered during this period.

John F. Ripley (33.3%) and Grant G. Nicholai (33.3%) are partial owners of
JAN Auto Care, LLC ("JAN Auto"). Mr. Ripley was an executive officer and
director of the Company and Mr. Nicholai is an executive officer. JAN Auto owns
and operates a franchised Precision Auto Care center in Falls Church, Virginia.
JAN Auto pays the Company approximately $5,400 per month for franchise
royalties, inventory and supplies associated with this operation. In addition,
JAN Auto has purchased an existing car wash operation from an unrelated third
party, which it plans to convert into a franchised Precision Auto Wash center
and retrofit it with equipment and supplies acquired from the Company. Since
March 1998, JAN Auto has purchased an average of approximately $350 in inventory
and supplies per month from the Company for this car wash operation.

As noted above, William B. Klumb (25%), Ernest S. Malas (16.67%),
Clarence E. Deal (16.67%), and Effie L. Eliopulos (16.67%) are partial
owners of Inter-Ventures, LLC ("Inter-Ventures"). Mr. Klumb is an executive
officer and director, Mr. Malas is an executive officer, and Mr. Deal and Ms.
Eliopulos are directors of the Company. Inter-Ventures operates a franchised
Precision Tune Auto Care and Precision Lube Express centers in
Denver, Colorado. Inter-Ventures pays the Company approximately $4,000 per
month for franchise royalties, inventory and supplies associated with these
operations.

-53-

<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------

(a) The following documents are filed as part of this report:

1. Financial Statements

The following financial statements of the Company appear on
pages F-1 through F-25 of this report and are incorporated by reference in Part
II, Item 8:

Report of Independent Auditors

Audited Financial Statements

Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

The following pro forma financial statements appear on page
P-1 of this report and are incorporated by reference in Part II, Item 8:

Pro Forma Financial Statements

2. Financial Statement Schedules

The following schedule appears on page S-1 of this report:

Schedule II - Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.

(b) Reports on Form 8-K.

On April 15, 1998, the Company filed a current Report on Form 8-K
pursuant to Item 2 thereof, reporting the closing of the Company's acquisition
of Promotora de Franquicias Praxis, S.A. de C.V. An amendment to this Form 8-K
was filed on June 12, 1998.

3.1 Articles of Incorporation of the Company included as an
exhibit to the Company's Registration Statement on Form S-1
(No. 333-34439) filed August 27, 1997 are incorporated herein
by reference.

-54-

<PAGE>

3.2 By-laws of the Company included as an exhibit to the Company's
Registration Statement on Form S-1 (No. 333-34439) filed
August 27, 1997 are incorporated herein by reference.

10.1 Plan of Reorganization and Agreement for Combination of
Businesses dated as of August 27, 1997 by and among the
Company, WE JAC Corporation, Miracle Industries, Inc., Lube
Ventures, Inc., Rocky Mountain Ventures, Inc., Rocky Mountain
Ventures II, Inc., Miracle Partners, Inc., Prema Properties,
LLC, Ralston Car Wash, LLC and KBG LLC, included as an exhibit
to the Company's Registration Statement on Form S-1 (No.
333-34439) filed August 27, 1997 are incorporated herein by
reference.

*10.2 Loan and Security Agreement between the Company and its
designated subsidiaries and Signet Bank, now known as First
Union National Bank, dated as of November 12, 1997, but
incorporating on a composite basis the terms of Amendment No.
2 dated as of May 12, 1998.

*10.3 Amendment No. 3 to Loan and Security Agreement between the
Company and its designated subsidiaries and First Union
National Bank dated October 1, 1998.

*10.4 Second Consolidated, Amended and Restated Revolving and
Acquisition Line of Credit Promissory Note by the Company
and its designated Subsidiaries in favor of First Union
National Bank dated October 1, 1998.

10.5 Employee Stock Purchase Plan, included as an exhibit to the
Company's Registration Statement on Form S-8 (No. 333-49097),
filed April 1, 1998, is incorporated herein by reference.

10.6 Employee Stock Option Plan, included as an exhibit to the
Company's Registration Statement on Form S-8 (No. 333-47169),
filed March 2, 1998, is incorporated herein by reference.

*10.7 Employment Agreement between the Company and John F. Ripley,
dated June 17, 1998.

10.8 Employment Agreement between the Company and James A. Hay,
dated August 27, 1997, included as an exhibit to the Company's
Registration Statement on Form S-1 (No. 333-34439) filed
August 27, 1997 is incorporated herein by reference.

10.9 Employment Agreement between the Company and Arnold Janofsky,
dated August 27, 1997, included as an exhibit to the Company's
Registration

-55-

<PAGE>

Statement on Form S-1 (No. 333-34439) filed
August 27, 1997 is incorporated herein by reference.

10.10 Employment Agreement between the Company and Grant G. Nicolai,
dated August 27, 1997, included as an exhibit to the Company's
Registration Statement on Form S-1 (No. 333-34439) filed
August 27, 1997 is incorporated herein by reference.

*10.11 Employment Agreement between the Company and John F. Moynahan,
dated June 8, 1998.

10.12 Employment Agreement between the Company and Peter Kendrick,
dated August 27, 1997, included as an exhibit to the Company's
Registration Statement on Form S-1 (No. 333-34439) filed
August 27, 1997 is incorporated herein by reference.

*10.13 Employment Agreement between the Company and Jaime J. Valdes
dated March 31, 1998.

*10.14 Independent Contractor Agreement between the Company and
Ernest S. Malas dated November 12, 1997.

10.15 Subscription and Stock Purchase Agreement dated as of March
31, 1998 by and among Precision Auto Care, Inc., Precision
Auto Care Mexico I, S. de R.L. de C.V., and Promotora de
Franquicias Praxis, S.A. de C.V., included as an exhibit to
the Company's Current Report on Form 8-K, filed April 15,
1998, is incorporated herein by reference.

*21 Significant Subsidiaries of the Company.

*23 Consent of Ernst & Young LLP, Independent Auditors.

*24 Power of Attorney

*27 Financial Data Schedule.

- -------------------
* Filed previously.

-56-

<PAGE>

Report of Independent Auditors

Board of Directors and Stockholders
Precision Auto Care, Inc.

We have audited the accompanying consolidated balance sheets and schedule of
Precision Auto Care, Inc. and subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the three years in the period ended June 30, 1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements and schedule referred to
above present fairly, in all material respects, the consolidated financial
position of Precision Auto Care, Inc. and subsidiaries at June 30, 1998 and
1997, and the consolidated results of their operations and their cash flows for
the three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.

