AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1998

REGISTRATION NO. 333-57989
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 3

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

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

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

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

JAMES R. PUCKETT
CHIEF FINANCIAL OFFICER
15990 NORTH GREENWAY/HAYDEN LOOP, SUITE 400
SCOTTSDALE, ARIZONA 85260
TELEPHONE (602) 707-9999
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

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

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

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

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

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

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

CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER WARRANT(1) OFFERING PRICE(1) FEE

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Warrants to purchase shares
of Common Stock......... 144,990 $38.79 $5,625,000 $1,660
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Common Stock, par value
$.01 per share(2)..... 26,661 $0.01 $267 $1
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Total......... -- -- $5,625,267 $1,661
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(1) Estimate solely for the purpose of computing the registration fee in
accordance with Rules 457(g) and (i) of the Securities Act, based on the
book value of the Warrants registered hereunder and the amount payable on
exercise of such Warrants.

(2) Such shares of Common Stock are issuable upon exercise of the Warrants
registered hereunder. This Registration Statement also covers such shares as
may be issuable pursuant to anti-dilution adjustments.

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

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2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

[SPINCYCLE LOGO]

SUBJECT TO COMPLETION, DATED OCTOBER 29, 1998

PRELIMINARY PROSPECTUS

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

This Prospectus relates to the 144,990 warrants (the "Warrants") of SpinCycle,
Inc., a Delaware corporation ("SpinCycle" or the "Company"), to purchase shares
of common stock, par value $.01 per share (the "Common Stock"), of the Company.
The Warrants were originally issued and sold on April 29, 1998 (the "Issue
Date") to Credit Suisse First Boston Corporation (the "Initial Purchaser")
pursuant to an offering (the "Private Placement") by the Company of 144,990
Units (the "Units") each consisting of one 12 3/4 Senior Discount Note due 2005
of the Company (a "Note," and collectively, the "Notes") with a principal amount
at maturity of $1,000 and one Warrant to purchase .1839 shares of Common Stock
of the Company (including shares of a successor entity and other securities
issuable or deliverable upon exercise of the Warrants, the "Warrant Shares") at
an exercise price of $.01 per share (the "Exercise Price"). The Initial
Purchaser acquired the Warrants pursuant to that certain warrant agreement
between the Company and Norwest Bank Minnesota, N.A. (the "Warrant Agent"),
dated April 29, 1998, as amended from time to time (the "Warrant Agreement").
The Initial Purchaser placed such Units with qualified institutional buyers.

The Warrants are exercisable at any time on or after the earlier of April 29,
1999 or 60 days after the consummation of an initial public offering of the
Company's Common Stock, and will expire on May 1, 2005. The number of shares of
Common Stock issuable upon the exercise of the Warrants and the Exercise Price
are subject to adjustment in certain events including: (i) the payment by the
Company of certain dividends (or other distributions) on the Common Stock of the
Company including dividends or distributions payable in shares of such Common
Stock or other shares of the Company's capital stock, (ii) subdivisions,
combinations and certain reclassifications of the Common Stock, (iii) the
issuance to all holders of Common Stock of rights, options or warrants entitling
them to subscribe for shares of Common Stock, or of securities convertible into
or exchangeable or exercisable for shares of Common Stock, for a consideration
per share which is less than the Current Market Value (as defined in the Warrant
Agreement) per share of the Common Stock, (iv) the issuance of shares of Common
Stock for a consideration per share which is less than the Current Market Value
per share of the Common Stock and (v) the distribution to all holders of the
Common Stock of any of the Company's assets, debt securities or any rights or
warrants to purchase securities (excluding those rights and warrants referred to
in clause (iii) above, any rights which may be issued under a stockholder rights
plan and cash dividends and other cash distributions from current or retained
earnings). No adjustment to the number of shares of Common Stock issuable upon
the exercise of the Warrants and the Exercise Price will be required in certain
events including: (i) the issuance of shares of Common Stock in bona fide public
offerings that are underwritten or in which a placement agent is retained by the
Company, (ii) the issuance of options or shares of Common Stock pursuant to any
option or employee benefit plans approved by the Board of Directors and (iii)
the issuance of shares of Common Stock in connection with acquisitions of
products, technologies and businesses other than to affiliates of the Company.
See "Description of the Warrants."

After this Registration Statement is declared effective by the Securities and
Exchange Commission (the "SEC") the Warrants and Warrant Shares may be offered
and sold from time to time by holders thereof named herein or by their
transferees, pledgees, donees or successors (collectively, the "Selling
Holders") pursuant to this Prospectus. The Warrants and the Warrant Shares may
be sold by the Selling Holders from time to time directly to purchasers or
through agents, underwriters or dealers. See "Plan of Distribution." If
required, the names of any such agents or underwriters involved in the sale of
the Warrants and the Warrant Shares and the applicable agent's commission,
dealer's purchase price or underwriters' discount, if any, will be set forth in
an accompanying supplement to this Prospectus. All expenses incident to the
Company's performance of or compliance with its obligations to register the
Warrants and the Warrant Shares will be borne by the Company, including without
limitation: (i) all SEC, stock exchange or National Association of Securities
Dealers, Inc. registration and filing fees, (ii) all reasonable fees and
expenses incurred in connection with compliance with state securities or blue
sky laws, (iii) all expenses of any Persons (as defined in the Warrant
Agreement) incurred by or on behalf of the Company in preparing or assisting in
preparing, printing and distributing this Registration Statement or any other
registration statement, prospectus, any amendments or supplements thereto and
other documents relating to the performance of and compliance with Article 5 of
the Warrant Agreement, (iv) the fees and disbursements of the Warrant Agent, (v)
the fees and disbursements of counsel for the Company and the Warrant Agent and
(vi) the fees and disbursements of the independent public accountants of the
Company, including the expenses of any special audits or comfort letters
required by or incident to such performance and compliance. The Selling Holders
and any broker dealers, agents or underwriters that participate in the
distribution of the Warrants and the Warrant Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). See "Plan of Distribution" for a description of
indemnification arrangements.

FOR A DISCUSSION OF MATERIAL RISKS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE WARRANTS AND WARRANT SHARES, SEE "RISK FACTORS" BEGINNING ON
PAGE 10.

THE WARRANTS AND THE WARRANT SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION REGULATORY
AUTHORITY, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Prospectus dated , 1998.
3

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS." ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING
WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY," "RISK
FACTORS," "THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN
REGARDING THE COMPANY'S OPERATIONS, FINANCIAL POSITION AND BUSINESS STRATEGY,
MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING
STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY
SUCH AS "MAY," "WILL," "EXPECT," "INTEND," "ESTIMATE," "ANTICIPATE," "BELIEVE,"
OR "CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR
TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE AT THIS TIME, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS,
INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND
ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.

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4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included
elsewhere in this Prospectus. Certain capitalized terms used but not defined in
this summary are used herein as defined elsewhere in this Prospectus. Unless the
context otherwise requires, references herein to "SpinCycle" or the "Company"
are to SpinCycle, Inc., a Delaware corporation, and its predecessor Spincycle,
Inc., a Minnesota corporation. As of December 1, 1997, the Company adopted a
fiscal year comprised of 13 four week periods (each, a "period"), with each four
week period comprised of four Monday through Sunday weeks. All references herein
to periods shall refer to such periods unless the context otherwise requires.
Unless otherwise indicated, all financial and store data provided in this
Prospectus are as of September 6, 1998, the end of the Company's third fiscal
quarter in 1998.

THE COMPANY

Since opening its first store in April 1996, the Company as of April 30,
1997 had opened a total of 19 stores in 7 markets and as of September 6, 1998,
had opened a total of 134 stores in 25 markets. Of these 134 stores, 81 were
developed and 53 were acquired. SpinCycle stores are located in densely
populated urban markets, including Chicago, Cleveland, Albuquerque, Houston, Los
Angeles, Philadelphia, Detroit, Miami, Atlanta, Dallas and Washington, D.C. The
Company leases the real property at 132 of these locations and owns the real
estate at which two of these stores are operating.

Management believes its equipment configuration and store design is unique
and designed to maximize customer convenience and in-store experience. As
evidence of its superior concept, management believes, based upon Company
compiled survey data, that over 90% of the customers who first visit its stores
will return as customers. SpinCycle stores are between 3,500 and 5,500 square
feet, significantly larger than the 1,500 to 2,500 square feet of a typical
laundromat, and generally contain 50 washers of varied capacities and 54 large
capacity dryers. The Company installs a computer board in each washer and dryer
which allows daily monitoring of machine utilization and superior cash control.
Each store is staffed during operating hours by at least one customer service
representative who assists customers, maintains the facility and performs "wash
and fold" services, if offered. Customers can sort and fold laundry while
watching color television with cable programming at 12 to 14 folding stations
and purchase food, beverages and laundry supplies from vending machines. As a
result of its superior store design and management controls, the Company has
achieved levels of store revenues that management believes are among the highest
in the industry.

The Company plans to expand primarily within its existing markets during
the balance of 1998 and in 1999 by developing new SpinCycle stores and acquiring
existing laundromats which are consistent with the SpinCycle format. By year end
1998, management believes there will be approximately 176 SpinCycle stores. As
of October 27, 1998, the Company had 150 stores operating and ten leased stores
under construction, nine leases executed and signed letters of intent to acquire
seven stores, all of which management expects to open or acquire by year end
1998. As of October 4, 1998, the Company had executed contracts to develop ten
stores which management expects will open in 1999. The Company's headquarters is
located at 15990 North Greenway/Hayden Loop, Suite 400, Scottsdale, Arizona
85260. The Company's telephone number is 602-707-9999.

3
5

THE BUSINESS

MARKET OPPORTUNITY............ Based on a 1997 survey conducted on behalf of
and published by the Coin Laundry Association
for its members (the "1997 Coin Laundry
Industry Survey"), management estimates that
the coin-operated laundromat industry is a
$2.0-3.0 billion industry characterized by
steady, non-cyclical demand with approximately
25,000 laundromats nationwide. Management
believes the vast majority of these laundromats
are operated by owners of one or two stores and
contain poorly maintained, aging equipment and
are often dirty and considered unsafe by their
customers. According to the 1997 Coin Laundry
Industry Survey, the average laundromat
generates $151,000 and the median generates
approximately $93,700 of annual store revenues.
This compares to an average of approximately
$253,000 and a median of approximately $254,000
of revenue and an average of approximately
$172,000 and a median of approximately $174,000
of revenue for the first nine periods of 1998
generated by the Company's 16 developed stores
and 11 acquired stores, respectively, which had
been open at least one year as of December 29,
1997.

Management believes that the Company's superior
store design, sophisticated site selection
methods, disciplined professional management
and financial resources will enable the Company
to successfully consolidate this highly
fragmented industry and deliver a superior
product to customers.

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

1. consolidating the Company's position in
existing markets and developing a strong
presence in new markets which the Company
believes have a sufficient population
density to allow the Company to achieve its
targeted store economics over a short period
of time.

2. identifying development and acquisition
candidates in high profile locations within
targeted trade areas in each of the
Company's markets.

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

Competitive Strengths......... Superior Facility and Customer Service. The
Company provides air conditioned stores that
are bright and colorful and have large windows
which optimize visibility into the store. Each
store is configured with a unique equipment mix
that optimizes customer convenience and is
designed to maximize profitability. Each store
is staffed by at least one trained customer
service representative who implements
SpinCycle's operations program which emphasizes
cleanliness, customer responsiveness and
equipment maintenance.

4
6

Industry Leader. By being the first nationally
branded operator of superior laundromat
facilities, and by effectively promoting and
clustering stores in prime locations in its
targeted markets, we believe that the Company
will achieve a market leading position in each
of its markets. As the Company has grown, it
has begun to experience benefits in name
recognition such as increased leverage with
landlords and receiving unsolicited offers from
laundromat owners who wish to sell their
stores. Furthermore, the Company's size has
resulted in reduced costs on equipment and
supplies.

Advanced Systems and Controls. SpinCycle's
advanced management information systems ("MIS")
allow it to monitor, on a store by store basis,
daily revenue and the frequency of use of each
of its washers and dryers. Based upon this
information, SpinCycle has refined the mix of
machines in its stores, implemented reduced
pricing during off-peak hours and implemented a
daily cash reconciliation program to reduce
annual shrinkage.

Experienced Management. The Company has
assembled a management team with experience in
finance, development, operations and nationwide
multi-unit rollouts. We believe that our
experience in coordinating the rollout and
operation of other multi-unit concepts, will be
a competitive advantage even though none of
management's prior experience involved managing
a nationwide chain of coin-operated
laundromats.

Recent Mature Store
Performance................... The Company defines a "Mature Store" as a store
which has been (1) developed by the Company
("Developed Store") and operated by the Company
for at least 13 complete and continuous periods
or (2) purchased by the Company ("Acquired
Store") and operated by the Company or the
prior owner for at least 13 complete and
continuous periods, at least four of which have
been since the Company acquired the store. For
the nine periods ended September 6, 1998, on
average, the 16 Developed Mature Stores which
have been mature since December 29, 1997
generated approximately $28,107 of per period
revenue, approximately $9,208 of per period
Store EBITDA (defined as EBITDA before
allocation of any selling, general and
administrative expenses; EBITDA is defined as
earnings before interest, taxes, depreciation
and amortization) and approximately $3,097 of
per period gross operating profit including
depreciation. The average size of these 16
Developed Mature Stores was 5,680 square feet.
There can be no assurance that these results
are indicative of future results.

For the nine periods ended September 6, 1998,
on average, the 11 Acquired Mature Stores,
which have been mature since December 29, 1997,
generated approximately $19,837 of per period
revenue, $4,058 of per period Store EBITDA and
approximately $1,755 of per period gross
operating profit including depreciation. There
can be no assurance that these results are
indicative of future results.

5
7

OFFERING SUMMARY

The Warrants were originally issued by the Company in the Private
Placement, pursuant to which 144,990 Units were issued and sold. Each Unit
consists of a Note and a Warrant. The Notes and the Warrants will not trade
separately until (i) the commencement of an exchange offer or the effectiveness
of a shelf registration statement for the Notes, (ii) July 29, 1998 or (iii)
such earlier date as the Initial Purchaser may determine. This Registration
Statement applies solely to the Warrants and the Warrant Shares. The
registration of the Warrants and the Warrant Shares is intended to satisfy
certain obligations of the Company under that certain warrant agreement between
the Company and Norwest Bank Minnesota, N.A. (the "Warrant Agent"), dated the
Issue Date, as amended from time to time (the "Warrant Agreement"). There will
be no proceeds to the Company from the registration or subsequent sale of the
Warrants or Warrant Shares.

THE WARRANTS:

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

Warrants Offered.............. 144,990 Warrants which, when exercised, will
entitle the holders thereof to acquire an
aggregate of 26,661 shares of Common Stock.

Exercise Price................ $.01 per share of Common Stock.

Expiration.................... The Warrants are exercisable at any time on or
after April 29, 1999 or 60 days after the
consummation of an initial public offering of
the Company's Common Stock, and will expire on
May 1, 2005.

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

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

Warrant Shares................ The Warrants entitle the holders thereof to
acquire shares of Common Stock of the Company.
Shares of Common Stock of the Company or any
successor entity and any other securities
issuable or deliverable upon exercise of the
Warrants are collectively referred to herein as
the "Warrant Shares."

RISK FACTORS

The most significant material risk factors associated with an investment in
the Company include (1) its history of significant net operating losses and
negative cash flow from operations, (2) its high degree of leverage
(approximately $99.0 million of indebtedness compared to approximately $23.3
million in stockholders' equity), (3) the lack of a public market for the
Warrants or Common Stock and (4) uncertain ability to achieve planned growth.
Prospective investors should carefully consider all of the information set forth
in this Prospectus and, in particular, should evaluate the specific risk factors
set forth under "Risk Factors," beginning on page 10, for a discussion of
certain risks involved with an investment in the Warrants and Warrant Shares.

For additional information regarding the Warrants and Warrant Shares, see
"Description of the Warrants" and "Description of Capital Stock."

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8

SUMMARY HISTORICAL FINANCIAL AND CERTAIN OTHER DATA

The following table reflects summary historical consolidated financial and
certain other data with respect to the Company for the periods indicated and
should be read in conjunction with the Company's Consolidated Financial
Statements, including the related notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. The Company's 1995 fiscal year is for the period
from October 10, 1995 (inception) through December 31, 1995. On December 1,
1997, the Company changed its financial reporting to a 13 period fiscal year,
comprised of 13 four week periods. The Company's 1997 fiscal year was the period
from January 1, 1997 through December 28, 1997. The following summary historical
statement of operations data, insofar as it relates to each of the years 1995-
1997, has been derived from audited annual consolidated financial statements
included elsewhere in this Prospectus.

The summary financial and other data as of and for the nine months ended
September 30, 1997 and for the nine periods ended September 6, 1998 have been
derived from the unaudited financial statements of the Company and, in the
opinion of the Company, include all adjustments necessary for a fair
presentation of such information. These adjustments are of a normal and
recurring nature. Operating results for the nine periods ended September 6, 1998
are not necessarily indicative of the results that may be expected for the
entire year. For a discussion of factors affecting the comparability of this
data, see "Selected Financial and Other Data."

FISCAL YEAR ENDED NINE MONTHS NINE PERIODS
------------------------------------------ ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 28, SEPTEMBER 30, SEPTEMBER 6,
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues............................ $ -- $ 1,015 $ 8,653 $ 4,740 $ 18,400
---------- -------- -------- -------- --------
Operating income (loss)............. (5) (3,873) (13,337) (7,665) (8,506)
---------- -------- -------- -------- --------
Net income (loss) before
extraordinary loss................ (5) (3,894) (13,796) (7,861) (13,736)
---------- -------- -------- -------- --------
Extraordinary loss from early
extinguishment of debt............ -- -- -- -- (334)(1)
Net income (loss)................... (5) (3,894) (13,796) (7,861) (14,070)
---------- -------- -------- -------- --------
Repricing of Series C preferred
stock(2).......................... -- -- -- -- (1,459)
Accretion of mandatorily redeemable
preferred stock................... -- -- (1,941) (1,381) (756)
---------- -------- -------- -------- --------
Net income (loss) applicable to
holders of common stock........... $ (5) $ (3,894) $(15,737) $ (9,242) $(16,285)
========== ======== ======== ======== ========
PRO FORMA DATA(3):
Interest expense, net............... (9,210)(4)
Net income (loss) before
extraordinary loss................ (17,137)
Deficiency of earnings to fixed
charges........................... (17,241)(5)
SELECTED OPERATING DATA:
Cash flows provided by (used in)
operating activities.............. (33) 2,380 (8,973) (11,144) (10,206)
Cash flows provided by (used in)
investing activities.............. (18) (8,504) (22,862) (11,758) (30,435)
Cash flows provided by (used in)
financing activities.............. 56 6,479 39,724 30,914 59,469
EBITDA(6)(7)........................ (5) (3,305) (10,516) (6,261) (4,211)
Store EBITDA(8)..................... -- (651) 213 (183) 2,922
Depreciation and amortization....... -- 568 2,341 1,404 4,295
Capital expenditures(9)............. 18 13,391 53,892 16,380 34,348
Stores open at end of period........ -- 14 71 37 134
Net loss per common share........... $(1,362.75) $(117.42) $(412.76) $(243.18) $(560.45)
========== ======== ======== ======== ========
Weighted average number of common
shares outstanding................ 4 33,162 38,127 38,009 29,056
========== ======== ======== ======== ========

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9

AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 28, SEPTEMBER 6,
1995 1996 1997 1998
------------ ------------ ------------ ------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Property and equipment....................... $18 $12,841 $ 53,969 $ 76,537
Total assets................................. 55 13,809 75,496 129,708
Total debt................................... -- 4,592 35,926 98,941
Total liabilities............................ 60 10,890 46,330 106,448
Mandatorily redeemable preferred stock....... -- 6,810 48,793 --(10)
Convertible preferred stock.................. -- -- -- 50,846(10)
Shareholders' equity (deficit)............... (5) (3,891) (19,627) 23,260

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

(1) The Company's net loss for the nine periods ended September 6, 1998,
includes the extraordinary loss associated with the writeoff of
approximately $334 of unamortized deferred financing costs related to the
Senior Credit Facility and the LaSalle Facility.

(2) The Company has recognized the fair value of the 7,295 shares of Common
Stock issued pursuant to the repricing of the Series C Convertible
Preferred Stock. Accordingly, this amount has been deducted from the
Company's net loss in determining the net loss available to common
stockholders for purposes of calculating basic and diluted earnings per
share. See also Note 7 to the Unaudited Consolidated Financial Statements
included elsewhere in this Prospectus.

(3) The pro forma data for the nine periods ended September 6, 1998 gives
effect to the issuance of the Old Notes and the application of the net
proceeds therefrom as if such transactions had occurred on December 29,
1997. It does not, however, include the extraordinary loss described in
Note 1, above.

(4) On a pro forma basis, interest expense, net includes amortization of
deferred financing costs (which includes underwriting discount and related
fees and expenses) as well as amortization of the original issue discount
on the Notes. It does not include historical interest expense on the Senior
Credit Facility and the LaSalle Facility.

(5) For purposes of computing the deficiency of earnings to fixed charges,
fixed charges consists of interest expense on total debt and that portion
of rental expense that the Company believes to be representative of
interest (one-third of total rental expense). Earnings is defined as the
Company's net loss before fixed charges and extraordinary loss. On a pro
forma basis during the nine periods ended September 6, 1998, earnings were
insufficient to cover fixed charges by approximately $17,200.

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

(7) EBITDA for the fiscal year ended December 28, 1997, excludes the loss on
disposal of property and equipment of $480.

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

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three fiscal quarters ended September 6, 1998 and September 30, 1997,
respectively. The capital expenditures for 1997 include approximately
$11,485 of laundromat equipment for use in stores to be opened in 1998 and
approximately $4,120 for land acquired and held for sale-leaseback
transactions. Capital expenditures also includes the cash outlay to acquire
new businesses (net of cash acquired). Such outlays totaled approximately
$12,100 and $14,875 for the year ended December 28, 1997 and for the
year-to-date period ended September 6, 1998, respectively.

(10) Concurrently with the closing of the Private Placement, the put rights
previously associated with the preferred stock were terminated and
therefore, the preferred stock is no longer mandatorily redeemable.

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RISK FACTORS

Prospective purchasers of the Warrants and Warrant Shares should carefully
consider the specific risk factors set forth below, as well as the other
information appearing in this Prospectus, before making an investment in the
Warrants and Warrant Shares.

UNCERTAIN ABILITY TO ACHIEVE AND MANAGE PLANNED GROWTH

The Company's future success and continued growth will depend on its
ability to open and operate its stores profitably. The Company plans to have
approximately 176 stores open by December 27, 1998. As of October 27, 1998, the
Company had 150 stores opened, of which 86 stores were developed and 64 were
acquired, and intends to open another approximately 26 stores, approximately 20
of which it expects to develop and six of which it expects to acquire. The
Company's expansion is dependent upon a number of factors, including its ability
to hire, train, retain and assimilate competent management and store-level
employees, the adequacy of the Company's financial resources, the Company's
ability to identify new markets in which it can successfully compete, the
ability to locate suitable sites and negotiate acceptable lease terms and to
adopt purchasing and MIS and other systems to accommodate expanded operations.
The Company may enter new markets in which it has no prior experience. The
Company's expansion is also dependent on timely fulfillment by landlords and
others of their contractual obligations to the Company, the maintenance of
construction schedules and the speed with which local zoning and construction
permits can be obtained. No assurance can be given that the Company will be able
to achieve its planned expansion or that such expansion will be profitable. The
Company's planned expansion will place increasing pressure on the Company's
management and resources. A failure to successfully manage its planned expansion
would adversely affect the Company's business. No assurance can be given that
the Company's new stores will achieve sales and profitability comparable to the
Company's existing stores or to its strategic plan. If the Company achieves its
plans for growth over the next five years, no Company executive will have had
significant experience operating a company as large, in terms of stores or
annual sales, as the Company.

The Company's growth strategy includes acquiring existing laundromats
consistent with the Company's strategic plan. No assurance can be given that the
Company will successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired operations into its existing operations or
expand to new markets through acquisitions. No assurance can be given that
future acquisitions will not have a material adverse effect upon the Company's
operating results while the operations of the Acquired Stores are being
integrated into the Company's operations. Notwithstanding its own due diligence
investigation, management will have limited knowledge about the specific
operating history, trends and customer buying patterns of laundromats acquired.
Furthermore, the cost of acquiring or developing stores may increase from the
levels the Company has experienced and may make additional acquisitions or
developments difficult or impractical. Consequently, no assurance can be given
that the Company will be able to make future acquisitions at favorable prices,
that Acquired Stores will perform as well as they have performed historically or
as budgeted to perform or that the Company will have sufficient information to
analyze accurately the markets in which it elects to make acquisitions. The
price paid and financing for the laundromats acquired or developed by the
Company could have a material adverse effect on the Company's financial
condition and results of operations. Although the Company will endeavor to
integrate and assimilate the operations of any Acquired Stores in an effective
and timely manner, no assurance can be given that the Company will be successful
in such integration attempts. Further, no assurance can be given that the
Company will successfully integrate its future acquired businesses into the
Company's purchasing, marketing and MIS.

NEW CONCEPT AND LACK OF EXPERIENCE IN THE LAUNDRY INDUSTRY

A national concept has not, to the knowledge of the Company, been attempted
in the retail coin-operated laundromat industry. There can be no assurance that
a national branding strategy can be successfully applied to the coin-operated
laundromat industry. In addition, prior to joining the Company, none of the
executive officers or directors of the Company had experience in laundromat
operations or management.

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HISTORICAL AND ANTICIPATED LOSSES AND NEGATIVE CASH FLOW

The Company has never been profitable and has incurred significant net
operating losses and negative cash flow from operations to date in connection
with developing, owning and operating laundromats. For the year ended December
28, 1997, the Company had a net loss of approximately $13.8 million. For the
nine periods ended September 6, 1998, the Company had a net loss applicable to
holders of Common Stock of approximately $16.3 million. At September 6, 1998,
the Company had a recorded accumulated deficit of $34.7 million. See "Selected
Financial and Other Data." Losses and negative cash flow from operations will
continue until the Company has established a sufficient revenue-generating base
of laundromats, if ever. There can be no assurance that an adequate revenue base
will be established or that the Company will generate positive cash flow from
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

SUBSTANTIAL LEVERAGE; POTENTIAL INABILITY TO SERVICE DEBT

The Company is highly leveraged with indebtedness that is substantial in
relation to its stockholders' equity. After giving effect to the Private
Placement, as of September 6, 1998, the Company had total outstanding
indebtedness of approximately $99.0 million, all of which relates to the Notes,
and the Company had total stockholders' equity of $23.3 million. For the nine
periods ended September 6, 1998, the Company's earnings would have been
insufficient to cover fixed charges by approximately $17.2 million.

The Company's high degree of leverage could have important consequences to
holders of the Warrants and the Warrant Shares, including that (i) a substantial
portion of the Company's cash flow from operations, if any, after May 1, 2001,
will be required to be dedicated to the Company's interest expense obligations
and will not be available to the Company for its operations, working capital,
capital expenditures or other purposes, (ii) the Company's ability to obtain
financing in the future may be limited, (iii) the Company's flexibility to
adjust to changing market conditions and ability to withstand competitive
pressures as compared to less highly-leveraged competitors could be limited
(including by reason of the covenants contained in the Indenture and the Heller
Facility) and (iv) the Company may be more vulnerable to downturns in general
economic conditions or in its business or be unable to undertake capital
expenditures that are important for its growth strategy, any of which could have
a material adverse effect on the Company and so the value of the Warrants and
Warrant Shares.

Since inception, the Company has not generated positive cash flow from
operations. As a result, the Company has been required to pay its fixed charges
(including interest on existing indebtedness) and operating expenses with the
proceeds from sales of its equity securities, loans from stockholders and other
credit arrangements. As of November 1, 2001, the Company will be required to
satisfy substantially higher periodic cash debt service obligations because as
of that date cash interest on the Notes will be payable semi-annually at the
rate of 12 3/4% per annum (approximately $18.5 million per year). The principal
amount at maturity of the Notes of approximately $145.0 million will become due
on May 1, 2005. In addition, to the extent the Company draws on the Heller
Facility, it may have substantial additional secured indebtedness outstanding in
1999.

The Company's ability to make scheduled payments or to refinance its
obligations with respect to the Notes (including its obligation to purchase the
Notes at 101% of the Accreted Value plus accrued and unpaid interest, if any, at
the time of a Change of Control (each as defined in the Indenture)), the Heller
Facility (when incurred) and its other indebtedness will ultimately depend on
its financial and operating performance, which in turn is subject to prevailing
economic and competitive conditions and to certain financial, business and other
factors that may be beyond its control, including operating difficulties,
increased operating costs, prices it can charge its customers, the response of
competitors and delays in implementing its strategy. The Company's ability to
meet its debt service and other obligations will depend largely on the extent to
which the Company can successfully implement its business strategy and manage
its operations. There can be no assurance that the Company will be able to
implement fully its strategy or that the anticipated results of its strategy
will be realized. There can be no assurance that the Company will be able to
generate sufficient cash

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flow or otherwise obtain funds in the future to cover interest and principal
payments associated with the Notes and any other debt of the Company and its
subsidiaries. See "Business -- Business Strategy."

