PRECISION AUTO CARE INC, 10-K/A, 1999-10-14

PRECISION AUTO CARE INC
10-K/A, 1999-10-14
AUTOMOTIVE REPAIR, SERVICES & PARKING

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The following were the subject of a Form 12b-25 and are included herein: Items
6, 7, 7A, 8 and 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, 1999
COMMISSION FILE NUMBER 1-14510

PRECISION AUTO CARE, INC.

(Exact name of registrant as specified in its charter)

VIRGINIA 54-184785
(State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)

748 MILLER DRIVE, S.E.
LEESBURG, VIRGINIA 20175
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 777-9095

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
(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 __
-

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 14, 1999 was $10,187,004 based on the closing price of
$2.00 per share. As of that date, 6,132,173 shares of Common Stock were issued
and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE
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TABLE OF CONTENTS

Explanatory Note: In this Form 10-K/A, the registrant has added additional risk
factor disclosure in Item 1 and has included the information omitted from Items
6, 7, 7A, and 8 and portions of Item 14 of the Form 10-K originally filed by the
registrant on September 28, 1999.

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PART I Item 1. Business 4
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13

PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosure about Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 14

PART III Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Related Transactions 21

PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
</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, and increased competitive pressure in the automotive aftermarket
services business.

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PART I
ITEM 1. BUSINESS

OVERVIEW

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, 1999, these services were provided at 542 Precision Tune
Auto Care centers owned and operated by franchisees and one 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, 1999, there were 24
Company-owned car wash centers and 18 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, 1999, there were 14 Precision Lube Express centers owned
and operated by franchisees and six owned and operated by the
Company. As of that date there were also 17 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.

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"). In March 1998, the Company acquired the holder
of the master franchise agreement for Precision Tune Auto Care in Mexico and
Puerto Rico.

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OPERATIONS

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, 1999, these services were provided at 542 Precision
Tune Auto Care centers owned and operated by franchisees and one 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 least six service bays. 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. Exclusive
of real estate, the estimated capital required to open a prototype Precision
Tune Auto Care center ranges from $140,000 to $200,000.

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.

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 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. Upon opening a new center, training crews are
onsite for at least the first two business days to assist in the startup
process.

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 46% 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.

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, 1999, 23 area developers had an
ownership interest in a total of 136 Precision Tune Auto Care centers
(representing 33% of the total number of centers) and provided support to
another 220 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

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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, 1999, there
were 24 Precision Auto Wash centers owned and operated by the Company. As of
that date, there were 18 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:

. 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.

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 $52,600 to $669,000. The initial investment required for a "Junior"
Precision Auto Wash, exclusive of real estate, ranges from $40,100 to $420,500.

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. As a method of capturing the market of existing car wash owners,
this past fiscal year the Company began a program for existing car wash owners
to participate in the various benefits and supports offered by the Precision
Auto Wash system at reduced fees. 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.

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, 1999, there were 14 Precision Lube Express centers owned and operated
by franchisees and 6 owned and operated by the Company. As of that date

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there were also 17 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.

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

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") is a
distributor of automotive parts and equipment located in Winchester, Virginia.
PAC currently 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 as well as 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
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.

Worldwide manufactures and distributes drying systems for installation in
automatic car washes. Worldwide's dryers are available to

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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

PRECISION TUNE AUTO CARE. The Company sold 8 Precision Tune Auto Care franchises
in the year ended June 30, 1999. As of June 30, 1999, substantially all of the
Company's Precision Tune Auto Care centers were owned and managed by
franchisees. Precision 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, Brazil and El Salvador.
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.

PRECISION AUTO WASH. The Company sold 4 car wash franchises in the year ended
June 30, 1999. 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 between $1,500 and $15,000
depending upon whether or not the franchisee is an existing car wash owner.
Franchisees will be required to pay royalties on a yearly basis between $4,000
and $9,000

Franchisees may also be required to contribute a monthly amount between $75 and
$150 to a national advertising fund and an additional amounts 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 Company sold 5 lube franchises in the year ended
June 30, 1999. 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.

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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 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. and 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.

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

9
<PAGE>

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," "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.

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 Company's business and an investment in its Common Stock are subject to
certain risks, including the following:

GOING CONCERN. Due to the Company's operating losses and working capital
deficiency, Ernst & Young LLP, the Company's auditors have included an
explanatory paragraph in their report to the Company's consolidated financial
statements for the year ended June 30, 1999 that expresses substantial doubt as
to the Company's ability to continue as a going concern. The inclusion of this
explanatory paragraph regarding the ability of the Company to continue as a
going concern could have a material adverse effect on the results of the
operation and financial condition of the Company. There can be no assurances
that the Company will be able to successfully implement the changes necessary
for the Company to remain a going concern. See "Report of Independent Auditors",
dated October 8, 1999, included in this report at Item 8.

LIQUIDITY. The Company is highly leveraged and a substantial portion of its cash
flow from operations is dedicated to the payment of principal and interest on
indebtedness. Since the Company utilized substantially all of its credit
facility in August 1998, the Company's cash flow has been constrained, impacting
its ability to meet its obligations to its suppliers and to the bank and other
creditors. And while the Company has entered into a number of financing
transactions to improve its financial position, including subordinated debt
issued to members of the Board of Directors and mortgage financing on
Company-owned real estate, the proceeds of such transactions have mostly been
devoted to paying down the Company's bank debt and have not significantly
contributed to working capital. The Company has been forced to negotiate a
number of amendments and extensions to its indebtedness arrangements with the
bank and its other creditors. The Company has also implemented a program to
improve its cash flow, including but not limited to, expense reduction, improved
inventory management, accelerated collection of accounts receivable and
disposition of selected assets. There can be no assurances that the Company's
efforts will succeed in eliminating the Company's working capital deficiency and
further reductions in expenditures, sales of additional assets or supplemental
financing may be necessary. For additional details see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources, at Item 7 of this report".

LIMITED OPERATING HISTORY. The Company is in only its second 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.
There can be no assurance that the Company's management will be able to
successfully manage the operations of the combined entity.

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.

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. The Company does sell its complete
proprietary automated car wash system 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."

10
<PAGE>

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."

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.

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.

11
<PAGE>

CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS. As of September 14, 1999,
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 63% 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.

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.

RISKS OF INTERNATIONAL OPERATIONS. International operations comprised
approximately 14% of the Company's consolidated net revenue during the fiscal
year ended June 30, 1999. 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.

The Company conducts its car wash chemical blending and distribution operations
from an 8,000 square foot Company-owned facility located in Cambridge, 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 $493,700 for the

12
<PAGE>

year ended June 30, 1999. The Company owns the underlying real estate for two
Company-owned car washes and mortgages the underlying real estate for 24
Company-owned centers which includes one auto care center, one lube center, 17
wash centers, and five lube/wash combinations. The rent expense associated with
Company-owned and franchised centers for the year ended June 30, 1999 of
$1,050,000 is the net amount after allowing for $969,000 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
applicability 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.

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." On August 16, 1999, the Company's listing was moved from the
Nasdaq National Market to the Nasdaq SmallCap Market. The Company's continued
listing on the Nasdaq SmallCap Market is contingent upon Nasdaq approval.

As of September 14, 1999, there were 205 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
1,000 shareholders.

The following table sets forth the high and low sales prices on the Nasdaq for
the Common Stock during the fiscal years ended June 30, 1999 and June 30, 1998,
respectively. 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.

FISCAL YEAR ENDED JUNE 30, 1999

QUARTER HIGH LOW
- ------- ---- ---
First $ 10 3/8 $ 4 5/8
Second 5 7/8 2
Third 3 1 5/8
Fourth 3 1/16 2

FISCAL YEAR ENDED JUNE 30, 1998

QUARTER HIGH LOW
- ------- ---- ---
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.

13
<PAGE>

Item 6. Selected Financial Data

1999 1998 1997 1996 1995
--------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE DATA)

Net sales...................................... $ 44,769 $41,776 $27,457 $26,734 $26,579
Net Income (loss) from operations.............. (21,019) 1,228 1,255 1,070 (225)
Net EPS (diluted).............................. $ (3.43) $ 0.28 $ 0.82 $ 0.73 $ (0.11)
Total assets................................... 64,575 86,549 $26,694 $25,654 $24,810
Total debt..................................... 24,196 24,243 9,379 8,462 8,633
Cash dividends declared per common share (1)... $ -- $ -- $ -- $ -- $ --
</TABLE>

(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.

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 Financial
Statements of the Company and related notes thereto included elsewhere herein.

Overview

Precision Auto Care is a global franchisor of auto care, car wash and quicklube
centers. The Company also manufactures automatic car wash equipment and modular
quicklube buildings. 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. 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 sale of
automotive parts and equipment and the manufacture and sale of car wash
equipment, parts, supplies and chemicals. Company-owned center revenue is
derived from 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 include, interest income and expense, severances, abandoned acquisitions,
early buyout of lease obligations and the operating results of Precision Tune
Auto Care centers held for resale by the Company.

The following table sets forth certain income statement items as a percentage of
net revenue for the year ended June 30, 1997, 1998 and 1999.

1997 1998 1999
----- ----- ------
Net revenue............................ 100 % 100 % 100 %
Direct cost............................ 74 74 88
---- ---- ----

Contribution........................... 26 26 12
General and administrative expense..... 9 9 29
Depreciation and amortization expense.. 4 4 3

14
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Charge for impairment of goodwill...... - - 10
---- ---- ----

Operating income....................... 13 11 (35)
Other expense.......................... (4) (4) (14)
---- ---- ----

Income before taxes.................... 9 7 (50)
Provision for income taxes............. 5 4 (3)
---- ---- ----

Net income............................. 5 % 3 % (47) %
==== ==== ====

As previously announced the Company has been experiencing cash flow
difficulties. In an effort to return the Company to positive cash flow and
profitability, the Board of Directors has approved a series of initiatives by
management which call for the disposition of certain assets and restructuring of
the Company. The Company believes that recently completed sales of certain
assets together with future sales made in connection with the discontinuation of
certain businesses will have a positive impact on future cash flow and
reduce past due trade payables. Several joint ventures are currently under
negotiation that would also improve cash flow, reduce inventories and trade
payables. If consummated, these transactions would also allow management to
devote more of its attention to its core auto care and franchising business.

The Company's core auto care and franchising business continues to benefit from
an improved focus on unit economies, in the field training programs and the co-
branding strategies. Hydro-Spray's car wash manufacturing operations are being
restructured to improve quality control, margins and its distribution system.
The Company is taking steps designed to enable these divisions to reach a
broader range of customers. Precision Building Solutions, the Company's modular
building division is focusing its efforts on multiple building customers and
joint venture partners as part of its strategy to increase sales. Additionally,
the Company is seeking growth through co-branding. This strategy is designed to
permit the Company to partner with other retailers and service providers who are
also seeking to improve cash flows through complementary brands.

These strategies combined with the restructuring actions and asset sales the
Company is pursuing could lead to a significant improvement in cash flow.
Efforts are also underway to raise capital with strategic partners or investors
to reduce the Company's current level of debt. While all of these actions may
result in a restructured company with potentially less revenue, the Company
believes greater profitability and positive cash flow will thereafter be
achieved from the Company's then remaining current operations.

The Company's recent success in securing commitments to extend the maturity of
its bank loan and board debt to October 2000, places it in a better position to
achieve its recapitalization and restructuring objectives. These extensions
will help the Company continue its restructuring, recapitalization and product
improvement initiatives.

In the event that the Company is unable to accomplish its restructing and
strategic objectives, is unable to secure additional financing, or is otherwise
unable to generate revenues sufficient to cover operating expenses, the Company
may be unable to satisfy most of its current liabilities and would be unable to
sustain its operations at the current level, which could result in the Company,
among other things, further reducing discretionary expenses and liquidating
certain assets. The financial statements do not include any adjustments that
might result from this uncertainty.

YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998

Revenue. Revenue for the twelve months ending June 30, 1999 was $44.8 million,
an increase of $3.0 million, or 7%, compared with revenue of $41.8 million for
the prior year. The increase was due to higher sales from company centers, $3.5
million, royalties $406,000, and manufacturing and distribution of $636,000.
These increases were offset by a decrease in franchise development of $1.2
million and other revenues of $342,000. Royalty revenues from domestic
franchises decreased 6% or $891,000. The Company has made an ongoing effort to
remove under-performing stores from the franchise system which contributes to
the decrease. This decrease was offset by an increase of $1.3 million in
royalties from Praxis a subsidiary in Mexico acquired in April 1998.
Manufacturing and distribution revenues of $21.1 million for the twelve months
ending June 30, 1999 increased by $636,000 or 3% compared with the prior fiscal
year's sales of $20.5 million. An increase of $3.2 million or 129% of wash
equipment sales and a $1.7 million sales increase for Praxis was partly offset
by a decrease in auto parts distribution sales of $4.1 million or 34% and
modular building sales of $390,000 or 35%. The Company's auto parts distribution
business was adversely affected by the constrained cash flow during the fiscal
year. Revenue from Company-owned and operated stores increased by $3.5 million
or 88%, principally due to the increased length of time the Company owned stores
during fiscal year 1999 compared to the prior fiscal year.

