<PAGE>   1
                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

         For the fiscal year ended June 30, 1996.

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

Commission file number 0-19620

                         REDDI BRAKE SUPPLY CORPORATION
             ------------------------------------------------------   
             (Exact name of registrant as specified in its charter)

            Nevada                                       84-1152135
-------------------------------               ---------------------------------
(State or other jurisdiction of               (IRS Employer Identification No.)
incorporation or organization)

 1376 Walter Street, Ventura California                     93003
---------------------------------------                   ----------
     (Address of principal                                (Zip Code)
       executive offices)

Registrant's telephone number, including area code: (805) 644-8355

Securities registered pursuant to Section 12(b) of the Act:  None

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

                          $.0001 par value Common Stock
                                (Title of Class)

                    Class C Warrants to purchase Common Stock
                                (Title of Class)

                    Class D Warrants to purchase Common Stock
                                (Title of Class)

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

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

         The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing sales price as reported
on The Nasdaq National Market on October 10, 1996, is $9,018,910. In calculating
the market value of the voting stock held by non-affiliates, the registrant did
not include shares of its Common Stock held by directors, executive officers and
holders of more than 5% of its Common Stock (but has included shares which may
be beneficially owned but are not held by such persons).

         As of October 10, 1996, the registrant had outstanding 26,236,830
shares of its class of Common Stock.
<PAGE>   2
                                     PART I

ITEM 1:  BUSINESS

INTRODUCTION

         Reddi Brake Supply Corporation (together with its subsidiary, "Reddi
Brake" or the "Company") is a non-traditional "two-step" distributor of brake
systems, chassis components and other undercar parts primarily to commercial
auto repair shops. "Two-step" means that the Company's size and organization
enable it to purchase directly from manufacturers and other primary source
suppliers for resale to commercial customers, bypassing the added layer of
warehouse distributors and jobbers present in traditional three-step
distribution channels. The Company's Reddi Brake(R) outlets are typically 2,500
to 3,500 square feet in size, are housed in plain, industrial warehouse sites
and are located in areas with high concentrations of commercial repair shops.
Suppliers ship directly to the outlets, which carry approximately 8,500 "hard
part" undercar SKUs in stock for immediate delivery to the repair shops, and
offer over 20,000 additional SKUs on a "same day" or "next day" basis. As of
October 10, 1996, the Company operated 85 Reddi Brake(R) outlets in 26 states.

         The Company entered into the two-step distribution business through its
April 1993 acquisition (the "Acquisition") of an entity which was then operating
11 Reddi Brake(R) outlets in California embarking on an aggressive expansion
program of opening new outlets in different regions of the country. In fiscal
1994, the Company opened 34 Reddi Brake(R) outlets, continuing its expansion in
Central and Northern California and beginning its expansion into various Western
states and Southeastern states. In fiscal 1995, the Company opened 52 additional
outlets, including new outlets in several Midwestern and Mid-Atlantic states.
However, in late fiscal 1995, the Company decided that its system of outlets had
expanded to a size calling for a review of operations before continuing its
expansion program, and the Company began a process of enhancing its
infrastructure.

         In February 1996, in response to the Company's operating losses, a new
management team was installed and undertook a restructuring of the Company's
operations. At that time, (1) William Leider resigned as Chief Executive
Officer, President and Chief Operating Officer and from the Company's Board of
Directors, (2) Richard McGorrian, who had served as the Company's Vice
President, Marketing since November 1995, was appointed President and Chief
Executive Officer and was elected to the Board, and (3) S. Gerald Birin, who had
served as the Company's Chief Financial Officer and Secretary since November
1995 was appointed to the additional position of Executive Vice President and
was elected to the Board.

         Since February 1996, the new management team has (1) closed 21
underperforming warehouses, (2) heightened its monitoring of certain other
underperforming warehouses, (3) returned approximately $3.4 million of inventory
to vendors and redistributed approximately $1.75 million of inventory from its
21 closed warehouses, (4) modified the inventory selection in remaining
warehouses and begun selling higher margin products, such as alternators,
carburetors and generators, with a particular focus on customer preferences of
local markets, (5) reduced certain overhead items, such as payroll, payroll
benefits, professional fees, and fleet costs, and (6) entered into an agreement
with a vendor for implementation of a new management information and accounting
system. In addition, in the fourth quarter of fiscal 1996, after evaluating the
geographic location of existing Reddi Brake locations, the Company expanded into
two new markets by purchasing two corporations operating a total of seven
automotive parts warehouses in Nevada and Orange County, California, in exchange
for shares of Reddi Brake's Common Stock.


                                       -1-
<PAGE>   3
         As discussed below under "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Factors That May Affect
Future Results", such restructuring plans may be modified, and there can be no
assurance that such restructuring will prove successful. Further, the
continuation of the Company's operations and further implementation of its
restructuring plans require that the Company raise additional working capital.
Management is engaged in discussions with two firms in an effort to raise
additional funds. However, there can be no assurance that the Company will be
able to raise such additional working capital. If the Company is not able to
raise additional capital in the near future, it is doubtful that the Company
will be able to continue its operations and will consider reorganization under
federal bankruptcy laws. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

         The Company was incorporated in Nevada on July 13, 1990. The Company's
principal executive offices are located at 1376 Walter Street, Ventura,
California 93003, and its telephone number is (805) 644-8355.