In the event the Company is unable to meet its obligations with respect to
its existing indebtedness, it may be required to reduce or delay capital
expenditures, refinance or restructure all or a portion of its indebtedness,
sell material assets or operations or seek to raise additional debt or equity
capital. There can be no assurance that the Company will be able to effect any
such refinancing or restructuring or sell assets or obtain any such additional
capital on satisfactory terms or at all, or that the Company's cash flow and
capital resources will be sufficient for payment of interest on and principal of
its indebtedness in the future. The failure to achieve any of the foregoing
could have a material adverse effect on the Company and so the value of the
Warrants and Warrant Shares. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of the Notes -- Certain Covenants."

RISKS ASSOCIATED WITH THE WARRANTS

The Warrants are exercisable at any time on or after the earlier of (x)
April 29, 1999 or (y) 60 days after the consummation of an initial public
offering of the Company's Common Stock until May 1, 2005. Although the Company
will be required pursuant to the Warrant Agreement to cause the Warrants and the
Common Stock underlying the Warrants to be registered with the SEC pursuant to
an effective shelf registration statement, the SEC has broad discretion to
determine whether any registration statement will be declared effective. Upon
consummation of the Offering, the Company will have a total of 27,763 shares of
Common Stock, 76,974 shares of Series A Convertible Preferred Stock, 125,498
shares of Series B Convertible Preferred Stock, 72,930 shares of Series C
Convertible Preferred Stock outstanding and Warrants to purchase 26,661 shares
of Common Stock. These shares are "restricted shares" as that term is defined in
Rule 144 as promulgated under the Securities Act ("Restricted Shares"). In
addition, as of September 6, 1998, the Company had outstanding option grants
exercisable for 38,025 shares of Common Stock. The holders of the preferred
shares have both demand and "piggyback" registration rights. See "Description of
Capital Stock -- Registration Rights." Sales of Restricted Shares in the public
market, or the availability of such shares for sale, could adversely affect the
value of the Warrants and any Common Stock issued in exchange therefor. Failure
to have any such registration statement declared effective may have a material
adverse effect on the value of the Warrants and the liquidity and value of the
underlying Common Stock. Furthermore, because any intrinsic or market value of
the Warrants will be contingent on the value of the underlying Common Stock, an
investment in the Warrants is highly speculative, and there can be no assurance
as to when or if the Warrants will have any value. See "Description of the
Warrants."

ABSENCE OF DIVIDENDS

The Company has never paid any dividends on any of its capital stock,
including its Common Stock, and it does not have any plans to pay any dividends
on any of its capital stock, including its Common Stock, in the foreseeable
future. The Company currently intends to retain all earnings for reinvestment in
its business and repayment of indebtedness. The Heller Facility and the
Indenture restrict the payment of dividends by the Company. Such restrictions
could materially and adversely affect the Company's ability to pay dividends on,
and the value of, the Warrant Shares and so the value of the Warrants.

LACK OF PUBLIC MARKET FOR THE WARRANTS AND WARRANT SHARES

The Warrants and Warrant Shares are each new issues of securities for which
there is currently no trading market. There can be no assurance regarding the
future development of a market for the Warrants or Warrant Shares, or the
ability of the holders of the Warrants or Warrant Shares to sell such
securities, or the price at which such holders may be able to sell such
securities. If such a market were to develop, the Warrants and Warrant Shares
could trade at prices that may be higher or lower than the price paid by selling
holders of Warrants or Warrant Shares depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Initial Purchaser has advised the Company that it

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currently intends to make a market in the Warrants and Warrant Shares. However,
the Initial Purchaser is not obligated to do so and any market making with
respect to such securities may be discontinued at any time without notice.
Therefore, there can be no assurance as to the liquidity of any trading market
for the Warrants and Warrant Shares or that an active trading market for such
securities will develop. The Company does not intend to apply for listing of the
Warrants and Warrant Shares on any securities exchange or stock market. The
Warrants and the Warrant Shares are currently eligible for trading in the
Private Offerings, Resales and Trading through Automated Linkages ("PORTAL")
market. Following the Registration Statement being declared effective by the
Commission, the Warrants and the Warrant Shares will not be eligible for PORTAL
trading.

COMPETITIVE INDUSTRY

SpinCycle faces considerable competition from many local and regional
operators in all of its markets. These operators typically own one or two stores
and operate their facilities with a lower cost structure than SpinCycle,
typically employing fewer people and offering less service. These operators
often own the real estate where they are located and have the ability to lower
prices significantly in order to compete. In addition to the local and regional
operators, at least one laundromat chain has recently been formed with the
intention of becoming a national branded chain and the Company anticipates more
competition from this and future national laundromat chains. In addition, the
Company competes with route service operators, who provide coin-operated laundry
facilities in multi-unit apartment complexes. There are two publicly traded
companies currently consolidating the route business, Coinmach Corporation and
Mac-Gray Corporation. Both of these entities have substantially greater
resources than the Company and could enter the retail laundromat business on a
national scale at any time. There can be no assurance that the Company will be
able to compete effectively with current or future competitors or that, when
faced with such competitive pressures, the Company will be able to generate
sufficient cash flow or otherwise obtain funds in the future to cover interest
and principal payments associated with the Notes and any other debt of the
Company and its subsidiaries. See "Business -- Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's future success depends to a significant extent on the
continued contributions of key members of management. The loss of the services
of any of these employees could have a material adverse effect on the Company.
The Company's future growth and profitability also depends on its ability to
attract, motivate and retain other management personnel. No assurance can be
given that the Company will be successful in attracting, motivating and
retaining such personnel. The Company has no employment agreements with its
officers or key personnel other than with Messrs. Ax and Lombardi. See
"Management."

SUBSTANTIAL RESTRICTIONS AND COVENANTS OF DEBT FACILITIES

The Indenture and the Heller Facility loan documents contain numerous
financial and operating covenants, including, but not limited to, restrictions
on the Company's ability to incur indebtedness, pay dividends, create liens,
sell assets, engage in certain mergers and acquisitions, make investments and
enter into new lines of business. Such covenants could materially limit or
exclude potentially profitable activities in which the Company might otherwise
engage. The ability of the Company to comply with the covenants and other terms
of the Indenture and the Heller Facility, to make cash payments with respect to
the Notes and to satisfy its other debt obligations will depend on the future
performance of the Company. In addition, in the event of a Change of Control,
the Company will be required, subject to certain conditions, to offer to
purchase all outstanding Notes at a price equal to 101% of the Accreted Value of
the Notes at such time plus accrued interest, if any. There can be no assurance
that the Company would be able to raise sufficient funds to meet this
obligation. Furthermore, this restriction may inhibit the Company's ability to
enter into or likelihood of entering into a transaction resulting in a Change of
Control. In the event the Company fails to comply with the various covenants
contained in the Indenture or the Heller Facility, it would be in default
thereunder and the maturity of substantially all of its long-term debt
(including the Notes) could be accelerated. See "Description of the
Notes -- Events of Default."

The Heller Facility also restricts the Company's ability to incur
additional debt, pay dividends, create liens, enter into transactions with its
affiliates or Change of Control transactions, engage in certain mergers and

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acquisitions, enter into new lines of business or make payments under the
Indenture that are neither regularly scheduled nor a prepayment of 35% of the
principal, interest and fees on the Notes following an underwritten public
offering of the Company's common stock. Such covenants could materially limit or
exclude potentially profitable activities in which the Company might otherwise
engage. Furthermore, such restrictions limit the ability of the Company to meet
its obligations to purchase the Notes at any time other than their regularly
scheduled maturity. See "Description of the Heller Facility."

EFFECT OF ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CERTAIN CHARTER
PROVISIONS

The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware. In general, this statute prohibits a
publicly-held Delaware corporation from engaging in certain transactions with
"interested stockholders." Section 203 and certain provisions of the Company's
charter regarding the election of certain members of the Board of Directors by
the holders of various classes of preferred stock and the supermajority voting
rights accorded to the Series A stockholders could operate to delay or prevent a
change in control of the Company and to discourage potential acquisition
proposals. See "Description of Capital Stock -- Delaware Law and Certain Charter
Provisions."

SEASONALITY

The coin-operated laundromat industry may be subject to seasonal
fluctuations in quarterly results of operations. As a result, the Company's
results of operations during periods including the warmer spring and summer
months may be significantly lower than its operating results during the balance
of the year. Management believes this decrease may result from the fact that
customers are wearing lighter weight clothing during those periods and changing
less often due to school being out of session. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality."

DEPENDENCE ON EQUIPMENT SUPPLIER

To date, the Company has acquired substantially all of its equipment from
Alliance Laundry Systems LLC ("Alliance") the successor in interest to Raytheon
Commercial Laundry LLC ("Raytheon") pursuant to a supply agreement between
Alliance and the Company originally entered into in connection with the
Company's former equipment and acquisition facility with Raytheon (the "Senior
Credit Facility"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." While
the Company repaid the Senior Credit Facility with some of the proceeds of the
Private Placement, the Company will continue to be obligated to purchase
substantially all of its washers, dryers and replacement parts for its Developed
Stores from Alliance until August 31, 2001 and thus will be substantially
dependent on Alliance until such time to provide it with commercial laundry
equipment to successfully complete its planned rollout. Any disruptions in the
supply of commercial laundry equipment and parts to the Company would have a
material adverse effect on the Company's business, financial condition and
results of operations.

ACTUAL RESULTS MAY VARY FROM FINANCIAL PROJECTIONS

Financial and other projections included in this Prospectus are based upon
certain assumptions, not all of which are stated herein, and any or all of which
may not materialize. In particular, there can be no assurance that statements
regarding the future results of the Company's current stores and the stores the
Company expects to develop or acquire and the Store EBITDA the Company has
projected, including the assumption that any or all such stores will generate
Mature Store revenues, will prove to have been correct or that the actual
results will not differ materially from what such statements contemplate.
Unanticipated events, over some or all of which the Company may not have any
control, are likely to occur as the Company develops its business. Such events
may well affect the Company at the dates and during the periods covered by the
projections, with the result that the actual financial condition, financial
results and cash flow of the Company may vary from the projections. Such
variations may be material. Consequently, prospective investors in the Company
are cautioned not to base their investment decisions on the projections. No
independent accountants

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have examined or compiled the projections and are not associated with the
projections in any manner whatsoever.

NEED FOR ADDITIONAL FINANCING

The Company used a portion of the net proceeds of the Private Placement to
pay down existing indebtedness, and is using the balance to fund its expansion
plan, operating expenses and such capital expenditures not funded by other
sources, and for general corporate purposes, including working capital. In
addition to the net proceeds of the Private Placement, the Company has obtained
a $40.0 million secured credit facility with Heller Financial, Inc. ("Heller").
The amounts available to the Company under the Heller Facility are determined on
the basis of various asset and revenue based tests. As of September 6, 1998,
management estimated that the Company had approximately $14.3 million available
to it under the Heller Facility. Until March 22, 1999, the maximum amount
available under the Heller Facility is $32.5 million which limitation shall be
lifted on or after that date if certain conditions are met. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of the Heller
Facility." Management expects to fund the Company's expansion in 1998 to 176
stores with the proceeds of the Private Placement. The addition of the ten
committed stores in 1999 will require cash provided by operating activities or
borrowings under the Heller Facility. Further expansion would require additional
borrowings under the Heller Facility and/or additional capital to finance its
expansion and, accordingly, the Company will be required to raise additional
funds through public and private financings, including equity financing, or
through other collaborative arrangements. There can be no assurances that
additional financing will be available on favorable terms, or at all. Any
collaborative arrangements may require the Company to operate subject to
additional restrictions. If funding is not available when needed, or on
acceptable terms, the Company may be forced to curtail its development and
acquisition activities. In such event, investors may lose their entire
investment.

POTENTIAL LOSS OF NOLs

For U.S. federal income tax purposes, the Company had net operating loss
carryforwards ("NOLs") of approximately $17.6 million as of December 28, 1997
and approximately $31.0 million as of September 6, 1998. These NOLs, if not
utilized to offset taxable income in future periods, will begin to expire in
2011. Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
and regulations promulgated thereunder, impose limitations on the ability of
corporations to use NOLs, if the corporation experiences a more than 50% change
in ownership during any three-year period. It is likely that the Company has
experienced one or more ownership changes in 1996 and 1997 as a result of the
Company raising various rounds of private equity or that such an ownership
change may have occurred or be deemed to have occurred due to events beyond the
control of the Company (such as transfers of Common Stock by certain
stockholders or the exercise or treatment of warrants, conversion rights or
stock options issued by the Company). There can also be no assurance that the
Company will not take additional actions, such as the issuance of additional
stock, that would cause an ownership change to occur. In addition, the NOLs are
subject to examination by the Internal Revenue Service (the "IRS"), and are thus
subject to adjustment or disallowance resulting from any such IRS examination.
Accordingly, prospective purchasers of the Warrants and Warrant Shares should
not assume the unrestricted availability of the Company's currently existing or
future NOLs, if any, in making their investment decisions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Potential Loss of NOLs."

SECURITY OF STORES

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

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NEED TO OBTAIN PERMITS AND CONSENTS

The Company is required to obtain permits, approvals and licenses from
appropriate governmental authorities in order to open additional stores. The
Company is required to obtain the landlord's approval of construction plans in
order to construct the leasehold improvements for each facility. Although the
Company has significant expertise in building out multi-unit enterprises,
obtaining these permits and approvals can be subject to delays which could
ultimately affect the new store rollout schedule. The Company also must obtain
landlords' consents in order to maximize access to funds under the Heller
Facility.

ENVIRONMENTAL LIABILITY

The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and similar state laws, impose
strict, joint and several liability on current and former owners and operators
of facilities from which releases of hazardous substances have occurred and on
generators and transporters of the hazardous substances that come to be located
at such facilities. Responsible parties may be liable for substantial waste site
investigation and clean-up costs and natural resource damages, regardless of
whether they exercised due care and complied with applicable laws and
regulations. If the Company was found to be a responsible party for a particular
site, it could be required to pay the entire cost of waste site investigation
and clean-up costs. There can be no assurance that the Company will not face
claims under CERCLA or similar state laws, or under other laws, resulting in a
substantial liability for which the Company is unable to obtain contribution
from other responsible parties and for which the Company is uninsured or only
partially insured. The Company's pollution liability insurance excludes
liabilities under CERCLA. The Company may experience difficulty in obtaining
adequate insurance coverage on acceptable terms. A successful claim against the
Company for which it is uninsured or only partially insured, and for which it is
unable to obtain contribution from other responsible parties, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE

The Company depends on its MIS to monitor daily revenue and machine
utilization in each of its stores, exercise centralized cash and management
control and compile and analyze critical marketing and operations data. Any
disruption in the operation of the Company's MIS, the loss of employees
knowledgeable about such systems or the Company's failure to continue to
effectively modify such systems as its business expands would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competitive Strengths."

Certain of the Company's MIS use two digit data fields which recognize
dates using the assumption that the first two digits are "19" (i.e., the number
97 is recognized as the year 1997). Therefore, the Company's date critical
functions relating to the year 2000 and beyond may be adversely affected unless
changes are made to these computer systems. The Company does not expect that
costs resulting from upgrades to its MIS or from the Company's failure to
continue to effectively modify such systems as its business expands would have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company does not believe that it has a material exposure to Year 2000
issues. Initial testing of the Company's MIS for Year 2000 compliance was
completed in March 1998. The Company also requested that suppliers of its
essential MIS certify to the Company that such MIS are Year 2000 compliant.
Based on the Company's initial tests and certifications received from MIS
suppliers, the Company believes that its critical software systems are currently
Year 2000 compliant and that its store hardware systems will be compliant by the
end of the first quarter of 1999. The Company does not expect that costs
associated with Year 2000 compliance will have a material adverse effect on the
Company. However, no assurance can be given that these issues can be resolved in
a cost-effective or timely manner or that the Company will not incur
significantly greater expense in resolving these issues. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Dependence on Management Information Systems; Year 2000
Compliance."

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USE OF PROCEEDS

The net proceeds to SpinCycle from the Private Placement were approximately
$96.8 million, after deducting underwriting discounts, fees and expenses. A
portion of the net proceeds were used to repay all amounts outstanding under the
Company's Senior Credit Facility and the Company's credit facility with LaSalle
National Bank (the "LaSalle Facility"). At the time of retiring the Senior
Credit Facility, the Company had outstanding borrowings of approximately $42.7
million at a weighted average interest rate of 10.375%. The borrowings were
incurred primarily for the opening and equipping of new stores, acquiring
existing stores and for other general corporate purposes. At the time of
retiring the Senior Credit Facility, the Company had outstanding borrowings
under the LaSalle Facility of approximately $3.3 million at a weighted average
interest rate of 9.5%. Additional secured indebtedness of approximately $900,000
was retired.

No proceeds will be received by the Company from the registration or sale
of the Warrants or the Warrant Shares pursuant to the Registration Statement.
Management believes the remaining net proceeds from the Private Placement will
be sufficient to fund the 1998 expansion plan. The proceeds of the Heller
Facility together with funds from operations are expected to fund additional
expansion. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Risk
Factors -- Need for Additional Financing."

CAPITALIZATION

The following table sets forth at September 6, 1998, the actual
capitalization of the Company.

SEPTEMBER 6, 1998
-----------------
(IN THOUSANDS)

Cash and cash equivalents................................. $ 27,077
========
Notes(1).................................................. 98,919
Miscellaneous Debt........................................ 22
--------
Total long-term debt.............................. 98,941
--------
Stockholders' equity:
Convertible preferred stock(2)......................... 50,846
Common stock........................................... --
Additional paid-in-capital............................. 1,442
Common stock warrants(3)............................... 5,625
Accumulated deficit(4)................................. (34,653)
--------
Total stockholders' equity........................... 23,260
--------
Total capitalization.............................. $122,201
========

- ---------------
(1) Reflects the accreted value ascribed to the Notes net of the value ascribed
to the Warrants.

(2) Concurrently with the closing of the Private Placement, the put rights
previously associated with the preferred stock were terminated and
therefore, the preferred stock is no longer mandatorily redeemable.

(3) Reflects the gross proceeds ascribed to the Warrants from the sale of the
Units.

(4) Reflects the extraordinary loss associated with the write-off of
approximately $334 of unamortized deferred financing costs related to the
Senior Credit Facility and the LaSalle Facility.

17
19

SELECTED FINANCIAL AND OTHER DATA

The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" have been derived from the
historical consolidated financial statements of the Company. The Company's 1995
fiscal year is for the period from October 10, 1995 (inception) through December
31, 1995. On December 1, 1997, the Company changed its financial reporting to a
13 period fiscal year, comprised of 13 four week periods. The Company's 1997
fiscal year was the period January 1, 1997 through December 28, 1997. The "Pro
Forma Data" presented below give effect to the Private Placement and the
application of the net proceeds therefrom and certain pro forma adjustments as
described in the accompanying footnotes. Such data do not purport to represent
what the Company's results of operations or financial position would have been
had the Private Placement been consummated on the date specified or to project
the Company's results of operations or financial position for any future period
or date. The summary financial and other data as of and for the nine months
ended September 30, 1997 and for the nine periods ended September 6, 1998 have
been derived from the unaudited financial statements of the Company and, in the
opinion of the Company, include all adjustments necessary for a fair
presentation of such information. These adjustments are of a normal and
recurring nature. Furthermore, operating results for the nine periods ended
September 6, 1998 are not necessarily indicative of the results that may be
expected for the entire year or for any future period. The selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.

STATEMENT OF OPERATIONS DATA:
Revenues......................... $ -- $ 1,015 $ 8,653 $ 4,740 $ 18,400
Store operating expenses,
excluding depreciation and
amortization................... -- 1,193 7,983 4,676 15,111
---------- ------- -------- ------- --------
Gross operating profit (loss).... -- (178) 670 64 3,289
Preopening costs................. -- 473 457 247 364
Depreciation and amortization.... -- 568 2,341 1,404 4,295
Selling, general and
administrative expenses........ 5 2,654 10,729 6,078 7,133
Loss on disposal of property and
equipment...................... -- -- 480 -- 3
---------- ------- -------- ------- --------
Operating income (loss).......... (5) (3,873) (13,337) (7,665) (8,506)
Interest income.................. -- 29 433 366 975
Interest expense, net............ -- (50) (892) (562) (6,205)
---------- ------- -------- ------- --------
Net income (loss) before
extraordinary loss............. (5) (3,894) (13,796) (7,861) (13,736)
---------- ------- -------- ------- --------
Extraordinary loss from early
extinguishment of debt......... -- -- -- -- (334)(1)
---------- ------- -------- ------- --------
Net income (loss)................ (5) (3,894) (13,796) (7,861) (14,070)
Repricing of Series C preferred
stock.......................... -- -- -- -- (1,459)(2)
Accretion of mandatorily
redeemable preferred stock..... -- -- (1,941) (1,381) (756)
---------- ------- -------- ------- --------
Net income (loss) applicable to
holders of common stock........ $ (5) $(3,894) $(15,737) $(9,242) $(16,285)
========== ======= ======== ======= ========
PRO FORMA DATA:(3)
Interest expense, net............ (9,210)(4)
Net income (loss) before
extraordinary loss............. (17,137)
Deficiency of earnings to fixed
charges........................ (17,241)(5)

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20

SELECTED OPERATING DATA:
Cash flows provided by (used in)
operating activities........... (33) 2,380 (8,973) (11,144) (10,206)
Cash flows provided by (used in)
investing activities........... (18) (8,504) (22,862) (11,758) (30,435)
Cash flows provided by (used in)
financing activities........... 56 6,479 39,724 30,914 59,469
EBITDA(6)(7)..................... (5) (3,305) (10,516) (6,261) (4,211)
Store EBITDA(8).................. -- (651) 213 (183) 2,922
Capital expenditures(9).......... 18 13,391 53,892 16,380 40,495
Deficiency of earnings to fixed
charges(5)..................... -- (3,894) (14,124) (4,245) (14,173)
Stores open at end of period..... -- 14 71 37 134
Net loss per common share........ $(1,362.75) $(117.42) $(412.76) $(243.18) $(560.45)
========== ======= ======== ======= ========
Weighted average number of common
shares outstanding............. 4 33,162 38,127 38,009 29,056
========== ======= ======== ======= ========

AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 28, SEPTEMBER 6,
1995 1996 1997 1998
------------ ------------ ------------ ------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Property and equipment........... $18 $12,841 $ 53,969 $ 76,537
Total assets..................... 55 13,809 75,496 129,708
Total debt....................... -- 4,592 35,926 98,941
Total liabilities................ 60 10,890 46,330 106,448
Mandatorily redeemable preferred
stock.......................... -- 6,810 48,793 --(10)
Convertible preferred stock...... -- -- -- 50,846(10)
Shareholders' equity (deficit)... (5) (3,891) (19,627) 23,260

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

(5) For purposes of computing the deficiency of earnings to fixed charges,
fixed charges consists of interest expense on total debt, and that portion
of rental expense that the Company believes to be representative of
interest (one-third of total rental expense). Earnings is defined as the
Company's net loss before fixed charges and extraordinary loss. On a
historical basis, earnings were insufficient to cover fixed charges by
approximately $3,900 and $14,100 for the fiscal years ended December 31,
1996 and December 28,
19
21

1997, respectively, and by approximately $7,900 and $14,200 for the three
fiscal quarters ended September 30, 1997 and September 6, 1998,
respectively. On a pro forma basis during the nine periods ended September
6, 1998, earnings were insufficient to cover fixed charges by approximately
$17,200.

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

(7) EBITDA for the fiscal year ended December 28, 1997, excludes the loss on
disposal of property and equipment of $480.

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

(9) Capital expenditures includes the purchase of laundromat equipment pursuant
to an existing supply agreement and financed with borrowings in connection
with the Senior Credit Facility of approximately $31,358 and $4,887 in
fiscal 1997 and 1996, respectively, and approximately $1,998 and $4,622 for
the three fiscal quarters ended September 6, 1998 and September 30, 1997,
respectively. The capital expenditures for 1997 include approximately
$11,485 of laundromat equipment for use in stores to be opened in 1998 and
approximately $4,120 for land acquired and held for sale-leaseback
transactions. Capital expenditures also includes the cash outlay to acquire
new businesses (net of cash acquired). Such outlays totaled approximately
$12,100 and $14,875 for the year ended December 28, 1997 and for the
year-to-date period ended September 6, 1998, respectively.

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22

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

Unless otherwise indicated, all references to years in this section of the
Prospectus refer to the Company's fiscal years, which ran as follows: from
October 10, 1995 (inception) through December 31, 1995, January 1, 1996 through
December 31, 1996 and January 1, 1997 through December 28, 1997. As of December
1, 1997, the Company adopted a fiscal year comprised of 13 four week periods,
each four week period comprised of four Monday through Sunday weeks. All
references herein to periods shall refer to such four week periods unless the
context otherwise requires. Unless otherwise indicated, all financial and store
data provided in this Prospectus are as of September 6, 1998, the end of the
Company's third quarter in 1998.

OVERVIEW

SpinCycle, Inc. (the "Company") is a specialty retailing company engaged in
the coin laundry business. The Company was founded in October 1995 to initiate a
nationwide consolidation in the retail coin-operated laundromat industry. The
Company intends to be the largest owner and operator of coin-operated
laundromats in the United States. The Company brings professional management and
controls to a highly fragmented industry that has been historically dominated by
"mom and pop" operators. The Company opened its first spacious, attractive,
well-equipped and attended facility in Chicago, Illinois in April 1996. By the
year ended December 31, 1996, SpinCycle had opened 14 stores and had two under
construction. Such stores formed the platform for the Company's rapid expansion
by providing valuable information on a number of variables, including optimum
store size, combination and count of laundry equipment, equipment utilization,
staffing levels and customer service.

Because of the significant capital required to develop and acquire
coin-operated laundromats, the Company's rollout rate has generally increased
after the Company raised each round of capital. In November 1996, the Company
procured the first $20.0 million of its former Senior Credit Facility.
Borrowings under this facility allowed the Company to significantly accelerate
its plans to develop and acquire additional stores. In January 1997, SpinCycle
closed its first round of private equity with proceeds of approximately $9.6
million. Such funds were utilized primarily for the payment of construction
costs for developed stores. By April 30, 1997, the Company had opened a total of
19 stores.

In April 1997, the Company closed a second round of private equity, raising
$25.0 million, which allowed the Company to again significantly accelerate its
development and acquisition efforts. Thereafter, SpinCycle developed the
corporate infrastructure to achieve and accommodate a national rollout and
consolidation. Specifically, the Company hired additional professionals to
provide for nationwide operations and real estate development and to establish a
dedicated acquisitions department. Further, the Company added support in the
areas of accounting, MIS and administration. In 1997, the Company increased the
maximum amount of its former Senior Credit Facility to $35.0 million. With the
corporate infrastructure in place and increased liquidity between May 1, 1997
and December 31, 1997, the Company opened 52 stores (25 Developed Stores and 27
Acquired Stores) finishing 1997 with 71 stores.

As the Company has continued to raise capital and develop the corporate
infrastructure to manage its growth, the Company has, through a careful analysis
of its targeted markets, embarked upon a development and acquisition plan to
finish 1998 with approximately 176 stores. In February 1998, the Company
procured a $10.0 million increase in its former Senior Credit Facility for a
total facility of $45.0 million, and on April 14, 1998 closed its most recent
private equity offering in which it raised approximately $16.0 million to
accommodate such expansion plans. On April 29, 1998, the Company closed the
Private Placement. The net proceeds of approximately $96.8 million of that
offering were used to repay approximately $46.9 million, representing all of the
Company's outstanding secured indebtedness. The balance was then available to
pursue the Company's planned roll out.

During the latter portion of the Company's 1998 first quarter and
continuing until the closing of the Private Placement, the Company continued to
actively identify acquisition candidates and development sites, but did not
execute leases or asset purchase agreements until the Company had the capital
required to complete such transactions. As of September 6, 1998, the Company had
134 stores open, having opened 27

21
23

stores in the three periods ended September 6, 1998. As of October 27, 1998, it
had 150 stores opened, ten leased stores under construction, nine leases
executed and signed letters of intent to acquire seven stores, all of which the
Company expects to open or acquire by year end 1998. Additionally, as of October
4, 1998, the Company had executed contracts to develop ten stores which
management expects will open in 1999.

The Company had intended to access the public equity markets in late 1998
or early 1999 to provide additional growth capital for the Company's planned
expansion. Given the current condition of the U.S. capital markets, the Company
has elected to proceed cautiously with its planned expansion, slowing such
expansion through development or acquisition to judiciously utilize available
cash. The Company has tailored its 1998 planned expansion to include 176 stores
open by year end, without incurring additional indebtedness, including drawing
on the Heller Facility. Additionally, as of October 4, 1998, the Company had
executed contracts to develop ten stores which management expects will open in
1999. See "-- Liquidity and Capital Resources."

During the quarter ended June 14, 1998, the Company experienced operational
difficulties largely due to facilities and equipment maintenance issues which
have affected the performance of certain stores. These issues impacted certain
markets more significantly than others. Management believes it has identified
the issues and has addressed or is in the process of addressing these issues,
through, among other things, (i) the addition of senior field operations
management in affected markets, (ii) the implementation of a national facilities
and laundry equipment repair and maintenance program with centralized management
and dispatch functions, (iii) the introduction of a standard operating
procedures program and training of personnel therein and (iv) the changing of
senior management, including the Company's Chief Operating Officer.