Direct Cost. Direct costs for the twelve months ending June 30, 1999 totaled
$39.6 million, an increase of $8.9 million or 29%, compared with $30.7 million
for the year ending June 30, 1998. The increase was due in part to direct cost
from Praxis of $4.9 million which was not included in the first nine months of
last year's results. The remainder of the increase was related to the inclusion
of costs for the merged companies for the twelve months ending June 30, 1999,
compared to five months of the prior year. As a percentage of sales, overall
direct costs increased 20% in 1999 compared with 1998. Franchise development
costs in fiscal year 1999 were $1.4 million, a decrease of $321,000 or 18% from
$1.7 million in fiscal year 1998. The overall decrease was a direct result of
lower sales of franchises and international licenses. As a percentage of sales
franchise development costs increased 72% to 133% of sales in 1999 from 77% of
sales in 1998. Retail operation's costs for the year ended 1999 compared with
1998 remained flat at $7.9 million. As a percentage of sales, retail operation
costs decreased 3% in fiscal year 1999 compared to fiscal year 1998. The
increase in direct costs was primarily in the area of manufacturing and
distribution. The Company's auto parts and distribution costs were $7.9 million
in 1999, a decrease of $3.0 million from $10.9 million in 1998. As a percentage
of sales, parts distribution costs increased 10% in fiscal year 1999 compared to
fiscal year 1998. This increase was the result of insufficient working capital
dedicated to the business. Throughout fiscal year 1999 parts inventory was on
average lower and fill rates on sales declined. As a result the Company was not
able to absorb as much of the direct overhead in fiscal year 1999 compared with
1998. Wash equipment costs increased $4.4 million or 129% to $11.1 million in
1999 from $6.2 million in 1998. As a percentage of sales wash equipment
manufacturing costs were 116% of sales in 1999, an increase of 52% compared with
costs in 1998. This significant increase was partially attributable to costs
associated in rolling out a new product, the Hydro Spray Rainmaker. Margins
overall were lower due to higher labor costs, inventory costs, and higher costs
for parts and raw materials. In June 1999 the Company made several moves to
restructure Hydro Spray, a significant piece of the wash equipment operation,
which included changes in management, modifying distributor agreements and
revising standard sales contracts. The Company is reviewing the pricing of its
products to determine whether an increase is required to earn a reasonable
profit margin.

General and Administrative Expense. General and administrative expense was
$12.9 million for the twelve months ending June 30, 1999, an increase of $8.8
million, or 215%, compared with the last fiscal year. This increase is partly
attributed to direct writeoffs and increases in the allowance for doubtful
accounts and professional fees related to legal, accounting and information
systems services incurred during the year of $6.0 million and $2.2 million
respectively. Charges or allowances are made to accounts which management
determines are uncollectible or doubtful. In an effort to reduce overhead
expenses several senior management positions were eliminated and work done by
outside professionals were brought in-house in the latter part of the year.
These changes did not have a significant impact on expenses for fiscal year
1999. The Company expects savings from those actions to be realized in coming
years.

15
<PAGE>

Amortization and Depreciation Expense. Depreciation and amortization expense
was $3.5 million for the twelve months ending June 30, 1999, an increase of $1.2
million or 55% compared with $2.2 million for the year ended June 30, 1998.
Depreciation expense increased as result of the merger, acquisitions and capital
expenditures. The company has purchased signs and computers for a majority
of its 550 franchisees. The increase in amortization expense includes
amortization of goodwill and other intangible assets of $1.9 million. The
increase in amortization expense is most significantly the result of twelve
months of amortization expense for businesses acquired in November 1997 and
April 1998.

Impairment of Assets. The Company expensed $4.7 million as a special charge to
reduce the amount of goodwill. The impairment charge to goodwill is the
difference between the carrying amounts of assets the Company is planning to
dispose of in the coming year and the expected realizable value of those assets.

Operating Income (Loss). The Company recorded an operating loss for the twelve
months ending June 30, 1999 of $15.9 million which represents a decline in
operating income of $20.5 million or 436% compared with operating income of $4.7
million for the corresponding period of the prior year. This decline resulted
from a decrease in the contribution margin of $5.9 million. Also included in
the decrease is an increase in amortization expense and an impairment charge to
goodwill of $450,000 and $4.7 million respectively.

Interest Expense. Interest expense was $2.6 million for the twelve months
ending June 30, 1999 an increase of $1.6 million or 152% compared with $1.0
million for the year ended June 30, 1998. Higher interest expense was the
result of carrying more debt at higher rates of interest compared with the prior
year.

Other Expense. Other expense was $4.0 million for the twelve months ending
June 30, 1999 an increase of $3.2 million or 398% compared with $803,000 for
the year ended June 30, 1998. Other expenses for 1999 include $1.2 million for
executive's severance pay, $1.4 million for abandoned acquisitions, $425,000
for lease buyouts and real estate taxes.

Provision for Income Taxes. The provision for income taxes was a benefit of $1.3
million for the twelve months ending June 30, 1999 a decrease of $3.0 million or
174% compared with income tax expense of $1.8 million for the year ended June
30, 1998.

Net Income and Earnings Per Share. The Company recorded a loss of $21.0 million,
or $3.43 per share, for the twelve months ending June 30, 1999, compared with
net income of $1.2 million, or $0.28 per share, for the prior year.

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 and Administrative Expense. 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.

16
<PAGE>

Operating Income (Loss). 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.

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 and 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.

Liquidity and Capital Resources

The following table sets forth selected information from the statement of cash
flows of Precision Auto Care, Inc.

Twelve Months Ended June 30,
1998 1999
---- ----
Net cash used in operating activities ($2,132,000) $(5,127,000)
Net cash provided by investing activities (14,802,000) 3,463,000
Net cash used in financing activities 18,428,000 (356,000)
----------- -----------

Change in cash and cash equivalents ($1,494,000) $(2,020,000)
=========== ===========

Cash at June 30, 1999 was $50,000 a decrease of $2.0 million from $2.1 million
at June 30, 1998. During the year cash from operating activities decreased by
$5.1 million which is attributable to decreases in inventory levels of $1.1
million and a decrease in prepaid expenses of $1.8 million, partially offset by
decreases in accounts payable and deferred revenue of $674,000 and $274,000
respectively.

Cash provided by investing activities during the year ended June 30, 1999 was
$3.5 million. The inflow in the current year consisted primarily of the sale of
property and equipment of $6.8 million, which was offset by capital expenditures
and the repurchase of franchise agreements and rights of $2.2 million and $1.1
million, respectively. The capital expenditures consisted mainly of PIN systems
purchases and signage upgrades, and upgrades to the Company's internal computer
hardware and software systems.

Cash used in financing activities during the year ended June 30, 1999 was
$356,000. Financing activities during the year ended included borrowings
against the Company's term loan and line of credit and the proceeds of
subordinated debentures in the aggregate

17
<PAGE>

principal amount of $7.0 million purchased by members of the Company's Board of
Directors and $8.2 million in mortgages. These were offset by repayments and
permanent reductions of the Company's term loan and line of credit of $12.8
million.

As of June 30, 1999, the Company had borrowed approximately $8.9 million under
its bank credit agreement, of which $4.4 million represented amounts extended
under a portion of the bank credit facility that was dedicated to funding
acquisitions and capital expenditures (the "Acquisition Line of Credit") and of
which $4.5 million represented funds advanced under a general revolving credit
portion of the credit facility (the "Line of Credit Loan").

During the first quarter of 1999, the Company was not in compliance with various
covenants contained in its bank credit agreement. On October 12, 1998, the
Company and the Bank executed an amendment to its credit agreement effective
October 1, 1998. Pursuant to this amendment, amounts available under the
Acquisition Line of Credit and the Line of Credit Loan were to be reduced to $10
million and $5 million, respectively, for a total of $15 million. These
reductions became effective on January 31, 1999. Pursuant to the amendment,
loans extended by the bank under the Acquisition Line of Credit and the Line of
Credit Loan was to 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 could
not be reborrowed.

The terms of this amendment also required 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, which the Company arranged on
October 15, 1998. The terms of the subordinated debt call for increases in the
interest rate if the Company defaults in the timely payment of interest on the
subordinated debt, and the Company is not permitted to make any payment with
respect to the subordinated debt during the continuance of a default or event of
default under the Company's senior indebtedness. As a result of a combination of
defaults under the Company's senior indebtedness and the Company's failure to
make interest payments on the subordinated debt, the subordinated debt was for a
period of time accruing interest at 16% per annum.

In December 1998, the Company notified its bank that, based on expected results
for the quarter ending December 31, 1998, it would not be in compliance with
certain revised financial covenants contained in the October 1, 1998 amendment
to the bank credit agreement. On January 25, 1999, the Company and the bank
reached agreement in principle concerning the terms of an amended and restated
bank credit agreement (the "Amended and Restated Credit Agreement"), which was
reduced to writing on February 22, 1999, and effective retroactively to February
1, 1999, and which included a waiver of financial covenant noncompliance. Under
these terms of the Amended and Restated Credit Agreement, the Company was
required to complete a series of financings and asset sales, from which the bank
was to receive a portion of the proceeds as permanent reductions in the
Company's credit facility. The terms of the Amended and Restated Credit
Agreement were further amended on May 13, 1999, to revise the terms of certain
required real estate transactions and the application of proceeds to reduce the
Acquisition Line of Credit and the Line of Credit Loan.

In addition, the Company raised $5 million through a subordinated debenture that
was placed with a member of its board of directors, of which $2.5 million was
used to permanently reduce the Company's credit facility and $2.5 million was
used for vendor payments. This subordinated debenture bears interest at 15% per
annum, with provisions for higher rates in the event of default was to mature on
May 25, 1999. Accrued interest and a one point origination fee are payable in
shares of the Company's common stock valued at the closing price on the day
prior to repayment of principal. The principal and interest on the subordinated
debenture may only be paid if the Company has made all required payments to the
bank as required by the terms of the Amended and Restated Credit agreement set
forth above and the Company is not otherwise in default of the Amended and
Restated Credit Agreement. This subordinated debenture has been extended to
April 15, 2001.

To date the Company has succeeded in concluding all but one of the required real
estate transactions, resulting in a permanent reduction of outstandings under
the Line of Credit Loan of $4,600,000 and the repayment of outstandings under
the Acquisition Line of Credit in the amount of $5,000,000. These transactions
also generated a small amount of working capital availability and approximately
$1,500,000 to repay a portion of the principal due under the $5,000,000
subordinated debenture due May 25, 1999. On June 1, 1999 the Company repaid $1.4
million as a permanent reductions of the subordinated debenture. The Company was
required to repay an additional $450,000 upon completing a sale of a certain car
wash property by July 31, 1999, which transaction has not yet occurred.

On March 8, 1999, the Company entered into a mortgage with Heartland Bank in the
principal amount of $1,035,000 with an annual interest rate of 8.75%. The rate
is subject to adjustment on March 10, 2004. The Company is required to make
monthly payments of principal plus interest beginning on April 10, 1999. The
mortgage is being amortized over a 20 year period, with a balloon payment due on
March 10, 2009. The mortgage is secured by four of the Company's car washes.
If any payment required under the mortgage is not made within thirty days after
the date due, the interest rate will increase by 2%.

On May 17, 1999, the Company executed nineteen promissory notes totaling
$7,204,000, with FFCA Acquisition Corporation. Each note accrues interest at a
rate of 9.9% per annum and matures on June 1, 2014 with the exception of one
which matures on August 1, 2004. Principal and interest payments are due in
monthly installments commencing on July 1, 1999. Each note is secured by
mortgages on properties. In the event of default the interest rate shall
increase to 18%.

18
<PAGE>

Although the foregoing transactions improved cash flow by converting short
term obligations into long term debt, they have not significantly contributed
to working capital. Accordingly, there can be no assurance that the Company
will not require additional working capital financing to conduct its operations.

The Company has received the commitment of its senior lender, pursuant to which
(among other things) the maturity date of the credit facilities will be extended
to October 5, 2000, subject to the satisfaction of certain conditions including
the execution of liens on all owned and unencumbered real property. The terms of
the extension require the Company to engage in a series of further asset sales
generating minimum net proceeds in the aggregate amount of $2,575,000. In
addition the Company is required to by certain deadlines occurring over the
course of its next fiscal year to (a) reduce accounts payable by at least
$250,000 on a cumulative basis during each of the next four fiscal quarters, (b)
not suffer, for the quarter ending December 31, 1999, a negative net income
exceeding $500,000, exclusive of the required asset sales, and (c) achieve for
each quarter beginning with the quarter ending March 31, 2000, a positive
earnings before taxes, depreciation and amortization, but after interest
exclusive of the required asset sales. The Company will be obligated to reduce
bank debt by an additional $200,000 on or before September 1, 2000, and must
continue to make timely payments of principal and interest. The Company is not
permitted to make payment of any amount or principal or interest on its
subordinated debt in cash without the prior written consent of the bank. There
can be no assurances that the Company will be in a position to satisfy each of
these requirements.

The Company has received the approval of the holder of $2 million in
subordinated debt to waive existing events of default and to extend the maturity
thereof to November 1, 2000, in exchange for the satisfaction of a portion of
the accrued and unpaid interest through the issuance of Common Stock subject to
shareholder approval. The Company has received the commitment of the holder of
an additional $3.6 million in subordinated debt to waive existing events of
default and to extend the maturity date to April 15, 2001. The Company expects
to execute definitive agreements giving effect to the extensions and amendments
to its bank debt and subordinated debt in the near future.