INDUSTRY OVERVIEW

         According to industry sources, the total market for automotive
replacement parts for passenger cars and light trucks (not including service or
tires) accounted for sales of approximately $64.2 billion in 1993. This market
has two basic channels: (1) the wholesale segment, serving professional
installers, vehicle dealers, retail auto parts stores and other distributors,
which accounted for approximately $44.9 billion in 1993 sales, and (2) the
retail segment, serving do-it-yourself (DIY) customers, which accounted for
approximately $19.3 billion in 1993 sales.

         The Company's "two-step" Reddi Brake(R) outlets focus on commercial
auto repair shops in the wholesale segment. The channels of distribution serving
the wholesale segment are highly fragmented and include (1) the traditional
three-step aftermarket channels, which consist primarily of warehouses that buy
from product manufacturers and sell to jobbers that, in turn, sell to
professional installers, and (2) traditional two-step distribution channels,
including the original equipment channel through vehicle dealerships, retail
parts stores, specialty distributors and local and regional remanufacturers.

         The Reddi Brake(R) outlets are non-traditional "two-step" distributors,
purchasing directly from major manufacturers for resale to commercial repair
shops, to avoid the inefficiencies and extra costs involved in utilizing
traditional three-step channels. At the same time, Reddi Brake(R) outlets carry
more focused inventory than the traditional two-step distributors, offering the
commercial shops ready availability of selected lines of brake systems, chassis
and other undercar "hard parts". The Company believes that its Reddi Brake(R)
outlets combine distribution efficiencies and purchasing power with specialized
inventory targeting the needs of commercial repair shops.

TWO-STEP REDDI BRAKE(R) OUTLETS

         The Company's Reddi Brake(R) outlets have been designed to meet the
needs of its targeted customer base -- the commercial repair shops -- and sell
high-volume undercar products such as brake systems, chassis and steering parts
-- emphasizing quality parts, availability and rapid delivery. The Company
selects outlet sites in areas with both inexpensive rent and a high
concentration of commercial repair shops. Reddi Brake(R) outlets are typically
2,500 to 3,500 square feet in size and are housed in plain, industrial warehouse
sites, which do not emphasize exterior visibility. The interior of each outlet
is similarly plain, consisting of desk and counter space, telephone and computer
equipment, and industrial shelving for the parts inventory. Since virtually all
of this business is conducted by outside orders from repair outlets, site
visibility and interior design are not important.


                                       -2-
<PAGE>   4
         These outlets focus on ready availability of approximately 8,500 "hard
part" undercar SKUs carried in stock, and offer over 20,000 additional SKUs on a
"same day" or "next day" basis. Parts are delivered by manufacturers or other
primary source suppliers directly to the outlets which, in turn, offer quick
response delivery to the commercial repair shops.

         The Company's Reddi Brake(R) outlets are characterized by their
relatively low overhead and modest unit investment requirements. The inexpensive
sites, small size and "no-frills" exterior and interior of these outlets combine
to hold the cost of opening an average outlet to approximately $250,000,
primarily consisting of initial inventory costs.

PURCHASING AND INVENTORY CONTROL

         The Company employs certain operating disciplines and efficiencies to
reduce costs. Through centralized control of purchasing, pricing and inventory
replenishment, and direct shipment of merchandise from suppliers, management
believes that the Company can control and reduce operating expenses that are
typical for the industry.

         The Company selects its vendors based upon quality, price, service and,
for appropriate product categories, brand name recognition. Inventory is
delivered from the suppliers to the individual outlets. The Company purchases
from approximately 25 primary vendors, with 12 vendors accounting for over 80%
of their total purchases in fiscal 1996. The Company has no long-term purchase
contracts with any of its vendors; however, various purchase discounts and
rebates received from vendors are contingent upon the Company's meeting certain
volume purchase requirements with respect to these vendors.

         Although the Company is not yet able to resume timely payments to trade
and other creditors, it has made significant payments to major vendors from the
net proceeds of its April 1996 and June 1996 preferred stock offerings. Further,
in the third quarter of fiscal 1996, the Company returned approximately
$3,400,000 of inventory to vendors in connection with its closing of 14
underperforming warehouses. Due to its cash flow shortage, however, the Company
has been placed on COD status by a majority of its vendors. Accordingly, the
Company's ability to fill customer orders has been adversely affected. See "Part
II - Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources".

         Merchandising policies and significant buying decisions are made at the
Company's Ventura, California headquarters, while store managers may vary their
inventory to meet local demand. Sales data for each outlet is linked into the
Company's computerized perpetual inventory control systems at point-of-sale.
These systems enable the Company's management to track, on a "real time" basis,
outlet and company-wide sales and inventory information by SKU, establish
product pricing and generate inventory replenishment orders.