In an effort to expand the SpinCycle brand, the Company has instituted a
nationwide "wash and fold" drop-off laundry service. The Company began this
nationwide rollout on July 3, 1998, and as of September 6, 1998, had 71 stores
participating in the program. The Company is also preparing to roll out a test
of a dry cleaner depot service in the fourth quarter of 1998 pursuant to which
it will provide laundry service to a dry cleaner's customers. The Company
believes that these services will allow it to increase awareness of the Company
brand, better utilize its assets during off-peak hours and generate incremental
revenue.

RESULTS OF OPERATIONS

As of December 1, 1997, SpinCycle changed its basis of fiscal year
reporting from 12 calendar months to 13 periods per annum. This change allows
the Company to report and compare results on 13 equivalent periods, with each
period containing four Monday through Sunday weeks. The Company's fiscal third
quarter included 12 weeks in 1998 and 13 weeks in 1997. The first three quarters
of the Company's fiscal year included 36 weeks in 1998 and 39 weeks in 1997.

Third Quarter 1998 and Nine Periods (Three Quarters) Ended September 6,
1998 Compared to Third Quarter 1997 and Three Quarters Ended September 30, 1998

Revenues. The Company's revenues were approximately $6.9 million for the
third quarter of 1998, an increase of approximately $4.9 million from
approximately $2.0 million in the corresponding period in 1997. Revenues were
approximately $18.4 million for year-to-date 1998, an increase of approximately
$13.7 million from approximately $4.7 million in the corresponding period in
1997. This growth in revenue was primarily attributable to the addition of 97
stores since the end of the third quarter of 1997 and the maturation of
developed stores.

22
24

ing period in 1997. Store operating expenses for year-to-date 1998 were
approximately $15.1 million, an increase of approximately $10.4 million from
approximately $4.7 million in the corresponding period in 1997. The increase in
store operating expenses was primarily attributable to the addition of 97 stores
since the end of the third quarter of 1997. Third quarter 1997 and year-to-date
1997 store operating expenses as a percentage of revenues were approximately 93%
and 99%, respectively. For the third quarter of 1998 and year-to-date 1998, this
ratio decreased to approximately 85% and 82%, respectively, which is a result of
the maturation of certain developed stores, the acquisition of additional stores
and the implementation of initiatives designed to reduce store operating
expenses, particularly labor expense commencing in the first quarter of 1998.

Gross Operating Profit. Gross operating profit was approximately $1.0
million in the third quarter of 1998, an increase of approximately $883,000 from
approximately $141,000 in the corresponding period in 1997. Gross operating
profit was approximately $3.3 million year-to-date 1998, an increase of
approximately $3.2 million from a profit of approximately $64,000 in the
corresponding period in 1997. These increases were primarily attributable to the
aforementioned increase in revenues during the period and successful initiatives
to reduce store operating expenses, particularly labor expenses.

Preopening Costs. Preopening costs were approximately $162,000 in the
third quarter of 1998, an increase of approximately $59,000 from approximately
$103,000 in the corresponding period in 1997. Preopening costs were
approximately $363,000 year-to-date 1998, an increase of approximately $116,000
from approximately $247,000 in the corresponding period in 1997. The Company
expenses preopening costs as incurred. These increases were the result of
acquisition and development of additional stores in the quarter and year-to-date
periods ended September 6, 1998.

Depreciation and Amortization. Depreciation and amortization expense was
approximately $1.4 million in the third quarter of 1998, an increase of
approximately $860,000 from approximately $591,000 in the corresponding period
in 1997. Depreciation and amortization expense was approximately $4.3 million
year-to-date 1998, an increase of approximately $2.9 million compared to
approximately $1.4 million in the corresponding period in 1997. These increases
were principally due to property and equipment acquired in connection with the
Company's expansion.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $2.7 million in the third quarter of
1998, a decrease of approximately $285,000 from approximately $2.9 million in
the corresponding period in 1997. Selling, general and administrative expenses
were approximately $7.1 million year-to-date 1998, an increase of approximately
$1.0 million from approximately $6.1 million in the corresponding period in
1997. The year-to-date increase was primarily attributable to the Company
building its corporate infrastructure in order to allow the Company to manage
its anticipated nationwide expansion. Specifically, the Company hired additional
professionals to provide for nationwide operations and real estate development
and to establish a dedicated acquisitions department primarily in the first two
quarters of 1998. Third quarter selling, general and administrative expenses
decreased as a percentage of revenues from 146% in 1997 to 38% in 1998 while
year-to-date selling, general and administrative expenses decreased as a
percentage of revenues from 128% in 1997 to 39% in 1998. These decreases were
due to the maturation of stores opened in 1997, the acquisition of additional
stores and the implementation of certain initiatives to reduce these costs.

Interest Income and Interest Expense, net. Interest income increased to
approximately $514,000 in the third quarter of 1998 an increase of approximately
$379,000 from approximately $135,000 in the corresponding period in 1997.
Interest income increased to approximately $975,000 year-to-date 1998, an
increase of approximately $609,000 from approximately $366,000 in the
corresponding period in 1997. The increases in interest income were primarily
attributable to the investment of proceeds from the Private Placement. Interest
expense, net of capitalized interest was approximately $3.2 million in the third
quarter of 1998, an increase of approximately $2.9 million from approximately
$257,000 in the corresponding period in 1997. Interest expense, net was
approximately $6.2 million year-to-date 1998, an increase of approximately $5.6
million from approximately $562,000 in the corresponding period in 1997. The
increase in interest expense, net was primarily attributable to accretion of the
original issue discount related to the Notes.

23
25

Net Loss before Extraordinary Loss. The net loss before extraordinary loss
recorded in the third quarter of 1998 was $5.9 million, an increase of
approximately $2.3 million from the $3.6 million net loss recorded in the
corresponding period in 1997. The net loss before extraordinary loss recorded
year-to-date 1998 was $13.7 million, an increase of approximately $5.8 million
from the $7.9 million net loss recorded in the corresponding period in 1997.
These increased losses were primarily attributable to depreciation and
amortization associated with the number of new stores both acquired and
developed since the end of the third quarter of 1997 and the increase in
selling, general and administrative expenses and interest expense discussed
above.

Extraordinary Loss from Early Extinguishment of Debt. The extraordinary
loss relates to the write-off of the unamortized balance of debt issue costs
that were paid in connection with the LaSalle Facility and, to a lesser extent,
the Senior Credit Facility. These costs were written off as a result of the
early repayment and termination of those facilities.

Repricing of Series C Preferred Stock. On April 14, 1998, 7,295 shares of
the Company's Common Stock were issued to Series C stockholders in connection
with the repricing of the Series C Convertible Preferred Stock offering,
originally priced at $220 per share. Pursuant to a written stockholder consent
dated March 18, 1998, the Series C offering was converted to a unit offering,
whereby each Series C unit offered was comprised of ten shares of Series C
preferred stock and one share of Common Stock for $2,200 per unit. The requisite
consents were obtained as of April 14, 1998. See also Note 7 to the Unaudited
Consolidated Financial Statements.

Year Ended December 28, 1997 Compared with Year Ended December 31, 1996

Revenues. The Company's revenues were approximately $8.6 million in fiscal
1997, an increase of approximately $7.6 million from approximately $1.0 million
in fiscal 1996. This growth in revenue was primarily attributable to an increase
in the number of stores from 14 at fiscal year end 1996 to 71 at fiscal year end
1997, and the continued maturation of certain Developed Stores. Specifically,
the 27 stores acquired during fiscal 1997, 24 of which were acquired after
September 1, 1997, contributed incremental revenue of approximately $2.0 million
to fiscal 1997 revenues. The remaining increase in revenue of approximately $5.6
million in fiscal 1997 is primarily attributable to revenue generated from the
opening of Developed Stores and the continued maturation of such existing
stores. Sixteen of the Company's Developed Stores were mature as of fiscal year
end 1997.

Store Operating Expenses, excluding depreciation and amortization. Store
operating expenses, excluding depreciation and amortization ("store operating
expenses") were approximately $8.0 million in fiscal 1997, an increase of
approximately $6.8 million from approximately $1.2 million in fiscal 1996. The
increase in store operating expenses was primarily attributable to the opening
of an additional 57 stores during fiscal 1997. For fiscal 1996, store operating
expenses as a percentage of revenues was approximately 120.0%. For fiscal year
1997, this ratio decreased to approximately 92%, which is a result of maturation
at certain stores and the implementation of initiatives designed to reduce store
level expenses.

Gross Operating Profit (Loss). Gross operating profit was approximately
$670,000 in fiscal 1997, an increase of approximately $849,000 from a loss of
approximately $179,000 in fiscal 1996. This increase was primarily attributable
to the increase in revenues during the period and initiatives to reduce store
level expenses.

Preopening Costs. Preopening costs were approximately $457,000 in fiscal
1997, a decrease of approximately $16,000 from approximately $473,000 in fiscal
1996. The Company expenses preopening costs as incurred. The decrease in
preopening costs was the result of management efforts to control these expenses.
During fiscal 1996 the Company opened 14 stores and had two stores under
development at fiscal year end 1996. During fiscal 1997 the Company opened 30
developed stores and had 24 stores under construction at fiscal year end 1997.

Depreciation and Amortization. Depreciation and amortization expense was
approximately $2.3 million in fiscal 1997, compared to approximately $568,000 in
fiscal 1996. This increase of approximately $1.7 million was principally due to
increased levels of property and equipment related to the Company's expansion.

24
26

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $10.7 million in fiscal 1997, an
increase of approximately $8.1 million from approximately $2.6 million in fiscal
1996. This increase is primarily attributable to the Company building its
corporate infrastructure in order to allow the Company to manage its anticipated
nationwide expansion. Specifically, the Company hired additional professionals
to provide for nationwide operations and real estate development and to
establish a dedicated acquisitions department. During fiscal 1997, the Company's
general and administrative personnel, excluding store level personnel, increased
from 30 to 98 resulting in an increase in compensation costs of approximately
$2.7 million. The increase is also attributable in part to an increase in
advertising expenses of approximately $1.2 million, reflecting the Company's
efforts to create a leading national brand and an increased number of stores
during fiscal 1997. The selling, general and administrative expense also
reflects an increase in professional fees and travel costs of approximately
$888,000 and $1.2 million, respectively, over fiscal 1996 due to increased
acquisition and development activities.

Interest Income and Interest Expense, net. Interest income increased to
approximately $433,000 in fiscal 1997, an increase of $404,000 from
approximately $29,000 in fiscal 1996. The increase in interest income was
primarily attributable to the investment of proceeds from equity offerings
pending ultimate use in operations or for capital investment. Interest expense,
net of capitalized interest was approximately $892,000 in fiscal 1997, an
increase of approximately $843,000 from approximately $49,000 in fiscal 1996.
The increase in interest expense, net was primarily attributable to additional
borrowings under the Senior Credit Facility, the outstanding balance of which
increased from approximately $4.6 million at fiscal year end 1996 to
approximately $35.9 million at fiscal year end 1997.

Net Loss. The net loss recorded in fiscal 1997 was $13.8 million, an
increased loss of approximately $9.9 million from the $3.9 million loss recorded
in fiscal 1996. The increased loss was primarily attributable to depreciation
and amortization associated with the number of new stores both acquired and
developed during the year and the increase in selling, general and
administrative expenses attributable to the building of the Company's corporate
infrastructure.

Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

The Company was formed in October 1995, and had no stores opened or under
construction as of fiscal year end 1995 and therefore no store level revenues or
store operating expenses were realized in fiscal 1995. During fiscal year 1996,
the Company generated approximately $1.0 million in store revenues and
approximately $1.2 million in store operating expenses. For fiscal 1996, store
operating losses totaled approximately $179,000 and depreciation and
amortization was approximately $568,000. These revenues, operating expenses,
operating losses, and depreciation and amortization were attributable entirely
to the 14 stores opened between April 1996 and fiscal year end 1996. Selling,
general and administrative expenses were approximately $2.6 million in fiscal
1996, compared to approximately $5,000 in fiscal 1995. The increase in selling,
general and administrative expenses was primarily attributable to development of
the Company's corporate infrastructure. Interest expense was approximately
$49,000 in fiscal 1996 compared to no interest expense in fiscal 1995. Interest
expense represented interest on the Company's outstanding balance under its
Senior Credit Facility, which totaled $4.6 million as of fiscal year end 1996.

LIQUIDITY AND CAPITAL RESOURCES

At September 6, 1998, the Company had total assets of approximately $129.7
million, including current assets of approximately $35.8 million. Cash and cash
equivalents were approximately $27.0 million.

Cash used in operations during the year-to-date period ended September 6,
1998 was approximately $10.2 million compared to cash used in operations during
the corresponding period in 1997 of approximately $11.1 million. The use of cash
in each period was primarily attributable to the use of working capital for the
Company's store rollout, as well as the payment of corporate expenses, while the
1998 year-to-date period also included the effects of prepaid rent payments of
$2.8 million in connection with sale-leaseback transactions and various store
lease agreements.

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27

Cash used in investing activities during the year-to-date period ended
September 6, 1998 was approximately $30.4 million compared to $11.8 million used
in investing activities for the corresponding period in 1997. The additional use
of cash was primarily due to capital expenditures and business acquisitions,
partially offset by $1.9 million in net proceeds from sale-leaseback
transactions.

The Company made capital expenditures of approximately $34.2 million in the
year-to-date period ended September 6, 1998 compared to capital expenditures of
approximately $16.4 million in the corresponding 1997 period. The increase was
primarily attributable to an increased rate of expansion and laundry equipment
purchased.

Cash provided by financing activities was approximately $59.5 million
during the year-to-date period ended September 6, 1998 compared to approximately
$30.9 million provided by financing activities during the corresponding period
in 1997 arising principally from the issuance of Series B Stock in 1997 and
proceeds from the Private Placement offset by the repayment of debt outstanding
of $46.9 million.

EBITDA in the third quarter of 1998 was a loss of $1.8 million, an
improvement of approximately $1.1 million from the loss of approximately $2.9
million for the corresponding period in 1997. EBITDA year-to-date 1998 was a
loss of approximately $4.2 million, an improvement of approximately $2.1 million
from the loss of approximately $6.3 million for the corresponding period in
1997. This increase was primarily attributable to increased revenue from the
maturation of stores, partially offset by the increase in selling, general and
administrative expenses.

On April 3, 1998, the Company commenced the Private Placement, an offering
of unsecured senior discount notes and an indeterminate number of warrants to
purchase Common Stock, to "qualified institutional buyers" only as defined in
Rule 144A under the Securities Act. The offering was completed on April 29,
1998, with the Company selling $144,990,000 aggregate principal amount at
maturity 12 3/4% unsecured senior discount notes and warrants to purchase 26,661
shares of the Company's Common Stock with an exercise price of $0.01 per share
for gross proceeds to the Company of $100,001,053. The net proceeds of this
offering of approximately $96.8 million were used to pay the expenses of the
offering, repay approximately $46.9 million in existing indebtedness to Raytheon
and LaSalle National Bank, and to provide funds for investment in new stores and
for general corporate purposes. Coincident with the closing of the Private
Placement, the put rights, granted to all holders of all classes of the
Company's preferred stock were terminated.

Prior to the closing of the Private Placement, the Company had in place the
Senior Credit Facility from Raytheon, one of the largest commercial laundry
equipment vendors, which provided for approximately $30.0 million of equipment
financing and $15.0 million of acquisition financing. This facility had provided
100% financing for commercial laundry equipment purchases (based upon list
prices) and store acquisitions. The Company also had procured the secured
LaSalle Credit Facility in March 1998, which provided up to $15.0 million of
credit available for acquisitions and general corporate purposes. The Company
repaid all indebtedness outstanding under these two facilities with the net
proceeds from the Private Placement and terminated the related loan agreements.
In connection with the termination of these loan agreements, the Company
recognized an extraordinary loss on early extinguishment of debt of
approximately $334,000 for the write-off of the unamortized balance of debt
issue costs related to these agreements.

On April 29, 1998, the Company also closed a secured credit facility in the
maximum principal amount of $40 million with Heller Financial, Inc. (the "Heller
Facility"). The Heller Facility consists of a revolving credit facility in an
aggregate principal amount of $40.0 million that will mature on April 28, 2002.
The Heller Facility is collateralized by a first priority security interest upon
(i) all of the Company's now owned and hereafter acquired real and personal
property and all proceeds thereof and (ii) all general intangibles and other
intangible assets (including, without limitation, trademarks and trade names) of
the Company, if any, and proceeds thereof. The Company will be entitled to draw
amounts under this facility, subject to availability pursuant to a borrowing
base formula based upon income from store operations and net book value of
laundry equipment, in order to fund ongoing working capital, capital
expenditures and general corporate purposes. As of September 6, 1998, management
estimated that this borrowing base was approximately $14.3 million. Until March
22, 1999, the maximum amount available under the Heller Facility is $32.5
million, which limitation

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shall be lifted on or after that date if certain conditions are met. The Heller
Facility requires the Company to maintain compliance with certain covenants. The
Company was in compliance with all but one of these covenants at September 6,
1998. The Company has, however, obtained the waiver of the lenders with respect
to this breach and thus it will not restrict the Company's ability to borrow
under the Heller Facility.

As a condition of the Heller Facility, the Company was required (within 90
days after the closing of such agreement) to cause the lenders ("Collecting
Banks") holding the Company's deposit accounts ("Blocked Accounts") to enter
blocked account agreements with all banks at which it maintains deposit
accounts. Upon the occurrence of certain events of default, and the lapse of any
applicable cure periods under the Heller Facility, Heller can require the
Collecting Banks to promptly transfer all payments or deposits from the Blocked
Accounts to Heller. As of July 28, 1998, the Company obtained a 60 day extension
of this requirement from Heller in order to complete the required paperwork for
the Blocked Account agreements. As of August 31, 1998, the Company had obtained
all required Blocked Account agreements.

Obligations under the Heller Facility shall bear interest with reference to
either the "Base Rate" or the "LIBOR Rate," as determined by the Company at the
time each such obligation is incurred. "Base Rate Loans" shall bear interest at
the rate of 0.50% plus the greater of (a) the "Bank Prime Loan" rate published
by the Board of Governors of the Federal Reserve System or (b) 0.50% plus the
Federal Funds Effective Rate. "LIBOR Rate Loans" shall bear interest at the rate
of 2.75% plus the rate determined by dividing (a) the rate at which U.S. dollar
deposits for the relevant interest period are being offered based upon
information presented on the Reuters Screen LIBOR Page as of 11:00 A.M. (London
time) on the day which is two business days prior to the first day of such
interest period by (b) 1.0 minus the aggregate (without duplication) of the
rates (expressed as a decimal) of reserve requirements on the day which is two
business days prior to the beginning of such interest period for Eurocurrency
funding required to be maintained by a member bank of the Federal Reserve
System, rounded to the nearest 1/16 of 1%.

In July 1998 the Company and Heller Financial executed an amendment to the
Heller Facility pursuant to which the Company agreed to changes in the borrowing
base formula and the minimum Mature Store average EBITDA financial covenant
thresholds. These thresholds were adjusted to conform to accounting changes
effected by the Company. Changes were also made to certain of the Company's
reporting requirements pursuant to the Heller Facility and a limitation on
advertising expenses, to a maximum of 4% of annual revenues, was added.

On December 30, 1997, the Company entered into a sale/leaseback transaction
with SpinDevCo, L.L.C. ("SpinDevCo"), which is not an affiliate of the Company
and is wholly-owned by McMahon-Oliphant, Inc., pursuant to which it sold its fee
simple interest in 11 properties to SpinDevCo for approximately $6.5 million.
Concurrently, the Company entered into leases of those sites with SpinDevCo at
lease rates management believes to be favorable. The Company contributed
approximately $2.5 million for prepaid rent on these properties, which will be
amortized over the term of the respective lease agreements. The note receivable
to the Company from SpinDevCo in the amount of approximately $4.9 million,
including principal and accrued but unpaid interest, was due on April 30, 1998.
The note was secured by mortgages on the 11 properties sold to SpinDevCo. As of
April 30, 1998, the Original Note was renegotiated (the "Extended Note") to
extend the maturity date through September 30, 1998 to allow SpinDevCo
additional time to either find a substitute source of financing or sell the
properties. In connection with the extension, the Company received $125,000 in
payment of accrued and unpaid interest due under the Original Note through May
30, 1998. Monthly payments of interest based upon the principal amount
outstanding at the end of each month are payable during the extension period.

On October 15, 1998, the Company received approximately $4.9 million in
cash from SpinDevCo in repayment of outstanding principal and interest on the
Extended Note. Simultaneously, the Company purchased three sites from SpinDevCo
for approximately $1.75 million in cash, the same amount for which it had
previously sold them to SpinDevCo. The Company is currently operating stores at
these three sites. The Company has an agreement with a third party to sell these
three properties for $1.75 million in cash. After the sale, the properties will
be subject to more favorable leases, including lower rental rates, than the
leases the Company had with SpinDevCo.

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To date, the Company has not generated positive cash flow from operations
and has historically funded its operations through sales of equity securities
and borrowings under its credit facilities. The Company currently anticipates
having cash flow provided by operating activities as determined in accordance
with generally accepted accounting principles as of the close of the twelfth
period of 1998. As of November 1, 2001, the Company will be required to satisfy
substantially higher periodic cash debt service obligations because as of that
date cash interest on the Notes will be payable semi-annually at the rate of
12 3/4% per annum (approximately $18.5 million per year). The Company had
intended to access the public equity markets in late 1998 or early 1999 to
provide additional growth capital for the Company's planned expansion. Given the
current condition of the U.S. capital markets, the Company has elected to
proceed cautiously with its planned expansion, slowing such expansion to
judiciously utilize available cash or borrowing capacity under the Heller
Facility or other facilities.

Management believes that the proceeds from the Private Placement will be
sufficient to complete the 1998 expansion plan to finish 1998 with 176 stores.
As of October 4, 1998, the Company is committed to develop only ten additional
stores in 1999. The Company believes it will have sufficient availability from
cash flow provided by operating activities and the Heller Facility to meet its
capital requirements to (i) develop the ten committed stores in 1999 and (ii)
fund general corporate purposes, including some additional expansion. The
Company intends to continue to pursue its growth through the addition of new
Acquired Stores and Developed Stores, but will not commit to such growth without
the immediate availability of funds required for such development or
acquisitions under existing credit facilities or cash provided by operating
activities.

POTENTIAL LOSS OF NOLS

As of September 6, 1998, the Company had NOLs of approximately $31.0
million for U.S. federal income tax purposes. These NOLs, if not utilized to
offset taxable income in future periods, will begin to expire in 2011. Section
382 of the Code, and regulations promulgated thereunder, impose limitations on
the ability of corporations to use NOLs, if the corporation experiences a more
than 50% change in ownership during any three-year period. It is likely that the
Company has experienced one or more ownership changes in 1996 and 1997 as a
result of the Company raising various rounds of private equity or that such an
ownership change may have occurred or be deemed to have occurred due to events
beyond the control of the Company (such as transfers of Common Stock by certain
stockholders or the exercise or treatment of warrants, conversion rights or
stock options issued by the Company). There can also be no assurance that the
Company will not take additional actions, such as the issuance of additional
stock, that would cause an ownership change to occur. In addition, the NOLs are
subject to examination by the IRS, and are thus subject to adjustment or
disallowance resulting from any such IRS examination. Accordingly, prospective
purchasers of the Notes should not assume the unrestricted availability of the
Company's currently existing or future NOLs, if any, in making their investment
decisions. See "Risk Factors -- Potential Loss of NOLs."

DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE

The Year 2000 problem is the result of many MIS using two digits (rather
than four) to define the applicable year. Thus, time-sensitive MIS may recognize
a date ending in "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions in a company's
operations. As a result, in less than two years, MIS used by many organizations
may need to be upgraded to comply with Year 2000 requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with the failure to become Year 2000 compliant.

SpinCycle depends upon MIS to monitor daily revenue and machine utilization
in each of its stores, exercise centralized cash controls and compile and
analyze critical marketing and operations data. Any disruption in the operation
of the Company's MIS, the loss of employees knowledgeable about such systems or
the Company's failure to continue to effectively modify such systems as its
business expands would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competitive
Strengths."

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The Company's Readiness for Year 2000. Based on the Company's initial
tests and certifications received from its MIS providers, the Company believes
that its critical software systems are currently Year 2000 compliant and that
its store hardware systems will be compliant by the end of the first quarter of
1999. Management's assessment of the Company's exposure to Year 2000 problems
began in March 1998 with a test of all of the Company's MIS for Year 2000
readiness. Since that time, management has obtained certifications from the
providers of the Company's accounting, revenue control and other critical
software systems that such MIS are Year 2000 compliant. Final test procedures
for Year 2000 compliance are being developed by management. Currently, the
Company believes that it is approximately 85% ready for the Year 2000. By the
end of the first quarter of 1999, management believes the Company will be 100%
Year 2000 compliant. However, if the Company's modifications and testing are not
made on a timely basis or do not resolve its Year 2000 issues, such issues could
have a material adverse effect on the operations of the Company. See also Note
14 to the Unaudited Consolidated Financial Statements for a discussion of the
Company's new accounting software.

Readiness of Third Parties. The Company has taken reasonable precautions
to verify the Year 2000 readiness of any third party that could cause a material
impact on the Company. Alliance, the Company's major supplier of laundry
machines, has represented to the Company that the electronic controls embedded
in Alliance's machines will not experience problems as a result of Year 2000.
Alliance further represented that the electronic controls embedded in its
machines have been tested by simulating the Year 2000 date change and no
problems have arisen. In addition, SpinCycle's providers of essential software
systems have certified to the Company that such systems are Year 2000 compliant.

Historical and Estimated Costs. The Company has not established a separate
Year 2000 compliance budget and does not expect to do so in the immediate
future. To date, the Company has not incurred any Year 2000 compliance costs.
The Company's only immediately foreseeable cost for Year 2000 compliance is the
expenditure of approximately $50,000 to replace certain personal computers in
the Company's stores by the end of the first quarter of 1999. Although no
assurances can be given, management does not expect future costs related to Year
2000 compliance to have a material adverse effect on the Company's results of
operations or financial condition. Costs are based on current estimates and
actual results may vary significantly from such estimates.

Most Reasonably Likely Worst Case Scenario. The most reasonably likely
worst case Year 2000 scenario facing the Company is that the Company's expected
ability to implement variable pricing for its laundry machines in an effort to
boost off-peak customer traffic, revenues and profitability may temporarily
malfunction on January 1, 2000. Since the machines recognize each day of the
week based upon the calendar date contained in their embedded computer chips,
the price programmed for a certain day of the week may in fact appear on a
different day. Although the Company does not currently have a definitive
contingency plan in place to deal with this issue, it is expected that each
store's personnel will be able to adjust the programming in each laundry machine
so that the date contained in its embedded chip once again correlates with the
correct day of the week. In the unlikely event that the dates in the embedded
chips are not able to be reset, store personnel will be able to manually set the
laundry machines to charge a fixed price until such time as the Company resolves
defects in its variable pricing system. See "Risk Factors -- Dependence on
Management Information Systems; Year 2000 Compliance."

SEASONALITY

Coin-operated laundromat industry data indicates that a slight reduction in
revenue for the Company may occur during the later spring and summer seasons.
Management believes this seasonality is a result of the reduced volume of
heavier clothing worn during the spring and summer months, which results in
lower laundry machine usage. The Company observed the effect of such seasonality
in the 70 stores opened for the period from December 28, 1997 to October 4,
1998. During the first ten periods, ending October 4, 1998, these 70 stores'
revenue fluctuated approximately 11.5%, from a peak during the third period to a
low in the ninth period. These 70 stores experienced an aggregate 6.2% increase
in revenue in period ten over period nine. These results are, however, based
upon only relatively limited actual operating data of the Company and may not be
indicative of future results. The Company believes, however, that any
seasonality will not have a material adverse effect on its annual results of
operations. See "Risk Factors -- Seasonality."

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BUSINESS

THE COMPANY

The Company was founded in October 1995 to develop and implement
SpinCycle's unique concept of a national chain of branded coin-operated
laundromats and to serve as a platform for a nationwide consolidation in the
coin-operated laundromat industry. The Company's goal is to become the leading
operator of high quality coin-operated laundromats in the United States by
establishing SpinCycle as a national brand, providing a superior level of
customer service and by exercising disciplined management control in its
expansion and business plan. In sharp contrast to many existing laundromats, a
SpinCycle laundromat is an inviting, spacious and well-equipped facility that is
conveniently located, clean and well-lighted. As of September 6, 1998, the
Company had opened a total of 134 stores in 25 markets, 81 of which it developed
and 53 of which it acquired. SpinCycle stores are located in densely populated
urban markets, including Chicago, Cleveland, Albuquerque, Houston, Los Angeles,
Philadelphia, Detroit, Miami, Atlanta, Dallas and Washington, D.C. Of those 134
stores, the Company leases 132 and owns two of these sites.