Vienna, Virginia Ernst & Young LLP
October 12, 1998

F-1

<PAGE>

<TABLE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Balance Sheets
---------------------------

<CAPTION>
June 30,
1997 1998
-------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 576,608 $ 2,070,294
Accounts receivable, net of allowance of $301,000 and
$1,390,000, respectively 4,080,216 9,050,190
Inventory 768,496 4,201,752
Notes receivable, current portion, net of allowance of $137,000
and $99,000, respectively 512,960 1,519,642
Other assets 404,300 2,217,164
Deferred costs 1,211,257 -
Deferred income taxes, net 257,000 722,000
-------------------------------------
Total current assets 7,810,837 19,781,042

Notes receivable, noncurrent portion, net of allowance of
$61,085 and $52,000, respectively 1,360,958 654,382

Property, plant and equipment, at cost 1,614,134 20,978,240
Less: accumulated depreciation (760,508) (1,678,527)
-------------------------------------
853,626 19,299,713
Goodwill and other intangibles, net of accumulated amortization of
$9,682,000 and $11,010,000, respectively 15,968,449 45,631,583
Deposits, trademarks and other 700,398 1,182,502
-------------------------------------

Total assets $ 26,694,268 $ 86,549,222
=====================================
</TABLE>

See accompanying notes.

F-2

<PAGE>

<TABLE>
Precision Auto Care, Inc. and Subsidiaries

Consolidated Balance Sheets
---------------------------

<CAPTION>
June 30,
1997 1998
----------------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 5,202,650 $ 9,336,120
Income taxes payable 680,000 -
Current maturities, notes payable 161,098 1,060,910
Current maturities, term loan 7,066,667 2,352,948
Current maturities, revolving line of credit 1,529,301 -
Deferred revenue, current portion 413,465 962,977
----------------------------------------
Total current liabilities 15,053,181 13,712,955

Revolving line of credit - 10,333,000
Term loan, net of current portion - 9,045,052
Notes payable, net of current portion 622,308 1,471,068
Deferred revenue, net of current portion 529,837 393,338
Refundable deposits 194,557 424,245
Other - 214,978
----------------------------------------
Total liabilities 16,399,883 35,594,636

Stockholders' equity:
Common stock, $.01 par; 19,000,000 shares authorized; 1,580,740
and 6,120,543 issued; 1,333,700 and 6,120,543 outstanding, in
1997 and 1998, respectively 15,807 61,205
Additional paid-in capital 8,407,722 45,682,551
Retained earnings 4,342,813 5,210,830
Treasury stock, at cost, 247,040 shares in 1997 (2,471,957) -
----------------------------------------
Total stockholders' equity 10,294,385 50,954,586
----------------------------------------

Total liabilities and stockholders' equity $ 26,694,268 $ 86,549,222
========================================
</TABLE>

See accompanying notes.

F-3

<PAGE>

<TABLE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Statements of Operations
-------------------------------------

<CAPTION>
Years ended June 30,
1996 1997 1998
------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Franchise Development $ 1,316,055 $ 1,551,097 $ 2,255,744
Royalties 12,998,505 13,755,440 14,603,825
Manufacturing and distribution 12,203,414 11,852,062 20,458,420
Company centers - - 3,940,916
Other 216,340 298,332 516,709
------------------------------------------------------------
Total sales 26,734,314 27,456,931 41,775,614

Direct cost 19,708,075 20,291,174 30,708,388
------------------------------------------------------------

Contribution (exclusive of amortization shown 7,026,239 7,165,757 11,067,226
separately below)

General and administrative expense 2,059,124 2,346,775 4,147,276
Depreciation expense 217,000 175,000 775,088
Amortization of franchise rights and goodwill 964,311 968,072 1,469,035
------------------------------------------------------------

Operating income 3,785,804 3,675,910 4,675,827

Other income (expense):
Interest expense (1,031,705) (1,056,597) (1,038,851)
Interest income 67,353 147,638 158,771
Other (573,466) (241,211) (803,283)
------------------------------------------------------------
Total other income (expense) (1,537,818) (1,150,170) (1,683,363)
------------------------------------------------------------

Income before income tax expense 2,247,986 2,525,740 2,992,464

Provision for income taxes 1,177,810 1,270,860 1,764,368
------------------------------------------------------------

Net income $ 1,070,176 $ 1,254,880 $ 1,228,096
============================================================

Basic net income per share $ 0.74 $ 0.84 $ 0.29
Diluted net income per share $ 0.73 $ 0.82 $ 0.28
Weighted average shares outstanding - Basic 1,451,418 1,486,162 4,247,977
Weighted average shares outstanding - Diluted 1,457,587 1,526,774 4,322,623
</TABLE>

See accompanying notes.

F-4

<PAGE>

<TABLE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity
-----------------------------------------------

<CAPTION
Additional
Common Common Paid-in Retained Treasury
Shares Stock Capital Earnings Stock Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 1,414,418 $ 14,144 $ 7,160,983 $ 2,017,757 - $ 9,192,884
Issuances of common stock 147,975 1,480 1,141,413 1,142,893
Net income - - - 1,070,176 - 1,070,176
-----------------------------------------------------------------------------------------------

Balance at June 30, 1996 1,562,393 15,624 8,302,396 3,087,933 - 11,405,953
Issuances of common stock 18,347 183 105,326 - - 105,509
Treasury stock - purchase (247,040) - - - (2,471,957) (2,471,957)
Net income - - - 1,254,880 1,254,880
-----------------------------------------------------------------------------------------------

Balance at June 30, 1997 1,333,700 15,807 8,407,722 4,342,813 (2,471,957) 10,294,385
Issuances of common stock 17,114 171 124,776 - 124,947
Retirement of treasury stock - (2,470) (2,469,487) - 2,471,957 -
Dividends paid - - - (360,079) - (360,079)
Initial public offering 2,666,540 26,665 19,592,275 - - 19,618,940
Combination 1,436,724 14,367 12,916,823 - - 12,931,190
Exercised common stock
options and warrants 47,200 472 382,128 - - 382,600
Acquisition of Praxis 619,265 6,193 6,728,314 - - 6,734,507
Net income - - - 1,228,096 - 1,228,096
-----------------------------------------------------------------------------------------------

Balance at June 30, 1998 6,120,543 $ 61,205 $45,682,551 $ 5,210,830 - $ 50,954,586
===============================================================================================
</TABLE>

See accompanying notes.