         The manufacturers of automotive parts and products generally provide
repair or replacement warranties, which the Company extends to its customers.
The Company's vendors generally permit it to return an agreed-upon percentage of
its annual purchases for full credit.

MARKETING AND COMPETITION

         For the Reddi Brake(R) outlets, the Company's marketing strategy is
designed to promote awareness among commercial repair shops of ready
availability of approximately 8,500 high quality "hard part" undercar SKUs, at
competitive prices. Critical to this strategy is an emphasis on quick and
efficient order taking and immediate parts delivery. A full-time staff of
approximately 47 customer account


                                       -3-
<PAGE>   5
representatives regularly calls on commercial customers of the various outlets,
occasionally accompanied by vendor representatives to maintain customer contact
and provide training. In addition, certain store personnel make calls to
existing and potential commercial customers. The outlets also offer special
prices on selected items, during seasonal and special promotions.

         The Reddi Brake(R) outlets compete in a highly competitive environment
in the commercial segment of the automotive aftermarket parts accessories
industry. The primary competitors include the traditional three-step aftermarket
channels, consisting primarily of independent and national warehouse
distributors and associations, such as National Automotive Parts Association and
Carquest, and the associated jobbers to whom they sell; the traditional two-step
distribution channels, including the original equipment channels through vehicle
dealerships, retail part stores, specialty distributors and local and regional
remanufacturers; and APS Holding Corporation, a national operator of "installer
service warehouses". Many of the Company's competitors are larger and have
greater capital and management resources. National and regional automotive parts
chains with which the Company does not presently compete may expand into the
Company's present or future market areas.

         The Reddi Brake(R) outlets compete primarily by providing auto repair
shops with ready availability of high quality undercar parts at competitive
prices. By locating these outlets near concentrations of repair shops, the
Company is able to provide immediate delivery of its "on hand" 8,500 SKUs.

EMPLOYEES

         As of October 4, 1996, the Company had 890 employees, including two
executive officers. Of these employees, 836 worked in the Reddi Brake(R) outlets
and 54 were management and support personnel at the Company's administrative
offices. The Company's employees are not subject to any collective bargaining
agreement. The Company considers its relations with its employees to be good.

SERVICE MARKS AND TRADEMARKS

         The Company believes that its "Reddi Brake(R)" service mark is
important to its merchandising and marketing strategy, but that its business is
not otherwise dependent on any patent, license, trademark, service mark or
copyright. There are no infringing uses known by the Company that could
materially affect the use of such mark.

ITEM 2:  PROPERTIES

         As of October 10, 1996, the Company operated 85 Reddi Brake(R) outlets
in 26 states. Each of these sites is leased from parties not affiliated with the
Company. Of the 85 Reddi Brake(R) outlets, 82 are leasehold sites typically
ranging between 2,500 and 3,500 square feet, under leases with terms generally
ranging from three to five years. The Ventura, California outlet is located in a
15,000 square foot facility, which also houses the Company's administrative
facilities. The Atlanta, Georgia facility is 8,500 square feet and serves as
both a Reddi Brake(R) outlet and certain data processing facilities for the
Southeastern Regional Center. The Indianapolis, Indiana facility is 5,200 square
feet and serves as both a Reddi Brake(R) outlet and certain data processing
facilities for the Midwestern Regional Center.

         The Company also leases a 15,000 square foot warehouse in West Covina,
California from the Company's former Chairman pursuant to a lease which expires
in February 2008. This warehouse was subleased to Hi/LO Automotive, Inc. until
October 31, 1995. The Company plans to find another tenant to sublease this
facility. No assurances can be given that the Company will be able to
successfully sublease 


                                       -4-
<PAGE>   6
this facility or that the rent under any such new sublease will be adequate to
cover the rent payable under the Company's with respect to this facility.
Monthly rent payments made by the Company with respect to this facility will be
charged against the Company' reserve for discontinued operations established in
fiscal 1994. At June 30, 1996, such reserve was reevaluated and increased by
$354,000 to approximately $1,296,000, which management believes is adequate to
cover future expenses associated with its former Wesco Division.

ITEM 3:  LEGAL PROCEEDINGS

         A class action lawsuit entitled James P. Delano and Cynthia L. Delano,
et al. v. Reddi Brake Supply Corporation, et al., was filed on October 31, 1995
against the Company and Bruce Douglass, Gordon Werner and Michael Cassidy
(former officers of the Company) in the United States District Court for the
Central District of California. The Company and the individual defendants have
entered into an agreement of settlement with the plaintiffs, under which the
total settlement amounts and attorneys' fees to be paid by the Company would not
have a material adverse impact on its results of operations or financial
condition. Consummation of the settlement agreement is subject to a finding by
the Court that the terms of the settlement are fair, adequate and reasonable to
the members of the plaintiff class after members of the plaintiff class have
been notified of the proposed settlement and have been given an opportunity to
be heard by the Court. Although the parties have entered into a definitive
written agreement of settlement, there can be no assurance that such settlement
will be approved by the Court or that the settlement will be consummated.

