PRECISION AUTO CARE INC, 10-K, 2000-10-13

PRECISION AUTO CARE INC
10-K, 2000-10-13
AUTOMOTIVE REPAIR, SERVICES & PARKING

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The following Form 10-K was the subject of a Form 12b-25.

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

FORM 10-K

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

FOR THE FISCAL YEAR ENDED JUNE 30, 2000
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 29, 2000 was $6,494,296 based on the closing price
of $1.375 per share. As of that date, 8,160,508 shares of Common Stock were
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None
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TABLE OF CONTENTS

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Page
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PART I Item 1. Business........................................................................... 4
Item 2. Properties......................................................................... 15
Item 3. Legal Proceedings.................................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders................................ 16

PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............. 17
Item 6. Selected Financial Data............................................................ 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 18
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.......................... 25
Item 8. Financial Statements and Supplementary Data........................................ 25
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure......................................................................... 44

PART III Item 10. Directors and Executive Officers of the Registrant................................. 44
Item 11. Executive Compensation............................................................. 48
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 52
Item 13. Certain Relationships and Related Transactions..................................... 53

PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 55
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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. However, in August 2000, the company made the
decision to change senior management and hired a new CEO, Louis M. Brown, Jr.
and a new CFO, Robert R. Falconi. With that change in management there has been
a change in direction for the Company. In the future, the Company intends to
focus on growing the franchising business.

. Precision Tune Auto Care provides automotive maintenance services that
require relatively short service times including engine performance,
oil change and lubrication and brake services. At June 30, 2000, these
services were provided at 515 Precision Tune Auto Care centers owned
and operated by franchisees and five owned and operated by the
Company. At October 9, 2000, the Company owned five Precision Tune
Auto Care centers. The Company intends to sell one of the centers that
it owns and operates in fiscal year 2001.

. Precision Auto Wash provides self-service and touch-less 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, 2000, there were 18 Company-owned car wash
centers and 23 franchised car wash centers. At October 9, 2000, the
Company owned four Precision Auto Wash Centers. The Company intends to
sell the centers that it owns and operates in fiscal year 2001.

. 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, 2000,
there were 10 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.
At October 9, 2000, the company owned two Precision Lube Express
Centers. The Company intends to sell the centers that it owns and
operates in fiscal year 2001.

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.

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, the Precision Tune brand 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

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franchise agreement for Precision Tune Auto Care in Mexico and Puerto Rico.

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, 2000, these services were provided at 515 Precision
Tune Auto Care centers owned and operated by franchisees and 5 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. 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 50 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 60% 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 screening to determine
whether a prospect

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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 franchise 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
were being operated by a franchisee. As of June 30, 2000, 21 area developers and
their affiliates had an ownership interest in approximately 31% of the total
number of Precision Tune Auto Care 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, addresses such
factors as market demographics, development resources (e.g., advertising and
public relations vehicles, developers of commercial real estate), criteria for
initial center development, and criteria for additional center development.
Based on these factors, a specific expansion strategy for each target area is
developed. The Company believes that significant expansion potential exists in
areas not controlled currently by area developers.

Precision Auto Wash

The Company is the owner, operator and franchisor of technologically-
advanced self-service and touch-less automatic car wash centers. At June 30,
2000, there were 18 Precision Auto Wash centers owned and operated by the
Company. In fiscal year 2001, the company intends to divest itself of all of the
Precision Auto Wash Centers that it owns and operates. As of June 30, 2000,
there were 23 franchised car wash centers.

The Company believes that the Precision Auto Wash system represents the
state-of-the-art in modern touch-less 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 that 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

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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 stand-alone facility consisting of one automatic and four self-
service car wash bays; and (ii) the co-location facility consisting of 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 stand-alone 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 stand-alone Precision Auto
Wash center ranges from $52,600 to $669,000. The initial investment required for
a co-location Precision Auto Wash center, 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 44 hour 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 continued its program for existing car
wash owners of offering them the opportunity 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

Precision Lube Express

The Company is the owner, operator and franchisor of centers that 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, 2000, there were 10 Precision Lube Express centers owned and operated
by franchisees and six owned and operated by the Company. The Company plans to
sell the centers it owns and operates in fiscal year 2001. As of June 30, 2000,
there were also 17 Lube Depot centers operated by franchisees.

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

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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 50 hour
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

In fiscal year 2000, the Company's manufacturing and distribution
operations accounted for approximately 39% of the Company's revenues. The
Company did not rely heavily on any single supplier for the supply of any
materials, such as oil, equipment or raw materials or components the Company
utilized in its manufacturing operations.

In August 2000, the Company made the decision to change its senior
management and hired a new CEO and CFO. The new management plans to focus the
Company on its franchising operations.

Hydro Spray, 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

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facility located in Cedar Falls, Iowa. The Company plans to sell HydroSpray as
part of a plan to focus its resources on the franchising business.

Worldwide Dryer, a Company subsidiary, manufactures and distributes drying
systems for installation in automatic car washes. Worldwide's dryers are
available to Precision Auto Wash franchisees and other third parties who are not
franchisees or otherwise affiliated with Precision Auto Wash. Worldwide's
operations are conducted out of a 9,600 square foot leased plant outside Denver,
Colorado. The Company also intends to sell Worldwide in an effort to focus its
attention on the franchising business.

Precision Building Solutions, a Company subsidiary, ("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 12 Precision Tune Auto Care
franchises in the year ended June 30, 2000. As of June 30, 2000, 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, Indonesia, Oman, the Bahamas, Jamaica, the Dominican
Republic, Peru, Brazil, El Salvador, Guatemala and Honduras. Generally, the
master franchisee pays a

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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 is also aggressively marketing Precision
Auto Wash franchises. The current franchise agreement for Precision Auto Wash
franchisees will require the payment of an initial franchise fee between of
$12,500. Franchisees will be required to pay royalties on a weekly basis of 5%
of gross receipts, with an annual maximum of $6,250 (subject to cost-of-living
increases).

Franchisees must also pay marketing fees on a weekly basis of 1.5% of gross
receipts to a national advertising fund administered by the Company. In
addition, franchisees 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. Certain Precision Auto Wash franchise
agreements have terms that vary with the standard agreement now in use.

Precision Lube Express. The standard franchise agreement for Precision Lube
Express franchisees requires the payment of an initial franchise fee of $12,500.
Franchisees are required to pay continuing royalties of 5% of weekly gross
receipts. Precision Lube Express franchisees also are required to contribute an
amount equal to 2% of their monthly gross receipts to a national advertising
fund and an additional amount of their gross receipts 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.

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), Econo Lube N' 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, Econo Lube N' Tune,
Tunex

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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

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

11
<PAGE>

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 investment in its Common Stock are subject to
certain risks, including the following:

Liquidity. The Company is highly leveraged. However, in September 2000, the
Company refinanced its debt and repaid its bank loans. The terms of the new debt
which is $11.25 million are such that the Company will not have to repay any
interest for the next year or any principal for the next three years.
Furthermore, the refinancing arrangement infused over $2.5 million into the
company for operating capital. Consequently, the Company expects to be able to
meet its obligations to its suppliers and to other creditors. As noted earlier,
the new management has made the decision to focus on its franchising business
and divest itself of the manufacturing businesses that have been unprofitable.
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 third year of
operations as a combined entity. While a predecessor of the Company has been in
business since 1976, the Company as currently constituted, acquired the majority
of its assets in November 1997 as the result of a combination of nine automotive
maintenance services companies in connection with its initial public offering.
In August 2000, the Company made the decision to hire new senior management. The
new management will be focusing its efforts on improving the Company's financial
performance by focusing on the franchising business in addition to improving the
operating efficiency of the Company. However, there can be no assurance that the
Company's management will be able to successfully implement these plans.

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. As noted previously,
the Company intends to divest itself of company-owned car wash and lube centers
as well as certain manufacturing 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, and 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,

12
<PAGE>

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." For these reasons in addition to
management's decision to focus on franchising, the Company intends to divest
itself of certain manufacturing divisions and subsidiaries.

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

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

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. Because of the poor financial performance
the past couple of years, a decision was made to bring in a new CEO and a new
CFO in August 2000. The Company believes these individuals, along with the
remaining executives, possess the necessary experience in financing, operating,
and managing a company intent on improving its financial performance. 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 non-competition provisions that survive
the

13
<PAGE>

termination of employment in certain circumstances. The Company also has
obtained certain non-competition 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 non-compete 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 sub-franchise 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 in areas covered by Precision Tune Auto Care area
sub-franchise agreements. It also may be difficult for the Company to enforce
its area sub-franchise agreements or to terminate the rights of area sub-
franchisees 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 sub-franchisees. 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.

Control by Management and Principal Shareholders. As of September 29, 2000,
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 56% 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 and appointment of management, the outcome of votes by the Company's
shareholders on major corporate transactions, including mergers and the sales of
substantial assets 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

14
<PAGE>

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 16% of the Company's consolidated net revenue during the fiscal
year ended June 30, 2000. 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.

Item 2. Properties

The Company's corporate headquarters are located in approximately 21,000
square feet of leased office space in Leesburg, Virginia pursuant to a lease
that expires in 2002.

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 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 $373,483 for the year ended June
30, 2000. As of October 9, 2000 the Company owns the underlying real estate for
4 Company-owned car washes and 1 auto care center. The rent expense associated
with Company-owned and franchised centers for the year ended June 30, 2000, of
$365,970 is the net amount after allowing for $158,507 of sublease income.

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

Item 3. Legal Proceedings

15
<PAGE>

attorneys' fees was entered against the Company. In connection with this matter,
the Company is vigorously appealing the judgment. However, it is not possible to
predict whether the appeal will be successful. If the appeal is not successful,
payment of the judgment would have a material adverse impact on the liquidity of
the Company.

The Company and its subsidiaries are subject to other 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.