F-5

<PAGE>

<TABLE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
-------------------------------------

<CAPTION>
Year Ended June 30,
1996 1997 1998
-------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $1,070,176 $ 1,254,880 $ 1,228,096
Adjustments to reconcile net income to net cash
provided by operating activities:
Proceeds from turnkey sales of operating assets - - 1,097,930
Depreciation and amortization 1,234,705 1,251,462 2,244,123
Loss (gain) on disposal of property, plant, and equipment 306,705 207,256 (324,089)
Deferred income taxes (67,000) 623,000 (465,000)
Changes in operating assets and liabilities:
Accounts and notes receivable (768,799) (1,535,862) (3,912,703)
Inventory (43,044) 365,362 (1,185,081)
Prepaid expenses, recoverable income taxes, deposits and
other (72,420) (1,193,484) (498,567)
Accounts payable and accrued liabilities (1,349,981) 1,819,478 2,581,720
Income taxes payable 701,363 (77,011) (2,853,950)
Deferred revenue, net (549,833) (507,888) (44,890)
-------------------------------------------------
Net cash provided by (used in) operating activities 461,872 2,207,193 (2,132,411)

Investing activities:
Purchases of property and equipment (358,392) (296,088) (4,046,162)
Purchase of franchise agreements and rights (754,545) (545,730) (1,478,871)
Acquisitions (62,949) (49,535) (9,277,225)
-------------------------------------------------
Net cash used in investing activities (1,175,886) (891,353) (14,802,258)

Financing activities:
Purchase of treasury stock - (2,471,957) -
Issuances of common stock 1,142,893 105,509 20,126,487
Loan acquisition costs (39,374) (41,226) (40,000)
Transaction costs - - (1,714,086)
Proceeds from long-term debt and notes payable 1,593,808 2,918,309 22,722,670
Repayments of long-term debt and notes payable (1,764,374) (2,001,339) (22,306,637)
Payment of dividend - - (360,079)
-------------------------------------------------
Net cash provided by (used in) financing activities 932,953 (1,490,704) 18,428,355
-------------------------------------------------
Net change in cash and cash equivalents 218,939 (174,864) 1,493,686
Cash and cash equivalents at beginning of year 532,533 751,472 576,608
=================================================
Cash and cash equivalents at end of year $ 751,472 $ 576,608 $ 2,070,294
=================================================
</TABLE>

See accompanying notes.

F-6

<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
------------------------------------------

For the three years in the period ended June 30, 1998

1. Business and Organization
-------------------------

Precision Auto Care, Inc. (the Company) is an international provider of
automotive maintenance services, including specialized automotive care services,
self-service and touchless automatic car wash services, and fast oil change and
lube services, which are conducted principally as franchise operations. These
services are provided under the Precision Tune Auto Care, Precision Auto Wash,
and Precision Lube Express brand names. The Company also distributes auto parts
primarily to its affiliated business units and franchisees and manufactures
equipment which is sold primarily to third parties. Additionally, the Company
assembles and sells modular automotive lubrication units, primarily to its Lube
Express franchisees.

The Company began business operations upon completion of its November 1997
Initial Public Offering (IPO) of common stock. Concurrent with the IPO, nine
companies were combined to create Precision Auto Care. All of the combining
companies had conducted business operations prior to the IPO. The financial
statements presented herein have been prepared based on the historical financial
statements of WE JAC Corporation, which was deemed to be the accounting acquirer
of the remaining combining companies for financial reporting purposes. The
Company has made several other acquisitions subsequent to the IPO. The Company
conducts substantially all of its operations through its subsidiaries.

2. Summary of Significant Accounting Policies
------------------------------------------

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and divisions, Precision Tune Auto
Care, Inc., HydroSpray Car Wash Equipment Co., Ltd., Precision Building
Solutions Incorporated, Car Wash Division (comprised of companies formerly known
as Prema Properties, Ltd., Miracle Partners, Inc., Rocky Mountain Ventures,
Inc., Rocky Mountain Ventures II, Ralston Car Wash Ltd.) , National Auto
Chemical, Worldwide Drying Systems, Inc., Indy Ventures, Inc. and Promotora de
Francquicias Praxis, S.A. de C.V., ("Praxis") (a Mexican corporation.)

Currency Translation

The U.S. dollar is the functional currency for all the Company's consolidated
operations, including its Mexican subsidiary whose economic environment is
highly inflationary. All gains and losses from currency translation are included
in earnings.

F-7

<PAGE>

Revenue Recognition

Revenues from the sale of parts is recognized when the parts are shipped from
the Company's warehouse. Revenues from the sale of car wash equipment and
modular automobile lubrication units is recognized when such units have been
shipped to customers and the Company has performed on all obligations related to
the sale, such as installation and assistance with site development.

The Company's royalty revenues are recognized as earned and in accordance with
specific terms of each Agreement. At the end of each accounting period, royalty
revenue estimates are made for the franchisee's revenues earned but not yet
reported. The royalty accrual is adjusted in subsequent periods as a result of
immaterial differences between franchisee's actual and estimated revenues.

Revenue from the sale of a franchise is recognized 50% at the time of sale and
50% upon the opening of the franchised center.

The Company enters into domestic Area Subfranchise Agreements and international
Master License Agreements (Agreements) which grant the subfranchisor and master
licensor, respectively, the right to sell, on the Company's behalf, Precision
Tune Auto Care franchises, Precision Auto Wash franchises and Precision Lube
Express franchises within a specific geographic region. Revenue from the sale of
area subfranchise rights is deferred and recognized ratably over the terms of
the Agreement, generally 10 years, because the Company's obligation under the
Agreement does not depend significantly upon the number of franchises opened.
Revenue from the sale of master license rights, for geographic areas outside the
U.S., is recognized upon signing the Agreement because the Company is not
required to support the international franchises as there is no contractual
agreement between the Company and the international franchisees.

Revenues from automobile oil change, lubrication and wash services are generally
paid in cash and are recognized at the time of service.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of highly liquid instruments with
original maturities of three months or less.

Inventory

Inventory is stated at cost, which is lower than market. The cost of auto parts
inventory is determined by the "moving average" method. The cost of modular
automotive lubrication units, car wash equipment, and car wash supplies and is
determined by the first-in, first-out (FIFO) method.

F-8

<PAGE>

Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets. The
estimated useful lives are as follows:

<TABLE>
<CAPTION>
Years
------------------
<S> <C>
Building and leasehold improvements 11-30
Furniture and fixtures 5-7
Equipment 7-10
Other items 5-7
</TABLE>

Goodwill and Other Intangible Assets

Purchase price in excess of the fair market value of net assets acquired is
included in goodwill/franchise rights. Franchise rights held by one of the
Company's predecessors are being amortized over 30 years on a straight line
basis. Goodwill related to the Company's acquisitions, as described in Note 3,
is being amortized on a straight line basis over 30 years. Certain other
intangibles, including covenants not to compete and consulting agreements, are
amortized on a straight line basis over periods ranging from six months to two
years.