From the time that the Company utilized substantially all of its credit facility
in August 1998, the Company's cash flow has been constrained. As a result, the
Company's ability to meet obligations to its suppliers in a timely manner has
been adversely affected, which in turn has adversely affected revenues and
profits of several of its businesses, particularly its distribution business in
the U.S. The Company expects that its businesses will continue to be adversely
affected until sufficient cash is available to meet ongoing supplier obligations
in a timely manner. In October 1998, a new Chief Executive Officer joined the
Company and under his direction the management of the Company has initiated a
program to improve its cash flow. Actions taken to date under this program
include: a reduction in staffing levels of 10% in the Company's field operations
and 15% at the Company's headquarters; reductions in expenses; improved
inventory management; and an acceleration in the collection of accounts
receivable. Future actions under this program are expected to include expanded
expense reductions, dispositions of selected assets, an assessment of the
strategic and financial performance of all aspects of the Company's operations
and the continued restructuring and reorganization of those operations of the
Company that are not meeting their strategic and financial objectives.

The Company's Board of Directors has authorized the Company to retain the
services of an investment banker to review strategic and recapitalization
opportunities.

While Company management believes that this program will improve its cash flow
and ability to meet future bank covenants and vendor obligations in a timely
manner, there can be no assurance that such program will be effective in meeting
its objectives or that if such objectives are met, that the resulting
improvements in cash flow will be sufficient to avoid the need for additional
reductions in expenditures, sales of additional assets, or supplemental
financing. The Company's auditors have included an explanatory paragraph in
their report to the Company's consolidated financial statements for the fiscal
year ended June 30, 1999 that expresses substantial doubt as to the Company's
ability to continue as a going concern. The expression of this judgement by the
Company's auditors may make successful implementation of the Company's
restructuring program more difficult.

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 wash 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 had 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, the Company has replaced the computer system, both hardware
and software, at its corporate headquarters, which was not Y2K compliant, with a
new management information system (MIS). The new MIS system is certified to be
Y2K compliant. This new system is currently being integrated into the Company's
existing network while conversion of the Company's existing data into the new
system continues. The replacement of non-compliant computer systems at the
Company's field locations will continue during the remainder of 1999. Hardware
and software costs were approximately $330,000 in FY99. Additional programming
costs are expected to reach $100,000 during FY00 representing 30% of the MIS
budget. 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. In
addition, the Company continues to operate under its existing phone system which
is not Y2K compliant. The Company intends on replacing the current phone system
prior to the end of 1999. Costs for a new phone system are expected to be
approximately $75,000.

19
<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.

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

<TABLE>

2000 2001 2002 2003 2004 Thereafter Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term debt:
Term loan 1,230,002 1,230,002
Variable rate LIBOR + 4.75%

Long-term debt
Term loan 3,116,667 3,116,667
Variable rate LIBOR + 4.75%

Line of credit 4,562,000 4,562,000
Variable rate LIBOR + 4.75%
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Audited Consolidated
Financial Statements

Precision Auto Care, Inc. and Subsidiaries

For the three years in the period ended June 30, 1999
with a Report of Independent Auditors

20
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Audited Consolidated Financial Statements

For the three years in the period ended June 30, 1999

Contents

Report of Independent Auditors................... 22

Audited Financial Statements

Consolidated Balance Sheets...................... 24
Consolidated Statements of Operations............ 25
Consolidated Statements of Stockholders' Equity.. 26
Consolidated Statements of Cash Flows............ 27
Notes to Consolidated Financial Statements....... 28

21
<PAGE>

Report of Independent Auditors

Board of Directors and Stockholders
Precision Auto Care, Inc.

We have audited the accompanying consolidated balance sheets of Precision Auto
Care, Inc. and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three years in the period ended June 30, 1999. 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 referred to above present
fairly, in all material respects, the consolidated financial position of
Precision Auto Care, Inc. and subsidiaries at June 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the three
years in the period ended June 30, 1999, in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1,
the Company has incurred operating losses and negative operating cash flows and
has a working capital deficiency. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.

October 8, 1999
Vienna, Virginia

22
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
1998 1999
-------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,070,294 $ 50,167
Accounts receivable, net of allowance of
$1,390,000 and $2,080,000, respectively 9,050,190 5,242,780
Inventory 4,201,752 3,084,637
Notes receivable, net of allowance of $99,000
and $586,000 respectively 1,519,642 379,487
Other assets 2,217,164 209,342
Refundable income taxes -- 1,658,931
Deferred income taxes 722,000 --
-------------------------------
Total current assets 19,781,042 10,625,344

Notes receivable, net of allowance of
$52,000 and $324,000, respectively 654,382 325,254

Property, plant and equipment, at cost 20,978,240 17,987,789
Less: Accumulated depreciation (1,678,527) (2,757,726)
-------------------------------
19,299,713 15,230,063
Goodwill and other intangibles, net of
accumulated amortization of $11,010,000 and
$12,992,000, respectively 45,631,583 37,926,905
Deposits and other 1,182,502 467,857
-------------------------------

Total assets $86,549,222 $64,575,423
===============================
</TABLE>

See accompanying notes.

23
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Balance Sheets

<TABLE>
<CAPTION>
June 30,
1998 1999
--------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 9,336,120 $ 8,636,331
Bank facility 2,352,948 1,230,002
Mortgage notes payable - 295,064
Other notes payable 1,060,910 541,535
Deferred revenue 962,977 842,598
--------------------------------
Total current liabilities 13,712,955 11,545,530

Bank facility 19,378,052 7,678,667
Subordinated debt - 5,586,960
Mortgage notes payable - 7,938,859
Other notes payable 1,471,068 924,713
Deferred revenue 393,338 239,714
Refundable deposits 424,245 245,364
Other 214,978 433,323
--------------------------------
Total liabilities 35,594,636 34,593,130

Stockholders' equity:
Common stock, $.01 par; 19,000,000 shares authorized;
6,120,543 and 6,131,548 shares issued and outstanding,
in 1998 and 1999, respectively 61,205 61,315
Additional paid-in capital 45,682,551 46,012,211
Unearned restricted stock - (283,021)
Retained earnings 5,210,830 (15,808,212)
--------------------------------
Total stockholders' equity 50,954,586 29,982,293
--------------------------------

Total liabilities and stockholder's equity $86,549,222 $ 64,575,423
================================
</TABLE>

See accompanying notes.

24
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Statements of Operations

<TABLE>
<CAPTION>
Years ended June 30,
1997 1998 1999
-------------------------------------------------
<S> <C> <C> <C>
Revenues:
Franchise development $ 1,551,097 $ 2,255,744 $ 1,070,763
Royalties 13,755,440 14,603,825 15,009,592
Manufacturing and distribution 11,852,062 20,458,420 21,093,997
Company centers - 3,940,916 7,420,157
Other 298,332 516,709 174,960
-------------------------------------------------
Total revenues 27,456,931 41,775,614 44,769,469

Total direct cost 20,291,174 30,708,388 39,604,293
-------------------------------------------------
Contribution (exclusive of
amortization shown separately below) 7,165,757 11,067,226 5,165,176
General and administrative expense 2,346,775 4,147,276 12,868,672
Depreciation expense 175,000 775,088 1,503,169
Amortization of franchise rights and
goodwill 968,072 1,469,035 1,982,367
Charge for impairment of goodwill - - 4,677,762
-------------------------------------------------
Operating income (loss) 3,675,910 4,675,827 (15,866,794)

Other income (expense):
Interest expense (1,056,597) (1,038,851) (2,615,076)
Interest income 147,638 158,771 163,001
Other (241,211) (803,283) (4,003,906)
-------------------------------------------------
Total other expense (1,150,170) (1,683,363) (6,455,981)
-------------------------------------------------

Income (loss) before income tax expense 2,525,740 2,992,464 (22,322,775)

Provision (benefit) for income taxes 1,270,860 1,764,368 (1,303,733)
-------------------------------------------------

Net income (loss) $ 1,254,880 $ 1,228,096 $(21,019,042)
=================================================

Basic net income (loss) per share $0.84 $0.29 $(3.43)
Diluted net income (loss) per share $0.82 $0.28 $(3.43)
Weighted average shares outstanding -
Basic 1,486,162 4,247,977 6,126,030
Weighted average shares outstanding -
Diluted 1,526,774 4,322,623 6,126,030
</TABLE>

See accompanying notes.

25
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
Additional Unearned
Common Common Paid-in Restricted Retained Treasury
Shares Stock Capital Stock Earnings Stock Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Purchases 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 (Note 3) 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 (Note 3) 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
Issuance of common stock 11,005 110 20,910 - - - 21,020
Issuance of restricted stock - - 308,750 (308,750) - - -
Restricted stock earned - - - 25,729 - 25,729
Net loss - - - - (21,019,042) - (21,019,042)
-----------------------------------------------------------------------------------------------------
Balance at June 30, 1999 6,131,548 $61,315 $46,012,211 $(283,021) $(15,808,212) $ - $ 29,982,293
=====================================================================================================
</TABLE>

See accompanying notes.

26
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1998 1999
------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 1,254,880 $ 1,228,096 $(21,019,042)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Proceeds from turnkey sales of operating assets - 1,097,930 -
Charge for impairment of goodwill - - 4,677,762
Depreciation and amortization 1,251,462 2,244,123 3,485,536
Loss (gain) on disposal of property, plant, and equipment 207,256 (324,089) 497,596
Deferred income taxes 623,000 (465,000) -
Changes in operating assets and liabilities:
Accounts and notes receivable (1,535,862) (3,912,703) 5,276,693
Inventory 365,362 (1,185,081) 1,117,115
Prepaid expenses, recoverable income taxes, deposits and
other (1,193,484) (498,567) 1,785,536
Accounts payable and accrued liabilities 1,819,478 2,581,720 (674,060)
Income taxes payable (77,011) (2,853,950) -
Deferred revenue, net (507,888) (44,890) (274,003)
-------------------------------------------------------
Net cash provided by (used in) operating activities 2,207,193 (2,132,411) (5,126,867)

Investing activities:
Sale of property and equipment - - 6,793,071
Purchases of property and equipment (296,088) (4,046,162) (2,208,072)
Purchase of franchise agreements and rights (545,730) (1,478,871) (1,122,359)
Acquisitions (49,535) (9,277,225) -
-------------------------------------------------------
Net cash (used in) provided by investing activities (891,353) (14,802,258) 3,462,640

Financing activities:
Purchase of parent company stock (2,471,957) - -
Capital contribution 105,509 20,126,487 21,020
Loan acquisition costs (41,226) (40,000) (309,742)
Transaction costs - (1,714,086) -
Proceeds from (repayments of) bank facility 2,918,309 22,722,670 (12,822,331)
Proceeds from subordinated debt - - 5,586,960
(Repayments of) proceeds from mortgage notes and other notes
payable (2,001,339) (22,306,637) 7,168,193
Payment of cash dividend - (360,079) -
-------------------------------------------------------
Net cash (used in) provided by financing activities (1,490,704) 18,428,355 (355,900)
-------------------------------------------------------
Net change in cash and cash equivalents (174,864) 1,493,686 (2,020,127)
Cash and cash equivalents at beginning of year 751,472 576,608 2,070,294
-------------------------------------------------------
Cash and cash equivalents at end of year $ 576,608 $ 2,070,294 $ 50,167
=======================================================
</TABLE>

See accompanying notes.

27
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the three years in the period ended June 30, 1999

1. Business Description and Financial Statement Presentation

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, Inc. 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.

The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern. The Company has incurred a net loss
of approximately $21 million for the year ended June 30, 1999 and has a working
capital deficit of approximately $920,000 as of June 30, 1999. The continued
existence of the Company is dependent on the ability of the Company to generate
revenues sufficient to cover operating expenses and on obtaining additional
financing, the outcome of which cannot be determined at this time.

During the year ended June 30, 1999, the Company funded its operations through
various borrowings, which included a line of credit and term loan from its
primary lender, loans from the Company's Directors, and mortgaged Company
properties. See Note 8 for additional disclosures regarding these borrowings.

28
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

1. Business Description and Financial Statement Presentation (continued)

In an effort to return the Company to positive cash flow and profitability, the
Board of Directors has approved a series of initiatives by management which
call for the disposition of certain assets and the restructuring of the Company.
The Company believes that recently completed sales of certain assets together
with future sales made in connection with the discontinuation of certain
businesses will have a positive impact on future cash flow and reduce past due
trade payables. Several joint ventures are currently under negotiation that
would also improve cash flow, reduce inventories and trade payables. If
consummated, these transactions would also allow management to devote more of
its attention to its core auto care and franchising business.

The Company's core auto care and franchising business continues to benefit from
an improved focus on unit economies, in the field training programs and co-
branding strategies. Hydro-Spray's car wash manufacturing operations are being
restructured to improve quality control, margins and its distribution system.
The Company is taking steps designed to enable these divisions to reach a
broader range of customers. Precision Building Solutions, the Company's modular
building division, is focusing its efforts on multiple building customers and
joint venture partners as part of its strategy to increase sales. Additionally,
the Company is seeking growth through co-branding. This strategy is designed to
permit the Company to partner with other retailers and service providers who are
also seeking to improve cash flows through complementary brands.

These strategies combined with the restructuring actions and asset sales the
Company is pursuing could lead to a significant improvement in cash flow.
Efforts are also underway to raise capital with strategic partners or investors
to reduce the Company's current level of debt. While all of these actions may
result in a restructured company with potentially less revenue, the Company
believes that greater profitability and positive cash flow will thereafter be
achieved from the Company's then remaining current operations.

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.

Currency Translation

29
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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.

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.

30
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Revenue Recognition (continued)

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
differences between franchisee's actual and estimated revenues.

Revenues from the sale of a franchise are 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, as the Company's obligation under the
Agreement does not depend significantly upon the number of franchises opened.
Revenue from the sale of master licenses is recognized upon signing the
Agreement since 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
recognized at the time of service.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current
year presentation.

Cash and Cash Equivalents

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

31
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

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 is
determined by the first-in, first-out (FIFO) method.