The Company plans to selectively expand primarily within its existing
markets during the balance of 1998 and in 1999 by developing new SpinCycle
stores and acquiring existing laundromats. The Company's acquired stores
typically conform to a SpinCycle developed store in terms of location (physical
location and area demographics), store size and machine mix and can be converted
to a SpinCycle store with new signage, fresh paint and installation of the
Company's computer and point of sale systems. By year end 1998, management
believes that there will be approximately 176 SpinCycle stores.

Management believes its equipment configuration and store design is unique
and maximizes customer convenience and in-store experience. As evidence of its
superior concept, management believes, based upon Company compiled survey data
that over 90% of the customers who first visit its stores will return as
customers. SpinCycle stores are between 3,500 and 5,500 square feet,
significantly larger than the 1,500 to 2,500 square feet of a typical
laundromat, and generally contain 50 washers of varied capacities and 54 large
capacity dryers. The Company installs a computer board in each washer and dryer
which allows daily monitoring of machine utilization and superior cash control.
Each store is staffed during operating hours by at least one customer service
representative who assists customers, maintains the facility and performs "wash
and fold" services, if offered. Customers can sort and fold laundry while
watching color television with cable programming at 12 to 14 folding stations
and purchase food, beverages and laundry supplies from vending machines. In its
Developed Stores which have been Mature Stores for all of its first nine 1998
fiscal periods, the Company has achieved, on average, per period revenues of
$28,107. In its Acquired Stores which have been Mature Stores for all of its
first nine 1998 fiscal periods, the Company has achieved, on average, per period
revenues of $19,837. Management believes this Mature Store performance is a
result of its superior store design and management controls. There can be no
assurance that these results are indicative of future results.

MARKET OPPORTUNITY

The retail coin-operated laundromat industry began more than 50 years ago
and has been characterized by steady, non-cyclical demand. Management believes
the coin-operated laundromat industry, unlike other retail concepts, is
virtually unaffected by consumer fads and technological change, as laundry
represents a basic consumer necessity. Based on the 1997 Coin Laundry Industry
Survey, management estimates that retail coin-operated laundromats comprise a
$2.0-3.0 billion industry with approximately 25,000 laundromats nationwide, 89%
of which are operated by owners of only one or two stores and only 4% of which
are operated by owners of more than five stores. Today, management believes, the
industry is characterized by (i) fragmented store ownership, (ii) small,
unattractive stores and (iii) limited customer service. The Company's research
indicates that typical laundromats generally contain poorly maintained, aging
equipment and are often dirty and considered unsafe by their customers.
Management therefore believes that the typical laundromat user is significantly
underserved. Further, because management believes its targeted consumer group is
growing in size and market power, management believes that the coin-operated
laundromat industry presents favorable growth opportunities.

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

BUSINESS STRATEGY

Continue Growth in Existing and New Markets. The Company's strategy is to
maintain and build upon its position in the national retail coin-operated
laundromat industry. By consolidating its position in existing markets and
developing a strong presence in new markets the Company has the highest average
per store revenues of any national or regional chain. Management selects markets
which it believes have populations sufficiently large and dense to support a
large number of SpinCycle stores which can generate model Mature Store revenues.
SpinCycle utilizes two primary methods to roll out its concept: (i) developing
retail locations and (ii) acquiring and converting existing laundromats. During
1998, management expects to add a total of approximately 106 stores, through a
balance of Developed Stores and Acquired Stores, for a year end total of
approximately 176 stores, primarily in its 25 existing markets. In the first
nine periods of 1998, the Company opened 63 stores. As of October 27, 1998, the
Company had 150 stores operating and had ten leased stores under construction,
nine leases executed and signed letters of intent to acquire seven stores, all
of which management expects to open or acquire by year end 1998. The
pre-construction permitting process varies from market to market but takes, on
average, from 30 to 60 days to complete. Once construction begins, it takes the
Company approximately 12 weeks to open the store. In addition, the Company
maintains a dynamic database of approximately 200 potential acquisition targets.

Continue Superior Site Selection. Based upon management's knowledge and
experience in site selection for other multi-unit retail concepts, as well as
their experience in opening the first 150 SpinCycle stores, management believes
that operating from superior real estate is an essential element in SpinCycle's
ability to generate revenue in excess of industry averages and gain and maintain
market share. The Company identifies both development sites and acquisition
targets using a systematic market analysis and a "Main and Main" strategy,
whereby it seeks to locate stores near intersections of major thoroughfares in
high profile neighborhood shopping centers or freestanding buildings in order to
maximize customer traffic and brand exposure. The Company's real estate and
acquisitions departments will continue to employ disciplined criteria in order
to ensure that SpinCycle secures the best available locations in each of its
markets.

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

COMPETITIVE STRENGTHS

Management believes SpinCycle is the leading owner-operator of nationally
branded coin-operated laundromats. The Company's management believes it has the
following competitive strengths:

Superior Facility and Customer Service. SpinCycle stores have high
visibility to traffic, bright, colorful exteriors and signage and are finished
with large windows to optimize visibility into the store while providing a

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bright and secure interior. SpinCycle stores are designed with a unique
equipment mix to optimize customer convenience and satisfaction and to maximize
profitability. The Company's stores are always staffed with at least one
customer service representative trained to follow the SpinCycle-prescribed
operations program, which emphasizes cleanliness, customer responsiveness and
equipment maintenance. SpinCycle stores are air conditioned and have multiple
color televisions with cable programming and numerous folding stations, as well
as children's play areas, bathrooms, pay telephones and snack, beverage and
laundry supply vending machines. Based upon Company compiled survey data
management believes that over 90% of the customers who first visit its stores
will return as customers. Management believes that this statistic is the direct
result of its superior facilities and customer service. This data also indicates
that more than 20% of SpinCycle customers have laundry equipment in their homes,
which management believes indicates that the SpinCycle concept has increased the
number of potential customers rather than merely capturing market share from
existing laundromats. In addition, management anticipates providing value-added
services, such as drop off "wash and fold" laundry service which as of September
6, 1998 was available in 71 stores, at selected stores to further enhance
customer satisfaction and generate incremental store revenue.

Industry Leader. Management believes SpinCycle is the first owner-operator
to launch a disciplined national consolidation in the retail coin-operated
laundromat industry and has gained valuable experience in opening its first 150
stores. By being the first nationally branded operator of superior laundromat
facilities, and by effectively promoting and clustering stores in prime
locations in its targeted markets, the Company expects to rapidly achieve market
leading positions in each of its markets. Management expects the creation and
ongoing support of this leading national brand to drive significant additional
revenue and store profit as SpinCycle increasingly becomes the laundromat of
choice for consumers. In addition, the Company has already begun to experience a
dramatic shift in landlord receptivity to the SpinCycle concept. Initially,
landlords (and other retail tenants), wary of the image of a typical laundromat,
were reluctant to have SpinCycle as a tenant in desirable neighborhood shopping
centers. More recently, however, landlords (and other retail tenants) have begun
to actively encourage SpinCycle to become a tenant because of direct and
observed experiences that SpinCycle stores can increase customer traffic as its
customers typically spend two hours in and around the store while doing their
laundry. As the Company has established multiple outlets and become more widely
known, it has begun to receive unsolicited offers from laundromat owners who
wish to sell their stores and to realize purchasing economies on equipment and
supplies.

Advanced Systems and Controls. SpinCycle brings superior MIS and cash
controls to a highly fragmented, unprofessionally managed industry. SpinCycle's
advanced systems allow the Company to monitor daily revenue and machine
utilization in each of its stores, exercise centralized cash and management
control and compile and analyze critical marketing and operations data. For
example, the Company has refined the mix of machines in its stores based on data
gathered from existing stores and is poised to implement remote variable pricing
to boost off-peak customer traffic, revenues and profitability once the
manufacturer makes the necessary laundry machine modifications. The Company's
MIS also allow management to reconcile each machine activation to cash
collected, identify non-performing machines and coordinate efficient machine
maintenance. Additionally, Brinks Incorporated and other service companies work
in concert with the Company to further mitigate the risk inherent in a cash
business. As a result of its superior controls, the Company has experienced
annual shrinkage of less than 0.50%.

Experienced Management. The Company has achieved its leadership position
and established a national presence by hiring a management team with experience
in finance, development, operations and multi-unit rollouts on a national scale.
SpinCycle is professionally managed as three integrated business segments: (i)
real estate/acquisitions, (ii) operations and (iii) MIS. Members of management
have significant expertise in all of these disciplines. The Company's real
estate/acquisitions department includes professionals with significant site
selection experience at several other multi-unit concepts, some of which were
rapidly rolled out. The operations department includes senior management from
Rent-A-Center, a rent-to-own multi-unit operation whose target customer closely
mirrors SpinCycle's target customer. The Company's MIS department includes
several professionals with extensive experience in building a "hub and spoke"
wide area network and in developing computer systems for operations. Management
believes this experience affords the Company a competitive advantage in rolling
out and managing a nationwide chain.

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SPINCYCLE CUSTOMERS

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

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

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

- Approximately 73% are between 18 and 39 years old

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

- Approximately 78% rent their dwellings

- Approximately 62% live in apartment units

- Approximately 20% own a washer and dryer

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

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

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

- Spend an average of approximately $10 per visit

SpinCycle's research regarding its existing customers, potential customers
and past customers is undertaken in order to allow the Company to continue to
deliver a superior facility and superior customer service. SpinCycle has also
used this information to tailor its store design and the services provided to
accommodate market specific needs of its customers. It is this attention to
customer needs that the Company believes results in the Company's ability to
retain customers.

INDUSTRY OVERVIEW

The retail coin-operated laundromat industry is over 50 years old and has
been characterized by steady, non-cyclical demand and a relatively minimal
degree of technological innovation. Today, management believes, the industry is
characterized by (i) fragmented store ownership, (ii) small, unattractive stores
and (iii) limited customer service. According to the 1997 Coin Laundry Industry
Survey there are approximately 25,000 laundromats nationwide, 89% of which are
owned by owners of one or two stores, and only 4% of which are owned by owners
of more than five stores. Nationwide, over 84% of the coin-operated laundromats
are less than 4,000 square feet, with the average laundromat size being
approximately 2,480 square feet.

According to the 1997 Coin Laundry Industry Survey, the average annual
revenue generated by a laundromat in the United States is approximately
$151,000, the median laundromat generates approximately $93,700 in annual
revenue, and only 6% of laundromats generate greater than $300,000 in annual
revenues. The average store has 33 washers and 19 dryers and the typical washer
equipment mix includes over 58% top load machines. Management believes that top
load machines have a significantly shorter life and are less profitable to
operate than front load machines.

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

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CURRENT OPERATIONS AND PLANNED EXPANSION

The Company's current operations and its planned expansion focus on
achieving a "critical mass" of SpinCycle stores in its targeted markets.
Management expertise focuses on employing rigorous, standard criteria to
development, acquisitions and operations in order to achieve steady, repeatable
store performance. As of October 27, 1998, the Company had opened 150 stores in
25 markets across the United States. Of these 150 stores, the Company developed
86 stores and purchased 64 stores. During the balance of 1998, management
expects to open approximately 26 additional stores. As of October 27, 1998, the
Company had ten leased stores under construction, nine leases executed and
signed letters of intent to acquire seven stores, all of which management
expects to open or acquire by year end 1998. The following map summarizes the
current states and markets in which the Company operates as well as the states
and markets which the Company intends to enter through 1999:

[SPIN CYCLE MAP]

SPINCYCLE'S EXPANSION STRATEGY

Through 1998 and beyond, the Company intends to expand upon its leading
position in the national retail coin-operated laundromat industry through a
systematic two-pronged approach of opportunistic development and consolidation.
SpinCycle intends to continue to expand in 1998 primarily within its 25 existing
markets. Substantial development and acquisition activity in 1999 and beyond is
dependent upon the Company obtaining additional capital and/or borrowing
capacity.

SpinCycle approaches expansion methodically, utilizing its knowledge of the
SpinCycle customer as the basis for its growth. Whether acquiring or developing
locations within existing or new markets, the Company bases its expansion
decisions on a careful examination of the market. Based upon demographic studies
analyzing the concentration of the typical SpinCycle customer, the Company
determines its target markets and defined trade areas within these markets and
opportunistically develops or acquires stores that meet, or can be converted in
order to meet, SpinCycle's target store economics. Management believes such an
approach to expansion allows the Company to rapidly achieve a leading position
within markets that support the SpinCycle concept.

Market Plan. SpinCycle considers its market plan the first step in its
expansion process. Based on management's understanding of its core customer,
SpinCycle identifies markets that contain a base of its target customers
sufficient to support a critical mass of SpinCycle stores. Once a market of such
size is

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identified, SpinCycle gathers detailed demographic information to define
individual trade areas that the Company believes encompass the majority of
potential SpinCycle customers in the overall market. Finally, SpinCycle
identifies all eligible development sites and acquisition candidates within
these defined trade areas that are best suited to service the trade area.
Markets are identified using detailed third party demographic information
including population density, median household income, average household size
and age, renter/owner ratios and annual laundromat spending densities.

SpinCycle considers a trade area sufficient if it has a population density
of at least 15,000 households with a median household income ranging from
$25,000 to $35,000 per year, average household size of greater than two
occupants, a renter-occupied housing percentage of at least 50% and annual
laundromat spending densities in excess of $1.0 million. The Company defines
trade areas by, among other criteria, six to seven minute average drive times to
the potential site, geographic barriers, traffic patterns and major
thoroughfares. Once the trade areas are defined, the Company's real estate
professionals, aided by local real estate brokers, gather information on
competition, traffic counts and patterns, locations of high traffic retailers
(such as discount stores and grocery stores) and the locations of retailers
which cater to a customer base similar to SpinCycle's (such as dollar stores,
rent-to-own stores and check-cashing stores). Such information is used to create
the real estate strategy for a particular trade area. After mapping this
information, the real estate professionals identify (i) key intersections for
potential SpinCycle locations and (ii) potential acquisition candidates within
the trade area.

Development. Once the market plan is complete and all trade areas are
defined, the Company's regional real estate professional develops a list of all
potential SpinCycle sites within the given trade areas. Key factors in
identifying potential SpinCycle sites are store visibility and profile, access,
size, signage, parking, location, economics, expected transaction timing and
estimated store volume. Several tours of the trade area are performed to ensure
that the Company evaluates all available sites. Concurrently, the real estate
team begins negotiations to lease desired space and to secure tenant improvement
contributions by the landlord and/or evaluate potential acquisitions. The
typical SpinCycle lease is for a ten year term with between two and four five
year renewal options with 10-12% rent escalation every five years.

Once potential development sites are identified, the Company's regional
real estate professional and regional construction manager prepare a development
budget for each store at its particular site. If the store can be developed
within budgeted criteria, the site is submitted for final field approval by the
Chief Development Officer. Upon completion of field approval, a comprehensive
site evaluation package is submitted for approval by SpinCycle's senior
management.

Once a site is approved, the Company's nationwide network of general
contractors, design firms and architectural firms allows SpinCycle to quickly
and accurately customize it to the SpinCycle format while minimizing development
overrun costs. The Company typically requires a minimum of three bids for any
construction project. The Company's regional construction managers are usually
familiar with the work of the contractors they engage thus further helping to
ensure a timely, consistent and high quality build-out. By coordinating
construction efforts through Company construction professionals, management
believes it has been able to realize significant development cost savings
through on-going improvements in site design and engineering.

Acquisitions. SpinCycle targets the acquisition of existing laundromats
which (i) enhance SpinCycle's rapid achievement of critical mass in targeted
markets and allow strategic consolidation of local competitors, (ii) eliminate
duplicative development efforts, (iii) provide immediate mature cash flow and
(iv) can be easily converted to SpinCycle's store concept. SpinCycle identifies
and acquires acquisitions through its regional real estate professionals,
advertising in industry trade journals, contacts provided by equipment
manufacturers and distributors and referrals from other sellers. Additionally,
because the typical laundromat owner has historically lacked an exit strategy,
SpinCycle often receives unsolicited inquiries from potential sellers. During
1997, SpinCycle acquired 27 laundromats in seven markets.

SpinCycle utilizes a proprietary financial model based on utility
consumption rates and machine mix to verify the historical revenue information
provided by a potential acquisition candidate. Additionally, a thorough analysis
of a potential acquisition candidate's competitive position within its trade
area helps to
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ensure the Company's ability to sustain such historical cash flows. The Company
has typically purchased stores at a 4.0x-5.0x Store EBITDA, pro forma for the
Company's anticipated expense levels (or 3.0x-4.0x historical Store EBITDA),
although from time to time the Company has acquired, and expects that in the
future it will acquire, existing laundromats based upon other strategic
considerations.

OPERATIONS

Once a store is opened, SpinCycle believes that its manner of operations
distinguishes it from its competition. Key components of SpinCycle's operating
strategy include (i) heavy emphasis on customer satisfaction and superior
facility maintenance, (ii) facility security and (iii) loss prevention through
management controls. SpinCycle considers customer satisfaction paramount in its
efforts to build a successful chain of branded coin-operated laundromats. To
ensure customer satisfaction, SpinCycle expends significant resources training
store employees to provide consistent and reliable store appearance,
extraordinary customer service and facility maintenance.

Customer Satisfaction and Facility Maintenance. SpinCycle has established
high quality standards in an industry characterized by its lack of attention to
customer service and satisfaction. Management believes its equipment
configuration and store design is unique and ensures customer satisfaction by
providing a pleasant in-store experience and minimizing the time necessary to
complete full laundry cycles. Stores generally are open from 7:00 a.m. to 10:00
p.m. daily, with some stores open for extended hours. Several Acquired Stores
are open 24 hours.

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

SpinCycle also strives to keep all of its equipment in good working order.
The Company's success in machine maintenance results from its insistence upon
purchasing high quality commercial washers and dryers and training in-store
staff to execute routine maintenance programs. Approximately 80% of the washers
in a SpinCycle store are front load washers, which management believes are more
durable and more efficient to operate than top loaders. Store employees are also
trained to troubleshoot machine problems before referring matters to service
technicians. The Company's next generation proprietary store control system was
site-tested in the second quarter of 1998. Future enhancements include the
ability to remotely monitor and diagnose maintenance issues and to provide
maintenance personnel access to the maintenance history of each machine and an
advance indication of the nature of a problem in order to ensure that service
technicians have the parts necessary to complete a service call. These
enhancements cannot, however, be implemented until the laundry equipment
manufacturers make some hardware adjustments.

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

Management Controls. SpinCycle installs a network interface card ("NIC")
in each of its washers and dryers. These cards are connected to a personal
computer in the store which polls the individual NIC's, creating a local area
network ("LAN"). The LAN in each store is linked via modem to the Company's
headquarters enabling management to track daily performance of each machine at
each store and thereby constantly evaluate actual store performance versus
budgeted levels. Such tracking also enables the real estate and operations
departments to evaluate overall market strategy and make necessary adjustments
in the site criteria used to make future real estate decisions.

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The store control system records each machine activation and downloads this
information to corporate headquarters nightly. Cash management involves a
process of daily coin collection by employees, who then deposit the cash into a
store safe. The cash is then collected by Brinks Incorporated or another armored
car service. The collected amount is reconciled against the Company's data
collected from the store control system. SpinCycle's cash handling procedures
are designed to minimize the risk to employees as well as the potential for
theft, as theft is detectable from the daily reconciliation reports. The
implementation of these cash handling procedures has allowed the Company to
maintain annual shrinkage of less than 0.50%. In addition to providing an
effective auditing mechanism, the system also assists management in making
staffing, operating and security decisions, as well as determining optimal
machine mix and configuration.

MARKETING

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

SpinCycle actively promotes off-peak usage by offering mid-week specials
such as reduced wash or dry prices. SpinCycle's next generation store control
system is expected to allow for remote price changing, which is expected to
enable corporate management to run mid-week price reductions and other
promotions from SpinCycle headquarters. Management believes that this capability
should help the Company to substantially increase non-peak hour demand for its
equipment and generate significant incremental revenue.

COMPETITION

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

Management believes that the principal competitive factors in the retail
coin laundry industry are convenient location, adequate parking, a varied
equipment mix, functioning machines, attended facilities and customer
satisfaction. Management believes it is superior to its competitors in each
regard. See "Risk Factors -- Competition."

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39

EMPLOYEES

As of September 6, 1998, the Company had 759 total employees of whom 459
are full time and 300 are part-time. Each of the Company's full-time employees
is eligible for medical benefits, which management believes helps the Company
hire and retain the best available employees. The Company's part-time employees
work primarily in the Company's stores and are engaged primarily in customer
service functions.

FACILITIES

The Company leases its approximately 15,500 square foot corporate office in
Scottsdale, Arizona pursuant to a five year lease, expiring July 2002.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

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

NAME AGE POSITION
- ---- --- --------

Peter L. Ax.................... 39 Chief Executive Officer and Chairman of the Board
Christopher A. Lombardi........ 37 Chief Development Officer
James R. Puckett............... 36 Chief Financial Officer
Matthew B. Campbell............ 42 Vice President, Operations
Chief Information Officer, Vice President,
Patrick H. Boyer............... 36 Finance
John S. Banas, III............. 36 General Counsel
Alfredo Brener................. 46 Director
Dean Buntrock.................. 67 Director
James E. Hutton................ 60 Director
John H. Muehlstein............. 43 Director
Peer Pedersen.................. 73 Director
John Wallace................... 38 Director

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

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

James R. Puckett has been the Chief Financial Officer since May 1998.
Previously he was Vice President of Corporate Development from May 1997 to May
1998. From June 1995 to May 1997, Mr. Puckett was a senior member of the Real
Estate Finance Group in the Fixed Income Division of Donaldson, Lufkin &
Jenrette, Inc. where he was responsible for underwriting debt securities. From
July 1990 to May 1997, Mr. Puckett served in the Investment Banking Division of
PaineWebber, Inc. Previously, Mr. Puckett served in the Corporate Finance
Department of Drexel Burnham Lambert Incorporated where he was responsible for
underwriting equity and debt securities and merger and advisory assignments. Mr.
Puckett has a B.A. from the University of New Mexico.

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

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Patrick H. Boyer has been the Chief Information Officer and Vice President,
Finance since May 1998, He was Chief Financial Officer from March 1998 to May
1998. Previously, Mr. Boyer was the Chief Information Officer from March 1996
until March 1998 and was the Vice President of Finance from March 1996 to August
1997. From July 1994 to March 1996, Mr. Boyer was President of Portable Systems
Solutions, Inc., a management information systems consulting firm. From August
1992 to June 1994, Mr. Boyer was National Sales Manager for Lisa Frank, Inc., a
stationery and school supply manufacturer. Previously, Mr. Boyer had been
Controller at Hogue Printing, Inc. and worked at Arthur Andersen and Co. and
Andersen Consulting. Mr. Boyer has an M.B.A. from the University of Missouri and
a B.A. from Trinity University.

John S. Banas, III has been General Counsel since July 1998. Previously,
Mr. Banas served as Senior Corporate Counsel for Lam Research Corp. from
December 1995 to January 1998. From October 1992 to December 1995, Mr. Banas was
an associate at the law firm of Wilson, Sonsini, Goodrich & Rosati. Mr. Banas
has a J.D. from Northwestern University School of Law and a B.A. from Tufts
University.

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

Dean Buntrock has been a Director since January 1998. Mr. Buntrock was the
founder and Chairman of the Board of Waste Management, Inc. from 1968 to July
1997 and was its Chief Executive Officer from 1968 until June 1996 and from
February 1997 until August 1997. Mr. Buntrock was Chairman of the Board of
Wheelabrator Technologies, Inc. from March 1997 until December 1997. Mr.
Buntrock was also a director of Boston Chicken, Inc., WM International, First
National Bank of Chicago and Stone Container Corp.

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

John H. Muehlstein has been a Director since April 1997. Since 1986, Mr.
Muehlstein has been a Partner of Pedersen & Houpt, P.C., Chicago, Illinois,
counsel to the Company. Mr. Muehlstein's practice focuses on private capital
transactions and corporate finance. Mr. Muehlstein is a director of Blue Rhino
Corporation and Einstein/Noah Bagel Corp. Mr. Muehlstein is a nephew of Mr.
Pedersen, another director of the Company.

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

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

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DIRECTOR COMPENSATION

Currently, the Company's directors receive no cash compensation for serving
on the Board of Directors. They do, however, receive reimbursement for expenses
reasonably incurred in connection with their service to the Company as
directors. There is also a Non-Employee Director Stock Option Plan pursuant to
which as of July 1 of each year each non-employee director is entitled to a
grant of an option to purchase 20 shares of Common Stock which vest over three
years on each anniversary of the grant date. The initial grants under the plan
vested immediately. Options to purchase 100 shares per the initial grants to
directors and 120 shares per the 1998 grant are outstanding.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has an Audit Committee (the "Audit Committee"), a
Compensation and Organization Committee (the "Compensation Committee") and a
Finance Committee (the "Finance Committee"). The Audit Committee is composed of
Messrs. Hutton and Brener. The Audit Committee is responsible for reviewing the
scope of the independent auditors' examinations of the Company's financial
statements and receiving and reviewing their reports. The Audit Committee also
meets with the independent auditors, receives recommendations or suggestions for
changes in accounting procedures and initiates or supervises any special
investigations it may choose to undertake. The Compensation Committee is
composed of Messrs. Buntrock, Muehlstein and Pedersen. Messrs. Muehlstein and
Pedersen are members of the law firm of Pedersen & Houpt, P.C. which serves as
counsel to the Company. See "Certain Transactions." The Compensation Committee
determines the Company's policies with respect to the nature and amount of all
compensation of the Company's executive officers and administers the Company's
employee option plans. The Finance Committee is composed of Messrs. Buntrock,
Pedersen and Wallace. The Finance Committee is responsible for overseeing the
Company's borrowing and capital raising activities.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth the
compensation paid by the Company during the year ended December 28, 1997 to the
Company's Chief Executive Officer and its four other executive officers with
annual compensation of $100,000 or more (collectively, the "Named Executive
Officers"). The Company did not grant stock appreciation rights or stock options
to any Named Executive Officer during the year ended December 28, 1997.

LONG-TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------
------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL STOCK ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) (#) ($)
- --------------------------- ------ ------ ------ ------------ ---------- ------------

Patrick A. Clifton.............. 1997 200,000 44,167 36,900 -- --
Chief Executive Officer
and Chairman(3)
Peter L. Ax..................... 1997 150,000 450,000(4) --(5) 8,038(6)(7) --
Chief Financial Officer
and Vice Chairman(8)
Bruce D. Mosby.................. 1997 200,000 -- 33,300 4,038(7) --
Chief Operating Officer(9)
Christopher A. Lombardi......... 1997 110,640 25,000 32,300 2,038(7) --
Chief Development Officer
Patrick H. Boyer................ 1997 86,650 25,000 40,700 2,038(7) --
Chief Information Officer

- ---------------
(1) As of year end 1997, the Company accrued $338,754 for bonuses for all
employees for fiscal 1997. In May 1998, the Compensation Committee agreed to
pay cash bonuses to the senior executive officers as follows: Mr. Ax,
$50,000; Mr. Lombardi, $25,000; and Mr. Boyer, $25,000 (of which $22,800 was
guaranteed). Mr. Clifton's bonus was not part of the accrual.
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(2) The amounts presented for each of the Named Executive Officers are comprised
primarily of relocation compensation related to the Company's move to
Arizona and automobile allowances.

(3) Mr. Clifton was Chief Executive Officer of the Company until his resignation
on January 21, 1998; he was Chairman of the Board of Directors until his
resignation on February 27, 1998. Mr. Clifton resigned to pursue other
interests. Pursuant to a severance agreement dated February 27, 1998, the
Company has agreed to pay Mr. Clifton $200,000 in annual compensation, plus
continue disability benefits for him and medical benefits for him and his
immediate family through February 2001. Concurrently with the execution of
the severance agreement, the Company agreed to forgive a loan to Mr. Clifton
in the amount of $50,000, plus accrued interest thereon, Mr. Clifton
relinquished certain stock option and first refusal rights he had held and
the Company redeemed approximately 75% of Mr. Clifton's holdings of Common
Stock (18,019 shares) in exchange for an extra year of compensation beyond
the term to which he was entitled pursuant to his employment agreement.

(4) In April 1997, the Company paid Mr. Ax $400,000 for services rendered prior
to joining the Company in connection with the private offer and sale of the
Company's Series B Stock. Mr. Ax was engaged by the Company in lieu of
engaging an investment bank as placement agent.

(5) Mr. Ax received perquisites and other personal benefits in addition to
salary, cash bonuses and other annual compensation. The amounts of such
perquisites and other personal benefits are not shown because the aggregate
amount of such compensation, if any, for Mr. Ax during the 1997 fiscal year
did not exceed the lesser of $50,000 or 10% of total salary and bonus
reported for such executive officer.

(6) As a founder of the Company, Mr. Ax was granted an option to purchase 8,000
shares of Common Stock at $125.00 per share. These options vest over time
upon attaining certain performance goals, provided, however, that if such
goals are not attained by December 15, 2001 such options shall be fully
vested. Mr. Clifton waived his rights to similar options in his severance
agreement dated February 27, 1998.

(7) Each of Messrs. Ax, Mosby, Lombardi and Boyer were granted fully vested
options to purchase 38 shares of Common Stock in connection with their
respective agreements to relocate to Arizona.

(8) Effective January 21, 1998, Mr. Ax became Chief Executive Officer of the
Company. Effective March 4, 1998, Mr. Ax became Chairman of the Company.