         On October 6, 1995, Thomas M. Jeffrey and Debra A. Jeffrey filed a
lawsuit in the Arizona Superior Court against the Company, and certain of its
former officers and/or directors (Bruce Douglass, Gordon Werner, William Leider
and Michael Cassidy), and their spouses, alleging violations of Arizona law in
connection with plaintiffs' purchase of Reddi Brake securities. The case
subsequently was removed to the United States District Court for the District of
Arizona. The Company has reached a tentative agreement with plaintiffs for the
settlement of this action, under which the total settlement amounts to be paid
by the Company would not have a material adverse impact on its results of
operations or financial condition. Consummation of this settlement is subject to
the negotiation, execution and delivery of definitive settlement documents and
the approval of the Delano v. Reddi Brake Supply Corp. litigation discussed
above. Accordingly, there can be no assurance that such settlement will be
consummated.

         On September 6, 1996, Maremont Corporation filed a lawsuit in the
United States District Court for the Central District of California against the
Company, alleging that the Company owes the plaintiff approximately $1.2 million
for goods sold and delivered to the Company. The complaint includes a demand for
the Company's payment of such sum, plus interest, attorneys' fees and costs.
Such amount has been included as an accounts payable as of June 30, 1996 in the
Company's consolidated financial statements.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On May 21, 1996, the Company held its 1995 annual meeting of
stockholders (the "Annual Meeting"). At the Annual Meeting, the stockholders
elected directors to serve on the Board, voted in favor of the Chief Executive
Officer and Chief Financial Officer Performance Based Compensation Plan which
had been adopted by the Compensation Committee of the Board of Directors,
subject to stockholder approval, and ratified the Board of Directors' selection
of KPMG Peat Marwick LLP, as the Company's independent auditors for the 1996
fiscal year. The results of ballots cast at the Annual Meeting were as follows:


                                       -5-
<PAGE>   7
PROPOSAL 1: ELECTION OF DIRECTORS

<TABLE>
<CAPTION>
NOMINEE                    FOR              AGAINST            ABSTAIN
-------                    ---              -------            -------
<S>                        <C>               <C>               <C>    
Stanley L. Timmins         12,395,800        0                 114,719
Eric Openshaw              12,395,800        100               114,719
Richard McGorrian          12,395,700        0                 114,719
S. Gerald Birin            12,395,700        0                 115,719
</TABLE>

PROPOSAL 2: ADOPTION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PERFORMANCE BASED COMPENSATION PLAN

<TABLE>
<CAPTION>
                           FOR              AGAINST  ABSTAIN
                           ---              -------  -------
<S>                        <C>              <C>      <C>    
                           6,847,565        342,725  114,132
</TABLE>

PROPOSAL 3: RATIFICATION OF KPMG PEAT MARWICK LLP AS AUDITORS

<TABLE>
<CAPTION>           
                           FOR              AGAINST  ABSTAIN
                           ---              -------  -------
<S>                        <C>              <C>       <C>   
                           12,338,142       74,961    97,366
</TABLE>


                                     PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

         The Company's Common Stock has been traded over-the-counter on The
Nasdaq Stock Market since February 28, 1992. The Common Stock now is traded on
The Nasdaq National Market under the symbol REDI. Prior to March 1994, the
Common Stock was traded on The Nasdaq Small-Cap Market and, prior to May 9,
1994, the trading symbol was WSCO.

         The following table sets forth, for the periods indicated, the high and
low closing sales price per share for the Common Stock in each of the fiscal
quarters indicated:

<TABLE>
<CAPTION>
                  FISCAL YEAR ENDED JUNE 30, 1995
<S>                                                           <C>        <C>  
                  First Quarter                               $6.75      $4.19
                  Second Quarter                              $6.63      $4.50
                  Third Quarter                               $7.25      $2.88
                  Fourth Quarter                              $4.13      $2.75

<CAPTION>
                                                              HIGH        LOW
                                                              ----        ---
                  FISCAL YEAR ENDED JUNE 30, 1996
<S>                                                           <C>        <C>  
                  First Quarter                               $3.72      $2.31
                  Second Quarter                              $3.03      $2.06
                  Third Quarter                               $2.56      $1.28
                  Fourth Quarter                              $2.56      $1.78
</TABLE>


                                      -6-
<PAGE>   8
         Quotations for fiscal 1995 and fiscal 1996 have been obtained from The
Nasdaq Stock Market. On October 10, 1996, the closing price of the Common Stock
as reported on the Nasdaq National Market was $0.34. As of October 10, 1996,
there were approximately 444 holders of record of the Company's Common Stock.

         The Company has not paid any cash dividends on its capital stock and
does not intend to pay dividends in the foreseeable future. The Board of
Directors currently intends to retain any future earnings for use in its
business. Under the terms of the Company's working capital line of credit with
The CIT Group/Credit Finance, Inc., the Company is prohibited from declaring or
paying a dividend or distribution on its Common Stock in cash or any property
other than Reddi Brake securities.