The Company occasionally repurchases franchise rights. The lower of the cost or
fair market value of repurchased franchise rights is also included in goodwill
and other intangibles. The decision to repurchase is made solely at management's
discretion and is not a contractual obligation. The Company also will
periodically obtain possession of franchise rights by exchanging notes payable
or exercising rights outlined in the franchise agreements. The Company amortizes
the repurchased franchise rights over the remaining terms of the franchise
agreements on a straight line basis.

Income Taxes

The Company accounts for income taxes under the liability method. Under the
liability method, deferred income tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities. A valuation allowance is established, if necessary, to reduce
deferred income tax assets to the amount expected to be realized.

The companies combining at the time of the IPO filed final individual federal
tax returns for the period ending November 12, 1997. For the year ended June 30,
1998, the Company will file a consolidated federal income tax return. For
financial reporting purposes, the Company computes its federal and state income
taxes on a separate company basis.

Impairment of Long-Lived Assets

The Company evaluates the carrying amount of long-lived assets to be held and
used, including goodwill, franchise rights and other intangible assets, when
events and circumstances warrant such a review. The carrying amount of a
long-lived asset is considered

F-9

<PAGE>

impaired when the estimated undiscounted cash flow from each asset is less than
its carrying amount. In that event, the Company would record a loss equal to the
amount by which the carrying amount exceeds the fair market value of the
long-lived asset. Fair market value would be determined primarily using the
estimated cash flows discounted at a rate consistent with the risk involved.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, trade accounts
receivable and notes receivable. The Company's cash is held at high quality
financial institutions. The trade receivable balances are dispersed among a wide
customer and franchisee base. The Company routinely assesses the financial
strength of its customers. The Company maintains reserves for credit losses, and
such losses have been within management's expectations.

All of the Company's assets are located in the United States, except trade
receivables of $1.1 million, inventory of $243,000, property and equipment of
$288,000, and capitalized franchise rights of $262,000, which are located in
Mexico.

Earnings Per Share

In February 1997, the Financial Accounting Standards Boards (FASB) issued SFAS
No. 128, "Earnings Per Share," which became effective for reporting periods
ending after December 15, 1997. The Company has disclosed basic and diluted
earnings per share for all periods presented in accordance with this standard.

Comprehensive Income

Effective for the fiscal year ended June 30, 1999, the Company will adopt SFAS
No. 130, "Reporting Comprehensive Income." SFAS 130 requires that an enterprise
classify items of other comprehensive income by their nature and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid in capital. The Company will be required to restate
earlier periods provided for comparative purposes, but does not believe the
adoption of SFAS 130 will be material to the Company's financial statements.

Business Segments

Effective for the fiscal year ended June 30, 1999, the Company will adopt SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
The Company is reviewing the requirements of this statement and believes that it
will require some additional disclosure. This statement does not impact the
basic consolidated financial statements; it only affects the nature, extent and
presentation of segment information in the notes to the consolidated financial
statements.

F-10

<PAGE>

Use of Estimates in the Preparation of Financial Statements

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 the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Stock Based Compensation

The Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for stock options and presents in Note 12 pro forma net income and
earnings per share data as if the accounting prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" had been applied.

3. Acquisitions
------------

The Combination

Simultaneous with its IPO in November 1997, the Company combined with nine
operating entities in a series of mergers and exchange offers (the Combination).
The consideration paid consisted of 1,436,724 shares of the Company's newly
issued Common Stock valued at the IPO price of $9 per share and $2,750,000 paid
out of the IPO proceeds. This Combination was recorded as a purchase
transaction. Operating results of the combining companies are included in the
Company's financial statements since the effective date of the acquisition.

The total cost of the Combination is as follows:

<TABLE>
<S> <C>
Issuance of common stock
1,436,724 shares, $9 per share $ 12,931,000
Cash consideration 2,750,000
Transaction costs 478,000
----------------
Total purchase price $ 16,159,000
================
</TABLE>

F-11

<PAGE>

The purchase price of the Combination has been allocated as follows:

<TABLE>
<S> <C>
Assets:
Cash $ 225,000
Receivables 563,000
Inventory 1,711,000
Other 957,000
Property, plant & equipment, net 12,896,000
Goodwill and other intangibles 15,479,000
-------------------
Total assets $ 31,831,000
===================

Liabilities:
Current maturities of debt 4,814,000
Accounts payable & accrued expenses 2,435,000
Long term debt 8,423,000
-------------------
Total liabilities 15,672,000
-------------------
Equity 16,159,000
-------------------
Total liabilities and equity $ 31,831,000
===================
</TABLE>

Praxis

On March 31, 1998, the Company purchased all of the shares of Praxis for a total
of $10,505,000, comprised of 619,265 shares of common stock valued at $10.875
per share and $3,770,000 in cash. The acquisition was recorded as a purchase
transaction with the majority of the purchase price, $9,368,000, being allocated
to goodwill. Operating results of Praxis are included in the Company's financial
statements since the effective date of the acquisition.

Prior to March 31, 1998, the Company owned a fifteen percent interest in a joint
venture with Praxis Corporation, (a subsidiary of Praxis). Through March 31,
1998, the Company accounted for its investment in the joint venture using the
cost method.

Indy Ventures, Inc.

On March 31, 1998, the Company purchased the remaining 50% interest in Indy
Ventures, Inc. not acquired in the IPO Combination for $1,734,000. Prior to this
acquisition, the Company had recorded its 50% investment in Indy Ventures using
the equity method of accounting. Goodwill and other intangibles in the amount of
$1,124,000 were recorded. Operating results of Indy Ventures, Inc. are included
in the Company's financial statements since the effective date of the
acquisition.

F-12

<PAGE>

Other Acquisitions

The Company has also purchased other businesses and components of businesses
recorded under the purchase method of accounting. Where applicable, the
operating results of these businesses are included in the consolidated financial
statements since the effective dates of these acquisitions.

Unaudited Pro Forma Selected Information

The selected pro forma information for the years ended June 30, 1998 and 1997,
include the operating results of the above listed acquisitions as if the Company
had completed these acquisitions on July 1, 1996. The pro forma information does
not purport to be indicative of the results of operations that would have
occurred had the transactions taken place at the beginning of the periods
presented or of future operating results.