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:

Years
---------
Building and leasehold improvements 11-30
Furniture and fixtures 5-7
Equipment 7-10
Other items 5-7

Goodwill and Other Intangible Assets

Purchase price in excess of the fair market value of net assets acquired is
included in goodwill and other intangibles Franchise rights held by one of the
Company's predecessor companies 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 trademarks and debt financing costs, are amortized
on a straight line basis over periods ranging from ten to fifteen years.

In addition, the Company occasionally repurchases franchise rights from
subfranchisors, which are recorded at the lower of the cost or fair market
value. The decision to repurchase franchise rights 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 area
subfranchise agreements on a straight line basis.

32
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

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.

Impairment of Long-Lived Assets

The Company evaluates the carrying amount of long-lived assets to be held and
used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying amount of a long-lived asset
is considered 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. See Note 6.

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 FDIC insured
financial institutions. The trade receivable balances are dispersed among a
wide customer and franchisee base. The Company routinely assess 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 $1,064,459, inventory of $325,869 property and equipment of
$523,709, and capitalized franchise rights of $230,811,all related to Praxis,
which are located in Mexico.

33
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Advertising Costs

The Company expenses all advertising costs as incurred. The Company incurred
$136,141, $512,441 and $1,047,786 in advertising costs for the years ended June
30, 1997, 1998, and 1999, respectively.

Comprehensive Income

Effective for the fiscal year ended June 30, 1999, the Company adopted FASB
Statement No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting and displaying comprehensive income and its components in
financial statements. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income.

Business Segments

Effective for the fiscal year ended June 30, 1999, the Company adopted FASB
Statement No. 131, "Disclosure About Segments of an Enterprise and Related
Information," which establishes standards for disclosures about products,
geographies and major customers. The Company's implementation of this standard
does not have any effect on its financial statements.

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.

34
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Acquisitions

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. The 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:

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
===============

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

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
===============

35
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Acquisitions (continued)

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.

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.

36
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Acquisitions (continued)

Unaudited Pro Forma Selected Information

The following pro forma information for the year ended June 30, 1998 includes
the operating results of the above listed acquisitions as if the Company had
completed these acquisitions on July 1, 1997.

Year ended
June 30,
1998
-----------
(unaudited)

Pro forma net revenue $47,974,728
Pro forma net income $ 1,825,176
Pro forma net income per
common share $ 0.32
Pro forma weighted average
shares outstanding 5,707,035
===========

4. Inventory

The components of inventory are as follows:

June 30,
1998 1999
-----------------------------
Raw materials $1,430,303 $1,222,762
Work-in-process 600,541 98,587
Finished goods 2,170,908 2,153,288
Reserve for obsolete and
unsaleable inventory - (390,000)
-----------------------------
$4,201,752 $3,084,637
=============================

37
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Property, Plant and Equipment

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

June 30,
1998 1999
-------------------------------
Land $ 3,152,035 $ 2,452,161
Building and leasehold improvements 8,731,539 7,188,807
Furniture and fixtures 2,402,893 1,407,198
Equipment 5,558,949 6,275,744
Other items 1,132,824 663,879
-------------------------------
20,978,240 17,987,789
Accumulated Depreciation (1,678,527) (2,757,726)
-------------------------------
Property, plant and equipment, net $19,299,713 $15,230,063
===============================

6. Goodwill and Other Intangibles

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

June 30,
1998 1999
-------------------------------
Franchise rights (WE JAC) $ 28,011,174 $ 29,133,533
Goodwill from combination and
subsequent acquisitions 25,909,101 25,909,101
Other intangibles 2,721,332 554,424
-------------------------------
56,641,607 55,597,058
Write-off of goodwill - (4,677,762)
Accumulated amortization (11,010,024) (12,992,391)
-------------------------------
$ 45,631,583 $ 37,926,905
===============================

During the year ended June 30, 1999, as a result of operating losses, cash flow
reductions and review of specific products, the Company determined that it had
an impairment in the value of goodwill under the criteria of Financial
Accounting Standards Board (FASB) Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of".
Accordingly, the Company recorded an impairment charge of $4,677,762 to write
off goodwill related to previous business acquisitions, the operations of which
are being discontinued. Other assets related to these business acquisitions
total

38
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

approximately $4,300,000. The Company expects to recover the entire balance of
these assets.

39
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. Income Taxes

Income tax expense consists of the following items:

<TABLE>
<CAPTION>
Years Ended June 30,
1997 1998 1999
------------------------------------------------
<S> <C> <C> <C>
Current tax expense - federal and state $ 647,860 $2,229,368 $(1,125,530)
Deferred tax expense (benefit) - federal and
state 623,000 (465,000) (178,203)
------------------------------------------------
Total income tax expense $1,270,860 $1,764,368 $(1,303,733)
================================================
</TABLE>

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

<TABLE>
<CAPTION>
Years Ended June 30,
1997 1998 1999
----------------------------------
<S> <C> <C> <C>
Statutory federal rate 34% 34% (34)%
Amortization of goodwill and other intangibles 11 18 10
State taxes 5 7 (7)
Net operating loss for which there is no benefit - - 26
----------------------------------
Effective tax rate 50% 59% (5)%
==================================
</TABLE>

40
<PAGE>

7. Income Taxes (continued)

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,
1998 1999
----------------------------------
<S> <C> <C>
Miscellaneous deferred tax liability 649,000 146,000

Deferred tax assets:
Net operating loss - 4,976,000
Other 1,371,000 1,007,000
----------------------------------
1,371,000 5,983,000
Valuation allowance for
deferred tax assets - 5,837,000

Net deferred tax assets, net of allowance 722,000 146,000
----------------------------------

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

During the years ended June 30, 1997, 1998, and 1999, respectively, the Company
paid income taxes of $756,000 and $2,854,000, and $0 respectively.

41
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Debt

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 and an Acquisition Line of
Credit, and is secured by all the assets of the Company. The loan accrues
interest, payable monthly, at a base rate which approximates prime, or the
London Interbank Offered Rate ("LIBOR"), plus an applicable margin which varies
from zero to 2.0%. At June 30, 1998 and 1999, respectively, $21,731,000 and
$8,908,669 was outstanding on the loans.

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
January 31, 1999 or the execution of certain real estate refinancing
transactions which the Company currently had in process. Additionally, amounts
repaid under the Acquisition Line of Credit may not be reborrowed.

As amended, the Credit Agreement required 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, sales of assets and dividends. In addition, the Company will not
be permitted to make any acquisitions without the bank's prior consent. Interest
on the outstanding balances under the credit facility will continue to be
computed based on either the bank's floating or fluctuating prime portion
lending rate or the LIBOR plus a margin ranging from 0.25% to 2.50% depending on
certain financial ratios. The Company's subsidiaries are joint and several
obligors with respect to all amounts due under the credit facility.

42
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Debt

Bank Facility (continued)

On February 22, 1999, the Company and the Lender executed an Amended and
Restated Loan and Security Agreement with an effective date of February 1, 1999,
whereby the amount available under the Line of Credit Loan must be reduced to $4
million, effective on April 25, 1999. Interest on the outstanding balances under
the credit facility will be computed on the LIBOR plus 4.75%. In addition, the
various financial covenants were removed from the agreement.

On May 13, 1999, the Company and the Lender executed the First Amendment to the
Amended and Restated Loan and Security Agreement effective June 1, 1999, whereby
the amount available under the Line of Credit Loan is $4.6 million and will be
reduced to $4.15 million on July 31, 1999. The Company was not able to meet this
reduction as of July 31, 1999 and is currently in default under the Line of
Credit Loan, therefore all obligations are due upon demand. The Company has
received the commitment of the Lender pursuant to which the maturity date of the
credit facilities will be extended to October 5, 2000, subject to the
satisfaction of certain conditions.

During the years ended June 30, 1997, 1998, and 1999, the Company paid interest
of approximately $845,000, $735,000, and $1,695,000 respectively.

Subordinated Debt

On October 15, 1998, the Company entered into a subordinated debenture with
Board LLC, which was organized and funded by substantially all of the Directors
of the Company for the sole purpose of providing additional financing to the
Company. Under the terms of the agreement, the Company received $2 million and
was to make monthly interest payments at an annual rate of 14% with the
principal to be paid at the end of the loan term of twelve months. The terms of
the subordinated debt call for increases in the interest rate if the Company
defaults in the timely payment of interest on the subordinated debt. The Company
is not permitted to make any payment with respect to the subordinated debt
during the continuance of a default or event of default under the Bank Facility.
As a result of a combination of defaults under the Bank Facility and the
Company's failure to make interest payments on the subordinated debt, the debt
has accrued interest at 16% per annum since the date of its issuance. Board LLC
has approved the waiver of existing events of default and the extension of the
maturity date on such debt to November 1, 2000 and the interest rate returned to
14% effective August 15, 1999.

<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Debt

Subordinated Debt (continued)

On January 25, 1999, the Company consummated a subordinated debt financing with
a shareholder/director in the principal amount of $5,000,000. This subordinated
debenture bears interest at 15% per annum, with provisions for higher rates in
the event of default, and was to mature on May 25, 1999, if not paid prior to
that time. Interest and a one point origination fee are payable in shares of
the Company's common stock valued at the closing price on the day prior to
repayment of the principal. The principal and interest for the subordinated
debenture may only be paid if the Company has made all required payments to the
bank as set forth above and the Company is not in default on the bank credit
facility. As of June 30, 1999, the Company had repaid $1.4 million of the debt
and was accruing interest at the default rate of 20% on the remaining principal
owed. The Company has received the commitment of the holder of $3.6 million in
subordinated debt to waive existing events of default and to extend the maturity
date to April 15, 2001.

Mortgage Notes Payable

44
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Debt (continued)

<TABLE>
<CAPTION>
June 30,
1998 1999
------------------------------------
<S> <C> <C>
Bank facility line of credit $10,333,000 $ 4,562,000
Bank facility term loan 11,398,000 4,346,669
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 2,531,978 1,466,248
Board LLC note - 2,000,000
Board of Director note - 3,586,960
Heartland mortgage - 1,029,923
FFCA mortgage - 7,204,000
--------------- -----------
24,262,978 24,195,800
Less: current maturities (3,413,858) (2,066,601)
------------------------------------
Long-term portion $20,849,120 $22,129,199
====================================
</TABLE>

The future debt obligations with maturities in excess of one year as of June 30,
1999 are as follows:
Future
Debt Maturities
---------------

2000 $ 2,066,601
2001 14,144,760
2002 649,844
2003 434,313
2004 451,191
Thereafter 6,449,091
------------
$24,195,800
============

45
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

9. Lease Commitments

At June 30, 1999, the Company has lease commitments for office space, a training
center, and a number of service center locations. These leases expire between
1999 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 $326,000 and $412,000 and
$ 494,000 is included in operating expenses for the year ended June 30, 1997,
1998, and 1999, respectively. Rent expense for service center locations of
approximately $100,000 and $209,000 and $1,050,000 is recorded net of sublease
income of $912,000 and $790,000 and $969,000, for the years ended June 30,
1997, 1998, and 1999, respectively.

The future minimum lease payments and related sublease payments for leases with
terms in excess of one year as of June 30, 1999 are as follows:

<TABLE>
<CAPTION>
Future Minimum Sublease
Lease Payments Income Net
---------------------------------------------------------------
<S> <C> <C> <C>
2000 $1,709,974 $1,086,663 $ 623,311
2001 1,563,457 994,776 568,681
2002 1,427,121 1,039,471 387,650
2003 1,094,480 969,806 124,674
2004 740,795 706,176 34,619
Thereafter 1,620,988 1,284,913 336,075
---------------------------------------------------------------
$8,156,815 $6,081,805 $2,075,010
===============================================================
</TABLE>

10. Related Party Transactions

The Company manages the operation of the Precision Tune Advertising Fund, Inc.
("PTAF"), the national advertising fund for Precision Tune Auto Care Centers,
pursuant to a Management Agreement approved by the Board of Directors of PTAF,
which is comprised of franchisee and Company personnel. The Company charged
P.T.A.F., Inc. $416,000 and $555,000 and $563,000 for administrative and other
expenses incurred on behalf of P.T.A.F., Inc., during the years ended June 30,
1997, 1998, and 1999, 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, 1998 and 1999, the net amounts due from P.T.A.F.,
Inc. were $146,000 and $246,214, respectively. These amounts are included in
accounts receivable.

46
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Related Party Transactions (continued)

On March 31, 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 a car wash acquired in the IPO Combination
to an employee of the Company for $235,000. The gain on the sale was applied to
goodwill as a purchase price adjustment. At June 30, 1998 $210,000 of this
purchase price is included 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 consisting of 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 included
in accounts receivable.

On March 8, 1999, the Company sold two Precision Auto Washes to a corporation
whose principle owner is a related party for $1,350,000. The gain on these
sales was recorded as a reduction to the goodwill recorded as part of the IPO
Combination.

11. Stockholders' Equity

Common Stock

In November, 1997, the Company sold 2,666,540 shares of Common Stock - 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.

47
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

11. Stockholders' Equity (continued)

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. In November 1997, the treasury stock was retired.

Common Stock Option Plan

In November 1997, the Company's Board of Directors and the Company's
stockholders approved the 1998 Employee Stock Option Plan (the "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 1998 and 1999 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 (loss) in 1998 and 1999 would have been
approximately $900,000 and $(21,309,199), respectively and net income (loss) per
share would have been $0.21 and $(3.48), respectively. The fair value of the
options granted during 1998 and 1999 are estimated as $2.98 and $2.55 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 lives of 5 or 10 years.