The Company has reserves in its accounts for litigation based on
management's best judgment. Except as discussed above with respect to the
Florida matter, management is of the opinion that the ultimate liability in
respect of litigation is not likely to be of material importance to the
Company's financial condition and results of operations.

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

None.

16
<PAGE>

PART II

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

As of September 29, 2000 the Company's common stock, par value $.01 per
share ("Common Stock") is publicly traded on the Nasdaq SmallCap Market and is
quoted under the symbol "PACI." The Company's continued listing on the Nasdaq
SmallCap Market is contingent upon Nasdaq approval. On August 4, 2000 the
Company issued 1,700,000 shares of common stock to Louis M. Brown, Jr., the
newly appointed President and CEO. This transaction should have been approved by
the shareholders prior to consummation. However, the circumstances of the
situation were such that the Company did not have sufficient time to obtain such
shareholder approval or to seek an exemption from Nasdaq's rules. As a result,
this transaction may result in the Company's stock being delisted from the
Nasdaq's SmallCap market. Should that happen, it is expected that the Company's
shares would be eligible for quotation on the OTC Bulletin Board.

As of October 9, 2000, there were 199 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 Nasdaq for
the Common Stock during the fiscal years ended June 30, 2000, and June 30, 1999,
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 debt agreement dated September 29, 2000, restrict the Company from
paying any dividends without the written consent of the lender except for stock
dividends or stock splits or any other corporate distribution which does not
involve cash or property.

Fiscal Year ended June 30, 2000

<TABLE>
<CAPTION>
Quarter High Low
------- ---------- --------
<S> <C> <C>
First.............. $ 5.500 $ 1.813
Second............. 2.375 0.469
Third.............. 2.000 0.969
Fourth............. 1.313 0.656
</TABLE>

Fiscal year ended June 30, 1999

<TABLE>
<CAPTION>
Quarter High Low
------- --------- --------
<S> <C> <C>
First.............. $ 10.375 $ 4.625
Second............. 5.875 2.000
Third.............. 3.000 1.625
Fourth............. 3.062 2.000
</TABLE>

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

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
2000 1999 1998 1997 1996 1995
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
(amounts in thousands, except per share data)
Net sales...................................... $ 33,776 $ 44,769 $41,776 $27,457 $26,734 $26,579
Net Income (loss) from operations.............. (18,382) (21,019) 1,228 1,255 1,070 (225)
Net EPS (diluted).............................. $ (2.96) $ (3.43) $ 0.28 $ 0.82 $ 0.73 $ (0.11)
Total assets................................... 46,332 64,575 86,549 $26,694 $25,654 $24,810
Total debt..................................... 20,679 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

17
<PAGE>

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
quick-lube centers. The Company also manufactures automatic car wash equipment
and modular quick-lube 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 and supplies. 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, sale of assets 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, 1998, 1999 and 2000.

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net revenue............................. 100% 100% 100%
Direct cost............................. 81 88 74
----- ----- -----
Contribution............................ 19 12 26
General and administrative expense...... 19 29 9
Depreciation and amortization expense... 10 8 4
Charge for impairment of goodwill....... 21 10 --
----- ----- -----
Operating (loss) income................. (31) (35) 11
Other expense........................... (22) (14) (4)
----- ----- -----
(Loss) Income before taxes.............. (53) (50) 7
Expense (benefit) for income taxes...... 1 (3) 4
----- ----- -----
Net (loss) income....................... (54)% (47)% 3%
===== ===== =====
</TABLE>

During fiscal year 2000, the Company continued 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 refinancing bank debt facilities, the disposition of
certain assets and restructuring of the Company. The Company believes that
recently completed debt refinancing and sales of certain assets and anticipated
asset sales will have a positive impact on future cash flow and reduce past due
trade payables. The Company will continue to divest itself from non-strategic
businesses and focus on its core businesses of franchising.

The Company's core auto care and franchising business continues to benefit
from an improved focus on unit

18
<PAGE>

economies, and in the field training programs. 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.

In March 2000 the Company executed a strategic alliance and service
agreement (the "Co-Branding Agreement") with Petro USA Incorporated ("Petro"), a
subsidiary of Getty Petroleum Marketing Incorporated ("Getty"). In an effort to
co-brand the proprietary marks of the before mentioned parties to this
agreement, certain Getty service stations will be offered the opportunity to
become Precision Tune Auto Care, Precision Lube Express, or Precision Auto Wash
franchises. According to this agreement, Petro will present potential Getty
sites to the Company for consideration for a Precision franchise and assist in
the co-branding administration and development efforts of the acceptable sites.
The parties to this agreement have initially selected 18 potential Getty sites
for these co-branding efforts. In the event that Getty or Petro determines at
the end of a one-year trial period that the Precision franchises are not
suitable for these 18 Getty service stations, they may elect to terminate this
agreement. This agreement will continue for 10 years, unless all Precision
franchises located at Getty service stations are terminated or this agreement is
terminated as provided in this agreement. The Company expects this agreement to
increase franchise fees, royalties and sales of modular buildings.

These strategies combined with the debt restructuring actions and asset
sales the Company is pursuing are expected to improve cash flow. While the asset
sales may reduce total revenues, nonetheless, the Company believes that it will
be more profitable and improve cash flow from the remaining operations. The debt
restructuring has occurred and the bank debt has been paid off as of September
29, 2000. The terms of the new debt do not require the Company to pay interest
for one year or principal for three years.

On August 4, 2000, the Company hired Louis M. Brown Jr. as President and
CEO. Concurrent with his hiring, Mr. Brown invested $750,000 into the company in
exchange for 1,700,000 shares of common stock.

In the event that the Company is unable to implement its restructuring
plans or is otherwise unable to generate revenues sufficient to cover operating
expenses, the Company may be unable to satisfy its liabilities and therefore
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, 2000 Compared to Year Ended June 30, 1999

Revenue. Revenue for the twelve months ending June 30, 2000 was $33.8
million, a decrease of $11.0 million, or 25%, compared with revenue of $44.8
million for the prior year. The decrease was due partly to a decrease in
franchising of $551,000 or 3%. Domestic franchise development fees were $485,000
lower and there was a $595,000 reduction in domestic royalties. However, these
decreases in United States franchising were partially offset by increases in
development fees and royalties from the company's Mexico operations of $226,000,
and $302,000, respectively. Manufacturing and distribution sales were down $8.1
million or 38% to $13.0 million in fiscal year 2000 from $21.1 million the prior
year. The Company's auto parts and supplies sales were down $5.2 million or 66%
to $2.6 million in fiscal year 2000 from $7.8 million in fiscal year 1999. Wash
equipment sales were down $1.2 million or 12%. The decrease in wash equipment
sales was the consequence of the company's lack of working capital enabling it
to market and manufacture its products. Company center operations were down $2.4
million or 32% from the prior year. These decreases were in large part caused by
the Company's continuing restructuring efforts and selling off of under-
performing assets. Company stores in the United States were down $1.9 million or
36%. Company stores operated in Mexico were down $554,000 or 25%, largely due to
the closing of a company store in Puerto Rico.

Direct Cost. Direct costs for the twelve months ending June 30, 2000
totaled $27.4 million, a decrease of $12.2 million or 31%, compared with $39.6
million for the year ending June 30, 1999. The decrease was due in large part to
the reduction in sales and the Company's restructuring efforts and selling off
of under-performing assets. This accounts for $8.6 million of the reduction from
reduced overhead and costs associated with sales. In addition to that, domestic
franchising costs were down $1.7 million or 19%. Franchise development was down
$659,000 or 49% from the prior year. The decrease was from reduced spending in
marketing, advertising, salaries

19
<PAGE>

and commissions. Domestic royalty costs were down $1.0 million or 14%. This is
largely due to cuts in overhead that were made during a restructuring in fiscal
year 1999.

General and Administrative Expense. General and administrative expense was
$6.5 million for the twelve months ending June 30, 2000, a decrease of $6.4
million, or 49%, compared with $12.9 million for the prior fiscal year. This
decrease is primarily attributed to the $4.5 million reduction in the amount of
bad debt expense recognized in fiscal year 2000 compared to fiscal year 1999. In
addition, professional fees were significantly lower this fiscal year compared
with the prior year.

Amortization and Depreciation Expense. Depreciation and amortization
expense was $3.4 million for the twelve months ending June 30, 2000 compared
with $3.5 million for the twelve months ended June 30, 1999. Depreciation and
amortization expense decreased due to the Company reducing its capital
expenditures, curtailing acquisitions and disposing certain assets.

Impairment of Goodwill. The Company recognized a $7.0 million impairment
charge to reduce the amount of goodwill attributed to prior business
acquisitions. The impairment charge 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 Loss. The Company recognized an operating loss for the twelve
months ending June 30, 2000 of $10.5 million which represents an improvement in
operating income of $5.4 million or 34% compared with operating loss of $15.9
million for the prior year. This improvement resulted from an increase in the
contribution margin of $1.2 million. Also included in the improvement is a
decrease in general and administrative expense of $6.4 million. This increase in
income was offset by an increase in the impairment charge of $2.3 million from
last year.

Interest Expense. Interest expense was $2.6 million for the twelve months
ending June 30, 2000 and June 30, 1999. While the principal balances have been
declining, higher interest rates offset the benefit of carrying less debt.

Other Expense. Other expense was $5.0 million for the twelve months ending
June 30, 2000, an increase of approximately $1.0 million from the year ended
June 30, 1999. Other expense primarily includes provisions for losses in
connection with sales of Company store operations and property.

Provision for Income Taxes. The provision for income taxes was an expense
of $297,000 for the twelve months ending June 30, 2000, an increase of $1.6
million compared with income tax benefit of $1.3 million for the year ended June
30, 1999.

Net Income and Earnings Per Share. The Company recorded a loss of $18.4
million, or $2.96 per share, for the twelve months ending June 30, 2000,
compared with net loss of $21.0 million, or $3.43 per share, for the prior year.

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

20
<PAGE>

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.

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 write-offs 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 not collectible 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.