<TABLE>
<CAPTION>
Years ended June 30,
1997 1998
-----------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Pro forma net revenue $ 43,106,908 $ 47,974,728
Pro forma net income $ 1,816,592 $ 1,825,810
Pro forma net income per common share
$ 0.33 $ 0.32
Pro forma weighted average shares
outstanding 5,496,880 5,707,035
===================================
</TABLE>

4. Inventory
---------

The components of inventory are as follows:

<TABLE>
<CAPTION>
June 30,
1997 1998
-----------------------------------
<S> <C> <C>
Raw materials $ - $1,430,303
Work-in-process - 600,541
Finished goods 768,496 2,170,908
===================================
$768,496 $4,201,752
===================================
</TABLE>

F-13

<PAGE>

5. Property, Plant and Equipment
-----------------------------

The components of property, plant and equipment are as follows:

<TABLE>
<CAPTION>
June 30,
---------------------------------------
1997 1998
---------------------------------------
<S> <C> <C>
Land $ 57,865 $3,152,035
Building and leasehold improvements 128,551 8,731,539
Furniture and fixtures 829,256 2,402,893
Equipment 561,831 5,558,949
Other items 36,631 1,132,824
---------------------------------------
1,614,134 20,978,240
Accumulated depreciation (760,508) (1,678,527)
---------------------------------------
Property, plant and equipment, net $ 853,626 $19,299,713
=======================================
</TABLE>

During the years ended June 30, 1996, 1997, and 1998, the Company's depreciation
expense was $217,000, $175,000, and $775,000 respectively.

6. Goodwill and Other Intangibles
------------------------------

The significant components of goodwill and other intangibles are as follows:

<TABLE>
<CAPTION>
June 30,
1997 1998
---------------------------------------
<S> <C> <C>
Franchise rights (WE JAC) $25,650,797 $28,011,174
Goodwill from combination - 15,479,000
Other goodwill - 13,151,433
---------------------------------------
25,650,797 56,641,607
Accumulated amortization (9,682,348) (11,010,024)
=======================================
$15,968,449 $45,631,583
=======================================
</TABLE>

F-14

<PAGE>

7. Income Taxes
------------

Income tax expense consists of the following items:

<TABLE>
<CAPTION>
Years Ended June 30,
1996 1997 1998
------------------- ------------------- -------------------
<S> <C> <C> <C>
Current tax expense - federal and state $1,244,810 $ 647,860 $ 2,229,368
Deferred tax expense (benefit) - federal and state (67,000) 623,000 (465,000)
=================== =================== ===================

Total income tax expense $1,177,810 $1,270,860 $ 1,764,368
=================== =================== ===================
</TABLE>

The effective tax rate differed from the statutory rate as follows:

<TABLE>
<CAPTION>
Years Ended June 30,
1996 1997 1998
--------------------------------------------------------
<S> <C> <C> <C>
Statutory federal rate 34% 34% 34%
Amortization of goodwill and other intangibles 11 11 18
State taxes 5 5 7
Other 2 - -
========================================================
Effective tax rate 52% 50% 59%
========================================================
</TABLE>

F-15

<PAGE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Significant components of the Company's deferred tax
liabilities and assets are as follows:

<TABLE>
<CAPTION>
June 30,
1997 1998
----------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Area rights $252,000 $ 255,000
State income taxes - 194,000
Expense related to acquisition 154,000 155,000
Royalties 44,000 45,000
Other, net 14,000 -
----------------------------------------------
Total deferred tax liabilities 464,000 649,000

Deferred tax assets:
Reserve for bad debts 127,000 639,000
Deferred revenue 594,000 671,000
Other, net - 61,000
----------------------------------------------
Total deferred tax assets 721,000 1,371,000
Valuation allowance for
deferred tax assets - -
----------------------------------------------
Deferred tax assets, net of allowance 721,000 1,371,000
----------------------------------------------

Net deferred tax assets $257,000 $ 722,000
==============================================
</TABLE>

During the years ended June 30, 1996, 1997, and 1998, the Company paid income
taxes of $150,000 and $756,000 and $2,854,000, respectively.

8. Bank Facility
-------------

On November 12, 1997, the Company entered into a $25 million Loan and Security
Agreement (the Loan Agreement) with its primary lender (the Lender). The loan is
a combination of a Line of Credit Loan, which may not exceed $11 million, and an
Acquisition Line of Credit, and is secured by all of the assets of the Company.
The loan accrues interest, payable monthly, at a base rate which approximates
prime, or the LIBOR Rate, plus an applicable margin which varies from zero to
2.0%. At June 30, 1998, $21,731,000 was outstanding on the loans.

The Loan Agreement contains affirmative, negative and financial covenants. As of
June 30, 1998, the Company was in violation of certain covenants, which the
lender subsequently waived.

F-16

<PAGE>

On October 12, 1998, the Company and the Lender executed an amendment to the
Loan Agreement with an effective date of October 1, 1998 whereby the amounts
available under the Line of Credit Loan and Acquisition Line of Credit must be
reduced to $5 million and $10 million, respectively, effective on the earlier of
January 31, 1999 or the execution of certain real estate mortgage refinancing
transactions which the Company currently has in process. The Company expects
these mortgages to yield approximately $15 million in cash and to require
monthly payments of interest (at an annual rate of approximately 8%) and
principal (amortized over a 20 year period). Additionally, amounts repaid under
the Acquisition Line of Credit may not be reborrowed.

As amended, the Credit Agreement requires the Company to obtain $2 million in
subordinated debt or equity financing and to comply with various loan covenants,
which include maintenance of certain financial ratios, restrictions on, among
other things, additional indebtedness, liens, guarantees, advances, capital
expenditures, sale of assets and dividends. In addition, the Company will not be
permitted to make any acquisitions without the bank's prior consent.
Accordingly, the Company does not expect that it will be in a position to pursue
acquisitions until its working capital position has improved significantly.
Interest on the outstanding balances under the credit facility will continue to
be computed based on either the bank's floating and fluctuating prime portion
lending rate or the London Interbank Offered Rate (Libor) plus a margin ranging
from 0.25% to 2.50% pending on certain financial ratios. Availability fees
ranging from 0.25% to 0.5% will be payable on the unused portion of the Line of
Credit Loan. The Company's subsidiaries are joint and several obligors with
respect to all amounts due under the credit facility.

Prior to the IPO and Combination, the Company held a credit facility with the
same bank which consisted of $10,700,000 in term loans and a $2,500,000
revolving line of credit (the "Prior Facility"). The term loans accrued interest
monthly at a rate equal to the index rate (which approximated the prime rate)
plus 2% (10.50% at June 30, 1997).

An amendment to the original agreement required $2,700,000 of the proceeds from
the term loan to be used to repurchase shares of the Company's common stock and
warrants from a related party (See Note 11) and to satisfy working capital
requirements. The revolving line-of-credit accrued interest, payable monthly, at
the lender's prime rate plus 1 1/2%. The Company granted warrants to the Lender
and another bank to secure these loans (See Note 12). At June 30, 1997,
approximately $7,067,000, was outstanding under the term loan and $1,529,000 was
outstanding under the revolving line-of-credit. Both loans were paid in full
with the proceeds of the IPO in November 1997.