48
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

11. Stockholders' Equity (continued)

Common Stock Option Plans (continued)

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

<TABLE>
<CAPTION>
June 30,
1997 1998 1999
-----------------------------------------------------------------------------------
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 315,991 $ 6.31 432,600 $ 8.89 750,600 $9.26
Options granted 213,974 10.00 393,500 9.73 560,875 2.71
Options exercised - - (20,000) 8.25 -
Options canceled or expired (97,365) 3.00 (55,500) 10.00 (420,000) 8.55
-----------------------------------------------------------------------------------
Outstanding, end of year 432,600 8.89 750,600 9.26 891,475 5.48

Options exercisable 111,875 $ 8.52 355,422 $ 8.97 274,346 $7.10
===================================================================================
</TABLE>

The options outstanding at June 30, 1999 range in price from $2.00 to $10.875
and have a weighted average remaining contractual life of 8.89 years.

Employee Stock Purchase Plan

In 1997 and 1998, WE JAC Corporation offered an Employee Stock Purchase Plan
(the "Purchase Plan") to encourage and facilitate the purchase of Common Stock
by employees of the Company. Upon completion of the IPO, this plan was adopted
by the Company. Under the Purchase 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. During 1999, the Company issued an additional 11,005
shares of common stock to employees. The Plan expired by its terms in March
1999.

49
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

11. Stockholders' Equity (continued)

Restricted Stock

On March 31, 1999, the Company issued 130,000 shares of restricted stock to
various employees and members of the Board of Directors. The Company's stock
had a market value of $2.38 at that time. The restricted stock vests on the
earlier of the third anniversary of the grant date or upon the price of the
common stock reaching target prices. The Company is recognizing the expense
associated with this stock issuance over the three year vesting period.

12. 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.
50
<PAGE>

Precision Auto Care, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

13. 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.

14. Net Income per Share

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

Years Ended June 30, 1997 1998 1999
----------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net Income $ 1,254,880 $ 1,228,096 $(21,019,042)
Denominator:
Denominator for basic EPS-
weighted-average shares 1,486,162 4,247,977 6,126,030
Denominator for diluted EPS-
weighted-average shares 1,526,774 4,322,623 6,126,030
Basic net income (loss) per share $ 0.84 $ 0.29 $ (3.43)
Diluted net income per (loss)
share $ 0.82 $ 0.28 $ (3.43)
</TABLE>

The 891,475 stock options and 130,000 shares of restricted stock were not
included in the 1999 diluted net loss per share calculation because their effect
would be anti-dilutive.

51
<PAGE>

15. Subsequent Events

In August 1999, the Company finalized its purchase of Bay Area Precision, Inc.
("BAP") for a purchase price of $1,132,500 in cash and the assumption of debt in
the approximate amount of $330,000 for a grand total of $1,462,500.
Contemporaneously with this transaction, the Company resold the area
subfranchise rights, two Precision Tune centers and the Acc-U-Tune ("AUT") lease
rights to Pacific Coast Precision, Inc. for the amount of $1,242,000 which was
later reduced by approximately $125,000 for lease arrearages. The difference in
the amount of the purchase price between the simultaneous transactions has been
provided to the original shareholders of BAP in the form of a promissory note in
the approximate amount of $345,000 to be paid back monthly over a period of five
years.

16. 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, 1999 and 1998. To obtain pro forma results, the historical results of
operation of the Predecessor Companies and Worldwide Drying Systems, Inc. have
been adjusted to reflect certain purchase accounting adjustments.

In thousands except per share amounts

1999 Actual Q1 Q2 Q3 Q4 Total
- --------------------------------------------------------------------------
Net sales $11,790 $10,910 $10,747 $11,322 $44,769
Contribution 1,866 900 1,867 532 5,165
Net income (loss) (717) (4,595) (5,604) (10,103) (21,019)
EPS (diluted) $(0.12) $(0.75) $(0.92) $(1.64) $(3.43)

1998 Actual Q1 Q2 Q3 Q4 Total
- --------------------------------------------------------------------------
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

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 2,877 12,775
Net income (loss) 853 966 619 (612) 1,826
EPS (diluted) $0.15 $0.17 $0.11 $(0.11) $0.32

52
<PAGE>

SCHEDULE II

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

Balance @ Bad Debt Balance @
Description 6/30/98 Expense Write-offs 6/30/99
- ------------- ------------------------------------------------

Allowance for doubtful accounts (1,390) (4,821) 4,131 (2,080)

Allowance for obsolete inventory - (390) (390)

Allowance for doubtful notes
receivable (151) (759) (910)
------------------------------------------------
(1,541) (5,970) 4,131 (3,380)
================================================

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's Articles of Incorporation classifies the Board of Directors into
three classes, as nearly equal in number as possible, with terms which expired
or will expire at the Annual Meetings of Shareholders in 1998, 1999, and 2000
respectively. After the 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 will expire at the 1999 Annual Meeting: Messrs.
Allen, Ibrahim, Keller and Zamensky ("Class II Directors"). One Class II
Director, Gerald Zamensky, has decided not to stand for re-election. The Board
of Directors has nominated Mauricio Zambrano V. to serve as a Class II Director.

The Class II Director nominees have been nominated for election for a three-year
term expiring at the Annual Meeting in 2002. The terms of the other eight
directors will continue as indicated below. Dates of service listed below
include service with predecessors of the Company.

DIRECTORS WHOSE TERMS EXPIRE IN 1999
AND NOMINEES FOR TERMS EXPIRING IN 2002

<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION ADDITIONAL INFORMATION
- ---- -------------------- ----------------------
<S> <C> <C>
Woodley A. Allen President, Allen Management Mr. Allen served as Chief Financial Officer of EZ
Director since 1991 Services, Oakton, VA Communications, Inc. from March 1973 to May 1992.
Chairman-Audit Committee (management consulting
Age 52 firm)

Bassam N. Ibrahim(3) Partner, Burns, Doane, From June 1994 to August 1996, Mr. Ibrahim was with Popham,
Director since 1993 Swecker & Mathis, LLP, Haik, Schnobrich & Kaufman. From June 1990 to June 1994, Mr.
Age 37 Alexandria, VA (law firm) Ibrahim was with Mason, Fenwick & Lawrence.

Arthur Kellar(1)(2) Retired Mr. Kellar served as Chairman of the Board of WE JAC
Director since 1991 Corporation, the Company's predecessor, from April 1992 to
Chairman-Organization and September 1994. Mr. Kellar served as Chairman of the Board of
Compensation Committee EZ Communications, Inc. from June 1992 to April 1997.
Age 77

Gerald A. Zamensky Manufacturing Consultant Mr. Zamensky served as a Director of Miracle Industries, a
Director since 1997 (self-employed) predecessor company from 1991 to November 1997. He also served
Age 58 as President and Chief Executive Officer of Southeastern
Plastics, Inc. from 1975 to 1995.

Mauricio Zambrano V. Vice President, Dessarollo Mr. Zambrano serves as a director of Cemex, S.A. de C.V.
New Nominee 1999 Integrado, S.A. de C.V.
Age 53
</TABLE>

DIRECTORS WHOSE TERMS EXPIRE IN 2000

<TABLE>
<S> <C> <C>
Lynn E. Caruthers(3) General Partner, Caruthers Ms. Caruthers has served as Chairperson of the Board of WE JAC
Director since 1991 Properties, Ltd., Corporation, the Company's predecessor, since September 1994.
Chairperson of the Board; Arlington, VA (commercial
</TABLE>

53
<PAGE>

<TABLE>
<S> <C> <C>
Chairperson of the real estate developer)
Executive Committee
Age 47

William R. Klumb Vice President, Mr. Klumb previously served as Vice President of Operations
Director since 1997 Car Wash Division of the Car Wash Division since November 1997. Additional
Age 41 biographic information appears on page 15.

Bernard H. Clineburg(1) President, United Mr. Clineburg served as a Director of George Mason Bankshares,
Director since 1993 Bankshares; Chairman and Inc. and The George Mason Bank from October 1990 to April 1998.
Age 50 CEO, United Bank
(Virginia), Fairfax, VA

Effie L. Eliopulos Owner and operator of Ms. Eliopulos serves as Vice President of National Automotive
Director since 1997 retail rental centers, Chemical. She also served as Chairperson of Miracle Industries
Age 60 Cambridge, OH Inc., a predecessor company, from 1991 to November 1997.

</TABLE>

DIRECTORS WHOSE TERMS EXPIRE IN 2001

<TABLE>
<S> <C> <C>
Charles L. Dunlap(1) President and Chief Mr. Dunlap previously served as President, Chief Operating
Director since 1998 Executive Officer Officer and Director of Crown Central Petroleum Corporation.
Age 56 Additional biographic information appears on page 15.

Richard O. Johnson President, JJ-AGRO, Inc., Mr. Johnson serves as a Director of the following companies:
Director since 1997 Zanesville, OH (farming and First National Bank of Zanesville, National Gas and Oil
Age 71 farm services) Company, and Muskingun Livestock, Inc.

Harry G. Pappas, Jr.(2) Chief Financial Officer, Mr. Pappas operated his own financial consulting firm between
Director since 1996 Partners First Holdings, July 1992 and November 1997. He served as Chief Financial
Age 52 LLC, Linthicum, MD (credit Officer of WE JAC Corporation, the Company's predecessor, from
card company) February 1997 to May 1997. Mr. Pappas served as Chief Financial
Officer of Youth Services International, Inc. from September
1994 to May 1995 and Chief Financial Officer of Meridian
Healthcare from July 1993 to May 1994. He currently serves as a
Director of Creditrust Corporation.

George A. Bavelis(1) Chairman, President and Mr. Bavelis has served as Chairman and President of Coin Op.
Director since 1997 Chief Executive Officer, Vending Co. since 1983. He also serves as Chairman of the Board
Age 62 Pella Co., Columbus, OH of Sterling Bancorp and a Director of Heartland Bancorp.
(real estate development
firm)
</TABLE>

(1) Member -- Executive Committee
(2) Member -- Finance and Audit Committee
(3) Member -- Organization and Compensation Committee

EXECUTIVE OFFICERS OF REGISTRANT

CHARLES L. DUNLAP, age 56, 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 October 1998, 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 regarding the merger of TruckStops of America and National
Auto/Truckstops. 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.

JERRY L. LITTLE, age 53, was named Senior Vice President and Chief Financial
Officer in May 1999. From 1982 to May 1999, Mr. Little was the President and
owner of J.L. Little, Inc. in Clifton, Virginia., a consulting firm performing
financial, business and tax advisory services to a variety of businesses.

WILLIAM R. KLUMB, age 41, was named Vice President of the Car Wash Division in
June 1999. Previously, Mr. Klumb was Vice President Car Wash Operations of WE
JAC Corporation, the Company's predecessor, from November 1997 through May 1999.
He had been President of Rocky Mountain I since March 1987 and President of
Rocky Mountain II since it was incorporated in September 1988. 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.

JAIME J. VALDES, age 41, 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.

54
<PAGE>

JOHN T. WIEGAND, age 37, became Vice President of North American Operations in
June 1998. Mr. Wiegand joined WE JAC Corporation, the Company's predecessor, as
Director of Field Operations in August 1996. From January 1990 through August
15, 1996, Mr. Wiegand was Director of Sales and Product Management for Precision
Automotive Components Manufacturing and Distribution (PAC), a division of the
Company.

KEVIN B. ROONEY, age 37, was named Vice President of Franchise Development in
July 1997. Mr. Rooney joined WE JAC Corporation, the Company's predecessor, as
Director of Franchise Development and Marketing in April 1997. From December
1995 to April 1997, Mr. Rooney was Executive Director of Franchise Development
for Decorating Den Systems, Inc. in Bethesda, MD. He joined Decorating Den
Systems, Inc. as District Manager in 1988 and was later named National Division
Manager in April 1994.

PETER TAHINOS*, age 40, was named Vice President of Marketing and Advertising in
September 1997. Mr. Tahinos joined WE JAC Corporation, the Company's
predecessor, as Director of Marketing and Advertising in October 1992. From July
1991 to September 1992, Mr. Tahinos served as an Account Supervisor with the
advertising agency, Weinstock, White & Associates in Philadelphia, PA. Before
that, Mr. Tahinos spent nearly 6 years with MARC Advertising, an advertising
agency located in Pittsburgh, Pennsylvania.

ELIOT G. BOWYTZ, age 31, was named Corporate Secretary in April 1999. Mr. Bowytz
was named Assistant General Counsel in February 1996. Mr. Bowytz joined WE JAC
Corporation, the Company's predecessor, as Staff Attorney in May 1995. From
November 1993 to May 1995, he was Manager of Capital Market Projects for the
Aries Group, LTD., in Arlington, Virginia

JOHN N. TARRANT, age 31, was named Controller in April 1999. Mr. Tarrant joined
WE JAC Corporation, the Company's predecessor, as Financial Analyst in September
1996. From April 1996 until September 1996, he was the Financial Analyst for LCI
International in McLean, Virginia. From July 1995 until April 1996, he was an
Accountant for Rosenblum, Gloss, Niad & Dietz in Rockville, Maryland. From May
1993 until June 1995 he was an Analyst for Joseph J. Pietrafesa in Syracuse, New
York.

KARL W. BYRER, age 53, was named Vice President of Business Development in
January 1999. Prior to that, he was Vice President of Car Wash Development, a
position he assumed with the merger and formation of the Company. From November
1989 until the merger in 1997, he was owner and president of the Karl Byrer
Group, a Denver car wash consulting and equipment supply company.