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 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 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.

21
<PAGE>

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.

Liquidity and Capital Resources

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

<TABLE>
<CAPTION>
Twelve Months Ended June 30,
------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net cash provided by (used in) operating
activities................................. $ 1,171,000 $ (5,127,000)
Net cash provided by investing activities... 2,307,000 3,463,000
Net cash used in financing activities....... (3,515,000) (356,000)
------------ ------------
Change in cash and cash equivalents......... $ (37,000) $ (2,020,000)
============ ============
</TABLE>

Cash at June 30, 2000 was $13,000 a decrease of $37,000 from $50,000 at
June 30, 1999. During the year cash provided by operating activities was $1.2
million which is partially attributable to decreases in accounts and notes
receivable outstanding of $2.2 million, inventory reduction of $1.6 million,
refundable income taxes of $1.6 million and an increase in deferred revenue of
$531,000, offset by a decrease in accounts payable of $750,000. The net loss of
$18.4 million has been adjusted for non-cash charges of $7.0 million for
impairment of assets, $3.4 million for amortization and depreciation, $566,000
for payments of interest with stock in lieu of cash and stock compensation of
$108,000.

Cash provided by investing activities during the year ended June 30, 2000
was $2.3 million. The inflow in the current year consisted primarily of the sale
of property and equipment of $2.7 million, which was offset by capital
expenditures of $347,000. The capital expenditures consisted mainly of internal
computer hardware and software systems.

Cash used in financing activities during the year ended June 30, 2000 was
$3.5 million. Financing activities during the year ended included payments of
$1.8 million on the Company's Bank Facility and payments of $1.7 of mortgages
and other notes payable.

As of June 30, 2000, the Company had borrowed approximately $7.1 million
under its bank credit agreement, of which $3.1 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 $4.0 million represented funds advanced under a general revolving
credit portion of the credit facility (the "Line of Credit Loan").

At June 30, the Company had a bank credit agreement with First Union
National Bank, under which the Bank has extended loans to the Company under both
the Line of Credit Loan and Acquisitions Line of Credit. The

22
<PAGE>

agreement was originally executed on November 7, 1997 with Signet Bank (which
was later acquired by First Union). As of September 29, 2000 both of these
credit facilities have been repaid (see discussion below).

Beginning in the summer of 1998, the Company has not always been able to
remain in compliance with certain financial covenants included in the agreement.
As a result, the agreement has been amended and modified several times including
amendments executed October 12, 1998, February 22, 1999 (effective retroactively
to February 1, 1999) and May 13, 1999. Prior reports include more detailed
descriptions of these earlier amendments and waivers of non-compliance issued by
the Bank.

In the latest amendment to the agreement (the "Second Amended and Restated
Loan and Security Agreement"), dated October 27, 1999 (effective retroactively
to October 14, 1999), the Bank extended the maturity date of the credit
facilities 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: (a) reduce accounts payable
by at least $250,000 on a cumulative basis, by December 31, 1999, and each
quarter thereafter, (b) not suffer, for the quarter ending December 31, 1999, a
negative net earnings before taxes, depreciation and amortization, but after
interest (excluding accrued or non-cash interest payable on the subordinated
debt) exceeding $500,000, excluding the gain (loss) resulting from 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 (excluding accrued or non-cash interest payable on the
subordinated debt), exclusive of the required asset sales. In addition, the
Company is 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 of
principal or interest on its subordinated debt in cash without the prior written
consent of the Bank. In addition to the above conditions and requirements to
dispose of certain businesses which have been satisfied, the Company was
required to complete the sale of (1) certain prefabricated lube buildings during
the quarters ended December 31, 1999, and March 31, 2000, and (2) the sale of
certain real property located in Marion, IN and Roscoe, IL, by certain dates.

The Company was not in compliance with certain financial covenants as of
December 31, 1999 and March 31, 2000. As of December 31, 1999, and March 31,
2000, the Company succeeded in reducing accounts payable by the required amount
of $250,000. It also achieved the December 31, 1999, minimum earnings target of
no more than $500,000 loss (as defined above). The requirement of achieving a
positive earnings (as defined above) for the quarter ended March 31, 2000 was
not achieved. The Company was also not able to complete the remaining real
property sales by the specified dates. The Company did receive a waiver from
the Bank, dated February 8, 2000, concerning non-compliance with certain
covenants for the quarter ended December 31, 1999. The Bank had agreed to
provide the Company with a waiver concerning such non-compliance for the quarter
ended March 31, 2000 in return for certain modifications to the Second Amended
and Restated Loan and Security Agreement. A modification agreement dated May 15,
2000 permanently reduced availability under the Line of Credit $240,000 by July
10, 2000 and increased the interest rate for all existing and future advances by
1% to 5.75% over LIBOR.

At June 30, 2000 the Company was not in compliance with certain financial
covenants. Effective September 29, 2000, the Bank credit facility was repaid
(see discussion below).

In addition to the Bank credit facility, the Company has entered into two
outstanding subordinated debenture agreements and has received mortgage
financing for certain Company-owned real estate. Under the terms of each
subordinated debenture, payments of principal and interest on the subordinated
debt may only be made by the Company if the Company has made all required
payments or is otherwise not in default under the Bank credit facility.

The first subordinated debenture in the amount of $2 million was executed
in October 1998 with an LLC composed of certain members of the Company's board
of directors. Originally due October 15, 1999, the maturity of the subordinated
debenture has been extended until September 30, 2001. The Company had also
agreed that default interest in the amount of $266,667 would be paid in 71,111
shares of Common Stock. The amount of shares was determined by dividing 266,667
by the average closing price per share of the Corporation's Common Stock in

23
<PAGE>

the fifteen day period between August 1, 1999 and August 15, 1999. This
translates into an issuing price per share of $3.75. The holder also waived
defaults under the agreement through September 30, 2001.

The second subordinated debenture in the amount of $5 million was executed
in January 1999 directly with one member of the Company's board of directors.
$1.4 million of the original principal amount has been repaid. Originally due
May 25, 1999, the term of this subordinated debenture had been extended to April
15, 2001 and later extended to September 30, 2001. The holder also waived all
debt covenants through September 30, 2001.

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%,
amortized over a 20 year period and secured by four of the Company's car washes.
This mortgage was paid off from the sale of the respective secured properties,
on December 22, 1999, and January 28, 2000.

On May 17, 1999, the Company executed nineteen promissory notes totaling
$7,204,000, with FFCA Acquisition Corporation. Each note accrued interest at a
rate of 9.9% per annum and would have matured on June 1, 2014 with the exception
of one which would have matured on August 1, 2004. Principal and interest
payments were due in monthly installments that commenced on July 1, 1999. Each
note was secured by mortgages on properties. In the event of default the
interest rate would have increased to 18%. During the first quarter of fiscal
year 2001 the Company repaid all but $991,000 of this debt with proceeds from
sales of car wash and lube centers. On October 2, 2000, the remaining mortgage
balance was repaid (see discussion below).

During fiscal year 2001, the Company was successful in obtaining a new
source of financing. The Company received $11.25 million in financing from
Precision Funding, L.L.C., a corporation owned by two members of the Company's
Board of Directors. With that financing, the Company was able to liquidate its
debt with First Union on September 29, 2000 in the amount of $7.3 million and
the remainder of its mortgage debt with FFCA in the amount of $1.0 million. The
remaining proceeds of the financing will be used for working capital
requirements. The terms of the loan with Precision Funding, L.L.C. do not
require the Company to pay any interest for the period of one year or any
principal for the period of three years. In light of this financing arrangement,
management does not anticipate requiring additional financing to continue the
Company's operations for the next year.

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. However, with the refinancing, reductions in expenses,
improved collections, improved inventory management, the Company expects to be
able to meet all of its financial obligations and be able to focus on growing
its franchising operation and making it profitable.

While Company management believes that this program will improve cash flow
and the ability to meet 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.

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.

24
<PAGE>

Year 2000 (Y2K) Compliance

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). Hardware and software costs were
approximately $330,000 in fiscal year 1999 and $100,000 in fiscal year 2000. In
addition, the Company replaced the phone system prior to the end of 1999. The
cost for this new phone system was approximately $60,000.

Item 7a. Quantitative And Qualitative Disclosure About Market Risks

At June 30, 2000, the Company's major market risk exposure was to changing
interest rates. The Company's only debt obligations that were sensitive to
changes in interest rates was the Bank Facility. The Bank Facility's rate was
5.75% over LIBOR. Subsequent to year end, the Company refinanced its debt at a
fixed interest rate of 12% and is not subject to changing interest rates.

Item 8. Financial Statements And Supplementary Data

25
<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, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three years in the period ended June 30, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999 and the
consolidated results of their operations and their cash flows for the three
years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States.