ITEM 6:  SELECTED FINANCIAL DATA

         The following selected financial data is derived from the consolidated
financial statements of Reddi Brake Supply Corporation. The data should be read
in conjunction with the consolidated financial statements, related notes, and
other financial information included herein. The results of operations of the
Wesco Division are reported as a discontinued operation. The Wesco Division's
results for the fiscal year ended June 30, 1992 include information derived from
the financial statements of a "Predecessor" corporation, prior to the
recapitalization of Wesco Auto Parts Corporation in October 1991. Operating
results of the Company include the results of the Reddi Brake Division from the
date of acquisition, May 1, 1993.


                                       -7-
<PAGE>   9
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED JUNE 30,
                                                                  -----------------------------------------------------------------
                                                    1996              1995             1994              1993              1992  
                                                ------------      ------------     ------------      ------------      ------------ 
<S>                                             <C>               <C>              <C>               <C>               <C>          
INCOME STATEMENT DATA:                             
Net Sales ...................................   $ 62,725,468      $ 46,695,341     $ 21,003,497      $  2,047,970      $       --   
Cost of goods sold ..........................     38,548,308        25,010,103       11,398,234         1,271,673              -- 
                                                ------------      ------------     ------------      ------------      ------------ 
Gross profit ................................     24,177,160        21,685,238        9,605,263           776,297              --   
                                                                                                                                    
Operating Expenses:                                                                                                                 
 Store operating and selling ................     21,802,719        15,404,074        6,492,893           571,382              --   
 New store development ......................           --             597,470          151,033              --                --   
 General and administrative .................      7,534,414         4,717,139        1,871,949         1,216,939           936,295 
 Write Off of Computer Equipment and                                                                                                
   Certain Intangibles ......................      1,238,000              --               --                --                --   
 Issuance of shares of Common Stock to                                                                                              
   consultant ...............................           --                --          1,548,400              --                --   
 Provision for Store Closures ...............        721,794              --               --                --                --   
 Exchange of EBIT Shares for shares of                                                                                              
   Common Stock .............................           --                --          9,255,036              --                --   
 Interest expense, net ......................      1,423,069           850,201          369,601           300,546           131,049 
                                                ------------      ------------     ------------      ------------      ------------ 
 Total operating expenses ...................     32,719,996        21,568,884       19,688,912         2,088,867         1,067,344 
                                                  
Income (loss) from continuing operations                                                                                            
  before provision (benefit) for income taxes                                                                                       
  and a change in accounting ................     (8,542,836)          116,354      (10,083,649)       (1,312,570)       (1,067,344)

Provision (benefit) for income taxes ........         20,000            50,000             --             (83,000)         (187,000)
                                                ------------      ------------     ------------      ------------      ------------ 
Income (loss) from continuing operations         
  before a change in accounting .............     (8,562,836)           66,354      (10,083,649)       (1,229,570)         (880,344)

Discontinued operations:                          
 Income (loss) from operations of                                                                                                   
   discontinued Wesco Auto Parts                                                                                                    
   division .................................           --                --         (2,758,721)       (1,535,434)          282,545 

 Loss on disposal of Wesco Auto Parts           
   division, including provision for                                                                                                
   estimated operating losses during                                                                                                
   phase-out period .........................           --                --         (3,500,000)             --                --   
                                                                                                                                    
Cumulative benefit due to a change in            
  accounting ................................           --                --               --             197,000              --   
                                                ------------      ------------     ------------      ------------      ------------ 
Net income (loss) ...........................   $ (8,562,836)     $     66,354     $(16,342,370)     $ (2,568,004)     $   (597,799)
                                                ============      ============     ============      ============      ============ 

EARNINGS PER COMMON SHARE:                                                                                                          
Income (loss) before discontinued operations     
 and change in accounting ...................   $      (0.52)     $       0.00     $      (0.71)     $      (0.11)     $      (0.14)
                                                                                                                                    
Loss from discontinued operations ...........           --                --              (0.45)            (0.13)             0.05 
                                                                                                                                    
Change in accounting ........................           --                --               --                0.02              --   
                                                ------------      ------------     ------------      ------------      ------------ 
                                                                                                                                    
Net income (loss) per share .................   $      (0.52)     $       0.00     $      (1.16)     $      (0.22)     $      (0.09)
                                                ============      ============     ============      ============      ============ 

Weighted average number of shares               
  outstanding ...............................     16,528,268        16,393,930       14,123,484        11,658,690         6,361,722 
                                                
BALANCE SHEET DATA:                             
Working capital .............................   $ 14,841,001      $ 12,194,634     $  7,211,367      $  2,728,144      $  3,048,934 
Total assets ................................     39,926,249        40,947,695       27,996,810        21,449,149        13,337,726 
Long-term debt ..............................      7,840,925         8,635,141        1,191,046           161,094            74,117 
Stockholders' equity ........................     13,428,041        11,235,442        9,781,072        10,312,537         7,117,348 
</TABLE>


                                       -8-
<PAGE>   10
ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OPERATIONS

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS ADDRESSED IN
THIS ITEM 2 CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW
UNDER THE HEADING "FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS
REPORT ON FORM 10-K, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE ANTICIPATED BY THE COMPANY'S MANAGEMENT.