* Mr. Tahinos has recently submitted his resignation effective October 1, 1999.

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 July 1, 1998 through June 30, 1999, its
directors and executive officers complied with all applicable Section 16(a)
filing requirements, except as follows: (i) initial Form 3's for Messrs.
Wiegand, Tahinos, Little, Byrer, Marshall, Rooney, Tarrant, Leslie and Bowytz as
newly appointed executive officers were not filed on a timely basis; (ii)
Messrs. Allen, Bavelis, Caruthers, Clineburg; Ibrahim, Johnson, Kellar, Pappas,
and Zamensky, each a director of the Company, was delinquent in reporting the
grant of a restricted stock award on Form 4; (iii) Messrs. Dunlap, Klumb,
Wiegand and Tahinos, each an executive officer of the Company, was delinquent in
reporting the grant of a restricted stock award on Form 4; (iv) Ms. Eliopulos
and Messrs. Kellar and Bavelis, each a director of the company, was delinquent
in reporting the grant of a restricted stock option on Form 4; and (v) Form 5's
for each of the Company's directors and executive officers were not filed on a
timely basis.

55
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The table below sets forth the compensation earned and paid to each Named
Executive Officer (including certain former executive officers of the Company)
who earned $100,000 or more during the periods presented. Amounts shown for a
portion of 1997 represent compensation for employment by WE JAC Corporation, the
Company's predecessor. Options grants shown for 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>
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION(1)
- --------------------------- ---- ------ ----- ------------ ------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles Dunlap 1999 $131,538(2) $118,750(3) 200,000 $1,615
President and
Chief Executive Officer
John F. Ripley 1999 $108,702(4) $80,000(5)
Former President and 1998 199,654 $100,000 87,762 279
Chief Executive Officer 1997 181,734 63,438 100,000
Jaime Valdes 1999 $120,000 25,000
Senior Vice President - 1998 21,250(6) 25,000
Latin America
James A. Hay 1999 $137,185(7) $13,526(8)
Former Executive Vice President 1998 117,692 $15,000(9) 35,000 323
North America
Arnold Janofsky 1999 $117,623(10) $11,643(11)
Former Senior Vice President and 1998 127,308 $9,646 3,500 600
General Counsel 1997 117,269 4,000
</TABLE>

(1) Amounts represent the Company's matching contributions to the 401(k) Savings
Plan and severance payments as indicated below.
(2) Mr. Dunlap's employment with the Company began October 1998.
(3) Mr. Dunlap was awarded a grant of 50,000 shares of restricted stock on March
31, 1999 valued at $2 3/8 per share price. As of June 30, 1999, this grant was
worth $153,150 based on a $3 1/16 per share price. No dividends will be paid on
this award.
(4) Mr. Ripley resigned from the Company on October 21, 1998.
(5) The amount shown includes severance payments of $80,000.
(6) Mr. Valdes' employment with the Company began April 1998.
(7) Mr. Hay's employment with the Company was terminated effective June 2,
1999.
(8) The amount shown includes severance payments of $12,470.
(9) 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.
(10) Mr. Janofsky's employment with the Company was terminated effective June 2,
1999.
(11) The amount shown includes severance payments of $10,693.

56
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES WEIGHTED OF STOCK PRICE APPRECI-
UNDERLYING % OF TOTAL OPTIONS AVERAGE ATION FOR OPTION TERM(4)
------------------------
OPTIONS GRANTED TO EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED(1) IN FISCAL YEAR PRICE(2) DATE(3) 5% 10%
- ---- ---------- -------------- -------- ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Charles Dunlap 200,000 36.0% 3.475 03/31/09 $288,831 $834,692
John F. Ripley (5) - 0.0%
Jaime Valdes 25,000 4.55% 2.375 03/31/09 63,857 134,708
James A. Hay (6) - 0.0%
Arnold Janofsky (6) - 0.0%
</TABLE>

(1) Stock options exercisable into 549,375 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, 1999.

(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. Options granted in March 1999 also
include an acceleration of vesting provision whereby, to the extent not
previously vested, 25% of the options will vest when the Company's stock
price closes at $4.00 per share, 75% will vest when the stock price closes
at $6.00 per share, and 100% will vest when the stock price closes at $8.00
per share.

(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 dependent 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.

(6) Mr. Hay's and Mr. Janofsky's employment with the Company was terminated
effective June 2, 1999.

YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT JUNE 30, VALUE OF THE UNEXERCISED IN-THE-MONEY
1999 OPTIONS AT JUNE 30, 1999(1)
---- ---------------------------

NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles Dunlap 25,000 175,000 $17,188 $51,563
John F. Ripley (2) 93,100 0
Jaime Valdes 14,583 35,417 4,297 12,891
James A. Hay (3) 14,999 0 0 0
Arnold Janofsky (3) 19,833 0 0 0
</TABLE>

(1) The closing price for the Company's Common Stock as reported by the
Nasdaq Stock Market on June 30, 1999 was $3.0625. Value is calculated on
the basis of the difference between the option exercise price and $3.0625,
multiplied by the number of shares of Common Stock underlying the option.
(2) Mr. Ripley resigned from the Company on October 21, 1998. His
separation agreement provides that Mr. Ripley will have until October 1999
to exercise 93,100 of his vested options. The remainder of Mr. Ripley's
options have been terminated.
(3) Mr. Hay and Janofsky were terminated from the Company effective June 2,
1999. Unexercisable options held at the time they departed expired by their
terms.

57
<PAGE>

COMPENSATION OF DIRECTORS

Directors who are employees receive no additional compensation for
serving as directors. The Company's recent cash flow difficulties have had an
impact on the compensation of non-employee directors. The Company's policy had
been for non-employee directors to receive: (i) $1,000 for each Board of
Directors meeting attended in person; (ii) $500 for each Board of Directors
meeting attended via telephone; and (iii) for members of Board Committees, $200
for each Committee meeting attended. In October 1998, the Board decided to
suspend payment of such fees. In March 1999, the non-employee directors agreed
to forgo payment of all fees owed for the fiscal year ended June 30,1999.
However, in lieu of such cash fees, the Board granted restricted stock awards of
5,000 shares of the Company's Common Stock to each of the following non-employee
directors: Woodley A. Allen; George A. Bavelis; Lynn E. Caruthers; Bernard
Clineburg; Bassam N. Ibrahim; Richard O. Johnson; Arthur Kellar; Harry G.
Pappas, Jr.; and Gerald A. Zamensky. Under the terms of each grant, each outside
director's right, title and interest to the 5,000 shares will not vest until the
third anniversary of the grant (i.e., March 2002). No portion of the restricted
stock award will vest and no shares will be issued prior to the third
anniversary unless the following conditions are satisfied: (a) if the Company's
stock price closes at $4.00 per share, 25% of the shares will become vested; (b)
if the Company's stock price closes at $6.00 per share, 75% will become vested;
and (c) if the Company's stock price closes at $8.00 per share, 100% of the
shares will become vested.

Mr. Woodley Allen is due to be paid $10,000 per month for his services
as a special financial consultant to the Company from December 1998 through
January 1999. In addition, in December 1998, the Board of Directors awarded Mr.
Allen an option to purchase 10,000 restricted shares of the Company's Common
Stock with an exercise price of $3.625. The underlying shares are not registered
under the federal securities laws. The option expires December 31, 2008.

Employment Agreements

General. In October 1998, the Company entered into an employment agreement
with Charles L. Dunlap pursuant to which Mr. Dunlap agreed to serve as President
and Chief Executive Officer for a period of three years. The agreement also
provides that Mr. Dunlap will serve as a member of the Company's Board of
Directors. Mr. Dunlap will receive a base salary of $200,000 per annum. Under
the terms of the employment agreement, Mr. Dunlap is required to maintain the
confidentiality of proprietary business or technical information he obtains in
the course of his employment with the Company, and he is prohibited from
competing with the Company in the United States during any time he is performing
duties for the Company and for a period of two years thereafter. In the event
Mr. Dunlap's employment is terminated by the Company other than for cause, or is
terminated by Mr. Dunlap for good reason (e.g., following a change of control of
the Company), Mr. Dunlap will be entitled to receive a severance benefit equal
to his base salary at the rate in effect at the time of termination for the
remainder of his initial term or 18 months, whichever is greater, and will be
entitled to receive any salary and benefits accrued, vested or unpaid as of the
date of termination. In the event of such termination, Mr. Dunlap also will be
entitled to receive a pro rata portion of his performance bonus.

In June 1999, the Company entered into an agreement with Jerry L.
Little pursuant to which Mr. Little agreed to serve as Senior Vice President and
Chief Financial Officer. Mr. Little will receive a base salary of $20,000 per
month. In conjunction with Mr. Little's employment, Mr. Little was granted an
option to purchase 35,000 shares of the Company's Common Stock. These options
have an exercise price of $2.50 and vest as follows: 17,500 shares shall vest
upon the completion of the 1999 fiscal year end audit and filing of the SEC form
10K and the balance shall vest upon satisfactory completion of the installation
of the Company's financial software system unless the stock price achieves
certain price levels then a portion of the shares shall vest upon each
achievement. These options expire June 1, 2009. The agreement provides that
either Mr. Little or the Company may terminate the agreement by providing 90
days notice.

Severance Arrangements. In October 1998, the Company entered into an
agreement with John (Jay) F. Ripley in connection with his resignation as
President and Chief Executive Officer of Precision Auto Care, Inc. Pursuant to
the terms of this separation agreement, Mr. Ripley is entitled to receive
payments of $10,000 a month until October 1999 for serving as a special advisor
to the Company. The Board of Directors also extended to October 1999 the period
of time Mr. Ripley has to exercise 93,100 of his vested stock options.

In connection with reorganizing the Company in order to reduce costs and
provide for a more responsive management structure, the Company eliminated the
senior management positions occupied by Messrs. Hay and Janofsky and their
employment with the Company terminated effective June 2, 1999. Following the
elimination of these positions, Messrs. Hay and Janofsky advised the Company
that they believed that the severance benefit to which they are entitled under
their respective employment agreements is to be paid to them as a lump sum. The
Company believes that the terms of the agreements require the Company to
continue to make salary payments to the executives on a regular basis for the
proscribed period and not in the form of a lump sum payment. The Company is
presently holding discussions with these two executives concerning ways to
resolve the parties' differences.

Revised Employment Agreements. In March 1999, the Company granted
stock options and awards to certain executive officers. As a condition to the
grant of certain options, those executive officers that had entered into
employment agreements previously were asked to terminate these prior agreements
and enter into new employment agreements. In April 1999 and September 1999, the
Company entered into revised employment agreements with Jaime Valdes and William
R. Klumb respectively pursuant to which Mr. Valdes agreed to serve as Senior
Vice President - Latin American Division and Mr. Klumb as Vice President - Car
Wash Division for a period of three years beginning April 1, 1998 and August 26,
1997 respectively. Messrs. Valdes and Klumb will each receive a base salary of
$120,000 per annum. Under

58
<PAGE>

the terms of the employment agreements, Messrs. Valdes and Klumb are required to
maintain the confidentiality of proprietary business or technical information
they obtain in the course of their employment with the Company, and are
prohibited from competing with the Company in the United States during any time
they are performing duties for the Company and for a period of two years
thereafter except that if Mr. Klumb's employment is terminated by the Company
other than for cause, or is terminated by Mr. Klumb for good reason, then Mr.
Klumb's non-competition covenant shall last for a period of time equal to the
lessor of 12 months or the remainder of his initial term (if it has not yet
expired) or the number of months remaining in any additional one-year term
arising thereafter. In the event Messrs. Valdes' or Klumb's employment is
terminated by the Company other than for cause, or is terminated by either one
of them for good reason (e.g., following a change of control of the Company),
the terminated officer will be entitled to receive a severance benefit equal to
his base salary at the rate in effect at the time of termination for the lessor
of the 12 months or the remainder of his initial term (if it has not yet
expired) or the number of months remaining in any additional one-year term
arising thereafter, and will be entitled to receive any salary and benefits
accrued, vested or unpaid as of the date of termination.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the shares of Common Stock beneficially owned by
(i) person known by the Company to beneficially own greater than 5% of the
Company's outstanding stock, (ii) each director of the Company, (iii) each
executive officer named in the table below labeled Summary Compensation Table,
and (iv) all directors and executive officers of the Company as a group. For
purposes of this table, and as used elsewhere in this Proxy Statement, 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>
Amount of Percentage of Outstanding
--------- -------------------------
Name of Beneficial Owner Beneficial Ownership Common Stock
- ------------------------ -------------------- ------------
<S> <C> <C>
Five-Percent Stockholders:
SAFECO Corporation/(1)/ 1,215,500 16.54%
Avenir Corporation/(2)/ 713,500 10.42%
Roberto Zambrano V., Mauricio Zambrano V. 7.82%
David Zambrano V. & Daniel Zambrano/(3)/ 520,421
William P. Stiritz/(4)/ 500,000 7.54%

Directors and Executive Officers:
Lynn E. Caruthers/(5)/ 140,581 2.29%
Charles Dunlap/(6)/ 108,333 1.75%
John F. Ripley/(7)/ 105,050 1.69%
Jaime Valdes/(8)/ 64,004 1.04%
William R. Klumb/(9)/ 61,429 *
John T. Wiegand/(10)/ 27,250 *
Peter Tahinos/(11)/ 23,584 *
James A. Hay/(12)/ 3,161 *
Arnold Janofsky/(13)/ 3,725 *
Woodley A. Allen/(14)/ 28,000 *
George A. Bavelis/(15)/ 93,317 1.52%
Bernard H. Clineburg/(16)/ 17,500 *
Effie L. Eliopulos/(17)/ 269,562 4.38%
Bassam N. Ibrahim/(18)/ 18,850 *
Richard O. Johnson 61,497 1.00%
Arthur Kellar/(19)/ 210,029 3.41%
Harry G. Pappas, Jr./(20)/ 31,000 *
Gerald A. Zamensky/(21)/ 104,641 1.71%
All directors and executive officers as a group 1,426,225 21.84%
(23 persons)/(22)/)
</TABLE>

* Represents less than 1%.