This Prior Facility also required the Company to maintain certain covenants. As
of June 30, 1997, the Company was not in compliance with a provision of the
agreement which restricted capital expenditures. The Lender subsequently amended
the terms of the capital requirements covenant. During the years ended June 30,
1996, 1997, and 1998, the Company paid interest under the Prior Facility of
approximately $875,000, $845,000 and $735,000, respectively.

F-17

<PAGE>

Future bank facility obligations are as follows:

<TABLE>
<CAPTION>
Term Loan Revolving Line of Credit Total
--------- ------------------------ -----
<S> <C> <C> <C>
1999 $ 2,352,948 - $ 2,352,948
2000 2,352,948 $ 10,333,000 12,685,948
2001 2,352,948 - 2,352,948
2002 2,352,948 - 2,352,948
2003 1,986,208 - 1,986,208
Thereafter - - -
----------- ------------ ------------
$11,398,000 $ 10,333,000 $ 21,731,000
</TABLE>

9. Notes Payable
-------------

<TABLE>
<CAPTION>
June 30,
1997 1998
------------------------------------
<S> <C> <C>
Various notes and obligations payable in monthly
installments. Notes payable to banks, principal
and interest payable in monthly and quarterly
installments at a weighted average interest rate
of 7.98%, collateralized by liens on vehicles and
equipment $ 783,406 $ 2,531,978
Less: current maturities (161,098) (1,060,910)
------------------------------------
Long-term portion $ 622,308 $ 1,451,068
====================================
</TABLE>

The companies combining at the time of the IPO had numerous notes payable due to
affiliates and other entities. Substantially all of these obligations were paid
off with the proceeds of the IPO.

F-18

<PAGE>

The future debt obligations with maturities in excess of one year as of June 30,
1998 are as follows:

<TABLE>
<CAPTION>
Future
Debt Maturities
-------------------------
<S> <C>
1999 $1,060,910
2000 606,890
2001 589,824
2002 191,206
2003 16,650
Thereafter 66,498
-------------------------
$2,531,978
=========================
</TABLE>

10. Lease Commitments
-----------------

At June 30, 1998, the Company has lease commitments for office space, a training
center, and a number of service center locations. These leases expire between
1998 and 2008, with renewal options in certain of the leases. Most of the
service center location leases are subleased to franchisees. Rent expense for
office space and warehouse facilities of approximately $308,000, $326,000 and
$412,000 is included in operating expenses for the year ended June 30, 1996,
1997, and 1998, respectively. Rent expense for service center locations of
approximately $488,000, $100,000 and $209,000 is recorded net of sublease income
of $288,000, $912,000 and $790,000, for the years ended June 30, 1996, 1997, and
1998, respectively.

The future minimum lease payments and related sublease payments for leases with
terms in excess of one year as of June 30, 1998 are as follows:

<TABLE>
<CAPTION>
Future Minimum Sublease
Lease Payments Income Net
-----------------------------------------------------------------
<S> <C> <C> <C>
1999 $1,097,458 $ 534,655 $ 562,803
2000 921,593 370,840 550,753
2001 846,972 352,783 494,189
2002 806,113 352,783 453,330
2003 575,408 353,503 221,905
Thereafter 1,871,853 794,989 1,076,864
-----------------------------------------------------------------
$6,119,397 $2,759,553 $3,359,844
=================================================================
</TABLE>

F-19

<PAGE>

11. Related Party Transactions
--------------------------

Pursuant to a Management Agreement approved by the Board of Directors of
Precision Tune Advertising Fund, Inc. (P.T.A.F., Inc.) (which includes both
franchisees and Company personnel), the Company manages the operation of
P.T.A.F., Inc. - the national advertising fund for Precision Tune Auto Care
centers. The Company charged P.T.A.F., Inc. $384,000, $416,000 and $555,000 for
administrative and other expenses incurred on behalf of P.T.A.F., Inc., during
the years ended June 30, 1996, 1997, and 1998, respectively. Based on the timing
of receipts and disbursements, it is common for amounts to be due to and from
the Company and P.T.A.F., Inc. At June 30, 1997 and 1998, the net amounts due
from P.T.A.F., Inc. were $44,000 and $146,000, respectively. These amounts are
included in accounts receivable.

Between March 31, 1998 and April 30, 1998, the Company purchased the remaining
50% interest in Indy Ventures, Inc. for $1,734,000 from an investor group that
included a member of the Company's Board of Directors. See Note 3.

On March 31, 1998, the Company sold the rights to future cash flows from a car
wash acquired in the IPO Combination to an employee of the Company for $235,000.
The gain on this sale was applied to goodwill as a purchase price adjustment. At
June 30, 1998, $210,000 of this purchase price is recorded in accounts
receivable. Also on March 31, 1998, the Company sold licenses in Mexico for
$250,000 to an investor group which included an individual who later became an
executive officer of the Company.

On June 30, 1998, the Company sold a company-owned and operated Precision Tune
Auto Care center to a partnership among several officers and certain members of
the Board of Directors of the Company for $220,000 and recorded $110,000 as
gain. Also on June 30, 1998, the Company sold a property to an investor group
that included an officer of the Company for $260,000 and recorded a $40,000
gain. At June 30, 1998, $234,000 of this purchase price is recorded in accounts
receivable.

On June 30, 1998 the Company sold three Precision Auto Washes and one Precision
Lube Express to an investor group that included a related party for $700,000.
The gain on these sales was recorded as a reduction to the goodwill recorded as
part of the IPO Combination. At June 30, 1998, $675,000 is due from these
related parties and is included in accounts receivable.

12. Stockholders' Equity
--------------------

Common Stock

In November, 1997, the Company sold 2,666,540 shares of Common Stock, including
the Underwriters' over-allotments, in an IPO for net proceeds of $19.6 million.
Simultaneously, the Company issued 1,436,724 shares of common stock in exchange
for ownership of nine combining companies. Also at that time, the Company issued
27,200 shares related to the exercise of common stock warrants.

During the year ended June 30, 1996, WE JAC completed a private placement of
147,975 shares of Common Stock and received proceeds of approximately
$1,143,000, net of direct expenses of approximately $41,000.

F-20

<PAGE>

Treasury Stock

In January 1997, WE JAC purchased from a former officer of the Company and
another company 247,040 shares of outstanding common stock and options to
purchase another 84,865 shares of common stock for a total price of
approximately $2,472,000. The transaction was recorded as treasury stock at
cost. To finance the purchase, the Company borrowed from its term loan in
January 1997. In November 1997, the treasury stock was retired.