Ernst & Young LLP

September 8, 2000,
except for Note 15, as to which the date is
October 11, 2000
McLean, Virginia

26
<PAGE>

PRECISION AUTO CARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
June 30,
------------------------------
2000 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 13,370 $ 50,167
Accounts receivable, net of allowance of $2,155,735 and $2,080,000,
respectively.................................................................. 3,335,300 5,242,780
Inventory, net of allowance of $600,000 and $390,000, respectively.............. 1,517,693 3,084,637
Notes receivable, net of allowance of $126,212 and $586,000, respectively....... 153,260 379,487
Other assets.................................................................... 132,013 209,342
Refundable income taxes......................................................... 71,774 1,658,931
------------ ------------
Total current assets......................................................... 5,223,410 10,625,344
Notes receivable, net of allowance of $70,993 and $324,000, respectively.......... 276,000 325,254
Property, plant and equipment, at cost............................................ 15,480,911 17,987,789
Less: Accumulated depreciation.................................................. (3,669,556) (2,757,726)
------------ ------------
11,811,355 15,230,063
Goodwill and other intangibles, net of accumulated amortization of $14,971,394
and $12,992,000, respectively.................................................... 28,939,600 37,926,905
Deposits and other................................................................ 81,224 467,857
------------ ------------
Total assets................................................................. $ 46,331,589 $ 64,575,423
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................................ $ 11,633,783 $ 8,636,331
Bank facility................................................................... - 1,230,002
Mortgage notes payable.......................................................... 301,962 295,064
Other notes payable............................................................. 552,209 541,535
Deferred revenue................................................................ 1,478,533 842,598
------------ ------------
Total current liabilities.................................................... 13,966,487 11,545,530
Bank facility..................................................................... 7,126,615 7,678,667
Subordinated debt................................................................. 5,586,960 5,586,960
Mortgage notes payable............................................................ 6,628,428 7,938,859
Other notes payable............................................................... 482,936 924,713
Deferred revenue.................................................................. 134,517 239,714
Refundable deposits............................................................... 4,000 245,364
Other............................................................................. 125,657 433,323
------------ ------------
Total liabilities............................................................ 34,055,600 34,593,130
Commitments and contingencies:
Stockholders' equity:
Common stock, $.01 par; 19,000,000 shares authorized; 6,434,534 and
6,131,548 shares issued and outstanding, in 2000 and 1999, respectively....... 64,345 61,315
Additional paid-in capital...................................................... 46,532,803 46,012,211
Unearned restricted stock....................................................... (130,923) (283,021)
Retained earnings............................................................... (34,190,236) (15,808,212)
------------ ------------
Total stockholders' equity................................................... 12,275,989 29,982,293
------------ ------------
Total liabilities and stockholders' equity................................... $ 46,331,589 $ 64,575,423
============ ============
</TABLE>

See accompanying notes.

27
<PAGE>

PRECISION AUTO CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For The Years Ended June 30,
2000 1999 1998
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Franchise development................................... $ 812,334 $ 1,070,763 $ 2,255,744
Royalties............................................... 14,716,884 15,009,592 14,603,825
Manufacturing and distribution.......................... 12,996,508 21,093,997 20,458,420
Company centers......................................... 5,010,546 7,420,157 3,940,916
Other................................................... 239,562 174,960 516,709
------------ ------------ -----------
Total revenues..................................... 33,775,834 44,769,469 41,775,614
Total direct cost............................................ 27,441,732 39,604,293 30,708,388
------------ ------------ -----------
Contribution (exclusive of amortization shown separately
below).................................................. 6,334,102 5,165,176 11,067,226
General and administrative expense........................... 6,446,650 12,868,672 4,147,276
Depreciation expense......................................... 1,387,007 1,503,169 775,088
Amortization of franchise rights and goodwill................ 1,979,394 1,982,367 1,469,035
Charge for impairment of goodwill............................ 7,028,592 4,677,762 --
------------ ------------ -----------
Operating income (loss)...................................... (10,507,541) (15,866,794) 4,675,827
Other income (expense):
Interest expense........................................ (2,613,257) (2,615,076) (1,038,851)
Interest income......................................... 71,849 163,001 158,771
Other................................................... (5,036,095) (4,003,906) (803,283)
------------ ------------ -----------
Total other expense................................ (7,577,503) (6,455,981) (1,683,363)
------------ ------------ -----------
Income (loss) before income tax expense...................... (18,085,044) (22,322,775) 2,992,464
Provision (benefit) for income taxes......................... 296,980 (1,303,733) 1,764,368
------------ ------------ -----------
Net (loss) income............................................ $(18,382,024) $(21,019,042) $ 1,228,096
============ ============ ===========
Basic net (loss) income per share............................ $(2.96) $(3.43) $0.29
Diluted net (loss) income per share.......................... $(2.96) $(3.43) $0.28
Weighted average shares outstanding--Basic................... 6,219,874 6,126,030 4,247,977
Weighted average shares outstanding--Diluted................. 6,219,874 6,126,030 4,322,623
</TABLE>

See accompanying notes.

28
<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, 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......................... 1,436,724 14,367 12,916,823 -- -- -- 12,931,190
Exercised common stock options and
warrants........................... 47,200 472 382,128 -- -- -- 382,600
Acquisition of Praxis............... 619,265 6,193 6,728,314 -- -- -- 6,734,507
Net income.......................... -- -- -- -- 1,228,096 -- 1,228,096
---------- -------- ----------- ---------- ------------ ----------- ------------
Balance at June 30, 1998............ 6,120,543 61,205 45,682,551 -- 5,210,830 -- 50,954,586
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
Issuance of common stock............ 224,236 2,242 565,910 -- -- -- 568,152
Issuance of restricted stock........ 78,750 787 (45,318) 44,531 -- --
Restricted stock earned............. -- -- -- 107,568 -- -- 107,568
Net loss............................ -- -- -- -- (18,382,024) -- (18,382,024)
---------- -------- ----------- ---------- ------------ ----------- ------------
Balance at June 30, 2000............ 6,434,530 $ 64,344 $46,532,803 $ (130,922) $(34,190,236) $ -- $ 12,275,989
========== ======== =========== ========== ============ =========== ============
</TABLE>

See accompanying notes.

29
<PAGE>

PRECISION AUTO CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net loss........................................................... $ (18,382,024) $ (21,019,042)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Charge for impairment of goodwill........................... 7,028,592 4,677,762
Depreciation and amortization............................... 3,366,401 3,485,536
Loss on disposal of property, plant, and equipment.......... 3,451,229 497,596
Stock issued to satisfy interest due........................ 566,668 --
Stock issued for compensation............................... 107,569 --
Changes in operating assets and liabilities:
Accounts and notes receivable............................ 2,182,961 5,276,693
Inventory................................................ 1,566,944 1,117,115
Prepaid expenses, deposits and other..................... (85,069) 1,785,536
Refundable income taxes.................................. 1,587,157 --
Accounts payable and accrued liabilities................. (750,076) (674,060)
Deferred revenue, net.................................... 530,737 (274,003)
------------ -------------
Net cash provided by (used in) operating activities................ 1,171,089 (5,126,867)
investing activities:
Proceeds from sale of property and equipment................ 2,654,331 6,793,071
Purchases of property and equipment......................... (347,011) (2,208,072)
Purchase of franchise agreements and rights................. -- (1,122,359)
------------ -------------
Net cash provided by investing activities......................... 2,307,320 3,462,640
Financing activities:
Issuance of common stock.................................... 1,484 --
Capital contribution........................................ -- 21,020
Loan acquisition costs...................................... -- (309,742)
Repayments of bank facility................................. (1,782,054) (12,822,331)
Proceeds from subordinated debt............................. -- 5,586,960
(Repayments of) proceeds from mortgage notes and other
notes payable............................................ (1,734,636) 7,168,193
------------ -------------
Net cash used in financing activities.............................. (3,515,206) (355,900)
------------ -------------
Net change in cash and cash equivalents............................ (36,797) (2,020,127)
Cash and cash equivalents at beginning of year..................... 50,167 2,070,294
------------ -------------
Cash and cash equivalents at end of year........................... $ 13,370 $ 50,167
============ =============
</TABLE>

See accompanying notes.

30
<PAGE>

PRECISION AUTO CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three years in the period ended June 30, 2000

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 touch-less 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 $18.4 million for the year ended June 30, 2000 and has a
working capital deficit of approximately $8.7 million as of June 30, 2000. On
September 29, 2000, the Company obtained a new source of long-term debt
financing that enabled it to repay its bank debt, certain mortgage debt and
provide $2.5 million for working capital requirements (See Note 15). In
addition, a new CEO and CFO were appointed by the Board of Directors. As a
result of the financing arrangement, management does not anticipate requiring
additional financing to continue the Company's operations for the next year.

In an effort to return the Company to profitability and improve cash flow,
the Board of Directors has approved a series of initiatives by management that
call for the disposition of certain assets and the restructuring of the Company.
While these actions will likely result in a company with less revenue,
management believes that recently completed sales of certain assets together
with planned future sales made in connection with the discontinuation of certain
businesses and focusing primarily on the franchising business will have a
positive impact on future cash flow and reduce past due trade payables. These
transactions should 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. The co-branding 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. The Company plans to divest
itself from being a manufacturer of car wash equipment by selling the
businesses. 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.

In the event that the Company is unable to accomplish its restructuring and
strategic objectives or is otherwise unable to generate revenues sufficient to
cover operating expenses, the Company may be unable to satisfy its 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.

31
<PAGE>

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

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.

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.

Cash and Cash Equivalents

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

Inventory

Inventory is stated at the lower of cost or market. The cost of modular
automotive lubrication units, car wash equipment, and car wash supplies is
determined by the first-in, first-out (FIFO) method.

32
<PAGE>

Property, Plant and Equipment

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

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.

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. Assets to be disposed of are measured at the lower of
carrying amount or fair value less cost to sell.

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,

33
<PAGE>

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 $1,433,490, inventory of $380,759, property and equipment of
$679,672, and capitalized franchise rights of $245,603, all related to Praxis, a
subsidiary of the Company, which is located in Mexico.

Advertising Costs

The Company expenses all advertising costs as incurred. The Company
incurred $512,441, $1,047,786 and $146,689 in advertising costs for the years
ended June 30, 1998, 1999, and 2000, respectively.

Comprehensive Income

Effective for the fiscal year ended June 30, 2000, 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.

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 11, pro forma net income and
earnings per share data as if the accounting prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" had been applied.

3. Acquisitions

Bay Area Precision

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 $1,117,000. 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. The Company recognized a loss on this transaction of $350,000 as of June
30, 1999.

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.