(1) As reported in Schedule 13G (Amendment No. 2) filed with the Commission on
February 12, 1999. Includes shares held by SAFECO Common Stock Trust, SAFECO
Resource Series Trust and SAFECO Asset Management Company. Safeco Corporation's
business address is SAFECO Plaza, Seattle, Washington 98185.

(2) As reported in Schedule 13G (Amendment No. 1) filed with the Commission on
February 11, 1999. Avenir Corporation's business address is 1725 K Street, NW,
Suite 410, Washington, DC 20006.

59
<PAGE>

(3) As listed in the Company's stock transfer records. The shares are held in
the names of the listed individuals as joint tenants. The business address for
each such reporting person is P.O. Box 1499, Olmito, Texas 78575.

(4) 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. Mr. Stiritz's business address is 10401 Clayton
Road, Suite 101, St. Louis, Missouri 63131.

(5) Includes a restricted stock award of 5,000 shares and 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.

(6) Includes a restricted stock award of 50,000 shares and includes 58,333
options to purchase shares that are exercisable within 60 days.

(7) Mr. Ripley resigned from the Company on October 21, 1998. Includes options
to purchase 93,000 shares that are exercisable within 60 days.

(8) Includes options to purchase 14,583 shares that are exercisable within 60
days.

(9) Includes a restricted stock award of 10,000 shares and includes 13,333
options to purchase shares that are exercisable within 60 days.

(10) Includes a restricted stock award of 15,000 shares and includes 11,000
options to purchase shares that are exercisable within 60 days.

(11) Includes a restricted stock award of 10,000 shares and includes 13,000
options to purchase shares that are exercisable within 60 days.

(12) Mr. Hay's employment with the Company was terminated effective June 2,
1999.

(13) Mr. Janofsky's employment with the Company was terminated effective June 2,
1999.

(14) Includes a restricted stock award of 5,000 shares and includes 20,000
options to purchase shares that are exercisable within 60 days.

(15) Includes a restricted stock award of 5,000 shares and includes 4,500
options to purchase shares that are exercisable within 60 days.

(16) Includes a restricted stock award of 5,000 shares and includes 10,000
options to purchase shares that are exercisable within 60 days.

(17) Includes 20,458 options to purchase shares that are exercisable within 60
days.

(18) Includes a restricted stock award of 5,000 shares and includes 10,000
options to purchase shares that are exercisable within 60 days.

(19) Includes a restricted stock award of 5,000 shares and includes 35,000
options to purchase shares that are exercisable within 60 days.

(20) Includes a restricted stock award of 5,000 shares and includes 12,500
options to purchase shares that are exercisable within 60 days.

(21) Includes a restricted stock award of 5,000 shares and includes 47,176
shares held by Mr. Zamensky's spouse.

(22) Includes restricted stock awards of 130,000 shares and includes 373,597
options to purchase shares that are exercisable within 60 days of executive
officers and directors.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In November 1997, certain directors either directly or through affiliated
entities, were granted options to purchase certain properties and lease them
back to the Company (the "Hellenic Options"). Hellenic, LLC, a limited liability
company partially owned by directors George A. Bavelis (15.12%) and Effie L.
Eliopulos (15.12%) held the Hellenic Options on the real estate relating to nine
car wash centers. In March 1999, in a non-related party transaction, the Company
entered into an agreement to sell the real estate related to the Hellenic
Options. As consideration for the waiver of the Hellenic Options the Company
agreed to grant Hellenic LLC the option to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $2.00. The underlying shares have
not been registered under the federal securities laws. Subsequently, Hellenic
LLC assigned portions of this restricted stock option to its members, of which,
George A. Bavelis and Effie L. Eliopulos received options for 4,500 shares and
9,000 shares of the Company's Common Stock, respectively.

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. As of August 15, 1999, these directors agreed to
remove all defaults and defer current interest through December 31, 1999. The
loan due date has been amended to November 1, 2000, and the directors have
agreed to accept the Company's stock in lieu of the outstanding accrued interest
through August 15, 1999.

60
<PAGE>

In January 1999, the Company borrowed $5.0 million from Arthur Kellar, a
director of the Company, pursuant to the terms of a Subordinated Debenture (the
"Subordinated Debenture"). The Subordinated Debenture was initiated by the
directors of the Company and subsequently incorporated as a requirement of the
Company's existing credit facility. The Subordinated Debenture bears interest at
a rate of 15% per annum and its terms call for the rate of interest to be
increased in the event of a default by the Company. As an inducement for the
purchase of the Subordinated Debenture, the Company agreed to issue Mr. Kellar
options to purchase 25,000 shares of the Company's Common Stock at an exercise
price equal to $2.00. The Company also agreed to pay Mr. Kellar a financing fee
at the maturity of the Subordinated Debenture in the amount of $50,000. In May
1999, the Shareholders approved the issuance of shares of the Company's Common
Stock in order to pay the interest and fees on the Subordinated Debenture. These
shares were not registered under the federal securities laws. This loan is
currently in default. The Company is presently negotiating terms under which the
loan will be restructured. It is the Company's intention to further request the
approval of an issuance of the Company's Common Stock to Mr. Kellar based on
past accrued interest.

In June 1998, the Company entered into a contract to sell 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 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, the former Chief
Executive Officer of the Company. In June, 1998, the Company received $26,000 of
the sales price for the real estate. The balance was due on or before November
30, 1998 under a promissory note. No interest was 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. Due to the fact that zoning was delayed, the
promissory note was not paid until July 1999 for a reduced amount of $223,000.
The reduction in purchase price was approved by Charles Dunlap, the Company's
current Chief Executive Officer.

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%) and Effie L.
Eliopulos (16.67%). Mr. Klumb is an officer and director, and Ms. Eliopulos is a
director 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, a former executive officer of the Company. The
Company has been paid the purchase price in full. In relation to this
transaction and due to the fact that the Company was not able to assign the then
current lease to Inter-Ventures, the Company agreed to pay Inter-Ventures the
sum of $19,150 which represents the value of the higher monthly rental over the
old lease or a credit of $25,000 to be used against franchise operating fees
and/or purchase of supplies and equipment from the Company's subsidiary and that
the Company would offer its guaranty in lieu of the individual principals. In
addition, the Company agreed to pay the attorneys' fees of Inter-Ventures
related to the negotiation of a new lease, which amounted to $4,387.13. The
Finance and Audit Committee approved and the Company's Board of Directors
(without the participation of Mr. Klumb and Ms. Eliopulos), ratified the offset
/ credit and payment of attorneys' fees. William B. Klumb (25%) and Effie L.
Eliopulos (16.67%) are partial owners of Inter-Ventures, LLC ("Inter-Ventures").
In conjunction with this center, Inter-Ventures pays the Company approximately
$4,000 per month for franchise royalties, inventory and supplies associated with
these operations.

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, 1999 did not exceed
five percent of the firm's gross revenues.

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<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 appear in Part I, Item 8 of this
report:

Report of Independent Auditors
Audited Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operators
Consolidated Statements of Stockholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

2. Financial Statement Schedules

The following Schedule appears in Part I, Item 8 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

The Company did not file any reports on Form 8-K during the three-month
period ended June 30, 1999.

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.

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.

4.1 Subordinated Debenture dated January 25, 1999, in the principal amount of
$5,000,000, included as an exhibit to the Company's Current Report on Form 8-K,
filed February 1, 1999, is incorporated herein by reference.

4.2 Amended and Restated Loan Agreement between the Company and certain of its
subsidiaries wholly-owned or controlled by it and First Union National Bank,
included as an exhibit to the Company's Current Report on Form 8-K filed March
31, 1999, is incorporated herein by reference.

10.1 Plan of Reorganization and Agreement for Combination of Business 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, is
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, included as an exhibit to the
Company's Amended Annual Report on Form 10-K/A filed September 28, 1998, is
incorporated herein by reference.

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,
included as an exhibit to the Company's Amended Annual Report on Form 10-K/A
filed September 28, 1998, is incorporated herein by reference.

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, included as an exhibit to
the Company's Amended Annual Report on Form 10-K/A filed September 28, 1998, is
incorporated herein by reference.

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<PAGE>

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, included as an exhibit to the Company's Amended Annual Report on Form
10-K/A filed September 28, 1998, is incorporated herein by reference.

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 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, included as an exhibit to the Company's Amended Annual Report on Form
10-K/A filed September 28, 1998, is incorporated herein by reference.

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, included as an exhibit to the Company's Amended Annual Report on Form
10-K/A filed September 28, 1998, is incorporated herein by reference.

10.14 Independent Contractor Agreement between the Company and Ernest S. Malas
dated November 12, 1997, included as an exhibit to the Company's Amended Annual
Report on Form 10-K/A filed September 28, 1998, is incorporated herein by
reference.

10.15 Subscription and Stock Purchase Agreement dated as of March 31, 1998, by
and among the Company, 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.

10.16 Agreement with John F. Ripley, dated October 21, 1998, included as an
exhibit to the Company's Amended Quarterly Report on Form 10-Q/A, filed November
20, 1998, is incorporated herein by reference.

10.17 Employment Agreement with Charles L. Dunlap, dated October 21, 1998,
included as an exhibit to the Company's Amended Quarterly Report on Form 10-Q/A,
filed November 20, 1998, is incorporated herein by reference.

10.18 Subordinated Debenture Agreement with Board LLC, dated October 15, 1998,
included as an exhibit to the Company's Amended Quarterly Report on Form 10-Q/A,
filed November 20, 1998, is incorporated herein by reference.

10.19 1998 Employee Stock Purchase Plan included as an exhibit to the Company's
Quarterly Report on Form 10-Q, filed February 16, 1999, is incorporated herein
by reference.

10.20 1998 Outside Directors' Stock Option Plan included as an exhibit to the
Company's Quarterly Report on Form 10-Q, filed February 16, 1999, is
incorporated herein by reference.

10.21 Mortgage Finance Documents (Heartland Bank), dated March 8, 1999,
included as an exhibit to the Company's Quarterly Report on Form 10-Q, filed May
17, 1999, is incorporated herein by reference.

10.22 1999 Employee Stock Option and Restricted Stock Plan, included as Exhibit
A to the Company's definitive Proxy Statement for the Special Meeting of
Shareholders held on May 25, 1999, is incorporated herein by reference.

10.23 Revised Employment Agreement dated April 20, 1999, between the Company
and Jaime Valdes.

10.24 Revised Employment Agreement dated September 27, 1999, between the
Company and William R. Klumb.

10.25 Amended and Restated Loan and Security Agreement dated as of February 1,
1999, between the Company and its designated subsidiaries and First Union
National Bank.

63
<PAGE>

10.26 Third 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 February 1, 1999.

10.27 Loan Agreement dated as of May 17, 1999, by and between FFCA Acquisition
Corporation and the Company.

10.28 First Amendment dated May 13, 1999, to Amended and Restated Loan and
Security Agreement between the Company and its designated subsidiaries and
First Union National Bank.

10.29 Employment Agreement dated June 1, 1999, between the Company and Jerry
Little.

* 10.30 Term Sheet for Debt Restructure dated October 12, 1999, between the
Company and First Union National Bank.

21. Significant Subsidiaries of the Company.

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

24. Powers of Attorney.

* 27. Financial Data Schedule.
_____________________

* Filed herewith

64
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

65
<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 13, 1999.

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 13, 1999
---------------------
LYNN E. CARUTHERS

/s/ Charles L. Dunlap President, Chief Executive Officer and October 13, 1999
--------------------- Director (Principal Executive Officer)
CHARLES L. DUNLAP

/s/ Jerry L. Little Senior Vice President and Chief Financial October 13, 1999
--------------------- Officer (Principal Financial Accounting
JERRY L. LITTLE Officer)

Director October 13, 1999
*
---------------------
WOODLEY A. ALLEN

Director October 13, 1999
*
---------------------
GEORGE A. BAVELIS

Director October 13, 1999
*
---------------------
BERNARD H. CLINEBURG

Director October 13, 1999
*
---------------------
EFFIE L. ELIOPULOS

Director October 13, 1999
*
---------------------
BASSAM N. IBRAHIM

Director October 13, 1999
*
---------------------
RICHARD O. JOHNSON
</TABLE>
66
<PAGE>

SIGNATURE TITLE DATE
--------- ----- ----
Director October 13, 1999
*
-----------------------
ARTHUR KELLAR

Director October 13, 1999
*
-----------------------
HARRY G. PAPPAS, JR.

Director October 13, 1999
*
-----------------------
WILLIAM R. KLUMB

Director October 13, 1999
*
-----------------------
GERALD A. ZAMENSKY

*By: /s/ Eliot G. Bowytz
-------------------
Eliot G. Bowytz
Attorney-in-Fact
(Upon the Authority of Powers-of-Attorney filed as Exhibit 24 to the
Annual Report on Form 10-K filed September 28, 1999.)