INTRODUCTION

         As of October 10, 1996, the Company operated 85 Reddi Brake(R)
warehouses in 26 states, through which the Company serves as a non-traditional
"two-step" distributor of brake systems, chassis components and other undercar
parts primarily to auto repair shops. In February 1996, in response to the
Company's operating losses, a new management team was installed and undertook a
restructuring of the Company's operations. Since then, the Company has (1)
closed 21 underperforming warehouses, (2) heightened its monitoring of certain
other underperforming warehouses, (3) returned approximately $3.4 million of
inventory to vendors and redistributed approximately $1.75 million of inventory
from its 21 closed warehouses, (4) modified the inventory selection in remaining
warehouses and begun selling higher margin products, such as alternators,
carburetors and generators, with a particular focus on customer preferences of
local markets, (5) reduced certain overhead items, such as payroll, payroll
benefits, professional fees, and fleet costs, and (6) entered into an agreement
with a vendor for implementation of a new management information and accounting
system. In addition, in the fourth quarter of fiscal 1996, after evaluating the
geographic location of existing Reddi Brake locations, the Company expanded into
two new markets by purchasing two corporations operating a total of seven
automotive parts warehouses in Nevada and Orange County, California, in exchange
for shares of Reddi Brake's Common Stock.

         As discussed below under "Factors that May Affect Future Results", the
Company's restructuring plans may be modified, and there can be no assurance
that such restructuring will prove successful. Further, continuation of the
Company's operations and the implementation of the Company's restructuring plans
require that the Company raise additional working capital. Management is engaged
in discussions with two firms in an effort to raise additional funds. However,
there can be no assurance that the Company will be able to raise such required
additional working capital. If the Company is not able to raise additional
working capital in the near future, it is doubtful that the Company will be able
to continue its operations and will consider reorganization under federal
bankruptcy laws. See "-Liquidity and Capital Resources."

RESULTS OF OPERATIONS

         YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995

         Net sales for the year ended June 30, 1996 were $62,725,468, an
increase of $16,030,127, or 34.3%, over the prior year. This increase is
primarily due to increased sales in maturing warehouses opened during the year
ended June 30, 1995 and the acquisition of three new warehouses in Nevada
(effective as of April 30, 1996) and four new warehouses in Orange County,
California (effective as of May 31, 1996), the aggregate effect of which was
partially offset by the closing of fourteen underperforming


                                       -9-
<PAGE>   11
warehouses in February 1996. Sales at the Company's comparable Reddi Brake(R)
warehouses (based on warehouses opened at least 12 full months as of June 30,
1996) increased approximately 8% for fiscal 1996, as compared to fiscal 1995.
However, sales were generally lower than the Company had expected, particularly
in warehouses outside of the Western region. Further, management believes that
sales were adversely affected by extreme weather conditions in the Midwest and
Eastern regions during the third quarter of fiscal 1996.

         As a percentage of sales, gross profit decreased from 46.4% in fiscal
1995 to 38.5%, in fiscal 1996. This decrease is primarily due to the Company
recognizing less purchase discounts, as a percentage of sales, for initial
inventories, since the Company has not opened any new Reddi Brake(R) warehouses
since May 1995. For further explanation of such purchase discounts, see Note 2
to the Consolidated Financial Statements. During the first and second quarters
of fiscal 1996, the Company amortized approximately $2,081,000 of purchase
discounts, as compared to $4,725,000 for the prior year. As of December 31,
1995, however, the Company had exhausted its monthly recognition of such
discounts. Accordingly, the Company expects a further decrease in its gross
margin in fiscal 1997, as compared to fiscal 1996. The decrease in the Company's
gross margin for fiscal 1996 was net of a $951,000 credit recorded with respect
to the reversal of an overaccrual in the Company's reserve for estimated
inventory returns to its vendors recorded in the June 30, 1995 consolidated
financial statements.

         As a percentage of sales, warehouse operating and selling expenses for
fiscal 1996 increased to 34.7%, up from 33% in fiscal 1995. The Company
attributes this increase to additional expenses incurred in opening and
operating 17 new Reddi Brake locations from January through May 1995, as fixed
overhead (primarily wages, salary, rent, vehicles and equipment) were not fully
absorbed by the lower than expected sales. Further, the Company experienced rate
increases in vehicle insurance and workers compensation insurance. To a lesser
extent, this increase also reflects the reallocation of expenses for computer
data lines from general and administrative expenses to warehouse operating and
selling expenses.

         As a percentage of sales, general and administrative expenses for
fiscal 1996 increased to 12.0% from 10.1% in fiscal 1995. This increase
primarily reflects additional purchasing, accounting and administrative
personnel hired to support the Company's new warehouses opened during fiscal
1995, compensation paid to senior management executives hired since May 1995,
charges related to the severance of departing officers, increased payments of
legal fees and increased computer-related overhead. This increase was also due,
in part, to $310,000 recorded as reserves with respect to two lawsuits. In March
1996, the Company settled one of these two lawsuits utilizing $150,000 of the
above mentioned reserve.