34
<PAGE>

4. Inventory
The components of inventory are as follows:

June 30,
------------------------
2000 1999
---------- ----------
Raw materials................................... $ 979,777 $1,222,762
Work-in-process................................. 191,504 98,587
Finished goods.................................. 946,412 2,153,288
Reserve for obsolete and unsaleable inventory... (600,000) (390,000)
---------- ----------
$1,517,693 $3,084,637
========== ==========

5. Property, Plant and Equipment

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

June 30,
---------------------------
2000 1999
----------- -----------
Land...................................... $ 1,762,033 $ 2,452,161
Building and leasehold improvements....... 6,867,014 7,188,807
Furniture and fixtures.................... 1,345,141 1,407,198
Equipment................................. 4,823,451 6,275,744
Other items............................... 683,272 663,879
----------- -----------
15,480,911 17,987,789
Accumulated depreciation.................. (3,669,556) (2,757,726)
----------- -----------
Property, plant and equipment, net........ $11,811,355 $15,230,063
=========== ===========

6. Goodwill and Other Intangibles

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

<TABLE>
<CAPTION>
June 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Franchise rights (WE JAC)..................................... $ 29,133,533 $ 29,133,533
Goodwill from combination and subsequent acquisitions......... 21,231,339 25,909,101
Other intangibles............................................. 574,714 554,424
------------ ------------
50,939,586 55,597,058
Impairment of goodwill........................................ (7,028,592) (4,677,762)
Accumulated amortization...................................... (14,971,394) (12,992,391)
------------ ------------
$ 28,939,600 $ 37,926,905
============ ============
</TABLE>

During the years ended June 30, 1999 and 2000, the Company determined that
it had impairments 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, as of June 30, 1999 and 2000, the Company recorded impairment
charges of $4,677,762 and $7,028,592, respectively, to write off goodwill
related to previous business acquisitions, the operations of which were being
discontinued. Remaining assets related to these business acquisitions total
$4,300,000 and $2,700,000 at June 30, 1999 and 2000, respectively. The Company
expects to recover the balance of these assets.

7. Income Taxes

Income tax expense consists of the following items:

Years Ended June 30,
------------------------------------------
2000 1999 1998
--------- ----------- ----------

35
<PAGE>

<TABLE>
<S> <C> <C> <C>
Current tax expense (benefit)--federal and state... $(108,585) $(1,125,530) $2,229,368
Deferred tax expense (benefit)--federal and state.. 405,565 (178,203) (465,000)
--------- ----------- ----------
Total income tax expense........................ $ 296,980 $(1,303,733) $1,764,368
========= =========== ==========
</TABLE>

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

Years Ended June 30,
--------------------
2000 1999 1998
---- ---- ----
Statutory federal rate........................... (34)% (34)% 34%
Amortization of goodwill and other intangibles... 12 10 18
State taxes...................................... -- (7) 7
Net operating loss for which there is no benefit. 23 26 --
---- ---- ----
Effective tax rate............................... 1% (5)% 59%
==== ==== ====

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:

June 30,
--------------------------
2000 1999
---------- ----------
Miscellaneous deferred tax liability......... $ - 146,000
Deferred tax assets:
Net operating loss........................... 8,464,000 4,976,000
Other........................................ 1,057,000 1,007,000
---------- ----------
9,521,000 5,983,000
Valuation allowance for deferred tax assets.. 9,521,000 5,837,000
Net deferred tax assets, net of allowance.... -- 146,000
---------- ----------
Net deferred taxes........................... $ -- $ --
========== ==========

During the years ended June 30, 1998, 1999, and 2000, respectively, the
Company paid income taxes of $2,854,000, $0, and $0 respectively.

Because of the substantial ownership changes subsequent to June 30, 2000
there may be severe limitations on the use of net operating losses which
aggregate approximately $22.0 million at June 30, 2000.

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, 1999 and 2000, respectively, $8,908,669
and $7,126,615 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 $5.0 million and $10.0 million, respectively, effective on
the earlier of 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 Loan Agreement required the Company to obtain $2.0 million
in subordinated debt or equity

36
<PAGE>

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.

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 was $4.6 million and
was reduced to $4.15 million on July 31, 1999. The Company was not able to meet
this reduction as of July 31, 1999 and was in default under the Line of Credit
Loan, therefore all obligations were due upon demand.

On October 27, 1999 (effective retroactively to October 14, 1999), the Bank
extended the maturity date of the credit facilities to October 5, 2000 in the
Second Amended and Restated Loan and Security Agreement. The Company was
required to reduce accounts payable, execute a series of asset sales and achieve
certain earnings requirements.

The Company was not in compliance with certain financial covenants as of
December 31, 1999 and March 31, 2000. Accordingly, effective May 15, 2000 the
Company and the Lender agreed to modifications to the Second Amended and
Restated Loan and Security Agreement. The modifications of the agreement
permanently reduced availability under the Line of Credit $240,000 by July 10,
2000 and increased the interest rate for all existing and future advances by 1%
to 5.75% over LIBOR. At June 30, 2000 the Company was not in compliance with
certain financial covenants. Effective September 29, 2000, the Bank credit
facility was repaid (See Note 15).

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 from the date of its issuance through
August 15, 1999. The Board LLC had 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. Subsequent to
June 30, 2000 Board LLC extended the maturity date of the subordinated debenture
and waived all defaults under the agreement through September 30, 2001.

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 were paid in
shares of the Company's common stock valued at the closing price on

37
<PAGE>

the day prior the original principal due date. 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, 2000, the Company had repaid $1.4 million
of the debt. The Company received from the holder of $3.6 million in
subordinated debt a waiver of existing events of default and an extension of the
maturity date to April 15, 2001. Subsequent to June 30, 2000 the Company
received a further extension of the maturity date and waiver of all debt
covenants through September 30, 2001.

Mortgage Notes Payable

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%.
This mortgage was subsequently paid of in December of 1999.

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 would have matured on August 1, 2004. Principal and interest payments were
due in monthly installments that commenced on July 1, 1999. Each note was
secured by mortgages on properties. In the event of default the interest rate
would have increased to 18%. As of October 2, 2000 these mortgages have been
repaid in full (See Note 15).

During the years ended June 30, 1998, 1999, and 2000, the Company paid
interest of approximately $735,000, $1,695,000 and $2,613,000, respectively.

The following tables reflect the classification of debt after giving effect
to short-term debt refinanced subsequent to June 30, 2000 (See Note 15).

<TABLE>
<CAPTION>
June 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Bank facility line of credit............................................ $ 4,010,000 $ 4,562,000
Bank facility term loan................................................. 3,116,615 4,346,669
Various notes and obligations payable in monthly installments
at a weighted average interest rate of 7.98% collateralized by
by liens on vehicles and equipment.................................. 1,035,146 1,466,248
Board LLC note.......................................................... 2,000,000 2,000,000
Director note........................................................... 3,586,960 3,586,960
Heartland mortgage...................................................... -- 1,029,923
FFCA mortgage........................................................... 6,930,389 7,204,000
----------- -----------
20,679,110 24,195,800
Less: current maturities................................................ (854,171) (2,066,601)
----------- -----------
Long-term portion....................................................... $19,824,939 $22,129,199
=========== ===========
</TABLE>

38
<PAGE>

The future debt obligations with maturities in excess of one year as of
June 30, 2000 are as follows:

Future
------
Debt Maturities
---------------
2001................ $ 854,171
2002................ 6,212,770
2003................ 461,481
2004................ 7,614,673
2005................ 462,455
Thereafter.......... 5,073,559
---------------
$20,679,110
===============

9. Lease Commitments

At June 30, 2000, the Company has lease commitments for office space, a
training center, and a number of service center locations. These leases expire
between 2000 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 $412,000 and $494,000
and $373,483 is included in operating expenses for the year ended June 30, 1998,
1999, and 2000, respectively. Rent expense for service center locations of
approximately $209,000 and $1,050,000 and $365,970 is recorded net of sublease
income of $790,000 and $969,000 and $158,507, for the years ended June 30, 1998,
1999, and 2000, respectively.

The future minimum lease payments and related sublease payments for leases
with terms in excess of one year as of June 30, 2000, are as follows:

Future Minimum Sublease
-------------- --------
Lease Payments Income Net
-------------- ---------- ----------
2001............ $ 1,676,509 $1,119,046 $ 557,463
2002............ 1,403,405 1,113,038 290,367
2003............ 1,044,479 894,309 150,170
2004............ 758,439 621,158 137,281
2005............ 528,784 416,270 112,514
Thereafter...... 1,389,809 1,138,245 251,564
-------------- ---------- ----------
$ 6,801,425 $5,302,066 $1,499,359
============== ========== ==========

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. $555,000, $563,000 and $563,000 for administrative and
other expenses incurred on behalf of P.T.A.F., Inc., during the years ended June
30, 1998, 1999, and 2000, 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, 1999 and 2000, the net amounts due from P.T.A.F.,
Inc. were $246,214 and $46,863 respectively. These amounts are included in
accounts receivable.

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.

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.

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.

39
<PAGE>

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.

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.

In January 2000, the Company issued 120,000 shares to the holder of a
subordinated debenture to satisfy interest due in the amount of $300,000.

In June 2000, the Company issued 71,111 shares of common stock to the
holders of a subordinated debenture to satisfy interest due in the amount of
$266,667.

Common Stock Option Plan

In 1999, the Company's Board of Directors and the Company's stockholders
approved the 1999 Employee Stock Option Plan (the "Option Plan") and reserved
600,000 shares for issuance under the Plan. Options available for future grant
at June 30, 2000, under this plan were 208,625. Options reserved for issuance
under predecessor plans consist of 400,000 related to the 1998 Employee Stock
Option Plan and 175,000 related to shares of WE JAC Corporation common stock.
Options available for future grant at June 30, 2000, under these plans were
198,000 and 135,500, respectively. 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.
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 1999 and 2000 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 1999 and 2000 would have been
approximately $(21,309,199) and $(18,883,901), respectively and net income
(loss) per share would have been $(3.48) and $(3.03), respectively. The fair
value of the options granted during 1999 and 2000 are estimated as $2.55 and
$1.27 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.