Common Stock Option Plans

In November 1997, the Company's Board of Directors and the Company's
stockholders approved the "1998 Employee Stock Option Plan" and reserved 400,000
shares for issuance under the Plan. Options outstanding under predecessor plans
consisted of 175,000 related to shares of WE JAC Corporation common stock. The
Compensation Committee of the Company's Board of Directors determines the
recipients of the award to be granted, exercise price, vesting period, and
number of shares underlying the options. Generally, options are granted at fair
market value.

The Company applies APB 25 in accounting for its Stock Option Plan, and,
accordingly, recognizes compensation expense for any difference between the fair
value of the underlying common stock and the grant price of the option at the
date of grant. The effect of applying SFAS No. 123 on 1997 and 1998 net income
and pro forma net loss as stated below is not necessarily representative of the
effects on reported net income or loss for future years due to, among other
things, (1) the vesting period of the stock options, and (2) the fair market
value of additional stock option grants in future years. Had compensation
expense been determined based upon the fair market value at the grant date for
awards under the plans consistent with the methodology prescribed under SFAS No.
123, the Company's net income in 1997 and 1998 would have been approximately
$1,140,000 and $900,000, respectively and net income per share (diluted) would
have been $0.75 and $0.21, respectively. The fair value of the options granted
during 1997 and 1998 are estimated as $2.59 and $2.98 per share, respectively,
on the date of grant using the binomial value method with the following
assumptions: dividend yield 0%, risk-free interest rate of 6%, expected life of
5 years, and a 10 year contractual life.

F-21

<PAGE>

Additional information with respect to Stock Option activity is summarized as
follows:

<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------------------------
1996 1997 1998
--------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 84,865 $ 2.23 315,991 $ 6.31 432,600 $ 8.89
Options granted 231,126 7.80 213,974 10.00 393,500 9.73
Options exercised - - - - (20,000) 8.25
Options canceled or expired - - (97,365) 3.00 (55,500) 10.00
--------------------------------------------------------------------------------------
Outstanding, end of year 315,991 $ 6.31 432,600 $ 8.89 750,600 $ 9.26
======================================================================================

Options exercisable 87,865 $ 2.43 111,875 $ 8.52 355,422 $ 8.97
======================================================================================
</TABLE>

The options outstanding at June 30, 1998 range in price from $7.05 to $10.88
and have a weighted average remaining contractual life of 8.7 years.

At June 30, 1998, the President and Chief Executive Officer had options to
purchase 268,100 shares of the Company common stock. These options were granted
at fair market value on the dates of grants.

In 1996 and 1997, WEJAC offered an Employee Stock Purchase Plan (the Plan) to
encourage and facilitate the purchase of Common Stock by employees of the
Company. Upon completion of the IPO, this plan was converted to the Company.
Under the Plan, employees of the Company who elect to participate may purchase
Common Stock at 85% of the fair market value of the Common Stock on the
commencement date of each offering period. The plan permits an enrolled employee
to make contributions through the use of payroll deductions or lump sum
payments. In January 1998, the Company issued 17,114 shares of common stock to
employees. The Company has reserved 30,000 shares to be purchased by employees
under the "1998 Employee Stock Purchase Plan."

Common Stock Warrants

During 1997, WE JAC Corporation granted its Lender and another bank warrants to
purchase 27,200 shares of Common Stock, after application of an anti-dilution
provision, at $8.00 per share which represented the fair market value at the
date of issuance. The warrants were exercised at the time of the IPO.

F-22

<PAGE>

13. Employees' Savings Plan
-----------------------

The Company maintains a 401(k) plan under which the Company may contribute up to
50% of an employee's first 6% of compensation deferred under the plan. Employees
become eligible after attaining the age of 21 and completing six months of
employment with the Company. The employees may elect to contribute up to 15% of
their annual compensation subject to limitations set forth in the Internal
Revenue Code. Employees' contributions vest immediately. The matching
contribution vests 20% after two years and in increments of 20% each additional
year.

14. Purchase of Franchise Rights
----------------------------

During the year ended June 30, 1996, Bay Area Precision, Inc. (BAP), an area
subfranchisor of the Company, acquired all of the stock of Acc-U-Tune (AUT). AUT
owned twenty-six franchise agreements located in the San Francisco Bay Area. The
Company purchased from BAP the franchise agreements and trademarks of AUT for
$850,000. Simultaneously, the Company granted BAP additional area franchise
rights for the territory occupied by the AUT franchises. The franchise rights
acquired from BAP were valued at the acquisition price less the area franchise
rights sold. Accordingly, no revenue or expense was recognized by the Company
relating to this transaction.

In July 1997, the Company and BAP signed a term sheet describing the intended
purchase by the Company of the three Precision Tune Auto Care centers owned by
BAP, the area franchise rights and BAP's notes receivable for approximately $1.5
million. While this transaction has not been consummated, on June 30, 1998 the
Company purchased one of the centers and sold it for a $187,000 gain. At June
30, 1998, $206,000 related to this sale is included in accounts receivable.

15. Deferred Costs
--------------

During the year ended June 30, 1997, the Company incurred $1,221,000 in expenses
related to its efforts to raise permanent equity capital. These costs were
deferred and were deducted from the IPO proceeds when received in November 1997.
At June 30, 1997, most of the costs mentioned were unpaid and included in
accounts payable and accrued liabilities.

16. Contingencies
-------------

The Company is involved in certain litigation and is subject to unasserted
claims arising in the ordinary course of business. In the opinion of counsel and
management, the ultimate liability, if any, arising from the settlement of these
cases will not have a material adverse effect on the financial operations or
position of the Company.

F-23

<PAGE>

17. Net Income per Share
--------------------

The following table sets forth the computation of basic and diluted net income
per share.

<TABLE>
<CAPTION>
Years Ended June 30, 1996 1997 1998
------------------ ------------------ --------------------
<S> <C> <C> <C>
Numerator:
Net Income $ 1,070,176 $ 1,254,880 $ 1,228,096
Denominator:
Denominator for basic EPS-
weighted-average shares 1,451,418 1,486,162 4,247,977
Denominator for diluted EPS-
weighted-average shares 1,457,587 1,526,774 4,322,623
Basic net income per share $ 0.74 $ 0.84 $ 0.29
Diluted net income per share $ 0.73 $ 0.82 $ 0.28
</TABLE>

18. Quarterly Sales and Earnings Data - Unaudited
---------------------------------------------

The following table presents the quarterly results for Precision Auto Care, Inc.
and its subsidiaries on both an actual and pro forma basis for the year ending
June 30, 1998. To obtain pro forma results, the historical results of operations
of the Predecessor Companies and Worldwide Drying Systems, Inc. have been
adjusted to reflect certain purchase accounting adjustments.