(9) Effective July 7, 1998, Mr. Mosby was terminated by the Company. Mr. Mosby
and the Company are in discussions regarding severance payments.

OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES

The following table sets forth certain information with respect to the
value of the stock options held by the Named Executive Officers at December 28,
1997. No Named Executive Officer exercised any stock options or stock
appreciation rights during the year ended December 28, 1997 or had any stock
appreciation rights outstanding at December 28, 1997.

FISCAL YEAR END OPTION VALUES

NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 28, AT DECEMBER 28,
1997(#)(1) 1997($)(2)
-------------------- --------------------
VESTED UNVESTED VESTED UNVESTED
------ -------- ------ --------

Patrick A. Clifton.......................... -- -- -- --
Peter L. Ax................................. 38 8,000(3) -- 600,000
Bruce D. Mosby.............................. 838 3,200(4) 60,000 --
Christopher A. Lombardi..................... 438 1,600 30,000 120,000
Patrick H. Boyer............................ 438 1,600 30,000 120,000

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- ---------------
(1) All of the options granted to the Named Executive Officers were granted
under the 1995 Option Plan (as defined). The options granted were for shares
of the Company's Common Stock. Unless otherwise noted, the options granted
to the Named Executive Officers vest 20% on each anniversary of the grant.

(2) With the exception of the vested options for 38 shares of Common Stock
granted to Messrs. Ax, Mosby, Lombardi and Boyer with an exercise price of
$200.00 per share, each of the options granted to the Named Executive
Officers is exercisable at a price of $125.00 per share of Common Stock.

(3) Mr. Ax's options vest upon attainment of certain performance goals,
provided, however that if such goals are not attained by December 15, 2001,
such options shall be fully vested.

(4) As of October 5, 1998, Mr. Mosby's rights to his vested options had expired.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of Messrs. Ax
and Lombardi. Mr. Ax's agreement, effective as of December 1, 1996 has a term of
four years with automatic one year extensions thereafter, subject to the
provision of at least six months written notice by either party. The agreement
includes a one year post-termination non-competition clause. If Mr. Ax is
terminated by the Company for any other reason except for "cause" as defined in
the agreement, Mr. Ax is entitled to salary and benefits for the remainder of
the term of the agreement, including any bonuses accrued but unpaid as of the
date of termination. In the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, or a reorganization or
recapitalization pursuant to which at least a majority of the equity investment
and voting control is the same as the Company's, the Company may assign its
obligations under the agreement to the surviving or purchasing entity. The terms
of the employment agreement between the Company and Mr. Lombardi is
substantially the same as with Mr. Ax except that upon termination other than
for "cause" Mr. Lombardi is entitled to salary and benefits for only one year.

1995 AMENDED AND RESTATED STOCK OPTION PLAN

The Company adopted a stock option plan in 1995, which was amended and
restated in 1997 (the "1995 Option Plan") to attract, retain and motivate
selected employees and officers of the Company. The 1995 Option Plan was
approved by the stockholders of the Company in June 1997. Pursuant to the 1995
Option Plan, options to purchase up to 69,270 shares of the Company's Common
Stock may be granted to employees or consultants to the Company. The 1995 Option
Plan is administered by the Compensation Committee which determines the persons
who are to receive options and the number of shares subject to each option. As
of September 6, 1998, options covering an aggregate of 38,025 shares of Common
Stock were outstanding, of which 7,903 were vested and none had been exercised.

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

In 1997, the Company adopted a non-employee director stock option plan (the
"Director Option Plan") to attract and compensate non-employee directors of the
Company. The Director Option Plan was approved by the stockholders of the
Company in June 1997. The Company has reserved 2,000 shares of Common Stock for
issuance under the Director Option Plan effective upon the consummation of the
Private Placement. Pursuant to the plan, all non-employee directors as of the
effective date of the Director Option Plan (July 1, 1997) and as of the first
board meeting after the annual stockholders meeting of each year beginning in
1998 are entitled to a grant of options to purchase 20 shares of Common Stock at
a price per share equal to the fair market value per share of the Common Stock
as of the grant date. The initial grants under the plan vested immediately;
subsequent grants vest over three years on each anniversary of the grant dates.
As of September 6, 1998, options to purchase 220 shares have been granted under
the Director Option Plan, of which 100 are vested and the other 120 vest over
three years, one third on each anniversary of the grant date of July 1, 1998.
See "-- Director Compensation."

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the capital stock of the Company as of October 27, 1998 by (i) each
person known by the Company to own beneficially more than 5% of the Company's
capital stock; (ii) each director of the Company; (iii) each Named Executive
Officer; and (iv) all executive officers and directors as a group.

NUMBER OF SHARES
OF CAPITAL STOCK
BENEFICIALLY PERCENT OF
NAME OWNED(1) VOTING RIGHTS
- ---- ---------------- -------------

DIRECTORS AND EXECUTIVE OFFICERS:
Dean Buntrock(2)....................................... 25,675 8.26%
Peer Pedersen(3)....................................... 24,551 7.90
Peter L. Ax(4)(13)..................................... 8,655 2.79
Patrick A. Clifton(5).................................. 7,426 2.39
John Wallace(6)........................................ 2,900 *
Patrick H. Boyer(7)(13)................................ 2,038 *
Christopher A. Lombardi(8)(13)......................... 2,038 *
Bruce D. Mosby(9)...................................... 800 *
James E. Hutton(10).................................... 1,073 *
John H. Muehlstein(11)................................. 804 *
Alfredo Brener(12)..................................... 20 *
------- -----
Total for Directors and Executive
Officers(14)............................... 77,700 25.02%
======= =====
OTHER BENEFICIAL OWNERS:
Howard C. Warren(15)................................... 23,681 7.62
William Farley(16)..................................... 21,420 6.89
------- -----
Total for All Beneficial Owners (16
persons)................................... 122,801 39.54%
======= =====

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

(1) Includes shares of Common Stock, Series A Stock, Series B Stock, Series C
Stock, vested options to purchase Common Stock and options to purchase
Common Stock which will vest within 60 days.

(2) Includes 4,319 shares of Series C Stock and 432 shares of Common Stock held
by Mr. Buntrock, 386 shares of Series A Stock and 2,421 shares of Series B
Stock held by Mr. Buntrock's wife, and 772 shares of Series A Stock, 4,842
shares of Series B Stock, 11,366 shares of Series C Stock and 1,137 shares
of Common Stock held by The Butterfield Group L.L.C., of which Mr.
Buntrock's wife is the manager. The business address of Mr. Buntrock is
Oakbrook Terrace Tower, One Tower Lane, Suite 2242, Oakbrook Terrace,
Illinois 60181.

(3) Includes 4,352 shares of Series A Stock, 9,684 shares of Series B Stock,
9,559 shares of Series C Stock and 956 shares of Common Stock. The business
address of Mr. Pedersen is 161 North Clark Street, Suite 3100, Chicago,
Illinois 60601.

(4) Includes 450 shares of Series C Stock, 8,167 shares of Common Stock and
vested options to purchase 38 shares of Common Stock held by Mr. Ax.

(5) Includes 6,026 shares of Common Stock owned by Mr. Clifton and 1,400 shares
of Series A Stock owned jointly by Mr. Clifton and his wife. Mr. Clifton's
business address is c/o Ms. Karen McConnell, Fennemore Craig, P.C., 3003
North Central Avenue, Suite 2600, Phoenix, Arizona 85012.

(6) Includes 2,880 shares of Series A Stock and vested options to purchase 20
shares of Common Stock held by Mr. Wallace. The business address of Mr.
Wallace is 3624 Ella Lee Lane, Houston, Texas 77027.

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(7) Includes 1,200 shares of Common Stock and vested options to purchase 838
shares of Common Stock held by Mr. Boyer.

(8) Includes 1,200 shares of Common Stock and vested options to purchase 838
shares of Common Stock held by Mr. Lombardi.

(9) Includes 800 shares of Common Stock held by Mr. Mosby. Mr. Mosby is no
longer employed by the Company. His business address is 1011 East Port Au
Prince Lane, Phoenix, Arizona 85022.

(10) Includes 800 shares of Series A Stock, 230 shares of Series C Stock, 23
shares of Common Stock and vested options to purchase 20 shares of Common
Stock held by Mr. Hutton. The business address of Mr. Hutton is 1311
Merrilville Road, Crown Point, Indiana 46307.

(11) Includes 484 shares of Series B Stock, 273 shares of Series C Stock and 27
shares of Common Stock held jointly by Mr. Muehlstein and his wife. Mr.
Muehlstein also has vested options to purchase 20 shares of Common Stock.
Mr. Muehlstein's business address is 161 North Clark Street, Suite 3100,
Chicago, Illinois 60601.

(12) Includes vested options to purchase 20 shares of Common Stock held by Mr.
Brener. The business address of Mr. Brener is 5298 Memorial Drive, Houston,
Texas 77007.

(13) The address of each such person is 15990 N. Greenway/Hayden Loop, Suite
400, Scottsdale, Arizona 85260.

(14) Includes vested options to purchase 1,720 shares owned by other executive
officers of the Company not listed above.

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

(16) Includes 579 shares of Series A Stock, 3,632 shares of Series B Stock,
1,136 shares of Series C Stock and 114 shares of Common Stock held by the
Fruit of the Loom, Inc. Senior Executive Officer Deferred Compensation
Trust of which Mr. Farley is the sole member of the Pension Investment
Committee of the Board of Directors of Fruit of the Loom, Inc., which
maintains sole voting power and investment power over these shares; 386
shares of Series A Stock and 2,421 shares of Series B Stock held by
Retirement Program of Farley Inc. of which Mr. Farley is the sole member of
the Pension Investment Committee; 579 shares of Series A Stock and 3,632
shares of Series B Stock held by Farley Inc. of which Mr. Farley is the
sole owner; 3,410 shares of Series C Stock and 341 shares of Common Stock
held by FTL Investments Inc. of which Mr. Farley is the Chairman and Chief
Executive Officer; and 2,273 Shares of Series C Stock and 227 shares of
Common Stock held by the Fruit of the Loom Pension Trust of which Mr.
Farley is the sole member of each Pension Investment Committee that has
sole voting power and investment power over these shares; and 370 shares of
Series A Stock and 2,320 shares of Series B Stock held by the Acme Boot
Company, Inc. Pension Plan of which Mr. Farley is the sole member of the
Investment Committee. Mr. Farley's business address is 233 South Wacker
Drive, Chicago, Illinois 60606.

CERTAIN TRANSACTIONS

In March 1997, Mr. Pedersen, a director of the Company, executed a personal
guarantee on behalf of the Company in favor of Associated Bank in connection
with an $8.0 million loan by Associated Bank to the Company. The loan was repaid
in April 1997 and Mr. Pedersen's guarantee was released. Mr. Pedersen did not
receive any consideration for executing the guarantee.

In April 1997, the Company paid Mr. Ax, Chairman and Chief Executive
Officer of the Company, a fee in the amount of $400,000 for services rendered
prior to joining the Company in connection with the private offer and sale of
the Company's Series B Stock. Mr. Ax was engaged by the Company in lieu of
engaging an investment bank as placement agent.

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In April 1997, Messrs. Buntrock and Pedersen, directors of the Company,
either directly or through their affiliates, purchased $1,880,853 and
$1,929,080, respectively, of Series B Stock from the Company. Messrs. Buntrock
and Pedersen purchased these shares on the same terms and conditions as all
other purchasers of Series B Stock.

In April 1998, Messrs. Buntrock and Pedersen, either directly or through
their affiliates, purchased $1,950,300 and $2,000,020, respectively, of Series C
Units, comprised of Series C Stock and shares of Common Stock.

Messrs. Muehlstein and Pedersen are partners and members of the management
committee of the law firm of Pedersen & Houpt, P.C., which has served as counsel
to the Company since March 1997. In that connection, the firm has been paid fees
for services rendered.

DESCRIPTION OF CAPITAL STOCK

As of September 6, 1998, there were 27,763 shares of Common Stock, 76,974
shares of Series A Convertible Preferred Stock, $.01 par value ("Series A
Stock"), 125,498 shares of Series B Convertible Preferred Stock, $.01 par value
("Series B Stock") and 72,930 shares of Series C Convertible Preferred Stock,
$.01 par value ("Series C Stock") outstanding, held of record by 178 holders. As
of such date, no shares of capital stock were held in the treasury of the
Company. In addition, as of September 6, 1998, the Company had outstanding
option grants exercisable for 38,025 shares of Common Stock. The following
summary of certain provisions of the Company's capital stock describes all
material provisions of, but does not purport to be complete and is subject to,
and qualified in its entirety by, the Company's certificate of incorporation, as
amended to date, by-laws and by the provisions of applicable law.

COMMON STOCK

The Company is authorized to issue up to 630,000 shares of Common Stock,
$.01 par value. Holders of Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
subject to Warrants sold by the Company in the Private Placement will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of Series A Stock, Series B
Stock, and Series C Stock and any series of Preferred Stock which the Company
may designate and issue in the future.

The shares of Common Stock held by current and former members of management
are subject to a stock transfer restriction agreement pursuant to which the
Company has a right of first refusal to purchase any such shares which a holder
desires to transfer before such shares may be transferred to any other person.

PREFERRED STOCK

The Company is authorized to issue up to 100,000 shares of Series A Stock,
150,000 shares of Series B Stock and 120,000 shares of Series C Stock. Holders
of Preferred Stock are entitled to one vote for each share held on all matters
and do not have cumulative voting rights. Accordingly, holders of a majority of
the shares of Preferred Stock entitled to vote in any election of directors may
elect a majority of the directors standing for election. Concurrently with the
closing of the Private Placement, the rights of the holders of Series A Stock,
Series B Stock and Series C Stock to require the Company to purchase their
shares to the Company at any time on or after June 1, 2001 (if the Company has
not yet completed a qualified initial public offering) following notice to the
Company by the holders of 51% or more of the Company's preferred stock were

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terminated. The shares of Series A Stock, Series B Stock and Series C Stock are
pari passu with respect to liquidation preference.

Series A Convertible Preferred Stock. The Company has 76,974 shares of
Series A Stock outstanding. Holders of Series A Stock are entitled, along with
the holders of the Series B Stock, to vote as a class to elect one person to the
Board of Directors. The Series A Stock is convertible into shares of Common
Stock on a one-for-one basis and will be converted into Common Stock
concurrently with a qualified public offering of the Company's Common Stock.
Holders of Series A Stock have preemptive rights with respect to the issuance of
any equity securities of the Company. Concurrently with the closing of the
Private Placement, the put rights of holders of Series A Stock were terminated.
The shares of Series A Stock are fully paid and nonassessable.

Series B Convertible Preferred Stock. The Company has 125,498 shares of
Series B Stock outstanding. Holders of Series B Stock are entitled, along with
the holders of the Series A Stock, to vote as a class to elect one person to the
Board of Directors. The Series B Stock is convertible into shares of Common
Stock on a one-for-one basis and will be converted into Common Stock
concurrently with a qualified public offering of the Company's Common Stock.
Holders of Series B Stock have preemptive rights with respect to the issuance of
any equity securities of the Company. Concurrently with the closing of the
Private Placement, the put rights of holders of Series B Stock were terminated.
The shares of Series B Stock are fully paid and nonassessable.

Series C Convertible Preferred Stock. The Company has 72,930 shares of
Series C Stock outstanding. Holders of Series C Stock are entitled to vote as a
class to elect one person to the Board of Directors. The Series C Stock is
convertible into shares of Common Stock on a one-for-one basis and will be
converted into Common Stock concurrently with a qualified public offering of the
Company's Common Stock. Holders of Series C Stock have preemptive rights with
respect to the issuance of any equity securities of the Company. The shares of
Series C Stock are fully paid and nonassessable.

REGISTRATION RIGHTS

The holders of Series A Stock, Series B Stock and Series C Stock have both
demand and "piggyback" registration rights. At any time after the earlier to
occur of (i) May 1, 1998 or (ii) the expiration of any lock up period in
connection with an initial public offering by the Company, the holders of 51% of
the shares of Preferred Stock outstanding may demand that the Company use its
best efforts to register their shares at the Company's expense. The preferred
stockholders may make up to three such demands upon the Company. The preferred
stockholders also have "piggyback" registration rights pursuant to which they
have the right to participate in any registration other than a registration on
Form S-8 (or similar form), subject to typical underwriter reductions in shares
permitted to be sold.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware. In general, this statute prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transactions in which the person becomes an interested stockholder, unless
the business combination is approved in a prescribed manner. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within the prior three years did own) 15% or more of the corporation's voting
stock.

The Company has included in its certificate of incorporation provisions to
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by the Delaware
General Corporation Law and to indemnify its directors and officers to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law.

Certain provisions of the Company's certificate of incorporation and
by-laws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. Such provisions include (i) the
right of Series A and Series B stockholders, voting as a single class, to elect
one member of the Board of Directors, (ii) the right of Series C stockholders to
elect one member of the Board of Directors, and (iii) the requirement that at
least 76% of Series A stockholders approve any merger, sale of substantially all

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the Company's assets or similar transaction. These provisions were included as
an inducement to the Company's initial investors to invest in the Company by
enhancing their influence on the composition of the Board and in the policies
formulated by the Board. Because these provisions could have the effect of
discouraging a third party from acquiring control of the Company, they could
deprive stockholders of an opportunity to realize a takeover premium. These
provisions also may have the effect of limiting the price that certain investors
might be willing to pay in the future for shares of the Company's capital stock
and of preventing changes in the management of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's capital stock is Norwest
Bank Minnesota, N.A., Minneapolis, Minnesota.

DESCRIPTION OF THE WARRANTS

The Warrants were issued pursuant to the Warrant Agreement. The following
summary of certain provisions of the Warrant Agreement does not purport to be
complete and is qualified in its entirety by reference to all of the provisions
of the Warrant Agreement, including the definitions therein of certain terms.
Capitalized terms in this "Description of the Warrants" not defined in this
Prospectus have the meanings ascribed to them in the Warrant Agreement.

GENERAL

Each Warrant, when exercised, entitles the holder thereof to purchase .1839
shares of Common Stock from the Company at a price (the "Exercise Price") of
$.01 per share. The Exercise Price and the number of shares of Common Stock
issuable upon exercise of a Warrant are both subject to adjustment in certain
cases. See "-- Adjustments" below. The Warrants currently entitle the holders
thereof to acquire, in the aggregate, 26,661 shares of Common Stock representing
approximately 7.2% of the Common Stock outstanding (calculated on a
fully-diluted basis assuming the conversion of all securities convertible or
exchangeable into or exercisable for (with or without the passage of time)
shares of Common Stock and the exercise of all granted options).

The Warrants may be exercised at any time on or after the earlier of (x)
April 29, 1999 or (y) 60 days after the consummation of an initial public
offering of the Company's Common Stock. Unless earlier exercised, the Warrants
will expire on May 1, 2005 (the "Expiration Date"). The Company will give notice
of expiration not less than 90 nor more than 120 days prior to the Expiration
Date to the registered holders of the then outstanding Warrants. If the Company
fails to give such notice, the Warrants will nevertheless expire and become void
on the Expiration Date.

At the Company's option, fractional shares of Common Stock may not be
issued upon exercise of the Warrants. If any fraction of a share of Common Stock
would, except for the foregoing provision, be issuable upon the exercise of any
such Warrants (or specified portion thereof), the Company will pay an amount in
cash equal to the Current Market Value per share of Common Stock, as determined
on the day immediately preceding the date the Warrant is presented for exercise,
multiplied by such fraction, computed to the nearest whole cent.

Certificates for Warrants have been and will be issued in fully registered
form only. No service charge will be made for registration of transfer or
exchange upon surrender of any Warrant Certificate at the office of the Warrant
Agent maintained for that purpose. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Warrant
Certificates.

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

CERTAIN TERMS

Exercise. In order to exercise all or any of the Warrants, the holder
thereof is required to surrender to the Warrant Agent the related Warrant
Certificate and pay in full the Exercise Price for each share of Common Stock or
other securities issuable upon exercise of such Warrants. The Exercise Price may
be paid (i) in cash or by certified or official bank check or by wire transfer
to an account designated by the Company for such purpose or (ii) without the
payment of cash, by reducing the number of shares of Common Stock that would be
obtainable upon the exercise of a Warrant and payment of the Exercise Price in
cash so as to yield a number of shares of Common Stock upon the exercise of such
Warrant equal to the product of (a) the number of shares of Common Stock for
which such Warrant is exercisable as of the date of exercise (if the Exercise
Price were being paid in cash) and (b) the Cashless Exercise Ratio (the
"Cashless Exercise"). The "Cashless Exercise Ratio" shall equal a fraction, the
numerator of which is the excess of the Current Market Value per share of Common
Stock on the date which such Warrant is exercised (the "Exercise Date") over the
Exercise Price per share as of the Exercise Date and the denominator of which is
the Current Market Value per share of the Common Stock on the Exercise Date.
Upon surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the number of
shares of Common Stock deliverable upon a Cashless Exercise shall be equal to
the number of shares of Common Stock issuable upon the exercise of Warrants that
the holder specifies are to be exercised pursuant to a Cashless Exercise
multiplied by the Cashless Exercise Ratio. All provisions of the Warrant
Agreement shall be applicable with respect to a surrender of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby.

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

Mergers, Consolidations, etc. In the event that the Company consolidates
with, merges with or into, or sells all or substantially all of its assets to,
another Person, each Warrant thereafter shall entitle the holder thereof to
receive upon exercise thereof, per share of Common Stock for which such Warrant
is exercisable, the number of shares of common stock or other securities or
property which the holder of a share of Common Stock is entitled to receive upon
completion of such consolidation, merger or sale of assets. However, if (i) the
Company consolidates with, merges with or into, or sells all or substantially
all of its assets to, another Person and, in connection therewith, the
consideration payable to the holders of Common Stock in exchange for their
shares is payable solely in cash or (ii) there is a dissolution, liquidation or
winding-up of the Company, then the holders of the Warrants will be entitled to
receive distributions on an equal basis with the holders of Common Stock or
other securities issuable upon exercise of the Warrants, as if the Warrants had
been exercised immediately prior to such event, less the Exercise Price. Upon
receipt of such payment, if any, the Warrants will expire and the rights of the
holders thereof will cease. In the case of any such merger, consolidation or
sale of assets, the surviving or acquiring person and, in the event of any
dissolution, liquidation or winding-up of the Company, the Company must deposit
promptly with the Warrant Agent the funds, if any, required to pay to the
holders of the Warrants. After such funds and the surrendered Warrant
Certificates are received, the Warrant Agent is required to deliver a check in
such amount as is appropriate (or, in the case of consideration other than cash,
such other consideration as is appropriate) to such Persons as it may be
directed in writing by the holders surrendering such Warrants.

ADJUSTMENTS

The number of shares of Common Stock issuable upon the exercise of the
Warrants and the Exercise Price are subject to adjustment in certain events
including: (i) the payment by the Company of certain dividends (or other
distributions) on the Common Stock of the Company including dividends or
distributions payable in shares of such Common Stock or other shares of the
Company's capital stock, (ii) subdivisions,
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combinations and certain reclassifications of the Common Stock, (iii) the
issuance to all holders of Common Stock of rights, options or warrants entitling
them to subscribe for shares of Common Stock, or of securities convertible into
or exchangeable or exercisable for shares of Common Stock, for a consideration
per share which is less than the Current Market Value per share of the Common
Stock, (iv) the issuance of shares of Common Stock for a consideration per share
which is less than the Current Market Value per share of the Common Stock and
(v) the distribution to all holders of the Common Stock of any of the Company's
assets, debt securities or any rights or warrants to purchase securities
(excluding those rights and warrants referred to in clause (iii) above, any
rights which may be issued under a stockholder rights plan and cash dividends
and other cash distributions from current or retained earnings). No adjustment
to the number of shares of Common Stock issuable upon the exercise of the
Warrants and the Exercise Price will be required in certain events including:
(i) the issuance of shares of Common Stock in bona fide public offerings that
are underwritten or in which a placement agent is retained by the Company, (ii)
the issuance of options or shares of Common Stock pursuant to any option or
employee benefit plans approved by the Board of Directors and (iii) the issuance
of shares of Common Stock in connection with acquisitions of products,
technologies and businesses other than to affiliates of the Company.

In the event of a distribution to holders of Common Stock which results in
an adjustment to the number of shares of Common Stock or other consideration for
which a Warrant may be exercised, the holders of the Warrants may, in certain
circumstances, be deemed to have received a distribution subject to United
States federal income tax as a dividend. See "Certain Federal Income Tax
Consequences."

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

AMENDMENT

From time to time, the Company and the Warrant Agent, without the consent
of the holders of the Warrants, may amend or supplement the Warrant Agreement
for certain purposes, including curing defects or inconsistencies or making any
change that does not adversely affect the rights of any holder. Any amendment or
supplement to the Warrant Agreement that has an adverse effect on the interests
of the holders of the Warrants shall require the written consent of the holders
of a majority of the then outstanding Warrants. The consent of each holder of
the Warrants affected shall be required for any amendment pursuant to which the
Exercise Price would be increased or the number of shares of Common Stock
issuable upon exercise of Warrants would be decreased (other than pursuant to
adjustments provided in the Warrant Agreement).

REGISTRATION RIGHTS

Registration of Warrants. The Company is required under the Warrant
Agreement to use its reasonable best efforts to cause this Registration
Statement to remain effective until the earliest of (i) such time as all of the
Warrants have been sold thereunder, (ii) two years after its effective date or
(iii) such time as the Warrants can be sold without restriction under the
Securities Act.

Each holder of Warrants that sells such Warrants pursuant to this
Registration Statement generally is required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by certain
provisions of the Warrant Agreement which are applicable to such holder
(including certain indemnification obligations). In addition, each holder of
Warrants is required to deliver information to be used in connection with the
Registration Statement in order to have its Warrants included in the
Registration Statement.

Registration of Underlying Common Stock. The Company is required under the
Warrant Agreement to use its reasonable best efforts to cause this Registration
Statement to be declared effective on or before 365 days after the Issue Date
and to remain effective until the earlier of (i) such time as all Warrants have
been exercised and (ii) the Expiration Date.
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During any consecutive 365-day period, the Company shall be entitled to
suspend the availability of the Registration Statement for up to two 45
consecutive-day periods (except for the 45 consecutive-day period immediately
prior to the Expiration Date) if the Board of Directors determines in the
exercise of its reasonable judgment that there is a valid business purpose for
such suspension and provides notice that such determination was made to the
holders of the Warrants; provided, however, that in no event shall the Company
be required to disclose the business purpose for such suspension if the Company
determines in good faith that such business purpose must remain confidential.
There can be no assurance that the Company will be able to keep a registration
statement continuously effective until all of the Warrants have been exercised
or have expired.

CERTAIN DEFINITIONS

The Warrant Agreement contains, among others, the following definitions:

"Current Market Value" per share of Common Stock or any other security at
any date means (i) if the security is not registered under the Exchange Act, (a)
the value of the security, determined in good faith by the Board of Directors
and certified in a board resolution, based on the most recently completed
arm's-length transaction between the Company and a Person other than an
Affiliate of the Company, the closing of which shall have occurred on such date
or within the six-month period preceding such date, or (b) if no such
transaction shall have occurred on such date or within such six-month period,
the value of the security as determined by an independent financial expert or
(ii) if the security is registered under the Exchange Act, the average of the
daily closing bid prices (or the equivalent in an over-the-counter market) for
each Business Day during the period commencing 15 Business Days before such date
and ending on the date one day prior to such date, or if the security has been
registered under the Exchange Act for less than 15 consecutive Business Days
before such date, then the average of the daily closing bid prices (or such
equivalent) for all of the Business Days before such date for which daily
closing bid prices are available; provided, however, that if the closing bid
price is not determinable for at least ten Business Days in such period, the
"Current Market Value" of the security shall be determined as if the security
were not registered under the Exchange Act.

"Issue Date" means April 29, 1998.

"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.

"Separation Date" means (i) the date of commencement of an exchange offer
or the date on which a shelf registration statement for the Notes is declared
effective, (ii) July 29, 1998 or (iii) such earlier date as the Initial
Purchaser may determine.

"Warrant Certificates" mean the registered certificates issued by the
Company under the Warrant Agreement representing the Warrants.

DESCRIPTION OF THE HELLER FACILITY

GENERAL

Concurrently with the closing of the Private Placement, the Company entered
into the Heller Facility with Heller Financial, Inc. ("Heller") as agent. The
Heller Facility consists of a revolving credit facility in an aggregate
principal amount of $40.0 million that will mature on April 28, 2002.

Indebtedness under the Heller Facility is secured by a first priority
security interest upon (i) all of the Company's now owned and hereafter acquired
inventory, equipment, accounts receivable, real and personal property and all
proceeds thereof and (ii) all general intangibles and other intangible assets
(including, without limitation, trademarks and trade names) of the Company, if
any, and proceeds thereof.