67
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Page
<S> <C>
10.30 Term Sheet for Debt Restructure

23 Consent of Ernst & Young LLP, Independent Auditors

27 Financial Data Schedule
</TABLE>

<PAGE>

Exhibit 10.30
TERM SHEET DEBT RESTRUCTURE

A. Existing Loan Documents

This Term Sheet is submitted to Precision Auto Care, Inc. ("PAC") by First
Union National Bank ("First Union"). This Term Sheet sets forth the material
terms under which First Union will amend certain repayment and other terms set
forth in an Amended and Restated Loan and Security Agreement, effective as of
February 1, 1999, and subsequently amended on May 13, 1999 pursuant to a First
Amendment to Amended and Restated Loan and Security Agreement, among PAC,
certain of its subsidiaries (collectively, the "Borrowers"), and First Union.
This Term Sheet constitutes a commitment by First Union to modify the terms of
the Amended and Restated Loan and Security Agreement (as amended), subject to
the execution of mutually acceptable documents consistent with the terms and
conditions set forth in this Term Sheet. References in this Term Sheet to the
Loan and Security Agreement shall mean the Amended and Restated Loan and
Security Agreement, as amended on May 13, 1999.

The debt of the Borrowers to First Union is evidenced by a Third
Consolidated, Amended and Restated Revolving and Acquisition Line of Credit
Promissory Note dated February 1, 1999 in the face amount of $21,072,860.62 (the
"Note"). The Note is secured by a security interest in the personal property
collateral described in the Loan and Security Agreement. The Note evidences a
Line of Credit and an Acquisition Line of Credit (which is treated on First
Union's books as a term loan).

B. Balance Information

As of October 6, 1999, there was due on the Line of Credit $4,453,000 in
principal and $44,217.87 in interest. The interest payment due on September 30,
1999 on the Line of Credit is past due.

As of October 6, 1999, the Acquisition Line of Credit consisted of one term
loan in the original amount of $4,949,999.98, on which the current principal
balance is $3,941,666.61 and accrued interest is $38,757.81. The principal and
interest payment due on September 30, 1999 on the Acquisition Line of Credit is
past due.

C. Existing and Anticipated Defaults

The Loan and Security Agreement requires, among other things, the
following:

1. Section 1.41 of the Loan and Security Agreement states that all Loans
and Obligations, all accrued interest, and all other fees, costs and expenses
provided for in the Loan and Security Agreement, the Consolidated Note, or the
other Loan Documents shall be due and payable in full on September 30, 1999. By
letter agreement, the Borrowers and First Union extended the maturity date of
the Line of Credit to October 15, 1999. On and after October 15, 1999, First
Union is under no obligation to make advances under the Line of Credit to the
Borrowers.

-1-
<PAGE>

2. Section 1.41A requires that, from and after July 31, 1999, the Line of
Credit Portion of the Maximum Loan Amount be $4,150,000 or less. The Borrowers
are in default under Section 1.41A by reason of their having failed to reduce
the Line of Credit Portion of the Maximum Loan Amount to $4,150,000 by July 31,
1999.

3. Section 2.4(g) requires that the Borrowers, by July 31, 1999,
permanently reduce the Line of Credit to $4,150,000 or less. The Borrowers are
in default under Section 2.4(g) by reason of their having failed to reduce the
Line of Credit to $4,150,000 or less by July 31, 1999.

4. Section 2.4(h) requires that, on or before July 31, 1999, the Borrowers
close on the sale of the real property located at 950 South Baldwin Street,
Marion, Indiana, and pay at closing to First Union the greater of the Net Sale
Proceeds or $450,000, which First Union shall apply to permanently reduce the
Line of Credit. The Borrowers have failed to comply with Section 2.4(h) by
failing to close on the sale of the Marion, Indiana property and to pay at
closing on the sale to First Union the greater of the Net Sale Proceeds or
$450,000.

5. Section 6.16(c) requires the Borrowers to deliver to First Union,
within thirty (30) days after the end of each calendar month, a combined
statement of income and retained earnings of the Borrowers for the month. The
Borrowers have failed to deliver these monthly financial statements to First
Union.

D. Pre-closing Actions

1. On or before October 12, 1999, the Borrowers shall deliver to First
Union a schedule of all real estate (except for the real property subject to the
FFCA Financing and the Heartland Bank Financing, as defined in the Loan and
Security Agreement) owned by the Borrowers, which schedule shall include the
address of the property, a description of the property, a description of the
business conducted at the property, the original cost of the property, the
amount of any outstanding debt secured by the property, the identity of the
creditor with a lien on the property, and the current fair market value of the
property. The Borrowers shall also deliver to First Union, before October 12,
1999, insurance policies, deeds and mortgages relating to this real estate.

2. Before closing, the Borrowers shall deliver to First Union copies of
the most recently filed tax returns for each Borrower, and a copy of each piece
of financial information in the Borrower's possession setting forth the assets,
liabilities, revenue and expenses of each Borrower from July 1, 1998 to the
present.

3. Before closing, the Borrowers shall deliver to First Union a report
showing total accounts payable as of September 30, 1999, broken down by age.

4. Before closing, the Borrowers shall deliver to First Union copies of
the contracts executed between the Borrowers and Service Champ for the sale of
the Borrowers' parts inventory, and between Miracle Industries, Inc. and the
purchaser for the sale of the National Auto Chemical business.

-2-
<PAGE>

5. Before closing, the Borrowers shall deliver to First Union copies of
all loan documents evidencing the material terms of all subordinated debt.

E. Post-closing Asset Sales

The Borrowers have advised First Union that they believe that they can
close on the following asset sales within twelve months following October 1,
1999, and generate net sale proceeds of at least $2,575,000:

1. The sale of the National Auto Chemical (Miracle Industries, Inc.)
business on or before October 31, 1999, generating at least $225,000 in net sale
proceeds.

2. The sale of the real property located at 950 South Baldwin Street,
Marion, Indiana on or before January 31, 2000, generating at least $600,000 in
net sale proceeds.

3. The sale of the Borrowers' parts inventory to Service Champ on or
before January 31, 2000, generating at least $600,000 in net sale proceeds.

4. The sale of the Roscoe, Illinois real property by March 31, 2000,
generating at least $250,000 in net sale proceeds.

5. The sale of nine prefabricated buildings, with three buildings
generating net sale proceeds of at least $300,000 to be sold by December 31,
1999, and two buildings, generating net sale proceeds of at least $200,000, to
be sold during each of the next successive quarters.

F. Restructure Terms

The Borrowers have requested that First Union modify certain terms of the
Loan and Security Agreement. First Union is agreeable to modifying certain
terms and conditions of the Loan and Security Agreement, consistent with or
subject to the following:

1. First Union shall extend the Maturity Date (as defined in the Loan and
Security Agreement) to October 5, 2000.

2. The Borrowers shall bring all past-due payments current.

3. The Borrowers shall continue making all required principal and interest
payments on the remaining term loan comprising the Acquisition Line of Credit,
and shall continue making all required interest payments on the Line of Credit.

4. The Borrowers shall grant to First Union liens on all real property
(except for the real property subject to the FFCA Financing and the Heartland
Bank Financing, as defined in the Loan and Security Agreement) owned by the
Borrowers, to secure payment of the Obligations. The Borrowers shall represent
and confirm that all such real estate is lien-free and that all real estate
taxes are current.

-3-
<PAGE>

5. On or before November 15, 1999, the Borrowers shall deliver to First
Union a business plan setting forth in specific detail the precise actions which
the Borrowers plan to take to generate payments to First Union and the
Borrowers' account debtors, so as to achieve substantial and significant
reductions in the outstanding debt of the Borrowers. This plan shall also
address the specific steps which the Borrowers propose to take to recapitalize
the Borrowers and return to profitability. This plan must be approved by the
board of directors of PAC, and must be consistent with the terms and conditions
of this Term Sheet.

6. By the end of each quarter, beginning with the quarter ending on
December 31, 1999, the Borrowers shall reduce accounts payable by at least
$250,000, on a cumulative basis.

7. The Borrowers shall begin providing to First Union the following
financial information, in addition to the financial information which the
Borrowers are now required to deliver to First Union:

a. within five business days after the end of the 15th and the 30th
days of each month, a detailed payable aging as of the end of the previous 15-
day period, and an accounts receivable aging, for the previous 15-day period;

b. within forty-five days after the end of each quarter, a financial
statement on a consolidated and individual basis for the previous quarter,
including an income statement, a balance sheet and a statement of cash flows;
and

c. promptly after filing, copies of each Borrower's federal tax return.

8. The Borrowers shall not suffer, for the quarter ending on December 31,
1999, a negative earnings before taxes, depreciation and amortization, but after
interest exceeding $500,000, exclusive of the asset sales described above. The
Borrowers shall achieve, for each quarter, beginning with the quarter ending on
March 31, 2000, a positive earnings before taxes, depreciation and amortization,
but after interest, exclusive of the asset sales described above.

9. The Borrowers shall close on each asset sale described in Section E of
this Term Sheet by the dates indicated, and shall generate the net sale proceeds
which they project to generate in connection with each sale.

10. The Borrowers shall not transfer any real or personal property outside
of the ordinary course of business, excluding the sales and transfers referred
to in this Term Sheet, without the prior written consent of First Union.

11. On or before September 1, 2000, the Borrowers shall permanently reduce
the Line of Credit by $200,000 to $4,400,000.

12. The Borrowers shall make no principal or interest payments on any
subordinated debt, except that PAC may issue and deliver to a subordinated debt
holder stock in payment of interest due on the subordinated debt.

13. The Borrowers shall deposit all cash receipts (including the sales and
transfers referred to in this Term Sheet) into a cash collateral account at
First Union, which cash receipts

-4-
<PAGE>

shall be applied to pay down the Line of Credit. All advances under the Line of
Credit shall be made from the Borrowers' operating account at First Union.
Advances shall be made pursuant to Section 2.1.4 of the Loan and Security
Agreement, except that the phrase "the continued satisfactory financial
condition of the Borrower" shall be deleted from Section 2.1.4. Thus, all
advances shall be mandatory, subject to Section 2.1.4, as amended. The Borrowers
shall provide the necessary disclosures with respect to Sections 5.2 and 5.3 of
the Loan and Security Agreement, and Sections 5.25 and 6.8 shall be deleted from
the Loan and Security Agreement.

14. All loan documentation necessary to implement the terms of this Term
Sheet shall be in form and content mutually acceptable to First Union and the
Borrowers and their respective counsel. Such loan documentation may make
certain clarifying changes to the Loan and Security Agreement, as reasonably
required by First Union.

15. The defaults listed in Part C above shall either be cured or waived
under the loan documentation referenced in paragraph 14 above.

16. At closing, the Borrowers shall pay to First Union all attorneys' fees
and other expenses related to the loan modification. The Borrowers shall be
liable for all such fees and expenses regardless of whether closing occurs.

17. Closing (the execution of all necessary loan modification documents
including deeds of trust/mortgages) shall occur on or before October 19, 1999,
failing which First Union shall be under no obligation to close on this debt
restructure and this Term Sheet shall expire and be of no force or effect.

First Union would like to conclude this matter by the execution of formal
written documents among the parties as soon as possible. To that end, please
acknowledge your agreement with the terms of the loan modification as set forth
in this Term Sheet no later than October 12, 1999.

CONSENTED AND AGREED TO:

PRECISION AUTO CARE, INC.

By:___________________________________________
Charles L. Dunlap
President and Chief Executive Officer

FIRST UNION NATIONAL BANK

By:__________________________________________
John G. Dumm, Vice President

-5-

<PAGE>

Exhibit 23

Consent Of Independent Auditors

We consent to the reference to our firm in the following Registration Statements
on Form S-8

No. 333-47165 pertaining to the Precision Tune Stock Option Plan
No. 333-47167 pertaining to the Precision Tune 1996 Employee Stock Purchase
Plan
No. 333-47169 pertaining to the Precision Auto Care Employee Stock Option
Plan
No. 333-47171 pertaining to the Precision Auto Care, Inc. Director Stock
Option Plan
No. 333-49097 pertaining to the Precision Auto Care 1998 Employee Stock
Purchase Plan
No. 333-85877 pertaining to the Precision Auto Care, Inc. 1998 Outside
Directors' Stock Option Plan
No. 333-85879 pertaining to the Precision Auto Care, Inc. 1999 Employee
Stock Option and Restricted Stock Plan

and of our report dated October 8, 1999, with respect to the consolidated
financial statements and schedules of Precision Auto Care in the Annual Report
(Form 10-K) for the year ended June 30, 1999.

Our audits also included the financial statement schedules of Precision Auto
Care, Inc. listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

Vienna, Virginia Ernst & Young LLP
October 13, 1999

<PAGE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 50,000
<SECURITIES> 0
<RECEIVABLES> 5,243,000
<ALLOWANCES> 0
<INVENTORY> 3,085,000
<CURRENT-ASSETS> 10,625,000
<PP&E> 17,988,000
<DEPRECIATION> 2,758,000
<TOTAL-ASSETS> 64,575,000
<CURRENT-LIABILITIES> 11,546,000
<BONDS> 0
0
0
<COMMON> 61,000
<OTHER-SE> 29,982,000
<TOTAL-LIABILITY-AND-EQUITY> 64,575,000
<SALES> 44,769,008
<TOTAL-REVENUES> 44,769,000
<CGS> 39,604,000
<TOTAL-COSTS> 60,636,000
<OTHER-EXPENSES> (6,456,000)
<LOSS-PROVISION> (2,615,000)
<INTEREST-EXPENSE> (22,323,000)
<INCOME-PRETAX> (1,304,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,019,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,019,000)
<EPS-BASIC> (3.43)
<EPS-DILUTED> (3.43)

</TABLE>