F-24

<PAGE>

<TABLE>
In thousands except per share amounts

<CAPTION>
1998 Actual Q1 Q2 Q3 Q4 Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 6,767 $ 10,378 $ 11,003 $ 13,628 $ 41,776
Contribution 2,038 3,229 2,988 2,877 11,227
Net income (loss) 427 794 619 (612) 1,228
EPS (diluted) $ 0.10 $ 0.18 $ 0.11 $ (0.11) $ 0.28

1997 Actual Q1 Q2 Q3 Q4 Total
- ------------------------------------------------------------------------------------------------------------
Net sales $ 6,822 $ 6,847 $ 6,773 $ 7,015 $ 27,457
Contribution 1,812 1,860 1,803 1,691 7,166
Net income 396 472 254 133 1,255
EPS (diluted) $ 0.26 $ 0.31 $ 0.16 $ 0.09 $ 0.82

1998 Pro forma Q1 Q2 Q3 Q4 Total
- ------------------------------------------------------------------------------------------------------------
Net sales $ 11,719 $ 11,625 $ 11,003 $ 13,628 $ 47,975
Contribution 3,320 3,590 2,988 2,812 12,710
Net income (loss) 853 966 619 (612) 1,826
EPS (diluted) $ 0.15 $ 0.17 $ 0.11 $ (0.11) $ 0.32

1997 Pro forma Q1 Q2 Q3 Q4 Total
- ------------------------------------------------------------------------------------------------------------
Net sales $ 11,539 $ 11,214 $ 10,387 $ 9,967 $ 43,107
Contribution 3,052 2,709 2,991 2,334 11,086
Net income 750 612 436 19 1,817
EPS (diluted) $ 0.14 $ 0.11 $ 0.08 $ 0.00 $ 0.33
</TABLE>

As a result of certain adjustments made affecting the third quarter, the actual
and pro forma results differ from those previously reported on the Company's
10-Q for the period ending March 31, 1998. These adjustments, which related to
the method of accounting for the sale of pre-fabricated Lube Express buildings
and car washes net of the related income tax effects, had a negative impact on
revenue of $620,000, on contribution of $489,000 and on net income of $300,000
or $0.07 per share from the amounts previously reported. The Company anticipates
filing an amended 10-Q for this period in conjunction with the filing of its
10-K for the year ending June 30, 1998.

F-25

<PAGE>

SCHEDULE II

<TABLE>

Valuation and Qualifying Accounts
- ---------------------------------
($ Thousands)

<CAPTION>
Beginning
Balances
Balance @ Bad Debt of Companies Balance @
Description 7/1/97 Expense Acquired Write-offs 6/30/98
- ----------- --------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ (301) $ (308) $ (1,071) $ 291 $ (1,390)
</TABLE>

S-1

<PAGE>

<TABLE>
Precision Auto Care, Inc.

Unaudited Pro Forma Combined Statements of Operations
-----------------------------------------------------
<CAPTION>
Unaudited Proforma Combined
Adjusted for Offering and Acquisition
For the Years Ended June 30,
1997 1998
-------------------- -------------------
<S> <C> <C>
Sales
Franchising
Development $ 1,704,680 $ 2,296,086
Royalty 13,723,591 14,619,254
Manufacturing & distribution 23,514,458 25,249,709
Company center operations 3,865,848 5,292,970
Other 298,331 516,709
-------------------- -------------------
Total sales 43,106,908 47,974,728

Direct cost 32,020,592 35,264,453

-------------------- -------------------
Contribution 11,086,316 12,710,275

General & administrative 3,827,604 4,442,135
Depreciation & amortization 2,642,314 2,683,612

-------------------- -------------------
Operating income 4,616,398 5,584,528
Other income (expense)
Interest income 169,060 143,478
Interest expense (441,660) (791,378)
Other income (expense) (541,206) (808,484)

-------------------- -------------------
Total other income (expense) (813,806) (1,456,384)
Earnings before taxes 3,802,592 4,128,144
-------------------- -------------------
Provision for income taxes 1,986,000 2,302,334
-------------------- -------------------
Net income $ 1,816,592 $ 1,825,810
==================== ===================
Earnings per share
Basic net income per share $ 0.33 $ 0.32
==================== ===================
Diluted net income per share $ 0.33 $ 0.32
==================== ===================
Weighted average shares outstanding-
Basic 5,474,435 5,632,388

Weighted average shares outstanding-
Diluted 5,496,880 5,707,035
</TABLE>

P-1

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on October 28, 1998.

PRECISION AUTO CARE, INC.

By: /s/ Charles L. Dunlap
----------------------------------
Charles L. Dunlap
President and Chief Executive Officer
(Duly Authorized Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Chairperson of the Board October 28, 1998
- -----------------------------
Lynn E. Caruthers

/s/ Charles L. Dunlap President, Chief Executive Officer and October 28, 1998
- ----------------------------- Director (Principal Executive Officer)
Charles L. Dunlap

/s/ John F. Moynahan Senior Vice President and Chief Financial October 28, 1998
- ----------------------------- Officer (Principal Financial Accounting
John F. Moynahan Officer)

* Director October 28, 1998
- -----------------------------
Woodley A. Allen

* Director October 28, 1998
- -----------------------------
George A. Bavelis
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
* Director October 28, 1998
- -----------------------------
Bernard H. Clineburg

* Director October 28, 1998
- -----------------------------
Clarence E. Deal

* Director October 28, 1998
- -----------------------------
Effie L. Eliopulos

* Director October 28, 1998
- -----------------------------
Bassam N. Ibrahim

* Director October 28, 1998
- -----------------------------
Richard O. Johnson

* Director October 28, 1998
- -----------------------------
Arthur Kellar

* Director October 28, 1998
- -----------------------------
Harry G. Pappas, Jr.

*
- -----------------------------
William R. Klumb Director October 28, 1998

* Director October 28, 1998
- -----------------------------
Gerald A. Zamensky
</TABLE>

*By: /s/ Arnold Janofsky
------------------------
Arnold Janofsky
Attorney-in-Fact
(Upon the Authority of a Power-of-Attorney
filed as Exhibit 24 to this Annual Report.)

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
10.2 Loan and Security Agreement with Signet Bank, now known
as First Union National Bank __

10.3 Amendment No. 3 to Loan and Security Agreement with
First Union National Bank __

10.4 Second Consolidated, Amended and Restated Revolving and
Acquisition Line of Credit Promissory Note in favor of First
Union National Bank __

10.7 Employment Agreement with John F. Ripley __

10.11 Employment Agreement with John F. Moynahan __

10.13 Employment Agreement with Jaime J. Valdes __

10.14 Independent Contractor Agreement with Ernest S. Malas __

21 Significant Subsidiaries of the Company. __

23 Consent of Ernst & Young LLP, Independent Auditors. __

24 Power of Attorney __

27 Financial Data Schedule. N/A
</TABLE>