REVOLVING CREDIT FACILITY

The Heller Facility consists of a revolving credit facility in an aggregate
principal amount of $40.0 million. As of August 1998, the Heller Facility was
syndicated such that Heller is obligated to provide up to $25.0 million and
FINOVA Capital Corporation ("FINOVA") is obligated to provide up to $15.0
million of

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the $40.0 million Heller Facility. The Company will be entitled to draw amounts
under the Heller Facility, subject to availability pursuant to a borrowing base
formula based upon income from store operations and net book value of laundry
equipment, in order to fund ongoing working capital, capital expenditures and
general corporate purposes. As of September 6, 1998, approximately $14.3 million
of the Heller Facility was available for the Company to draw. Until March 22,
1999, the maximum amount available under the Heller Facility is $32.5 million,
which limitation shall be lifted on or after that date if certain conditions are
met.

INTEREST RATES

COVENANTS

The Heller Facility contains certain covenants and other requirements of
the Company. In general, the affirmative covenants provide for mandatory
reporting by the Company of financial and other information to the agent and
notice by the Company to the agent upon the occurrence of certain events.

The Heller Facility also contains certain negative covenants and
restrictions on actions by the Company including, without limitation,
restrictions on indebtedness, liens, guarantee obligations, mergers, asset
dispositions, certain payments, transactions with affiliates, entering other
lines of business and amendments of the terms of other indebtedness. The Heller
Facility requires the Company to meet certain financial covenants including a
fixed charge coverage ratio subject to availability dropping below a certain
threshold and covenants requiring maintenance of a minimum Mature Store average
EBITDA and minimum unused availability. The Company was in compliance with all
but one of these covenants at September 6, 1998. The Company has, however,
obtained the waiver of the lenders with respect to this breach and thus it will
not restrict the Company's ability to borrow under the Heller Facility.

EVENTS OF DEFAULT

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

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DESCRIPTION OF THE NOTES

GENERAL

The Company issued 144,990 Notes under an Indenture, dated as of April 29,
1998 (the "Indenture"), between the Company and Norwest Bank Minnesota, N.A., as
Trustee (the "Trustee"). The following summary of certain provisions of the
Indenture and the Notes does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Indenture, and those terms made a part thereof by reference to the Trust
Indenture Act, and the Notes, including the definitions of certain terms
therein. Capitalized terms in this "Description of the Notes" not defined in
this Prospectus have the meanings ascribed to them in the Indenture.

TERMS OF THE NOTES

The Notes are unsecured senior obligations of the Company, limited to
$144,990,000 aggregate principal amount at maturity, and will mature on May 1,
2005. Except as described below, no cash interest will accrue on the Notes prior
to May 1, 2001, although for U.S. federal income tax purposes a significant
amount of original issue discount, taxable as ordinary income, will be
recognized by a holder of the Notes (a "Holder") as such discount accrues from
the Issue Date through May 1, 2005. Cash interest will accrue on the Notes at
the rate of 12 3/4% per annum from May 1, 2001 or from the most recent date to
which interest has been paid or provided for, payable semi-annually to Holders
of record at the close of business on the April 15 or October 15 immediately
preceding the interest payment date on May 1 and November 1 of each year,
commencing November 1, 2001. Interest will be calculated on the basis of a
360-day year consisting of twelve 30-day months. The Company will pay interest
on overdue principal at 1% per annum in excess of such rate, and it will pay
interest on overdue installments of cash interest at such higher rate to the
extent lawful. If, after the Exchange Offer Registration Statement (as defined)
is declared effective, the Exchange Offer Registration Statement ceases to be
effective or usable in certain circumstances, cash interest may accrue on the
Notes.

OPTIONAL REDEMPTION

Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to May 1, 2002. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount at
maturity), plus accrued interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on May 1 of the years set forth below:

REDEMPTION
PERIOD PRICE
- ------ ----------

2002.............................................. 106.375%
2003.............................................. 103.188
2004 and thereafter............................... 100.000

In addition, at any time and from time to time prior to May 1, 2001, the
Company may redeem in the aggregate up to 35% of the Accreted Value of the Notes
with the proceeds of one or more Public Equity Offerings following which there
is a Public Market, at a redemption price of 112.750% of the Accreted Value to
the date of redemption; provided, however, that at least $94.2 million of the
aggregate principal amount at maturity of the Notes must remain outstanding
after each such redemption.

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RANKING

The indebtedness evidenced by the Notes will be senior unsecured
obligations of the Company ranking pari passu in right of payment with all other
senior unsecured Indebtedness of the Company and senior to all Subordinated
Obligations. The Notes will be subordinated to all Secured Indebtedness of the
Company, if any, to the extent of the value of the assets securing such
Indebtedness and to all Indebtedness and other obligations (including trade
payables) of the Company's future Subsidiaries, if any. The Company does not
presently intend to operate through subsidiaries and the ability of such
subsidiaries to incur any indebtedness is restricted by the Indenture.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each Holder shall have the
right to require that the Company repurchase such Holder's New Notes at a
purchase price in cash equal to 101% of the Accreted Value thereof plus accrued
and unpaid interest, if any, to the date of purchase (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).

CERTAIN COVENANTS

The Indenture contains certain covenants that (subject to certain
exceptions) restrict the ability of the Company and certain of its subsidiaries
to, among other things: (i) incur additional Indebtedness and issue preferred
stock; (ii) incur Liens; (iii) enter into Sale/Leaseback Transactions; (vi) make
Restricted Payments; (v) make certain distributions; (vi) consummate any Asset
Disposition; (vii) enter into certain transactions with affiliates; (vii) sell
shares of the capital stock of a Restricted Subsidiary; and (viii) consolidate
with or merge with or into any Person. See "Risk Factors -- Substantial
Restrictions and Covenants of Debt Facilities."

EVENTS OF DEFAULT

The Indenture provides for customary events of default (subject to certain
exceptions), including: (i) default for 30 days or more in the payment when due
of interest on the Notes; (ii) default in payment of principal of any Note when
due at its Stated Maturity, upon optional redemption, upon required repurchase,
upon acceleration or otherwise; (iii) failure by the Company to comply with its
obligations under "-- Certain Covenants" above; (iv) default under certain other
indebtedness of the Company or its Restricted Subsidiaries (subject to certain
grace periods and minimum thresholds); (v) failure by the Company to comply for
60 days after notice with its other agreements contained in the Indenture; (vi)
Indebtedness of the Company or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10.0 million and such non-payment continues or such
acceleration is not rescinded within ten days after notice thereof; (vii)
certain events of bankruptcy, insolvency or reorganization with respect to the
Company or any of its significant subsidiaries; and (viii) any judgment or
decree (not covered by insurance or an indemnity by a person other than the
Company or a Restricted Subsidiary, which indemnitor is solvent) for the payment
of money in excess of $10.0 million is entered against the Company or any
Significant Subsidiary, remains outstanding for a period of 60 days following
such judgment and is not discharged, waived or stayed within 30 days after
notice.

AMENDMENTS AND WAIVERS

Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount at maturity of the
Notes then outstanding and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in principal
amount at maturity of the Notes then outstanding.

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DEFEASANCE

The Company at its option at any time may terminate all of its obligations
under the Notes and the Indenture, except for certain obligations. In addition,
the Company at its option at any time may terminate its obligations under
"-- Change of Control" and certain of its obligations under the covenants
described under "-- Certain Covenants."

In order to exercise either defeasance option, the Company must irrevocably
deposit in trust with the Trustee money or U.S. Government Obligations for the
payment of principal of and interest on the Notes to redemption or maturity, as
the case may be, and must comply with certain other conditions.

REGISTRATION RIGHTS

Pursuant to a registration rights agreement (the "Registration Rights
Agreement") dated April 29, 1998 between the Company and the Initial Purchaser,
the Company agreed to (a) file with the SEC, within 60 days after the Issue
Date, a registration statement (the "Exchange Offer Registration Statement")
with respect to an offer to exchange the Notes (the "Exchange Offer") for new
notes of the Company with terms substantially identical to the Notes (the "New
Notes") (except that the New Notes generally will not contain terms with respect
to restrictions on the resale or transfer thereof) and (b) use all best efforts
to cause such Exchange Offer Registration Statement to become effective under
the Securities Act by October 27, 1998. Upon the effectiveness of the Exchange
Offer Registration Statement, the Company will offer the New Notes in exchange
for surrender of the Notes. Under certain circumstances, the Company may be
required under the Registration Rights Agreement to file a shelf registration
statement to cover resales of the Notes or the New Notes, as the case may be.
Upon the failure by the Company to comply with certain of its obligations under
the Registration Rights Agreement, additional interest will be payable on the
Notes.

On October 29, 1998, the Company filed Amendment No. 3 to the Exchange
Offer Registration Statement with the SEC relating to the Exchange Offer. The
Company expects to complete the Exchange Offer in December 1998.

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FEDERAL INCOME TAX CONSEQUENCES

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

As used herein, a "U.S. Holder" means a beneficial owner of the Warrants or
Warrant Shares who or that is (i) a citizen or resident of the United States,
(ii) a corporation or other entity created or organized in or under the laws of
the United States or a political subdivision thereof, (iii) an estate the income
of which is subject to U.S. federal income taxation regardless of its source,
(iv) a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have authority to
control all substantial decisions of the trust or (v) otherwise subject to U.S.
federal income taxation on a net income basis in respect of the Warrants. As
used herein, a "Non-U.S. Holder" means a holder that is not a U.S. Holder.

ISSUE PRICE

On the Issue Date the issue price of a Unit was allocated between the Notes
and the Warrants based on their relative fair market values. With respect to the
$689.71 issue price per Unit, the Company has allocated $38.79 to each Warrant,
which represents the issue price of each Warrant. This allocation reflects the
Company's judgement as to the relative value of the Notes and Warrants at the
time of issuance. The allocation is binding on a U.S. Holder unless such U.S.
Holder explicitly discloses a different allocation on an attachment to its tax
return for the taxable year that includes the acquisition date of the Unit. The
allocation is not, however, binding on the IRS and there can be no assurance
that the IRS would not challenge this allocation or that such a challenge, if
made, would not be upheld in court.

TAX TREATMENT OF WARRANTS

Characterization of the Warrants. Although the matter is not free from
doubt, and the form of the Warrants may be respected for federal income tax
purposes, it is possible that the Warrants would be treated for federal income
tax purposes as shares of Common Stock of the Company which such Warrants
entitle the holder to purchase due to, among other things, their minimal
Exercise Price and lack of any meaningful contingency. Although it is thus
unclear whether the Warrants will be treated as warrants or stock for federal
income tax purposes, the following discussion assumes that the Warrants would be
properly characterized as warrants and describes, as appropriate, any differing
federal income tax treatment that would result if the Warrants are treated as
stock.

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

Sale or Redemption. The sale, exchange or redemption of a Warrant will
result in the recognition of gain or loss to a U.S. Holder in an amount equal to
the difference between the amount realized and his or her adjusted basis
therein. Such a sale, exchange or redemption will result in capital gain or
loss. Such capital gain or loss will be classified as long-term capital gain or
loss if the Warrants being sold or exchanged have been held for more than 12
months at the time of such sale or exchange.
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Adjustments. Under Section 305 of the Code, certain actual or constructive
distributions of stock may be taxable to a stockholder of the Company.
Adjustments in the exercise price of the Warrants, or the number of Warrant
Shares purchasable upon exercise of the Warrants, in each case made pursuant to
the antidilution provisions of the Warrants described in "Description of the
Warrants -- Adjustments," may result in a constructive distribution if and to
the extent that there is an increase in the proportionate interest of a U.S.
Holder of a Warrant in the fully diluted Warrant Shares, whether or not the
Warrant is exercised. Such a distribution may be taxable as a dividend under the
Code to the U.S. Holders of the Warrants.

Exercise. No gain or loss will be recognized to a U.S. Holder of Warrants
on his, her or its purchase of the Warrant Shares for cash upon exercise of the
Warrants (other than any gain or loss attributable to the receipt of cash in
lieu of a fractional share of Common Stock upon exercise). The adjusted initial
basis of the Warrant Shares so acquired would be equal to the adjusted basis of
the exercised Warrants plus the exercise price (less any cash received in lieu
of a fractional share). A U.S. Holder who exercises Warrants without payment of
cash pursuant to a Cashless Exercise will not recognize gain or loss upon such
exercise, and a U.S. Holder's basis in the Warrant Shares received in the
Cashless Exercise will equal such holder's basis in the Warrants surrendered
therefor. For tax purposes, the holding period of the Warrant Shares acquired
upon the exercise of the Warrants will not include the holding period of the
Warrants.

Constructive Exercise. Because, among other things, the exercise price of
each Warrant may be regarded as a nominal amount and the Company may waive
payment of the Exercise Price, a Warrant may be considered to be constructively
exercised for federal income tax purposes on the day on which the Warrant first
becomes exercisable. In that event, (i) no gain or loss would be recognized to a
U.S. Holder upon either such deemed exercise or actual exercise of the Warrant,
(ii) the adjusted tax basis of the Warrant Shares deemed to be received would
equal the adjusted tax basis of the Warrant until the Warrant was actually
exercised, at which time the adjusted tax basis of such Warrant Shares would be
increased by the Exercise Price paid, (iii) the holding period of the Warrant
Shares would begin on the day following the date that the Warrant first becomes
exercisable, and (iv) the federal income tax consequences of the ownership and
disposition of the Warrant would be the same as if the Warrant were actually
Warrant Shares.

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

Treatment of the Company. No gain or loss will be recognized by the
Company upon the termination, exercise or expiration of any Warrants.

INFORMATION REPORTING AND BACKUP WITHHOLDING

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

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO FOREIGN HOLDERS

The following discussion summarizes certain United States federal income
tax consequences generally applicable to the ownership and disposition of the
Warrants by Non-U.S. Holder. This discussion does not purport to deal with all
aspects of United States federal income taxation that may be relevant to a
Non-U.S. Holder and does not describe any tax consequences arising out of the
laws of any state, locality or foreign jurisdiction or out of United States
federal estate and gift tax laws. NON-U.S. HOLDERS ARE ADVISED TO CONSULT THEIR
TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE,

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LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION IN THIS OFFERING.

Dividends. Generally, any dividends on Warrant Shares to a Non-U.S. Holder
will be subject to withholding of United States federal income tax at the rate
of 30% unless the dividend is effectively connected with the conduct of a trade
or business within the United States by the Non-U.S. Holder, in which case the
dividend will be subject to the United States federal income tax on net income
that applies to United States persons generally (and, with respect to corporate
holders under certain circumstances, the branch profits tax). Non-U.S. Holders
should consult any applicable income tax treaties, which may provide for a lower
rate of withholding or other rules different from those described above. Under
current Treasury Regulations, dividends paid to an address in a foreign country
are presumed to be paid to a resident of such country for purposes of
determining the applicability of a treaty rate unless the Company had definite
knowledge that such presumption is not warranted or an applicable treaty rate
requires some other method for determining a Non-U.S. Holder's residence. Under
Treasury Regulations effective for dividends paid after December 31, 1999, this
presumption would no longer apply and Non-U.S. Holders would be required to
satisfy certain certification requirements in order to obtain a reduced rate of
withholding under a tax treaty.

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

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

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

The 31% backup withholding tax will not generally apply to dividends
distributed to Non-U.S. Holders outside the United States that are subject to
the 30% withholding discussed above or that are not so subject because a tax
treaty applies that reduces or eliminates such withholding. In that regard,
under current Treasury Regulations, dividends payable at an address located
outside of the United States to a Non-U.S. Holder are not subject to the backup
withholding rules. These backup withholding and information reporting

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requirements may apply to the gross proceeds paid by or through a broker to a
foreign holder upon the disposition of Warrants or Warrant Shares under the
rules described above.

REFUNDS

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

OTHER TAX CONSIDERATIONS

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

SELLING STOCKHOLDERS

The Warrants were issued and sold by the Company to the Initial Purchaser
in a transaction exempt from registration requirements of the Securities Act.
The Initial Purchaser placed such Warrants with qualified institutional buyers.
The Selling Holders may from time to time offer and sell pursuant to this
Prospectus any or all of the Warrants or Warrant Shares. The term "Selling
Holders" includes the holders listed below and their transferees, pledgees,
donees or successors.

The following table sets forth information with respect to (1) the Selling
Holders, (2) the respective number of Warrants beneficially owned by each
Selling Holder and (3) the number of Warrant Shares that may be purchased upon
exercise of each Selling Holder's Warrants. The Company is obligated by the
Warrant Agreement to file this Registration Statement. Each Selling Holder may
offer and sell all of the securities registered hereby. If such Selling Holder
sells all Warrants and/or Warrant Shares registered hereby such Selling Holder
will not beneficially own any securities of the Company. Inclusion on this list
does not imply that any person or entity will actually offer or sell any of the
Warrants or Warrant Shares registered on his, her or its behalf.

WARRANTS(1) WARRANT SHARES(2)
----------- -----------------

Bank of New York............................................ 43,495 7,997.93
Boston Safe Deposit and Trust............................... 4,585 843.10
BT Alex. Brown Incorporated................................. 6,940 1,276.14
Credit Suisse First Boston Corp. ........................... 1,275 234.45
Investors Fiduciary Trust Co./SSb........................... 3,125 574.63
ING Baring Furman Selz, LLC................................. 7,750 1,425.08
Lehman Brothers, Inc. ...................................... 750 137.91
Northern Trust Company...................................... 2,650 487.29
Star Bank, National Association, Cincinnati................. 750 137.91
Bankers Trust Co. .......................................... 700 128.72
Brown Brothers Harriman & Co. .............................. 1,000 183.88
Chase Manhattan Bank........................................ 13,750 2,528.37
Goldman, Sachs & Co. ....................................... 1,500 275.82
Goldman, Sachs & Co. ....................................... 1,720 316.28
Investors Fiduciary Trust Co.-Kemper/SSB.................... 25,100 4,615.43

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WARRANTS(1) WARRANT SHARES(2)
----------- -----------------

Investors Bank & Trust/M.F. Custody......................... 11,750 2,160.61
Morgan Stanley Trust Co. ................................... 6,000 1,103.29
SSB-Custodian............................................... 11,930 2,193.71
Thisbe & Co................................................. 220 40.45
------- ---------
Total............................................. 144,990 26,661.00
======= =========

- ---------------
(1) As of August 14, 1998, the latest date as of which this information was
available to the Company.

(2) At the Company's option, fractional shares of Common Stock may not be issued
upon exercise of the Warrants. If any fraction of a share of Common Stock
would, except for the foregoing provision, be issuable upon the exercise of
any such Warrants (or specified portion thereof), the Company will pay an
amount in cash equal to the Current Market Value per share of Common Stock,
as determined on the day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction, computed to the nearest
whole cent.

Except as shown above, none of the Selling Holders has, or within the past
three years has had, any position, office or other material relationship with
the Company or any of its predecessors or affiliates. Because the Selling
Holders may, pursuant to this Prospectus, offer all or some portion of the
Warrants and/or Warrant Shares, no estimate can be given as to the amount of the
Warrants and/or Warrant Shares that will be held by the Selling Holders upon
termination of any such sales. In addition, the Selling Holders identified above
may have sold, transferred or otherwise disposed of all or a portion of their
Warrants (the Warrants are not yet exercisable) since the date on which they
provided the information regarding their holdings of Notes, in transactions
exempt from the registration requirements of the Securities Act, including
transactions pursuant to Rule 144 under the Securities Act.

PLAN OF DISTRIBUTION

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

The Warrants and the Warrant Shares may be sold from time to time in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The sale of the Warrants and the Warrant Shares may be effected in transactions
(which may involve crosses or block transactions) (i) on any national securities
exchange or quotation service on which such securities may be listed or quoted
at the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the
Warrants or the Warrant Shares is made, a supplement to this Prospectus (a
"Prospectus Supplement"), if required, will be distributed which will set forth
the aggregate amount of Warrants or Warrant Shares being offered and the terms
of the offering, including the name or names of any underwriters, broker/dealers
or agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers. Each broker/dealer that receives the
Warrants or Warrant Shares for its own account pursuant to this Prospectus must
acknowledge that it will deliver the Prospectus and any Prospectus Supplement in
connection with any sale of such Warrants or Warrant Shares.

60
62

To comply with the securities laws of certain jurisdictions, if applicable,
the Warrants and Warrant Shares will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Warrants and Warrant Shares may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or any
exemption from registration or qualification is available and is complied with.

The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Warrants or Warrant Shares
by the Selling Holders. The foregoing may affect the marketability of such
securities.

Pursuant to the Warrant Agreement, certain expenses of the registration of
the Warrants and Warrant Shares hereunder will be paid by the Company,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that the Selling Holders
will pay all underwriting discounts, selling commissions and transfer taxes, if
any applicable to any sales pursuant to the Registration Statement. The Company
has agreed to indemnify the Selling Holders against certain civil liabilities,
including certain liabilities under the Securities Act, and the Selling Holders
will be entitled to contribution in connection with any such registration and
any sales pursuant thereto. The Company will be indemnified by the Selling
Holders severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection with any such registration and any sales pursuant to the Registration
Statement.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

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

REPRESENTATIONS OF PURCHASERS

Each purchaser of Warrants and Warrant Shares in Canada who receives a
purchase confirmation will be deemed to represent to the Company and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Warrants
and Warrant Shares without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

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

61
63

ENFORCEMENT OF LEGAL RIGHTS

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

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Warrants and Warrant Shares to whom the Securities Act
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any Warrants and Warrant Shares acquired by such purchaser pursuant to
this offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained
from the Company. Only one such report must be filed in respect of Warrants and
Warrant Shares acquired on the same date and under the same prospectus
exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of Warrants and Warrant Shares should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the Warrants and Warrant Shares in their particular circumstances and with
respect to the eligibility of the Warrants and Warrant Shares for investment by
the purchaser under relevant Canadian legislation.

LEGAL MATTERS

Certain legal matters in connection with the registration of the Warrants
and Warrant Shares pursuant to this Prospectus will be passed upon for the
Company by Pedersen & Houpt, P.C., Chicago, Illinois. Peer Pedersen and John H.
Muehlstein, directors of the Company, are also stockholders of Pedersen & Houpt,
P.C.

EXPERTS

The consolidated financial statements of the Company and its subsidiary as
of December 28, 1997 and December 31, 1996, and for the years then ended, and as
of December 31, 1995 and for the period from October 10, 1995 (inception) to
December 31, 1995, included in this Prospectus, have been so included in
reliance on the report PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.

AVAILABLE INFORMATION

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

62
64

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SPINCYCLE, INC.

PAGE
----

AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet as of December 28, 1997, December
31, 1996 and December 31, 1995............................ F-3
Consolidated Statement of Operations for the Years Ended
December 28, 1997 and December 31, 1996 and for the period
from October 10, 1995 (inception) to December 31, 1995.... F-4
Consolidated Statement of Mandatorily Redeemable Preferred
Stock and Shareholders' Equity (Deficit) for the Years
Ended December 28, 1997 and December 31, 1996 and for the
period from October 10, 1995 (inception) to December 31,
1995...................................................... F-5
Consolidated Statement of Cash Flows for the Years Ended
December 28, 1997 and December 31, 1996 and for the period
from October 10, 1995 (inception) to December 31, 1995.... F-6
Notes to Consolidated Financial Statements.................. F-7

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of September 6, 1998 and
December 28, 1997......................................... F-17
Consolidated Statement of Operations for the Year-to-date
Period and for the Quarter Ended September 6, 1998 and
September 30, 1997........................................ F-18
Consolidated Statement of Cash Flows for the Year-to-date
Period Ended September 6, 1998 and September 30, 1997..... F-19
Notes to Unaudited Consolidated Financial Statements........ F-20

F-1
65

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, mandatorily redeemable preferred stock
and shareholders' equity (deficit) and cash flows present fairly, in all
material respects, the financial position of SpinCycle, Inc. and its subsidiary
at December 28, 1997, December 31, 1996 and December 31, 1995, and the results
of their operations and their cash flows for the years ended December 28, 1997
and December 31, 1996 and for the period from October 10, 1995 (inception) to
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Phoenix, Arizona
March 13, 1998

F-2
66

SPINCYCLE, INC.

CONSOLIDATED BALANCE SHEET

DECEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------

ASSETS
Current assets:
Cash and cash equivalents........................ $ 8,249,161 $ 360,006 $ 5,001
Landlord allowances.............................. 1,081,396 170,000 --
Prepaid expenses................................. 483,828 201,435 20,000
Inventory........................................ 71,517 49,209 --
Land held for sale-leaseback..................... 4,120,039 -- --
Other current assets............................. 952,881 40,062 4,223
------------ ----------- -------
Total current assets.......................... 14,958,822 820,712 29,224
Property and equipment, net........................ 53,969,382 12,840,712 18,130
Goodwill, net...................................... 6,150,839 -- --
Other assets....................................... 417,123 147,923 7,433
------------ ----------- -------
Total assets............................. $ 75,496,166 $13,809,347 $54,787
============ =========== =======

LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 5,950,086 $ 4,820,207 $ 3,837
Construction payables............................ 951,242 762,847 --
Accrued utilities................................ 616,779 8,841 --
Accrued expenses................................. 1,453,455 422,446 --
Advances from shareholder........................ -- 150,000 56,400
Current portion of long-term debt................ 578,360 -- --
------------ ----------- -------
Total current liabilities..................... 9,549,922 6,164,341 60,237
Long-term debt..................................... 35,347,428 4,591,844 --
Deferred rent...................................... 1,225,728 134,266 --
Other liabilities.................................. 207,386 -- --
------------ ----------- -------
Total liabilities........................ 46,330,464 10,890,451 60,237
------------ ----------- -------
Commitments and Contingencies
Series A, Series B and Series C mandatorily
redeemable preferred stock, $.01 par value,
370,000 shares authorized, 262,213, 54,478 and 0
shares issued and outstanding, respectively...... 48,792,805 6,809,700 --
------------ ----------- -------
Shareholders' equity (deficit):
Common stock, $.01 par value, 630,000 shares
authorized, 38,487, 34,280 and 4 shares issued
and outstanding, respectively................. 385 343 1
Additional paid-in capital....................... 9,273 8,227 --
Accumulated deficit.............................. (19,636,761) (3,899,374) (5,451)
------------ ----------- -------
Total shareholders' equity (deficit)............. (19,627,103) (3,890,804) (5,450)
------------ ----------- -------
Total liabilities, mandatorily redeemable
preferred stock and shareholders' equity
(deficit)..................................... $ 75,496,166 $13,809,347 $54,787
============ =========== =======

The accompanying notes are an integral part of these financial statements.
F-3
67

SPINCYCLE, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

PERIOD FROM
YEARS ENDED OCTOBER 10, 1995
-------------------------------------- (INCEPTION) TO
DECEMBER 28, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------

Revenues.................................. $ 8,652,888 $ 1,014,516 $ --
Cost of revenues -- store operating
expenses, excluding depreciation and
amortization............................ 7,982,566 1,193,020 --
------------ ----------- ----------
Gross operating profit (loss)........... 670,322 (178,504) --
Preopening costs.......................... 456,920 472,811 --
Depreciation and amortization............. 2,340,647 568,280 --
Selling, general and administrative
expenses................................ 10,729,663 2,653,698 5,451
Loss on disposal of property and
equipment............................... 479,500 -- --
------------ ----------- ----------
Operating loss.......................... (13,336,408) (3,873,293) (5,451)
Interest income........................... 432,812 28,741 --
Interest expense, net of amount
capitalized of $327,727 in 1997......... (891,913) (49,371) --
------------ ----------- ----------
Net loss................................ (13,795,509) (3,893,923) (5,451)
Accretion of redeemable preferred stock... (1,941,878) -- --
------------ ----------- ----------
Net loss applicable to holders of common
stock................................ $(15,737,387) $(3,893,923) $ (5,451)
============ =========== ==========
Net loss per common share............... $(412.76) $(117.42) $(1,362.75)
============ =========== ==========
Weighted average number of common shares
outstanding............................. 38,127 33,162 4
============ =========== ==========

The accompanying notes are an integral part of these financial statements.
F-4
68

SPINCYCLE, INC.