         As of December 31, 1995, the Company approved a plan to close 14
warehouses and, accordingly, recorded a provision for estimated costs amounting
to $721,794. The provision consists principally of estimated losses on leases,
handling and freight costs to return inventory to vendors or to other stores,
and the abandonment of certain assets. During the third quarter of fiscal 1996,
the Company closed all 14 warehouses and, as of June 30, 1996, had utilized
approximately $491,000 of this reserve. The Company is continuing to incur
expenses relating to these closures.

         During the fourth quarter of fiscal 1996, management re-evaluated the
carry value of certain assets and determined that such assets were permanently
impaired, resulting in aggregate charges of approximately $1,238,000 for the
write off of the unamortized portion of those assets. These charges consisted of
$673,000 of goodwill and certain intangibles associated with the Company's April
1993 acquisition of eleven Reddi Brake(R) warehouses and $565,000 related to the
Company's present management information and accounting system. In the fourth
quarter, the Company also recorded charges of $354,000 for an increase in the
reserve previously established in connection with its West

                  
                                      -10-
<PAGE>   12
Covina warehouse lease (see "Part I - Item 2. Properties" for a discussion of
this lease). Such amount is included in general and administrative expenses.

         Interest expenses, net, increased to $1,423,069 (2.3% of net sales) in
fiscal 1996, as compared to $850,201 (1.8% of net sales) in fiscal 1995. This
increase was primarily due to increased borrowings under the Company's working
capital line and an increase in capital lease obligations related to vehicles
for new Reddi Brake warehouses. These borrowings were primarily used to fund the
operations of Reddi Brake(R) warehouses and for the increased general and
administrative expenses.

         The income tax provision for the year ended June 30, 1996 represents
state income taxes. As of June 30, 1996, the Company has deferred tax assets of
$7,862,000 and a related valuation allowance of $7,862,000. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the projected future taxable
income and tax planning strategies in making this assessment. Based upon
historical taxable income (losses) and projections for future taxable income,
management believes it is more likely than not that the Company will not realize
the benefits of these deductible differences.

         The Company's business is seasonal in nature, with warehouse sales
historically running higher in the first and fourth quarter (April through
September) of the fiscal year.

         YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994

         Revenues for fiscal 1995 were approximately $46.7 million, as compared
to approximately $21.0 million for fiscal 1994, an increase of $25.7 million or
122%. This increase in revenues was primarily attributable to increases in sales
of Reddi Brake(R) outlets opened in the second half of fiscal 1994 and the
opening of 52 additional Reddi Brake(R) outlets in fiscal 1995. Fiscal 1995
sales at the Company's 13 comparable Reddi Brake(R) outlets (outlets open for at
least 12 full months during fiscal 1994) increased 3.7%, to approximately $15.1
million in fiscal 1995 from approximately $14.6 million in fiscal 1994. However,
sales in new outlets in regions outside of the Western states were generally
lower than the Company had expected based on historical sales in the Western
region.

         As a percentage of revenues, gross profit increased from 45.7% in
fiscal 1994 to 46.4% in fiscal 1995. This increase is primarily due to the
Company successfully negotiating better terms and price discounts from vendors
for the initial inventories associated with the new Reddi Brake(R) outlets
opened in fiscal 1994 and fiscal 1995. During fiscal 1995, such discounts for
initial inventories at new outlets amounted to approximately $4.73 million.
These purchase discounts are recorded as a reduction in cost of goods sold over
the estimated inventory turn for such new stores, which approximates twelve
months. See Note 2 to the Consolidated Financial Statements. The Company
anticipates such discounts will be significantly lower in fiscal 1996 given the
Company's planned hiatus in opening new outlets, resulting in a significant
decrease in gross margins during fiscal 1996. Unless the Company opens new
outlets following such hiatus and receives similar purchase discounts for the
initial inventory of such stores, the Company's monthly recognition of existing
purchase discounts will be exhausted by May 1996.

         The annualized inventory turnover rate was approximately 1.5 times
during fiscal 1995, as compared to approximately 1.7 times during fiscal 1994.
This decrease is primarily due to the opening of 52 Reddi Brake(R) outlets
during fiscal 1995 which caused an immediate increase in inventory followed by
the expected sales ramp-up period, a slower than expected increase in sales for
these new units and

                                      -11-
<PAGE>   13
certain slow moving inventory items. In response to these factors, the Company
has reached agreement with various vendors to return an aggregate of
approximately $4.2 million in inventory to such vendors.

         As a percentage of revenues, store operating and selling expenses for
fiscal 1995 increased to 33.0%, from 30.9% in fiscal 1994. This increase is
primarily attributable to additional expenses incurred in opening 52 new Reddi
Brake(R) outlets during fiscal 1995 coupled with lower than expected sales from
these new units.