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

2000 1999 1998
------------ ------------ ------------
Weighted Weighted Weighted
-------- -------- --------
Average Average Average
------- ------- -------

40
<PAGE>

<TABLE>
<CAPTION>
Exercise Exercise Exercise
-------- -------- --------
Shares Price Shares Price Shares Price
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year................ 891,475 $5.48 750,600 $9.26 432,600 $ 8.89
Options granted............................... 139,400 1.25 560,875 2.71 393,500 9.73
Options exercised............................. (625) 2.38 -- -- (20,000) 8.25
Options canceled or expired................... (271,475) 5.47 (420,000) 8.55 (55,500) 10.00
-------- ----- -------- ----- ------- ------
Outstanding, end of year...................... 758,775 4.71 891,475 5.48 750,600 9.26
Options exercisable........................... 386,818 $5.67 274,346 $7.10 355,422 $ 8.97
======== ===== ======== ===== ======= ======
</TABLE>

The options outstanding at June 30, 2000, range in price from $0.656 to
$10.875 and have a weighted average remaining contractual life of 8.46 years.

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. As of June 30, 2000, 32,500 shares, or 25% of the
130,000 shares issued, have vested. In addition, 18,750 were cancelled. 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.

13. Contingencies

The Company is subject to a suit filed in the State of Florida by a former
Precision Tune Auto Care franchisee. The franchisee is alleging breach of
contract and personal slander. In March 2000, a judgment of $841,094 plus
attorneys' fees was entered against the Company. In connection with this
matter, the Company is vigorously appealing the judgment. However, it is not
possible to predict whether the appeal will be successful. If the appeal is not
successful, payment of the judgment would have a material adverse impact on the
liquidity of the Company.

41
<PAGE>

14. Net Income per Share

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

<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------
2000 1999 1999
------------- ------------- ----------
<S> <C> <C> <C>
Numerator:
Net Income.......................................... $(18,382,024) $(21,019,042) $1,228,096
Denominator:
Denominator for basic EPS-weighted-average
Shares............................................ 6,219,874 6,126,030 4,247,977
Denominator for diluted EPS-weighted-average
Shares............................................ 6,219,874 6,126,030 4,322,623
Basic net income (loss) per share...................... $ (2.96) $ (3.43) $ 0.29
Diluted net income per (loss) share.................... $ (2.96) $ (3.43) $ 0.28
</TABLE>

The 758,775 stock options and 78,750 shares of restricted stock were not
included in the fiscal year 2000 diluted net loss per share calculation because
their effect would be anti-dilutive. The 891,475 stock options and 130,000
shares of restricted stock were not included in the fiscal year 1999 diluted net
loss per share calculation because their effect would be anti-dilutive.

15. Subsequent Events

On August 3, 2000, the Board of Directors accepted a proposal from Arthur
C. Kellar, a member of the Company's Board of Directors and Desarollo Integrado,
S.A. de C.V., of which a principal is Mauricio Zambrano who is on the Company's
Board of Directors, to refinance the Company's existing debt and provide the
Company's ongoing working capital needs. The lenders committed to make available
a credit facility of $11.25 million pursuant to certain terms and conditions.

On August 4, 2000, Charles L. Dunlap was replaced as President and Chief
Executive Officer by Louis M. Brown, Jr. Mr. Brown also was appointed to the
Board of Directors to replace Mr. Dunlap. On the same day the Company issued
1,700,000 shares of common stock to Louis M. Brown, Jr. at $0.44 per share or
an aggregate of $750,000.

On August 4, 2000, the Company issued subordinated debentures to Arthur C.
Kellar and to Desarollo Integrado, S.A. de C.V. respectively pursuant to which
they made a bridge loan to the Company in an aggregate principal amount of $2.5
million to fund the Company's payroll, payroll taxes, debt service obligations
and other immediate needs. The entire principal amount earned interest at a
rate of 12% per annum. The entire principal balance was deemed repaid on
September 29, 2000 (see below).

On August 4, 2000, the Company completed the sale of nine car wash
locations in Denver Colorado for $4.9 million. The Company used the proceeds to
reduce to reduce mortgages payable with FFCA by $4.5 million. The sale resulted
in a loss that was accrued at June 30, 2000.

On August 31, 2000 the Company completed the sale of certain car washes and
lubes in Columbus, Ohio for $1.8 million. The Company used the proceeds to
reduce mortgages payable with FFCA by $1.5 million. The sale resulted in a loss
that was accrued at June 30, 2000.

On September 6, 2000 Robert Falconi replaced Jerry Little as Senior Vice
President and Chief Financial Officer.

On September 29, 2000 the Company issued senior debentures to Precision
Funding, LLC, an entity created, owned, and controlled by Arthur C. Kellar and
Desarollo Integrado, S.A. de C.V. Pursuant to the commitment made by Arthur C.
Kellar and Desarollo Integrado, S.A. de C.V. on August 3, 2000, Precision
Funding made available a credit facility of $11.25 million bearing interest at a
fixed rate of 12% per annum with provisions for higher rates in the event of
default, and is to mature on September 1, 2003, if not paid prior to that time.
Substantially all assets of the Company have been pledged as collateral and the
Company may not pay any dividends without the written consent of Precision
Funding. Precision Funding used the facility to purchase the Loan documents by
which the Line of Credit Loan and Acquisition Line of Credit were made available
to the Company by First Union National Bank. The bridge loan that was made on
August 4, 2000 by Arthur C. Kellar and to Desarollo Integrado, S.A. de C.V. was
discharged and deemed advanced under the new credit facility. Further, $991,000
of mortgage debt payable to FFCA was repaid in full. An origination fee is to be
paid in the form of a warrant entitling the Lenders to purchase 2,000,000 shares
of common stock at an exercise price of $0.275 per share. The warrants are
subject to shareholder approval.

42
<PAGE>

16. Quarterly Sales and Earnings Data--Unaudited

The following table presents the quarterly results for Precision Auto Care,
Inc. and its subsidiaries for the years ending June 30, 1999 and 2000.

<TABLE>
<CAPTION>
2000 Actual Q1 Q2 Q3 Q4 Total
----------- ----------- ----------- ----------- --------------- -------------
In thousands except per share amounts
<S> <C> <C> <C> <C> <C>
Net sales................... $10,101 $ 8,773 $ 7,387 $ 7,515 $ 33,776
Contribution................ 1,860 1,883 1,512 1,079 6,334
Net loss.................... (1,650) (1,278) (1,298) (A)(14,156) (18,382)
Loss per share.............. $ (0.28) $ (0.21) $ (0.21) $ (2.26) $ (2.96)

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 loss.................... (717) (4,595) (5,604) (10,103) (21,019)
Loss per share.............. $ (0.12) $ (0.75) $ (0.92) $ (1.64) $ (3.43)
</TABLE>

Note A: Includes $7.0 impairment of goodwill and losses of $4.0 million related
to the sale of certain assets.

SCHEDULE II

Valuation and Qualifying Accounts ($ Thousands)

<TABLE>
<CAPTION>
Balance @ Write- Balance @
--------- ------ ---------
Description 6/30/99 Expense offs 6/30/00
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts................... (2,080) (2,505) 2,429 (2,156)
Allowance for obsolete inventory.................. (390) (500) 290 (600)
Allowance for doubtful notes receivable........... (910) (150) 863 (197)
------- ------ ----- -------
(3,380) (3,155) 3,582 (2,953)
======= ====== ===== =======
</TABLE>

Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure

None.

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 at the Annual Meetings of Shareholders in 1998, 1999, and 2000
respectively. After the initial rotation was complete, one class of directors
will be elected at each subsequent Annual Meeting of Shareholders to serve
three-year terms.

The terms of three directors will expire at the 2000 Annual Meeting, to be
held in February 2001: Ms. Caruthers and Messrs. Klumb, Clineburg and Malas
("Class III Directors"). The Class III Director nominees have been nominated
for election for a three-year term expiring at the Annual Meeting in 2003. The
terms of the other seven directors will continue as indicated below. Dates of
service listed below include service with predecessors of the Company.

43
<PAGE>

DIRECTORS WHOSE TERMS EXPIRE IN 2000
-------------------------------------

<TABLE>
<CAPTION>
Name Principal Occupation Additional Information
---- -------------------- ----------------------
<S> <C> <C>
Lynn E. Caruthers(1)(2) General Partner, Caruthers Properties, Ms. Caruthers has served as Chairperson of
Director since 1991 Ltd., Arlington, VA The Board of WE JAC Corporation, the
Chairperson of the (commercial real estate developer) Company's predecessor, since September
Board; Chairperson of the 1994.
Executive Committee
Age 48

William R. Klumb Vice President, Mr. Klumb previously served as Vice
Director since 1997 Car Wash Division President of Operations of the Car Wash
Age 42 Division since November 1997.

Bernard H. Clineburg(2) President, United Bankshares; Mr. Clineburg served as a Director of
Director since 1993 Chairman and CEO, George Mason Bankshares, Inc. and The
Age 51 United Bank (Virginia), George Mason Bank from October 1990 to
Fairfax, VA April 1998.

Ernest S. Malas General Partner, Magna Properties, Mr. Malas was Senior Vice President -
Director since 2000 Columbus, Ohio (real estate Acquisitions of the Company from July
Age 35 development firm) 1998 to December 1998, and currently
serves as a consultant to the Company
under an agreement that expires in
November 2000. Mr. Malas also serves as
a director of Sterling Bank Group.
</TABLE>

DIRECTORS WHOSE TERMS EXPIRE IN 2001
------------------------------------

<TABLE>
<CAPTION>
Name Principal Occupation Additional Information
---- -------------------- ----------------------
<S> <C> <C>
George A. Bavelis(2) Chairman, President and Mr. Bavelis has served as Chairman and
Director since 1997 Chief Executive Officer, President of Coin Op. Vending Co. since
Age 63 Pella Co., Columbus, OH 1983. He also serves as Chairman of the
(real estate development firm) Board of Sterling Bancorp and a Director of
Heartland Bancorp.