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

MANDATORILY
REDEEMABLE
PREFERRED STOCK STOCK COMMON STOCK ADDITIONAL
--------------------- SUBSCRIPTIONS --------------- PAID-IN ACCUMULATED
SHARES AMOUNT RECEIVABLE SHARES AMOUNT CAPITAL DEFICIT
------- ----------- ------------- ------ ------ ---------- ------------

October 10, 1995 (inception).... -- $ -- $ -- 4 $ 1 $ -- $ --
Net loss........................ (5,451)
------- ----------- ------------ ------ ---- ------ ------------
Balance at December 31, 1995.... -- -- -- 4 1 -- (5,451)
Issuance of Series A
Redeemable Preferred
Stock....................... 53,960 6,745,000 (6,745,000)
Issuance of Series A
Redeemable Preferred Stock
for services................ 518 64,700
Issuance of Common Stock for
services.................... 34,276 342 8,227
Payment of stock
subscriptions............... 6,745,000
Net loss...................... (3,893,923)
------- ----------- ------------ ------ ---- ------ ------------
Balance at December 31, 1996.... 54,478 6,809,700 -- 34,280 343 8,227 (3,899,374)
Issuance of Series A
Redeemable Preferred Stock,
net......................... 21,350 2,598,750 (2,668,750)
Issuance of Series A
Redeemable Preferred Stock
for services................ 1,146 143,300
Issuance of Series B
Redeemable Preferred Stock,
net......................... 125,498 24,382,912 (24,999,912)
Issuance of Common Stock for
services.................... 4,207 42 1,046
Accretion of Series A and
Series B Redeemable
Preferred Stock............. 1,941,878 (1,941,878)

Issuance of Series C
Redeemable Preferred Stock,
net......................... 59,741 12,916,265 (13,272,265)
Payments of stock
subscriptions............... 40,940,927
Net loss...................... (13,795,509)
------- ----------- ------------ ------ ---- ------ ------------
Balance at December 28, 1997.... 262,213 $48,792,805 $ -- 38,487 $385 $9,273 $(19,636,761)
======= =========== ============ ====== ==== ====== ============

The accompanying notes are an integral part of these financial statements.
F-5
69

SPINCYCLE, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

PERIOD FROM
YEARS ENDED OCTOBER 10, 1995
------------------------------------- (INCEPTION) TO
DECEMBER 28, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------

Cash flows provided by (used in) operating
activities:
Net loss..................................... $(13,795,509) $(3,893,923) $(5,451)
Adjustments to reconcile net loss to net cash
provided by (used in) operating
activities:
Depreciation and amortization................ 2,340,647 568,280 --
Loss on disposal of property and equipment... 479,500 -- --
Issuance of stock for services............... 144,388 73,269 1
Changes in assets and liabilities:
Landlord allowances....................... (911,396) (170,000) --
Prepaid expenses.......................... (282,393) (181,435) (20,000)
Inventory................................. (22,308) (49,209) --
Other current assets...................... (912,819) (35,839) (4,223)
Other assets.............................. (269,200) (75,490) (7,433)
Accounts payable.......................... 1,129,879 4,816,370 3,837
Construction payables..................... 188,395 762,847 --
Accrued utilities......................... 607,938 8,841 --
Accrued expenses.......................... 1,031,009 422,446 --
Deferred rent............................. 1,091,462 134,266 --
Other liabilities......................... 207,386 -- --
------------ ----------- -------
Net cash provided by (used in) operating
activities.............................. (8,973,021) 2,380,423 (33,269)
------------ ----------- -------
Cash flows used in investing activities:
Purchase of fixed assets..................... (6,350,490) (8,504,045) (18,130)
Land held for sale-leaseback................. (4,120,039) -- --
Acquisition of businesses, net of cash
acquired.................................. (12,063,521) -- --
Capitalized interest......................... (327,727) -- --
------------ ----------- -------
Net cash used in investing activities..... (22,861,777) (8,504,045) (18,130)
------------ ----------- -------
Cash flows provided by financing activities:
Advances from shareholder.................... (150,000) 93,600 56,400
Payments on notes payable.................... (23,974) (294,973) --
Debt issuance costs paid..................... -- (65,000) --
Proceeds from notes payable.................. -- -- --
Proceeds from stock subscriptions, net....... 39,897,927 6,745,000 --
------------ ----------- -------
Net cash provided by financing
activities.............................. 39,723,953 6,478,627 56,400
------------ ----------- -------
Net increase in cash and cash equivalents...... 7,889,155 355,005 5,001
Cash and cash equivalents, beginning of year... 360,006 5,001 --
------------ ----------- -------
Cash and cash equivalents, end of year......... $ 8,249,161 $ 360,006 $ 5,001
============ =========== =======
Supplemental disclosure of non-cash financing
activities:
Stock subscriptions for issuance of
Redeemable Preferred Stock................ $ 40,940,927 $ 6,745,000
Equipment financed with long-term debt....... $ 31,357,918 $ 4,886,817
Interest paid................................ $ 1,173,236 $ 49,371

The accompanying notes are an integral part of these financial statements.
F-6
70

SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

SpinCycle, Inc. (the Company) is a specialty retailing company engaged in
the coin laundry business. The Company was incorporated under the laws of the
state of Minnesota on October 10, 1995 and subsequently reincorporated under the
laws of the State of Delaware. The Company was in the developmental stage from
October 10, 1995 (inception) to June 30, 1996. On October 1, 1997, the Company
dissolved its wholly-owned subsidiary, Pinnacle Financial, Inc., a commercial
equipment leasing company. This dissolution had no effect on the Company's
consolidated financial statements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All intercompany balances and transactions have
been eliminated in consolidation.

Fiscal year change

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

Cash and cash equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying value
of cash equivalents approximates fair value. At December 28, 1997, $213,117 of
time deposits was pledged as collateral on outstanding letters of credit related
to agreements in place with suppliers and as collateral for the Company's
corporate office lease agreement.

Fair Value of Financial Instruments

The carrying amounts for cash and cash equivalents, landlord allowances,
accounts payable and accrued expenses reported in the Company's balance sheet
approximate fair value because of the short maturity of those instruments. The
carrying amount of debt also approximates fair value as stated interest rates
approximate market interest rates for debt of same remaining maturities.

Concentration of risk

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

Use of estimates

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

Landlord allowances and deferred rent

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

F-7
71
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Inventory

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

Property and equipment

Property and equipment are stated at cost. Capitalized amounts include
expenditures which materially extend the useful lives of existing facilities and
equipment. Expenditures for repairs and maintenance which do not materially
extend the useful lives of the related assets are charged to expense as
incurred.

Depreciation and amortization

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

YEARS
-----

Laundry equipment...................... 10
Leasehold improvements................. Shorter of economic life or lease term.
Computer and office equipment.......... 5
Store equipment........................ 5

Goodwill

Goodwill represents the excess of cost over the net tangible and
identifiable intangible assets of acquired businesses. Goodwill is stated at
cost and is amortized on a straight-line basis over fifteen years. Pursuant to
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," the Company evaluates the recoverability
of goodwill and its other long-lived assets whenever a significant change in the
business environment indicates that expected future net cash flows (undiscounted
and without interest) would become less than the carrying amount of the asset.
Accumulated amortization of goodwill amounted to $30,000 at December 28, 1997.

Revenue recognition

The Company recognizes revenue upon performance of services.

Stock compensation

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

Income taxes

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

As a result of the current uncertainty as to the future realizability of
the tax benefits associated with approximately $17,550,000 of net operating
losses incurred to date, no income tax benefit has been recorded in the
financial statements.

F-8
72
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Advertising costs

The Company expenses advertising costs as incurred. The Company incurred
$1,574,839 and $364,831 in advertising costs for the years ended December 28,
1997 and December 31, 1996, respectively.

Preopening costs

The Company expenses preopening costs as incurred. The Company incurred
$456,920 and $472,811 in preopening costs during the years ended December 28,
1997 and December 31, 1996, respectively.

Capital stock

As more fully discussed in Note 7, in June 1997, the Company effected a
one-for-twenty-five reverse stock split of preferred and common stock. Per share
par value did not change as a result of this event. Share amounts presented in
these financial statements have been adjusted to reflect the stock split on a
retroactive basis.

Earnings per Share

The Company applies the principles of SFAS No. 128, "Earnings per Share,"
to calculate, present and disclose earnings per share. Basic earnings per share
is computed by dividing the net loss applicable to holders of common stock ("the
net loss") by the weighted average number of common shares outstanding during
each period. Diluted earnings per share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the period
adjusted for dilutive stock options and dilutive common shares assumed to be
issued on conversion of Preferred Stock to common stock. Diluted earnings per
share has not been presented as the computation is anti-dilutive due to the
Company's net loss in each period.

Liquidity

During fiscal 1997, the Company experienced a net loss of $13,795,509 and
at December 28, 1997 had an accumulated deficit of $19,636,761. During the first
quarter of fiscal 1998, the Company raised approximately $3 million through the
issuance of its Series C Convertible Preferred Stock. The Company's management
believes that the proceeds from this offering, the availability of funds from
the LaSalle Credit Facility (see Note 9), the measures it has initiated to
control operating and development costs, as well as the availability of
additional capital in anticipated future offerings, will enable the Company to
maintain operations for the foreseeable future.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------

Leasehold improvements.................... $20,187,979 $ 6,736,192 $ --
Laundry equipment......................... 27,474,138 4,053,454 --
Construction in progress.................. 4,694,175 1,303,320 --
Store equipment........................... 1,906,795 689,408 --
Computer and office equipment............. 2,584,918 626,618 18,130
----------- ----------- -------
56,848,005 13,408,992 18,130
Less: Accumulated depreciation and
amortization............................ (2,878,623) (568,280) --
----------- ----------- -------
$53,969,382 $12,840,712 $18,130
=========== =========== =======

F-9
73
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ACQUISITIONS

During the year ended December 28, 1997, the Company acquired several
existing coin laundry businesses for a total cash outlay of $12,063,521, net of
cash acquired. These acquisitions were accounted for under the purchase method
of accounting. In connection with these acquisitions, the Company recorded
goodwill of $6,180,839 and did not assume any liabilities of the sellers.

The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the acquired coin laundry
businesses as if the acquisitions had occurred January 1, 1996.

YEAR ENDED YEAR ENDED
DECEMBER 28, DECEMBER 31,
1997 1996
------------ ------------

Net Sales................................................ $ 14,315,787 $ 8,633,567
Net loss................................................. $(13,970,392) $(4,355,223)
Net loss per common share................................ $ (417.35) $ (131.33)

These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional depreciation
expense as a result of a step-up in the basis of fixed assets, additional
amortization expense as a result of goodwill and other intangible assets, and
increased interest expense on acquisition debt. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combination been in effect on January 1, 1996 or of future results of
operations of the consolidated entities.

5. LONG-TERM DEBT

On November 22, 1996, the Company entered into a loan agreement with an
equipment manufacturer which provided for borrowings up to an initial maximum
amount of $20 million to finance the purchase and installation of new
coin-operated laundromat equipment. This agreement was amended to provide for
borrowings up to a maximum amount of $35 million and then $45 million in July
1997 and February 1998, respectively. Of the $45.0 million in place, $30.0
million is available for equipment financing and $15.0 million is available for
acquisition financing. Borrowings under the agreement, which aggregated
$35,925,788 at December 28, 1997, bear interest at prime plus 1.875% (10.375% at
December 28, 1997) and require interest only payments for a period of 12 months
following the date of the borrowings with principal and interest payments due
thereafter in 72 monthly installments. To enter into the agreement, the Company
paid a facility fee of $65,000 which is being amortized over the term of the
agreement. Borrowings under the agreement are secured by the related equipment
with a net book value of $49,996,357 at December 28, 1997. This security
collateral is shared equally pursuant to an inter-creditor agreement with
LaSalle National Bank (see Note 9) which was entered into in March 1998. At
December 28, 1997, the Company was not in compliance with its financial
covenants related to maintaining certain leverage and operating income ratios.
Accordingly, the Company obtained waivers from its lender with respect to such
covenants at December 28, 1997.

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

1998............................................ $ 578,360
1999............................................ 2,198,154
2000............................................ 2,437,376
2001............................................ 2,702,632
2002............................................ 2,996,756
Thereafter...................................... 25,012,510
-----------
$35,925,788
===========

F-10
74
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES

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

DECEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------

Deferred tax assets:
Net operating loss carryforwards..... $ 7,019,952 $ 1,509,331 $--
Other................................ 313,111 49,397 --
----------- ----------- ---
7,333,063 1,558,728 --
----------- ----------- ---
Deferred tax liabilities:
Depreciation......................... (257,969) (9,746) --
Other................................ (37,673) (1,217) --
----------- ----------- ---
(295,642) (10,963) --
----------- ----------- ---
Net deferred tax asset................. 7,037,421 1,547,765 --
Less: valuation allowance.............. (7,037,421) (1,547,765) --
=========== =========== ===
$ -- $ -- $--
=========== =========== ===

In assessing the realizability of its deferred tax assets, the Company
considers whether it is more likely than not that some or all of such assets
will be realized. As a result of historical operating losses, the Company has
fully reserved its net deferred tax assets as of December 28, 1997. The Company
will consider release of the valuation allowance once profitable operations have
been sustained.

As of December 28, 1997, the Company had net operating loss carryforwards
of approximately $17,550,000 which will begin to expire in 2011. In the event of
a change in ownership as defined by section 382 of the Internal Revenue Code, a
significant limitation may be imposed on the availability of the Company's net
operating loss carryforwards. It is possible that the Company has experienced
one or more ownership changes in 1996 and 1997 as a result of the Company
raising various rounds of private equity or that such an ownership change may
have occurred or be deemed to have occurred.

7. MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY

Mandatorily Redeemable Preferred Stock

The Company has issued nonvoting, Series A, Series B and Series C
Redeemable Preferred Stock (collectively, the Preferred Stock). Dividends are
payable only when declared by the Board of Directors and are noncumulative. Each
share of the Preferred Stock is mandatorily convertible into one share of common
stock prior to the closing of the first underwritten public offering pursuant to
a registration statement on Form S-1 in which the proceeds to the Company are at
least $5,000,000. The Company has reserved common shares equivalent to the
outstanding preferred shares. Holders of all three series of the Preferred Stock
have substantially the same rights except that holders of Series C stock were
granted the right to elect one member to the Company's Board of Directors. In
connection with the issuance of the Preferred Stock, the Company incurred
approximately $1,043,000 of issuance costs.

The Preferred Stock has a liquidating preference over the common stock. In
the event of liquidation, the holders of Preferred Stock are entitled to receive
an amount equal to the price paid for the shares to the Company and participate
on a pro rata basis with common stock shareholders for the remaining assets of
the Company. Holders of the Preferred Stock have the right to require the
Company to purchase all of the Preferred Stock at any time after June 1, 2001 at
a redemption price equal to the greater of the purchase price of the shares plus
accrued but unpaid dividends or the appraised value of the shares. Redemption of
such shares is further subject to the terms and conditions set forth in the Put
Agreement between the Company and
F-11
75
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the holders of the Preferred Stock. At December 28, 1997, the accreted value of
the Preferred Stock is approximately $48,793,000.

As of March 13, 1998, the Series C Redeemable Preferred Stock offering had
not yet been terminated. The Company has received approximately $16 million in
aggregate cash proceeds for this offering through March 13, 1998. See also Note
13 for further discussion.

Stock Split

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

Employee Stock Option Plan

The SpinCycle, Inc. 1995 Amended and Restated Stock Option Plan (the Plan)
provides for the issuance of employee stock options. Under the provisions of the
Plan, the Compensation and Organization Committee (the Committee), which is
appointed by the Board of Directors of the Company has the discretion to
determine, among other things, the employees to whom options may be granted; the
number of options to be granted; the vesting period assigned to the options; and
such other terms and conditions, consistent with the terms of the Plan, as the
Committee deems appropriate. Substantially all options currently outstanding at
December 28, 1997 vest ratably over a five year period from the date granted.
The Committee also has the discretion to determine whether options granted shall
be Incentive Stock Options (ISOs) within the meaning of section 411 (a) of the
Internal Revenue Code or non-qualified stock options. The Company has reserved
32,000 shares of its common stock for issuance in connection with the Plan.

During 1997, the Company's Board of Directors approved a similar stock
option plan for Directors and certain non-employees. Through March 13, 1998, 80
options have been granted under this new plan. The Company has reserved 2,000
shares of its common stock for issuance in connection with this plan.

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

WEIGHTED
AVERAGE
OPTION SHARES EXERCISE PRICE
------------- --------------

Outstanding at December 31, 1995.......................... -- $ --
Granted................................................. 10,616 125.00
Exercised............................................... -- --
Expired/terminated...................................... -- --
Outstanding at December 31, 1996.......................... 10,616 125.00
Granted................................................. 18,979 154.37
Exercised............................................... -- --
Expired/terminated...................................... -- --
Outstanding at December 28, 1997.......................... 29,595 $143.84
------ -------
Exercisable at December 28, 1997.......................... 3,815 $159.21
Weighted average fair value of options granted during
fiscal 1997............................................. 18,979 $ 39.72
Weighted average fair value of options granted during
fiscal 1996............................................. 10,616 $ 19.83

F-12
76
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

1997 1996
----------- ----------

Net loss -- as reported.................................. $13,795,509 $3,893,923
Net loss -- pro forma.................................... 13,924,560 3,928,908
Net loss per common share -- as reported................. $ (412.76) $ (117.42)
Net loss per common share -- pro forma................... $ (416.15) $ (118.48)

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

1997 1996
------- -------

Expected dividend yield..................................... 0.00% 0.00%
Risk-free interest rate..................................... 6.16% 5.82%
Expected life of options.................................... 5 years 3 years

8. COMMITMENTS

The Company leases substantially all of its stores and corporate offices
under noncancelable operating leases. The leases expire at various dates through
2012. The Company has the option to extend the terms of the leases for periods
ranging from five to twenty years. Certain leases require payment of property
taxes, utilities, common area maintenance costs and insurance. Minimum lease
payments due under the agreements for future fiscal years are as follows:

1998.......................................... $ 3,126,841
1999.......................................... 3,212,303
2000.......................................... 3,226,981
2001.......................................... 3,060,239
2002.......................................... 2,588,435
Thereafter.................................... 12,038,865
-----------
$27,253,664
===========

The above commitments include five operating leases signed prior to
December 28, 1997 with lease terms beginning subsequent to December 28, 1997.

Rent expense totaled $2,518,937 and $386,550 for the years ended December
28, 1997 and December 31, 1996, respectively.

9. SUBSEQUENT EVENTS

LaSalle Credit Facility

In March 1998, the Company entered into a revolving loan agreement with
LaSalle National Bank which provides for borrowings up to a maximum amount of
$15 million primarily to finance working capital requirements. Future borrowings
under this facility may constitute Base Rate Loans or Eurodollar loans. For
those borrowings that constitute Base Rate Loans, the applicable interest rate
will equal the sum of the Base Rate, defined as the bank's prime interest rate
then in effect or the Federal Funds Rate plus 0.50%, whichever

F-13
77
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is higher, plus 1.25%. For those borrowings that constitute Eurodollar Loans,
the applicable interest rate will equal the Eurodollar Rate plus 3.0%. These
borrowings will be payable no later than March 2000. As discussed in Note 5, the
collateral securing these borrowings will be shared equally pursuant to an
inter-creditor agreement which was entered into in March 1998. The Company paid
an initial commitment fee of $272,000 to enter into the agreement that will be
amortized over the term of the agreement. The agreement also calls for an
ongoing commitment fee computed at an annual rate of one-half of one percent on
the average daily unused portion of the facility. The agreement also specifies
that the Company must comply with certain leverage and operating income ratios
and imposes a limitation on annual capital expenditures.

Sale-Leaseback Transactions

On December 31, 1997, the Company entered into a sale-leaseback transaction
with SpinDevCo., L.L.C. (SpinDevCo), a subsidiary of McMahon-Oliphant, Inc.
Eleven properties consisting of land of $2.5 million and improvements of $4.0
million thereon that were previously acquired by the Company were sold to
SpinDevCo for approximately $6.5 million, then leased back under an operating
lease of fifteen years. The Company received approximately $1.7 million in cash
and a note which is due and payable in April 1998, for the balance of the sales
price of $6.5 million. The note is secured by the properties. The transaction
also calls for the Company to contribute $2,450,000 in additional funds that
will be amortized to rent expense over the term of the related lease agreements.
The transaction qualifies for sale-leaseback accounting in accordance with
Statement of Financial Accounting Standards No. 98, "Accounting for
Leases -- Sale-Leaseback Transactions Involving Real Estate." No gain or loss
was recognized on the sale. As it is management's intent to sell remaining land
recorded on the balance sheet at December 28, 1997, under similar terms and
conditions, land of $4,120,039 has been reclassified to current assets.

10. EMPLOYMENT AGREEMENTS

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

11. EXECUTIVE SEVERANCE AGREEMENT

As a result of the resignation of the Company's CEO and Chairman of the
Board of Directors, and in accordance with the terms of the related employment
agreement, the Company was obligated to pay this executive $400,000 over the
remaining two-year term of his employment agreement. This amount, including
related payroll taxes, was accrued at December 28, 1997. The current and
long-term portions of this liability are included in accrued expenses and other
liabilities, respectively, on the Company's balance sheet at December 28, 1997.

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

In addition, subsequent to year-end, the Company agreed to repurchase
18,019 shares of common stock owned by this executive for a sum of $200,000.

F-14
78
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. RELATED PARTY TRANSACTIONS

Board of Directors

Two directors of the Company are partners in a law firm which provides
legal services to the Company. The Company paid approximately $400,000 in legal
fees to this firm during 1997.

Advances from Shareholder

During 1996, the Company received an advance of $150,000 from one of the
Company's shareholders. This advance, which was non-interest bearing, was repaid
in full in 1997.

13. SUBSEQUENT EVENTS (UNAUDITED)

Senior Discount Notes Offering

On April 3, 1998, the Company commenced the offering (the Offering) of
unsecured senior discount notes and an indeterminate number of warrants to
purchase Common Stock to "qualified institutional buyers" only as defined in
Rule 144A under the Securities Act. The offering was completed on April 29,
1998, with the Company selling $144,990,000 of 12 3/4% unsecured senior discount
notes ($1,000 principal amount) (the Notes) and warrants (the Warrants) to
purchase 26,661 shares of the Company's Common Stock with an exercise price of
$0.01 per share for gross proceeds to the Company of $100,001,053. The net
proceeds from the offering of approximately $96.8 million were used principally
to pay certain expenses of the offering, repay approximately $46.9 million in
existing indebtedness, to provide funds for investment in new stores and for
general corporate purposes. The Notes will mature on May 1, 2005. No cash
interest will accrue on the Notes prior to May 1, 2001. The Notes will begin to
accrue cash interest at a rate of 12 3/4% per annum commencing May 1, 2001, and
cash interest will be payable thereafter on November 1 and May 1 of each year,
commencing November 1, 2001. The Notes will be redeemable at the option of the
Company, in whole or in part, on or after May 1, 2002, at the redemption prices
set forth in the Prospectus. In addition, at any time and from time to time
prior to May 1, 2001, the Company may redeem in the aggregate up to 35% of the
Accreted Value of the Notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price of
112.75% of the Accreted Value to the date of redemption; provided, however, that
at least $94.2 million of the aggregate principal amount of the Notes at
maturity remain outstanding after any such redemption. Upon a Change of Control
(as defined in the Indenture), each holder of the Notes (a Holder) will have the
right to require the Company to purchase all or any part of such Holder's Notes
at a purchase price equal to 101% of the Accreted Value thereof, plus accrued
and unpaid interest, if any, to the date of purchase. All terms used herein to
describe the Offering shall have the meaning ascribed to them in the Prospectus
unless otherwise noted.

The Notes will be senior, unsecured obligations of the Company ranking pari
passu in right of payment of principal and interest with all other existing and
future senior unsecured obligations of the Company and will rank senior to all
future subordinated debt of the Company. The Notes will be effectively
subordinated to all Secured Indebtedness of the Company, if any, to the extent
of the value of the assets securing such indebtedness and to all indebtedness
and other obligations (including trade payables) of the Company's future
subsidiaries, if any. The Warrants will be exercisable at any time on or after
the earlier of April 29, 1999 or 60 days after the consummation of an initial
public offering of the Company's Common Stock, and will expire on May 1, 2005.

Prior to the Offering, the Company had in place a $45.0 million credit
facility from Raytheon Commercial Laundry, LLC (Raytheon), one of the largest
commercial laundry equipment vendors, which most recently provided the Company
with approximately $30.0 million of equipment financing and $15.0 million of
acquisition financing. This facility has provided 100% financing for commercial
laundry equipment purchases (based upon list prices) and store acquisitions. The
Company procured a bank credit facility with

F-15
79
SPINCYCLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LaSalle National Bank in March 1998, which provided the Company with $15.0
million for acquisitions and general corporate purposes. On April 29, 1998, the
Company repaid all indebtedness outstanding under these two facilities with the
net proceeds from the Offering and terminated the related loan agreements.

On April 29, 1998, the Company also closed a secured revolving credit
facility in the maximum principal amount of $40 million with Heller Financial,
Inc. (the Heller Facility). The Heller Facility will mature on April 28, 2002.
The Company will be entitled to draw amounts under the Heller Facility, subject
to availability pursuant to a borrowing base formula based upon income from
store operations and net book value of laundry equipment, in order to fund
ongoing working capital, capital expenditures and general corporate purposes.
Interest will accrue on the Heller Facility with reference to the base rate (the
Base Rate) plus 0.50%. The Company may elect that all or a portion of the loans
bear interest at the LIBOR rate (the LIBOR Rate) plus 2.75%. The Base Rate is
defined as, on any date, the "Bank Prime Loan" rate published by the Board of
Governors of the Federal Reserve System plus 0.50%. The LIBOR Rate is defined as
an amount equal to the rate posted on the Reuters Screen LIBO Page on the day
which is three business days prior to the first day of such interest period.

Preferred Stock Put Agreements

In April 1998, the Company received consent of the holders of Preferred
Stock to terminate their put rights subject to the closing of the Company's $100
million bond offering.

Series C Preferred Stock Repricing and Termination of Series C Offering

In April 1998, the Company modified the price of its Series C Preferred
Stock. The repricing required approval of 51% of the holders of the Company's
Common and Series B Preferred Stock and 76% of the holders of the Company's
Series A Preferred Stock. The repricing was also affirmed by all subscribers for
Series C Preferred Stock. The requisite approvals were obtained as of April 14,
1998 and the "Series C Units," comprised of ten shares of Series C Preferred
Stock and one share of Common Stock were then issued to subscribers in the
Series C offering. This unit offering was terminated on April 14, 1998. A total
of approximately $16 million was raised in the sale of 72,930 shares of Series C
Preferred Stock and 7,293 shares of Common Stock.

Common Stock Reserved for Stock Option Plan

In April 1998, the Company's Board of Directors reserved, with the consent
of the stockholders, an additional 10,724 shares of the Company's Common Stock
for issuance pursuant to the Company's Amended and Restated Stock Option Plan.

F-16
80

SPINCYCLE, INC.

CONSOLIDATED BALANCE SHEET
(UNAUDITED)

SEPTEMBER 6, DECEMBER 28,
1998 1997
------------ ------------

Current assets:
Cash and cash equivalents................................. $ 27,077,165 $ 8,249,161
Landlord allowances....................................... 532,931 1,081,396
Prepaid expenses.......................................... 774,609 483,828
Inventory................................................. 138,295 71,517
Note receivable, principal and interest................... 4,850,663 --
Land held for sale-leaseback.............................. 1,480,167 4,120,039
Other current assets...................................... 919,921 952,881
------------ -----------
Total current assets.................................... 35,773,751 14,958,822
Property and equipment, net................................. 76,536,658 53,969,382
Goodwill, net............................................... 9,535,349 6,150,839
Prepaid rent -- long-term portion........................... 2,740,580 --
Other assets................................................ 5,121,679 417,123
------------ -----------
Total assets....................................... $129,708,017 $75,496,166
============ ===========
Current liabilities:
Accounts payable.......................................... $ 1,715,923 $ 5,950,086
Construction payables..................................... 427,288 951,242
Accrued utilities......................................... 801,437 616,779
Accrued expenses.......................................... 1,719,983 1,453,455
Current portion of deferred rent.......................... 250,157 --
Current portion of long-term debt......................... 22,300 578,360
------------ -----------
Total current liabilities............................... 4,937,088 9,549,922
Long-term debt.............................................. 98,918,771 35,347,428
Deferred rent............................................... 2,184,488 1,225,728
Other liabilities........................................... 407,386 207,386
------------ -----------
Total liabilities.................................. 106,447,733 46,330,464
------------ -----------
Commitments and Contingencies............................... -- --
Series A, Series B and Series C mandatorily redeemable
preferred stock, $.01 par value, 370,000 shares
authorized, 262,213 shares issued and outstanding at
December 28, 1997......................................... -- 48,792,805
------------ -----------
Shareholders' equity (deficit):
Series A, Series B and Series C convertible preferred
stock, $.01 par value, 370,000 shares authorized,
275,402 shares issued and outstanding at June 14,
1998.................................................... 50,845,810 --
Common stock, $.01 par value, 630,000 shares authorized,
27,763 and 38,487 shares issued and outstanding,
respectively............................................ 278 385
Common stock warrants..................................... 5,625,000 --
Additional paid-in capital................................ 1,442,053 9,273
Accumulated deficit....................................... (34,652,857) (19,636,761)
------------ -----------
Total shareholders' equity (deficit)...................... 23,260,284 (19,627,103)
------------ -----------
Total liabilities, mandatorily redeemable preferred stock
and shareholders' equity (deficit)........................ $129,708,017 $75,496,166
============ ===========

The accompanying notes are an integral part of these financial statements.
F-17
81

SPINCYCLE, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

QUARTERS ENDED YEAR-TO-DATE
---------------------------- ----------------------------
SEPTEMBER 6, SEPTEMBER 30, SEPTEMBER 6, SEPTEMBER 30,
1998 1997 1998 1997
------------ ------------- ------------ -------------

Revenues................................. $ 6,925,053 $ 2,017,188 $ 18,400,288 $ 4,739,913
Cost of revenues -- store operating
expenses, excluding depreciation and
amortization........................... 5,901,454 1,876,566 15,111,076 4,675,990
----------- ----------- ------------ -----------
Gross operating profit (loss).......... 1,023,599 140,622 3,289,212 63,923
Preopening costs......................... 162,232 102,719 363,483 246,510
Depreciation and amortization............ 1,451,024 590,694 4,295,166 1,404,326
Selling, general and administrative
expenses............................... 2,657,008 2,941,615 7,133,347 6,078,009
Loss on disposal of property &
equipment.............................. 3,175 -- 3,175 --
----------- ----------- ------------ -----------
Operating loss......................... (3,249,840) (3,494,406) (8,505,959) (7,664,922)
Interest income.......................... 514,306 135,464 974,534 365,913
Interest expense, net of amount
capitalized............................ (3,154,387) (256,991) (6,204,865) (562,477)
----------- ----------- ------------ -----------
Net loss before extraordinary loss..... $(5,889,921) $(3,615,933) $(13,736,290) $(7,861,486)
Extraordinary loss from early
extinguishment of debt................. -- -- (333,596) --
----------- ----------- ------------ -----------
Net loss............................... $(5,889,921) $(3,615,933) $(14,069,886) $(7,861,486)
Repricing of Series C preferred stock.... -- -- (1,459,000) --
Accretion of redeemable preferred
stock.................................. -- (579,344) (755,667) (1,381,425)
----------- ----------- ------------ -----------
Net loss applicable to holders of
common stock........................ $(5,889,921) $(4,195,277) $(16,284,553) $(9,242,911)
=========== =========== ============ ===========
Net loss per common share (both basic and
diluted):
Net loss applicable to holders of
common stock before extraordinary
loss................................ $ (212.15) $ (109.01) $ (548.97) $ (243.18)
Extraordinary loss from early
extinguishment of debt.............. -- -- (11.48) --
----------- ----------- ------------ -----------
Net loss applicable to holders of
common stock........................ $ (212.15) $ (109.01) $ (560.45) $ (243.18)
=========== =========== ============ ===========
Weighted average number of common shares
outstanding............................ 27,763 38,487 29,056 38,009
=========== =========== ============ ===========

The accompanying notes are an integral part of these financial statements.
F-18
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SPINCYCLE, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

YEAR-TO-DATE
-----------------------------
SEPTEMBER 6, SEPTEMBER 30,
1998 1997
------------ -------------

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss.................................................. $(14,069,886) $ (7,861,486)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 4,295,166 1,404,326
Extraordinary loss from early extinguishment of debt... 333,596 --
Amortization of debt issuance costs.................... 388,221 --
Amortization of discount on long-term debt............. 4,542,718 --
Changes in assets and liabilities:
Landlord allowances.................................. 548,465 (245,000)
Prepaid expenses..................................... (290,780) (174,603)
Inventory............................................ (66,778) (26,940)
Other current assets................................. 112,678 (750,147)
Prepaid rent......................................... (2,740,580) --
Other assets......................................... (160,791) (414,627)
Accounts payable..................................... (4,234,163) (2,717,922)
Construction payables................................ (523,954) (504,026)
Accrued utilities.................................... 184,658 297,569
Accrued expenses..................................... 266,528 (90,991)
Deferred rent........................................ 1,208,917 (59,804)
------------ ------------
Net cash used in operating activities............. $(10,205,985) $(11,143,651)
------------ ------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (17,371,001) (7,603,258)
Proceeds from sale of fixed assets........................ 17,743 --
Net proceeds from sale-leaseback transactions............. 1,896,637 --
Acquisition of businesses, net of cash acquired........... (14,874,852) (4,154,517)
Capitalized interest...................................... (103,227) --
------------ ------------
Net cash used in investing activities:............ $(30,434,700) $(11,757,775)
------------ ------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayment of advances from shareholder.................... -- (150,000)
Payments of debt.......................................... (46,675,836) (8,025,328)
Debt issuance costs paid.................................. (5,369,916) --
Increase in debt.......................................... 103,149,974 12,187,821
Proceeds from issuance of common stock warrants........... 5,625,000 --
Proceeds from issuance of stock........................... 2,904,500 26,901,361
Stock issuance costs paid................................. (165,033) --
------------ ------------
Net cash provided by financing activities......... $ 59,468,689 $ 30,913,854
------------ ------------
Net increase in cash and cash equivalents................... 18,828,004 8,012,428
Cash and cash equivalents, beginning of period.............. 8,249,161 360,006
------------ ------------
Cash and cash equivalents, end of period.................... $ 27,077,165 $ 8,372,434
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Equipment financed with long-term debt.................... $ 1,998,428 $ 4,621,692
Sale-leaseback financed with note receivable.............. $ 4,930,381 $ --
Interest paid............................................. $ 1,370,023 $ 562,477

The accompanying notes are an integral part of these financial statements.
F-19
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SPINCYCLE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION -- BASIS OF PRESENTATION

The unaudited financial information presented herein has been prepared in
accordance with the instructions to Form 10-Q and Regulation S-X and does not
include all of the information and note disclosures required by generally
accepted accounting principles. Therefore, this information should be read in
conjunction with the audited financial statements for the year ended December
28, 1997 and notes thereto included in the Form S-4 Registration Statement, as
amended (the "Exchange Offer Registration Statement") of SpinCycle, Inc. (the
"Company") filed with the Securities and Exchange Commission ("SEC") on June 26,
1998 or the Form S-1 Registration Statement, as amended (the "Shelf Registration
Statement" and together with the Exchange Offer Registration Statement, the
"Registration Statements"). This information reflects all adjustments that are,
in the opinion of management, necessary for a fair statement of the Company's
financial position, results of operations and cash flows for the interim periods
reported. These adjustments are of a normal and recurring nature.

2. UNAUDITED INTERIM RESULTS OF OPERATIONS

The results of operations for the quarters and year-to-date periods ended
September 6, 1998 and September 30, 1997 are not necessarily indicative of the
results to be expected for a full fiscal year.

3. FISCAL YEAR

As of December 1, 1997, the Company changed its basis of reporting from 12
calendar months to 13 periods per annum. This change allows the Company to
report and compare results on 13 equivalent periods, with each period containing
four Monday through Sunday weeks. The Company's fiscal year ends on the last
Sunday in December. The fiscal year ended December 27, 1998 will include 52
weeks divided into quarters as follows:

1st Quarter: Three four week periods
2nd Quarter: Three four week periods
3rd Quarter: Three four week periods
4th Quarter: Four four week periods

Accordingly, the Company's fiscal third quarter included 12 weeks in 1998
and 13 weeks in 1997. The first three quarters of the Company's fiscal year
included 36 weeks in 1998 and 39 weeks in 1997.

4. COMPANY EXPANSION

During the fiscal quarter ended September 6, 1998, the Company opened
developed or acquired 27 new stores in seven existing markets and in three new
markets (Milwaukee, Wisconsin, West Palm Beach, Florida and Washington, D.C.).
Fifteen of the new store openings were acquired stores. As of September 6, 1998
the Company had opened or acquired 134 stores in 25 markets throughout the
United States. On September 20, 1998, the Company closed one store in
Albuquerque, New Mexico. The owner of the real property offered to terminate the
Company's lease in order to provide for expansion of an anchor tenant. Based on
the pre and post acquisition performance of this store, the Company elected to
accept the offer, received $100,000 in cash and removed all of its equipment.
This store closure had no material adverse effect on the financial condition or
results of operations of the Company.

5. DEPRECIATION AND USEFUL LIVES

Effective June 15, 1998, the Company revised its estimate of the useful
lives of its laundry equipment and tenant improvements. Laundry equipment was
previously depreciated over 10 years and those lives have now been changed to
periods from seven up to 15 years. Tenant improvements, which were previously
depreciated over an average useful life of ten years have been extended to an
average term of 15 years. These useful life

F-20
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SPINCYCLE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

changes for laundry equipment and tenant improvements were made to better
reflect the estimated periods during which such assets will remain in service.
The revised lives have been adopted for previously recorded assets and newly
acquired assets. The effect of the change was a reduction to depreciation
expense and a corresponding increase to net income applicable to holders of
common stock for the quarter ended September 6, 1998 of approximately $400,000,
or $14.40 per share.

6. EARNINGS PER SHARE

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

Basic EPS is computed by dividing the net loss applicable to holders of
common stock by the weighted average number of common shares outstanding during
each period. Diluted EPS is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period adjusted for
dilutive stock options and warrants and dilutive common shares assumed to be
issued on conversion of preferred stock to common stock. Diluted EPS has not
been presented as the computation is anti-dilutive due to the Company's net loss
in each period. The number of common shares outstanding increased by 7,295
shares in April 1998 as a result of a repricing of the Series C Preferred Stock
offering (See Note 7).

7. REPRICING OF SERIES C CONVERTIBLE PREFERRED STOCK OFFERING

On April 14, 1998, 7,295 shares of the Company's common stock ("Common
Stock") were issued to Series C stockholders in connection with the repricing of
the Series C Convertible Preferred Stock offering, originally priced at $220 per
share. Pursuant to a stockholder consent dated March 18, 1998 and obtained as of
April 14, 1998, the Series C offering was converted to a unit offering, whereby
each Series C unit offered was comprised of ten shares of Series C preferred
stock and one share of Common Stock for $2,200 per unit. In accordance with
existing authoritative guidance, the additional fair value of the consideration
transferred to Series C stockholders of $1,459,000 (i.e. the 7,295 shares of
Common Stock issued in connection with the conversion of the original offering
to a unit offering multiplied by $200 per share) has been treated as a return to
Series C stockholders. Accordingly, $1,459,000 has been deducted from the
Company's net loss for the year-to-date period ended September 6, 1998 in
determining the net loss applicable to common shareholders for the calculation
of earnings per share.

8. SALE-LEASEBACK TRANSACTION

On December 31, 1997, the Company entered into a sale-leaseback transaction
with newly formed SpinDevCo, L.L.C. (SpinDevCo), a subsidiary of
McMahon-Oliphant, Inc. SpinDevCo and McMahon-Oliphant, Inc. have no relationship
or connection with the Company other than the transaction described in this
note. Eleven properties consisting of land of $2.4 million and improvements of
$4.0 million thereon that were previously acquired by the Company were sold to
SpinDevCo for approximately $6.4 million, then leased back under an operating
lease with a 20 year term. The Company received approximately $1.5 million in
cash and a note in the principal amount of approximately $4.9 million, which was
originally due and payable on April 30, 1998. The note is secured by mortgages
on the properties. The transaction also required the Company to contribute in
cash approximately $2,450,000, reflecting prepaid rent to be amortized over the
terms of the related lease agreements. SpinDevCo requested, and on May 30, 1998
the Company granted, an extension (the "Extended Note") of the maturity date of
the note through September 30, 1998 in return for the payment of $125,000 of
accrued interest and additional interest payments through that date. The purpose
of this extension is to allow SpinDevCo additional time to obtain the permanent
financing with which to repay the Company's note. The transaction qualifies for
sale-leaseback accounting in accordance with Statement of Financial Accounting
Standards (SFAS) No. 98, "Accounting for Leases -- Sale-Leaseback Transactions
Involving Real Estate." No gain or loss was recognized on the sale. See Note 14.

F-21
85
SPINCYCLE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. SENIOR DISCOUNT NOTES OFFERING

On April 3, 1998, the Company commenced the offering of unsecured senior
discount notes and an indeterminate number of warrants to purchase Common Stock
to "qualified institutional buyers" only as defined in Rule 144A under the
Securities Act of 1933, as amended (the "Offering"). The Offering was completed
on April 29, 1998, with the Company selling $144,990,000 aggregate principal
amount at maturity of 12 3/4% unsecured senior discount notes (the "Notes") and
warrants (the "Warrants") to purchase 26,661 shares of the Company's Common
Stock with an exercise price of $0.01 per share for gross proceeds to the
Company of $100,001,053. All terms used herein to describe the Offering shall
have the meaning ascribed to them in the Registration Statements unless
otherwise noted. The net proceeds from the Offering of approximately $96.8
million, net of underwriting expenses, were used principally to pay certain
other expenses of the Offering (see note 10), repay approximately $46.7 million
in existing indebtedness, to provide funds for investment in new stores and for
general corporate purposes. The Notes will mature on May 1, 2005. No cash
interest will accrue on the Notes prior to May 1, 2001. The Notes will begin to
accrue cash interest at a rate of 12 3/4% per annum commencing May 1, 2001, and
cash interest will be payable thereafter on November 1 and May 1 of each year,
commencing November 1, 2001. The Notes will be redeemable at the option of the
Company, in whole or in part, on or after May 1, 2002, at the redemption prices
set forth in the Registration Statements. In addition, at any time and from time
to time prior to May 1, 2001, the Company may redeem in the aggregate up to 35%
of the Accreted Value of the Notes with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
of 112.75% of the Accreted Value to the date of redemption; provided, however,
that at least $94.2 million of the aggregate principal amount of the Notes at
maturity remain outstanding after any such redemption. Upon a Change of Control,
each holder of the Notes (a "Holder") will have the right to require the Company
to purchase all or any part of such Holder's Notes at a purchase price equal to
101% of the Accreted Value thereof, plus accrued and unpaid interest, if any, to
the date of purchase.

The Notes are senior, unsecured obligations of the Company ranking pari
passu in right of payment of principal and interest with all other existing and
future senior unsecured obligations of the Company and will rank senior to all
future subordinated debt of the Company. The Notes will be effectively
subordinated to all Secured Indebtedness of the Company, if any, to the extent
of the value of the assets securing such indebtedness and to all indebtedness
and other obligations (including trade payables) of the Company's future
subsidiaries, if any. The Warrants will be exercisable at any time on or after
the earlier of April 29, 1999 or 60 days after the consummation of an initial
public offering of the Company's Common Stock, and will expire on May 1, 2005.

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

On April 29, 1998, the Company also closed a secured revolving credit
facility in the maximum principal amount of $40.0 million with Heller Financial,
Inc. (the "Heller Facility"). As of August 1998, the Heller Facility was
syndicated such that Heller is obligated to provide up to $25.0 million and
FINOVA Capital Corporation ("FINOVA") is obligated to provide up to $15.0
million of the $40.0 million Heller Facility. The Heller Facility will mature on
April 28, 2002 and is collateralized by a first priority security interest upon
(i) all of the Company's now owned and hereafter acquired real and personal
property and all proceeds thereof

F-22
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SPINCYCLE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and (ii) all general intangibles and other intangible assets (including, without
limitation, trademarks and trade names) of the Company, if any, and proceeds
thereof. The Company will be entitled to draw amounts under the Heller Facility,
subject to availability pursuant to a borrowing base formula based upon income
from store operations and net book value of laundry equipment, in order to fund
ongoing working capital, capital expenditures and general corporate purposes. As
of September 6, 1998, this borrowing base was approximately $14.3 million. The
Heller Facility requires the Company to maintain compliance with certain
covenants. The Company was in compliance with all but one of these covenants at
September 6, 1998. The Company has, however, obtained the waiver of the lenders
with respect to this breach and thus it will not restrict the Company's ability
to borrow under the Heller Facility.

10. DEBT ISSUE COSTS AND LOSS ON EARLY EXTINGUISHMENT OF DEBT

In connection with the Company's Offering of the Notes (as discussed in
Note 9), the Company paid approximately $4,600,000 of debt issue costs, which
are being amortized over the term of the Notes. The unamortized balance of these
debt issue costs is included as a component of other assets on the Company's
balance sheet at September 6, 1998.

In connection with the termination of the Raytheon and LaSalle loan
agreements (as discussed in Note 9), the Company recognized an extraordinary
loss of approximately $334,000 (approximately $300,000 of which was related to
termination of the LaSalle agreement) during its fiscal 1998 second quarter on
the early extinguishment of debt for the writeoff of the unamortized balance of
debt issue costs related to these agreements.

F-23
87
SPINCYCLE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. ACQUISITIONS

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

During the year-to-date period ended September 6, 1998, the Company
acquired 26 existing coin laundry businesses for a total cash outlay of
$14,874,852, nine of which were financed, net of cash acquired. These
acquisitions were accounted for under the purchase method of accounting. In
connection with these acquisitions, the Company recorded goodwill of $3,706,458
and did not assume any material liabilities of the sellers other than, in
certain cases, assuming the leases of the related real property.

YEAR TO DATE YEAR TO DATE
SEPTEMBER 6, 1998 SEPTEMBER 30, 1997
----------------- ------------------

Net sales.......................................... $ 21,160,831 $ 14,565,617
Net loss........................................... $(14,263,724) $ (9,042,807)
Net loss per common share.......................... $ (567.13) $ (274.26)

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

12. REDEEMABLE PREFERRED STOCK

The put rights on the shares of the Preferred Stock were terminated
pursuant to a stockholder consent dated April 2, 1998 ("the April 2, 1998
Consent") as of April 14, 1998 contingent upon the closing of the Offering,
which occurred on April 29, 1998. Prior to the termination of the put rights,
each class of holders of the Series A, Series B and Series C Convertible
Preferred Stock (collectively, the "Preferred Stock") had the right, upon the
demand of those holding 51% of each of the classes, to require the Company to
purchase all of the Preferred Stock at any time after June 1, 2001, at a
redemption price equal to the greater of the purchase price of the shares plus
accrued but unpaid dividends, if any, or, the appraised value of the shares. The
accreted value of the Preferred Stock at September 6, 1998 and December 28, 1997
was $50,845,810 and $48,792,805, respectively.

F-24
88
SPINCYCLE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. INTEREST EXPENSE, NET OF AMOUNT CAPITALIZED

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

QUARTERS ENDED YEAR-TO-DATE
----------------------------- -----------------------------
SEPTEMBER 6, SEPTEMBER 30, SEPTEMBER 6, SEPTEMBER 30,
1998 1997 1998 1997
------------ ------------- ------------ -------------

Accretion of Senior Discount Notes...... $2,935,302 $ -- $4,542,717 $ --
Interest expense on Raytheon And LaSalle
debt.................................. -- 256,991 1,348,531 562,477
Amortization of debt issue costs........ 210,107 -- 388,221 --
Other interest expense.................. 14,516 -- 28,623 --
Capitalized interest.................... (5,538) -- (103,227) --
---------- -------- ---------- --------
Interest expense, net................... $3,154,387 $256,991 $6,204,865 $562,477
========== ======== ========== ========

14. SUBSEQUENT EVENTS

A. On September 18, 1998, the Company entered into an agreement with
PeopleSoft USA, Inc. for the purchase of a new accounting software
system and the related hardware, installation and training fees. The
transaction was financed by a note payable to Newcourt Financial USA,
Inc. in the amount of $560,000. The Company will begin utilizing the
software for substantially all of its accounting processes at the
beginning of its fiscal 1999 second quarter. PeopleSoft has verified
to the Company that its products are Year 2000 compliant.

B. On September 25, 1998 and October 20, 1998, the Company filed
pre-effective amendments to its Exchange Offer Registration Statement
with the SEC. On September 28, 1998 and October 20, 1998, the Company
filed pre-effective amendments to its Shelf Registration Statement
with the SEC.

C. On October 15, 1998, the Company received approximately $4.9 million
in cash from SpinDevCo in repayment of outstanding principal and
interest on the Extended Note. Simultaneously, the Company purchased
three sites from SpinDevCo for approximately $1.75 million in cash,
the same amount for which it had previously sold them to SpinDevCo.
The Company is currently operating stores at these three sites. The
Company has an agreement with a third party to sell these three
properties for $1.75 million in cash. After the sale, the properties
will be subject to more favorable leases, including lower rental
rates, than the leases the Company had with SpinDevCo.

D. Management and Mr. Bruce Mosby, the Company's former Chief Operating
Officer agreed to submit their dispute regarding Mr. Mosby's
termination from the Company to mediation. The mediation took place on
October 14, 1998. The results of the mediation were that no agreement
was reached between the Company and Mr. Mosby. This dispute was
previously noted in a Current Report on Form 8-K dated July 7, 1998
and in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 14, 1998. The Company does not believe that the resolution
of this matter will have a material adverse effect on the financial
condition or results of the operations of the Company.

E. The written stockholder solicitation regarding the reservation of
additional shares of Common Stock for the grant of options pursuant to
the Company's 1995 Plan commenced on August 26, 1998 and concluded on
September 24, 1998. Reserving additional shares for the 1995 Plan
requires the consent of the holders of a majority of the Common Stock,
76% of the Series A Convertible Preferred Stock ("Series A Stock"),
51% of the Series B Convertible Preferred Stock ("Series B Stock") and
51% of the Series C Convertible Preferred Stock ("Series C Stock").
The addition of

F-25
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SPINCYCLE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

26,546 shares to the 1995 Plan, for a total of 69,270 shares available
under the 1995 Plan, was approved by the requisite vote of the
stockholders. As of the date hereof, those results were as follows:

APPROVED DISAPPROVED ABSTAINED NOT RECEIVED
-------- ----------- --------- ------------

Common Stock................... 19,327 0 0 8,436
Series A Stock................. 61,850 0 0 14,724
Series B Stock................. 102,363 968 0 22,167
Series C Stock................. 63,610 0 0 9,320

F-26
90

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS

PAGE
-----

Prospectus Summary................... 3
Risk Factors......................... 10
Use of Proceeds...................... 17
Capitalization....................... 17
Selected Financial and Other Data.... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Business............................. 30
Management........................... 39
Principal Stockholders............... 44
Certain Transactions................. 45
Description of Capital Stock......... 46
Description of the Warrants.......... 48
Description of the Heller Facility... 51
Description of the Notes............. 53
Federal Income Tax Consequences...... 56
Selling Stockholders................. 59
Plan of Distribution................. 60
Notice to Canadian Residents......... 61
Legal Matters........................ 62
Experts.............................. 62
Available Information................ 62
Index to Consolidated Financial
Statements......................... F-1

[SPINCYCLE LOGO]

SPINCYCLE, INC.
144,990 WARRANTS
TO PURCHASE 26,661 SHARES
OF COMMON STOCK
AND 26,661 SHARES
OF COMMON STOCK
---------------------------------------------------
PRELIMINARY PROSPECTUS
---------------------------------------------------
------------------------------------------------------
------------------------------------------------------
91

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

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

SEC Registration Fee........................................ $ 1,661
Accounting Fees............................................. $ *
Printing and Engraving Expenses............................. $ *
Legal Fees and Expenses (other than blue sky)............... $100,000
Blue Sky Fees and Expenses.................................. $ 5,000
Transfer Agent and Registrar Fees........................... $ *
Miscellaneous Expense....................................... $ *
--------
Total............................................. $ *
========

- ---------------
* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

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

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

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

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

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Company first issued 100 shares (4 shares on a post-split basis) of its
common stock, $.01 par value ("Common Stock") to its incorporator and former
chief executive officer in October 1995 concurrently with the incorporation of
the Company's predecessor, Spincycle, Inc., a Minnesota corporation. In January
1996, the Company issued 856,900 additional shares (34,276 shares on a
post-split basis) of its Common Stock to then current officers of the Company
and to outside service providers for services rendered. In January 1997, the
Company issued 105,178 additional shares (4,207 shares on a post-split basis) of
its Common Stock to

II-1
92

then current officers of the Company for services rendered. Following its
Delaware migratory merger on April 4, 1997, the Company effected a 1:25 reverse
stock split. On February 27, 1998, as part of the severance arrangement between
the Company and its former chief executive officer, the Company redeemed 18,019
shares of his Common Stock (on a post-split basis). Of the shares redeemed,
7,293 shares were issued to purchasers of Series C Units (see below). The
remaining 10,726 will be added to the shares reserved for issuance under the
Company's 1995 Amended and Restated Stock Option Plan pending stockholder
approval.

From February 1996 through January 31, 1997, the Company offered and sold
76,974 shares (on a post-split basis) of its Series A Convertible Preferred
Stock ("Series A Stock") for approximately $9.6 million in cash to "accredited
investors" (as defined in Section 501(a) of Regulation D promulgated pursuant to
the Securities Act of 1933, as amended (the "Securities Act")) only.
Approximately 1,146 (on a post-split basis) of the shares of Series A Stock were
issued for services including marketing and other consulting services. In
connection with the sale of the Series A Stock, the Company relies upon the
exemptions from the Section 5 registration requirements set forth in Section
4(2) of the Securities Act and pursuant to the safe harbor provided in Rule 506
of Regulation D. This offering was conducted without any general solicitation
and the investors were required to represent that they were purchasing for
investment and not with a view toward resale. The Series A Stock was offered
through officers and directors of the Company as well as broker-dealers.

In March 1997 the Company commenced, and on April 24, 1997, the Company
closed the sale of 125,498 shares (on a post-split basis) of its Series B
Convertible Preferred Stock ("Series B Stock") for $25 million in cash proceeds.
The Series B Stock also was offered to "accredited investors" only. In
connection with the sale of the Series B Stock, the Company relies upon the
exemptions from the Section 5 registration requirements set forth in Section
4(2) of the Securities Act and pursuant to the safe harbor provided in Rule 506
of Regulation D. This offering was conducted without any general solicitation
and the investors were required to represent that they were purchasing for
investment and not with a view toward resale. The Series B Stock was offered
through officers and directors of the Company and to existing stockholders of
the Company.

In November 1997, the Company commenced an offering of up to $25 million of
its Series C Convertible Preferred Stock at an offering price of $220 per share.
Due to actual results and revised projections of Company revenues, management
determined in February 1998 that the offering should be terminated and repriced
to $200 per share (equivalent to the post-split price for the Series B Stock).
This repricing was to be achieved by the issuance of one share of the Company's
Common Stock for every ten shares of Series C Stock subscribed for. The
repricing required approval of 51% of the holders of the Company's Common and
Series B Stock and 76% of the holders of the Company's Series A Stock. The
repricing was also affirmed by all subscribers for Series C Stock. The requisite
approvals were obtained as of April 14, 1998 and the "Series C Units," comprised
of ten shares of Series C Stock and one share of Common Stock were then issued
to the subscribers in the Series C offering. The Series C Units were offered to
"accredited investors" only. In connection with the sale of Series C Units, the
Company relies upon the exemptions from the Section 5 registration requirements
set forth in Section 4(2) of the Securities Act and pursuant to the safe harbor
provided in Rule 506 of Regulation D. This offering was conducted without any
general solicitation and the investors were required to represent that they were
purchasing for investment and not with a view toward resale. The Series C Units
were offered through officers and directors of the Company and to existing
stockholders of the Company. As of the close of this offering on April 14, 1998,
a total of approximately $16 million was raised in the sale of 72,930 shares of
Series C Stock and 7,293 shares of Common Stock.

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

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registered notes (the "New Notes"). This registration statement is filed to
register the Warrants and the shares of Common Stock issuable upon the exercise
of those Warrants.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

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

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

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

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

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

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

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

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

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

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

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94

SIGNATURES

Pursuant to the requirements of the Securities Act, as amended, the
registrant has duly caused Amendment No. 3 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, in the State of Arizona, on October 29, 1998.

SPINCYCLE, INC.

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

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95

Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 3 to this Registration Statement has been signed below by the
following persons in the capacities indicated on October 29, 1998.

SIGNATURE TITLE
- --------- -----

/s/ PETER L. AX Chairman and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer)
Peter L. Ax

/s/ JAMES R. PUCKETT Chief Financial Officer (Chief Accounting
- ----------------------------------------------------- Officer)
James R. Puckett

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

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

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

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

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

/s/ JOHN WALLACE* Director
- -----------------------------------------------------
John Wallace

* Signed by James R. Puckett pursuant to power of attorney.

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96

EXHIBITS

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------

1.1* Purchase Agreement, dated April 24, 1998 between the Company
and Credit Suisse First Boston Corporation, as Initial
Purchaser.
3.1* Amended and Restated Certificate of Incorporation of the
Company as filed on April 27, 1998.
3.2* Bylaws of the Company.
4.1* Warrant Agreement dated as of April 29, 1998 between the
Company and Norwest Bank Minnesota, N.A., as Trustee.
4.2* Amendment of Warrant Agreement dated as of June 9, 1998
between the Company and Norwest Bank Minnesota, N.A., as
Trustee.
5.1 Legal Opinion of Pedersen & Houpt, P.C.
10.1* Loan and Security Agreement dated as of April 29, 1998 among
the Company, as Borrower, various financial institutions, as
Lenders, and Heller Financial, Inc., as Agent and as Lender.
10.2* Collateral Assignment of Leases dated as of April 29, 1998
between the Company, as Borrower, and Heller Financial,
Inc., as Agent for the Lenders under the Loan and Security
Agreement.
10.3* Assignment for Security of Patents, Trademarks and
Copyrights dated as of April 29, 1998 between the Company,
as Assignor, and Heller Financial, Inc., as Agent for the
Lenders under the Loan and Security Agreement.
10.4* Amended and Restated Supply Agreement dated as of February
19, 1998 between the Company, as Buyer, and Raytheon
Commercial Laundry LLC, as Seller.
10.5* Employment Agreement dated December 1, 1996 between the
Company and Peter Ax.
10.6* Employment Agreement dated June 1, 1997 between the Company
and Chris Lombardi.
10.7* Indenture dated as of April 29, 1998 between the Company and
Norwest Bank Minnesota, N.A., as Trustee.
10.8* Registration Rights Agreement dated April 29, 1998 between
the Company and Credit Suisse First Boston Corporation, as
Initial Purchaser.
10.9* Second Amended and Restated Supply Agreement dated as of
September 1, 1998 between the Company, as Buyer and Alliance
Laundry Systems LLC, as Seller.
10.10 First Amendment to Loan and Security Agreement dated as of
July 1998.
11.1 Statement regarding Computation of Per Share Earnings.
23.1 Consent of Pedersen & Houpt, P.C.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Coin Laundry Association.
24.1* Power of Attorney.
27.1 Financial Data Schedule.

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

* Previously filed.

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