Louis M. Brown, Jr. President and Chief Executive Officer, Mr. Brown has been Chairman of Micros
Director since 2000 Precision Auto Care, Inc. Systems, Inc. since January 1987.
Age 57

Mauricio Zambrano V. Vice President, Mr. Zambrano serves as a director of
Director since 1999 Dessarollo Integrado, S.A. de C.V. Cemex, S.A. de C.V.
Age 54
</TABLE>

___________

44
<PAGE>

DIRECTORS WHOSE TERMS EXPIRED IN 2002
--------------------------------------

<TABLE>
<CAPTION>
Name Principal Occupation Additional Information
---- -------------------- ----------------------
<S> <C> <C>
Woodley A. Allen(2) President, Allen Management Services, Mr. Allen served as Chief
Director since 1991 Oakton, VA Financial Officer of EZ
Chairman-Audit (management consulting firm) Communications, Inc. from March
Committee 1973 to May 1992.
Age 53

Bassam N. Ibrahim(1) Partner, Burns, Doane, From June 1994 to August 1996,
Director since 1993 Swecker & Mathis, LLP, Mr. Ibrahim was with Popham,
Age 38 Alexandria, VA (law firm) Haik, Schnobrich & Kaufman.
From June 1990 to June 1994, Mr.
Ibrahim was with Mason, Fenwick
& Lawrence.

Arthur Kellar(2)(3) Retired Mr. Kellar served as Chairman of
Director since 1991 the Board of WE JAC
Chairman-Organization Corporation, the Company's
and Compensation Predecessor, from April 1992 to
Committee September 1994. Mr. Kellar served
Age 78 as Chairman of the Board of EZ
Communications, Inc. from June
1992 to April 1997.
</TABLE>

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

Executive Officers of Registrant

Louis M. Brown, Jr., age 57, was named President and Chief Executive
Officer on August 4, 2000. He has been Chairman of Micros Systems, Inc. since
January 1987.

Robert R. Falconi, age 46, was named Vice President - Finance,
Administration and Chief Financial Officer on September 6, 2000. From August
1998 until September 2000, he was Chief Financial Officer of Iintellisys
Technology Corporation. From October 1991 until August 1998, he was Chief
Financial Officer of Planning Systems Incorporated.

Everett F. Casey, age 53, became Vice President, General Counsel and
Secretary in June 2000. From January 1999 until June 2000, he was an attorney in
private practice in Silver Spring, Maryland. From June 1996 to January 1999, he
was Vice President and Deputy General Counsel of Choice Hotels International,
Inc. ("CHI"). From December 1991 until June 1996, he was Associate General
Counsel and Assistant Secretary of CHI and of its parent company, Manor Care,
Inc.

John T. Wiegand, age 38, became Senior Vice President - Franchise
Operations in August 2000. From June

45
<PAGE>

1998 to August 2000, he was Vice President of North American Operations. 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.

John N. Tarrant, age 32, 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.

Kevin Bates, age 38, was named Vice President - Marketing and Advertising
in October 1999. From January 1998 until October 1999, he was our Director of
Field Operations. From February 1994 until January 1998, he was our Director of
Sales and Product Management.

William R. Klumb, age 42, 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 42, 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.

Karl W. Byrer, age 53, was named Vice President - 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.

David J. Yakaitis, age 44, was named Vice President - Strategic Programs in
August 2000. From March 1986 until August 2000, he was Operations Manager for
Sunoco Marketing (Philadelphia, Pennsylvania).

46
<PAGE>

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, 1999 through June 30, 2000, its
directors and executive officers complied with all applicable Section 16(a)
filing requirements, except as follows: George A. Bavelis, a director of the
Company, was delinquent in filing a Form 4 in December 1999 and in January 2000
to report purchases of 700 shares and 600 shares of Company Common Stock,
respectively.

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. Options grants shown
for 1998 include grants by WE JAC Corporation that 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>
Louis M. Brown, Jr. .................. 2000 $ 0(2) - - - - -
President and Chief Executive
Officer
Charles Dunlap ........................ 2000 $ 242,507(3) - - - - $1,992
Former President and Chief 1999 $ 131,538 - - $118,750(4) 200,000 $1,615
Executive Officer
Jerry Little .......................... 2000 $ 244,221(8) - - - - -
Senior Vice President and Chief 1999 20,000(7) - - - 35,000 -
Financial Officer
William Klumb ......................... 2000 $ 110,424 - - - 10,000 $ 552
Vice President- Car Wash 1999 94,749 - - $ 23,750(5) 10,000 474
Division 1998 44,987(5) - - - 12,500 225
John Wiegand .......................... 2000 $ 116,398 - - - - $1,746
Vice President- North American 1999 85,847 - - $ 35,625(6) 10,000 1,288
Operations 1998 74,899 - - - 6,000 1,123
Jaime Valdes .......................... 2000 $ 128,867 - - - - -
Senior Vice President-Latin 1999 120,000 - - - 25,000 -
America 1998 21,250 - - - 25,000 -
</TABLE>

47
<PAGE>

---

(1) Amounts represent the Company's matching contributions to the 401(k)
Savings Plan and severance payments as indicated below.

(2) Mr. Brown's employment with the Company began August 4, 2000.

(3) Mr. Dunlap's employment with the Company began in October 1998 and was
terminated effective August 4, 2000.

(4) Mr. Dunlap was awarded a grant of 50,000 shares of restricted stock on
March 31, 1999 valued at $2.375 per share price. As of June 30, 2000, this
grant was worth $10,785 based on a $0.719 per share price. No dividends
will be paid on 37,500 shares.

(5) Mr. Klumb was awarded a grant of 10,000 shares of restricted stock on March
31, 1999 valued at $2.375 per share price. As of June 30, 2000, this grant
was worth $7,190 based on a $0.719 per share price. No dividends will be
paid on this award 7,500 shares.

(6) Mr. Wiegand was awarded a grant of 15,000 shares of restricted stock on
March 31, 1999 valued at $2.375 per share price. As of June 30, 2000, this
grant was worth $35,950 based on a $0.719 per share price. No dividends
will be paid on 11,250 shares.

(7) Mr. Little's employment with the Company began June 1, 1999.

(8) Mr. Little's employment with the Company was terminated effective September
6, 2000.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
Potential Realized Value
------------------------
Number of % of at Assumed Annual
--------- ---- -----------------
Securities Total Options Weighted Rates of Stock Price
---------- ------------- -------- --------------------
Underlying Granted to Average Appreciation for Option
---------- ---------- -------- -----------------------
Options Employees Exercise Expiration Term(4)
------- --------- -------- ---------- -------
Name Granted(1) in Fiscal Year Price(2) Date(3) 5% 10%
---- ---------- -------------- -------- ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Louis M. Brown, Jr. (5) -- 0.0%
Charles Dunlap (6) -- 0.0%
Jerry Little (7) -- 0.0%
William Klumb 10,000 7.7% 3.50 7/4/09 22,011 55,781
John Wiegand -- 0.0%
Jaime Valdes -- 0.0%
</TABLE>

__________
(1) Stock options exercisable into 129,400 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, 2000.
(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
48
<PAGE>

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. Brown's employment with the Company began August 4, 2000.
(6) Mr. Dunlap's employment with the Company was terminated effective August 4,
2000.
(7) Mr. Little's employment with the Company was terminated effective September
6, 2000.

YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Value of the Unexercised
--------- ------------------------
Securities Underlying in-the-money
--------------------- ------------
Unexercised Options Options at
------------------- ----------
at June 30, 2000 June 30, 2000(1)
---------------- ----------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Charles Dunlap 66,000 134,000 - -
Jerry Little 35,000 - - -
William Klumb 11,550 30,450 - -
John Wiegand 13,760 8,740 - -
Jaime Valdes 24,750 25,250 - -
</TABLE>

__________
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
Stock Market on June 30, 2000, was $0.719. Value is calculated on the basis
of the difference between the option exercise price and $0.719, multiplied
by the number of shares of Common Stock underlying the option.

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 during the fiscal year ended June 30,
2000. 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 addition, the Board determined
to suspend the grant of options under the 1998 Outside Directors' Stock Option
Plan. 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.
Each of the above-named directors (including Messrs. Johnson, Pappas and
Zamensky who have since resigned as directors) were issued 1,250 shares of
Common Stock in September 1999 under the terms of their restricted stock awards
because the share price of the Common Stock had closed at above $4.00. The Board
recently decided to reinstate the grant of options under the 1998 Outside
Directors' Stock Option Plan. Therefore, following the Annual Meeting for 1999,
each outside director who has served as a director of the Company for at least
one

49
<PAGE>

year as of that date will be granted an option to purchase 2,500 shares of the
Company's Common Stock. Those directors who have served less than one year shall
receive an option for a prorated portion of 2,500 shares based on their terms of
service as determined by the Compensation Committee. In addition, the Board has
adopted the 2000 Outside Directors' Stock Option Plan, subject to final approval
by shareholders. The new plan will provide for the grant of stock in the amount
of $1,000 to each outside director attending a meeting of the Board of directors
in person. Grants under the new plan will commence as soon as the underlying
stock has been registered with the SEC. The Outside Directors' Stock Option
Plan, approved by shareholders at the 1999 Annual meeting, compensates outside
directors with a grant of 2,500 options on the date of each annual meeting of
shareholders (under the 1998 Outside Directors' Stock Option Plan) and the grant
of $1,000 in cash or stock for each Board meeting attended in person (under the
2000 Outside Directors' Stock Option Plan).

Mr. Woodley Allen was 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.

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 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

50
<PAGE>

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:
Louis M. Brown, Jr.(1) ................................................ 1,782,500 21.84%
Mauricio Zambrano(2) .................................................. 1,523,092 16.63%
Arthur Kellar(3) ...................................................... 1,335,386 14.52%
Avenir Corporation(4) ................................................. 634,241 7.77%
William P. Stiritz(5) ................................................. 500,000 6.13%

Directors and Executive Officers:
Lynn E. Caruthers(6) .................................................. 153,293 1.88%
Charles Dunlap(7) ..................................................... 149,000 1.80%
Jerry Little(8) ....................................................... 35,000 *
Jaime Valdes(9) ....................................................... 74,171 *
William R. Klumb(10) ................................................. 69,790 *
John T. Wiegand(11) .................................................. 30,010 *
Woodley A. Allen(12) ................................................. 112,812 1.37%
George A. Bavelis(13) ................................................. 109,269 1.34%
Bernard H. Clineburg(14) .............................................. 42,221 *
Bassam N. Ibrahim(15) ................................................. 51,562 *
Ernest S. Malas(16) ................................................... 285,188 3.48%
All directors and executive officers as a group (14 persons)(22))...... 5,753,294 55.45%
</TABLE>

__________
* Represents less than 1%.

(1) Mr. Brown is also the President and Chief Executive Officer and a Director.
(2) Mr. Zambrano is on the Board of Directors, includes options to purchase
1,000,450 shares that are exercisable within 60 days.
(3) Mr. Kellar is on the Board of Directors, includes options to purchase
1,037,750 shares that are exercisable within 60 days.
(4) As reported in Schedule 13G (Amendment No. 2) filed with the Commission on
February 15, 2000. Avenir

51
<PAGE>

Corporation's business address is 1725 K Street, NW, Suite 410, Washington,
DC 20006.
(5) 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
(6) Includes a restricted stock award of 3,750 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 12,500 shares which Ms.
Caruthers may exercise within 60 days.
(7) Includes a restricted stock award of 50,000 shares and includes 99,000
options to purchase shares that are exercisable within 60 days.
(8) Includes options to purchase 35,000 shares that are exercisable within 60
days
(9) Includes options to purchase 24,750 shares that are exercisable within 60
days.
(10) Includes a restricted stock award of 10,000 shares and includes 19,100
options to purchase shares that are exercisable within 60 days.
(11) Includes a restricted stock award of 13,750 shares and includes 13,760
options to purchase shares that are exercisable within 60 days.
(12) Includes a restricted stock award of 3,750 shares and includes 72,500
options to purchase shares that are exercisable within 60 days.
(13) Includes a restricted stock award of 3,750 shares and includes 7,000
options to purchase shares that are exercisable within 60 days.
(14) Includes a restricted stock award of 3,750 shares and includes 32,500
options to purchase shares that are exercisable within 60 days.
(15) Includes a restricted stock award of 3,750 shares and includes 32,500
options to purchase shares that are exercisable within 60 days.
(16) Includes options to purchase 25,450 shares that are exercisable within 60
days.

Item 13. Certain Relationships and Related Transactions

In December 1999, the Company sold two Company-owned car washes located
in Columbus, Ohio to Magna National Realty, LLC ("Magna National") for $915,000.
Magna National is owned by George A. Bavelis and Ernest S. Malas, directors of
the Company, and Effie L. Eliopulos a former director of the Company. These car
washes were appraised to be worth $900,000 according to appraisals dated July
1998. The fairness of the negotiated sales price was determined at the time of
the transaction by Charles L. Dunlap, then the Company's Chief Executive
Officer, and later formally approved by a group of disinterested directors of
the Company pursuant to the Company's conflict of interest policy. The Company
has been paid the purchase price in full.

In December 1999, the Company entered into a letter of intent for the
sale of three Company-owned car washes, two of which are located in Delaware,
Ohio and one is located in Marion, Indiana, to Sandusky Lube Limited, LLC
("Sandusky Lube") for $1,225,000. Sandusky is partially owned by Ernest S.
Malas, a director of the Company, and Harriet Malas, Mr. Malas' mother. These
car washes were appraised to be worth $1,064,000 according to appraisals dated
July 1998. The fairness of the negotiated sales price was determined at the time
of the transaction by Charles L. Dunlap, then the Company's Chief Executive
Officer, and later formally approved by a group of disinterested directors of
the Company pursuant to the Company's conflict of interest policy. The sale of
the two Delaware washes was closed on January 28, 2000 and the Company received
$600,000.

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, 2000 did not
exceed five percent of the firm's gross revenues.

Ernest S. Malas, a director of the Company, also serves as a consultant
to the Company. The Company entered into an independent contractor agreement
with Mr. Malas in November 1997 pursuant to which Mr. Malas agreed to serve as a
senior business development consultant to the Company for a period of three
years. From July

52
<PAGE>

1998 to December 1998, Mr. Malas served as Senior Vice President of the Company,
after which he returned to his independent contractor status under the terms of
the November 1997 agreement. Pursuant to the agreement, Mr. Malas is paid
$10,000 per month plus expenses.

Messrs. Klumb, Bavelis and Malas, each a director of the Company, are
parties to franchise agreements with the Company. Payments under the franchise
agreements may exceed the sum of $60,000 over the terms of the respective
agreements.

The Company is subject to a suit filed in the State of Florida by a former
Precision Tune Auto Care franchisee. The franchisee is alleging breach of
contract and personal slander. In March 2000, a judgment of $841,094 plus
attorney's fees was rendered against the Company. In connection with this
matter, Mr. Kellar, a director of the Company, provided a letter of credit to
permit the Company to post a bond during the pendency of the appeal. In exchange
for his providing the letter of credit, the Company agreed to issue Mr. Kellar
25,000 shares of Common Stock pursuant to a letter agreement dated June 14,
2000.

On October 15, 1998, the Company entered into a subordinated debenture with
Board LLC, a limited liability company 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. 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. Subsequent to June 30,
2000 the Board LLC extended the maturity date to and waived all debt covenants
with respect to defaults through September 30, 2001.

53
<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-k

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

1. Financial Statements

The following financial statements appear in Part I, Item 8 of this report:

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

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, 2000.

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.

54
<PAGE>

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.

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 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.

10.8 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.

10.9 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.

10.10 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.

10.11 Employment Agreement with Louis M. Brown, Jr. dated August 4, 2000.

10.12 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.

10.13 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.

10.14 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.

10.15 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.

10.16 Revised Employment Agreement dated April 20, 1999, between the Company and
Jaime Valdes, included

55
<PAGE>

as an exhibit to the Company's Annual Report on Form 10-K, filed
September 28, 1999, is incorporated herein by reference.

10.17 Revised Employment Agreement dated September 27, 1999, between the
Company and William R. Klumb, included as an exhibit to the Company's
Annual Report on Form 10-K, filed September 28, 1999, is incorporated
herein by reference.

10.18 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, included as an exhibit to the Company's Annual Report on
Form 10-K, filed September 28, 1999, is incorporated herein by reference.

10.19 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, included as
an exhibit to the Company's Annual Report on Form 10-K, filed September
28, 1999, is incorporated herein by reference.

10.20 Loan Agreement dated as of May 17, 1999, by and between FFCA Acquisition
Corporation and the Company, included as an exhibit to the Company's
Annual Report on Form 10-K, filed September 28, 1999, is incorporated
herein by reference.

10.21 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, included as an exhibit to the Company's
Annual Report on Form 10-K, filed September 28, 1999, is incorporated
herein by reference.

10.22 Employment Agreement dated June 1, 1999, between the Company and Jerry
Little, included as an exhibit to the Company's Annual Report on Form 10-
K, filed September 28, 1999, is incorporated herein by reference.

10.23 Term Sheet for Debt Restructure dated October 12, 1999, between the
Company and First Union National Bank, included as an exhibit to the
Company's Annual Report on Form 10-K, filed September 28, 1999, is
incorporated herein by reference.

10.24* Loan Renewal and Security Agreement dated as of October 1, 2000 between
the Company and Precision Funding, LLC.

10.25* Agreement dated August 3, 2000 between the Company and Louis M. Brown,
Jr.

10.26* Agreement dated August 3, 2000 among the Company, Arthur Kellar and
Desarollo Integrado, S.A. de C.V.

10.27* Subordinated Debenture dated August 4, 2000 between the Company and
Arthur Kellar.

10.28* Subordinated Debenture dated August 4, 2000 between the Company and
Desarollo Integrado S. A. de C. V.

10.29* Letter Agreement dated June 14, 2000 between the Company and Arthur
Kellar.

10.30* Registration Rights Agreement dated August 4, 2000 among the Company,
Louis M. Brown, Jr., Arthur Kellar and Desarollo Integrado, S. A. de C.
V.

10.31* Master Agreement dated August 4, 2000 among LaSalle Bank National
Association, FFCA Acquisition Corporation, Precision Auto Care Holdings
LLC and Precision Auto Care, Inc.

10.32* Purchase Agreement dated June 29, 2000 between the Company and Zayac
Property Holdings, LLLP.

21. Significant Subsidiaries of the Company.

56
<PAGE>

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

24.* Powers of Attorney.

27* Financial Data Schedule.

* Filed herewith

57
<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 12, 2000.

Precision Auto Care, Inc.

/s/ LOUIS M. Brown, JR.
By:
Louis M. Brown, Jr.
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 12, 2000

Woodley A. Allen

/s/ Louis M. Brown, Jr. President, Chief Executive October 12, 2000
Officer and Director
Louis M. Brown, Jr. (Principal Executive
Officer)

/s/ Robert R. Falconi Senior Vice President and October 12, 2000
Chief
Robert R. Falconi Financial Officer (Principal
Financial Accounting
Officer)

* Director October 12, 2000

Lynn E. Caruthers

* Director October 12, 2000

George A. Bavelis

* Director October 12, 2000

Bernard H. Clineburg

* Director October 12, 2000
</TABLE>

58
<PAGE>

Bassam N. Ibrahim

* Director October 12, 2000

Ernie Malas

* Director October 12, 2000

Mauricio Zambrano

* Director October 12, 2000

Arthur Kellar

* Director October 12, 2000

William R. Klumb

/s/ Everett Casey
*By:
Everett Casey

Attorney-in-Fact
(Upon the Authority of Powers-of-Attorney filed as Exhibit 24 to the
Annual Report on Form 10-K)