         New store development expenses (primarily composed of new store set-up,
payroll, lodging and training) for fiscal 1995 were approximately $597,000, an
increase of approximately $446,000 over fiscal 1994. This increase was the
result of the opening of 52 new Reddi Brake(R) outlets mainly in the Southeast,
Midwest and Mid-Atlantic states in fiscal 1995, as compared to 34 Reddi 
Brake(R) outlets opened mainly in the West in fiscal 1994.

         As a percentage of revenues, general and administrative expenses for
fiscal 1995 increased to 10.1%, from 8.9% for fiscal 1994. This increase
primarily reflects additional purchasing, accounting and administrative
personnel hired to support the Company's opening and operation of a significant
number of new stores.

         Interest expense, net, increased to approximately $850,000 in fiscal
1995, as compared to approximately $370,000 in fiscal 1994, primarily due to
increased borrowing on the Company's working capital line, the completion of a
$6.9 million private placement (the "Debt Placement") of subordinated debt in
February 1995 and an increase in capital lease obligations related to vehicles
for new Reddi Brake(R) outlets. These borrowings were primarily used to fund the
opening and operation of new Reddi Brake(R) outlets.

         In the fourth quarter of fiscal 1995, the Company incurred a loss from
continuing operations of approximately $938,000. This fourth quarter loss was
primarily due to one-time charges of (a) $569,000 related to the Company's
return of $4.2 million of inventory to vendors, (b) $236,000 associated with the
Company's intended foreclosure of shares pledged in connection with a loan to
the Company's former president and chief executive officer and (c) $150,000 in
fees and expenses paid to a bank in connection with a potential revolving credit
facility that was not consummated.

         After taking the above factors into account, the Company generated
income from continuing operations of approximately $116,000 for fiscal 1995, as
compared to a loss from continuing operations of approximately $10.1 million for
fiscal 1994 (which included certain non-cash charges aggregating $10.8 million).
The Wesco Division incurred a loss of $133,000 on net sales of $8,193,351 for
the period from July 1, 1994 through October 31, 1994. This loss was previously
reserved for at the end of fiscal 1994.

         The Company's business is seasonal in nature, with store sales
historically running higher in the first and fourth quarters (April through
September).

LIQUIDITY AND CAPITAL RESOURCES

         In November 1995, the Company obtained a new working capital line of
credit (the "CIT Line") with The CIT Group/Credit Finance, Inc. The maximum
credit available under the CIT Line is the lesser of (a) $13 million, or (b) the
sum of 85% of eligible accounts receivable and 55% of eligible inventory.
Borrowings under the CIT Line bear interest at a rate equal to the CIT's prime
lending rate (8.25% at June 30, 1996) plus 1.50%. Borrowings are collateralized
by the Company's accounts receivable, notes receivable, inventory, fixtures and
equipment. Under the terms of the CIT Line, as amended, the 


                                      -12-
<PAGE>   14
Company must comply with certain reporting, operational and financial
performance covenants, including a covenant that the Company install a new
management information and accounting system by November 30, 1996. The Company
has entered into an agreement with a vendor for the implementation of a new
management information and accounting system; however, this system is not
expected to be operational by November 30, 1996 and, accordingly, the Company
will be in default of this covenant at that date unless it receives a waiver
from CIT.

         The Company's principal sources of funds are cash generated from
operations, borrowings on the CIT Line, and proceeds from its April 1996 Class A
Preferred Stock offering and its June 1996 Class B Preferred Stock offering. In
the fourth quarter of 1996, the Company raised approximately $8,358,550 of
aggregate net proceeds in these offerings.

         Although the Company is not yet able to resume timely payments to trade
and other creditors, it has made significant payments to major vendors from the
net proceeds of the above discussed offerings of Preferred Stock. Further, in
the third quarter of fiscal 1996, the Company returned approximately $3,400,000
of inventory to vendors in connection with its closing of 14 underperforming
warehouses. Due to its cash flow shortage, however, the Company has been placed
on COD status by a majority of its vendors. Accordingly, the Company's ability
to fill customer orders has been adversely affected.

         The continuation of the Company's operations and further implementation
of its restructuring plans require that the Company raise additional working
capital. Management is engaged in discussions with two firms in an effort to
raise additional funds. However, there can be no assurance that the Company will
be able to raise such required additional working capital. If the Company is
unable to raise additional working capital in the near future, it is doubtful
that the Company will be able to continue its operations and will consider
reorganization under federal bankruptcy laws.

RECENT DEVELOPMENTS

         Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of" (SFAS 121), issued in March 1995 and effective for fiscal years beginning
after December 15, 1995, establishes accounting standards for the recognition
and measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill either to be held or disposed of. The Company plans to
adopt SFAS 121 in fiscal 1997. Management believes the adoption of SFAS 121 will
not have a material impact on the Company's financial position or results of
operations.

         Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), issued in October 1995 and effective for
fiscal years beginning after December 15, 1995, encourages, but does not
require, a fair value based method of accounting for employee stock options or
similar equity instruments. SFAS 123 allows an entity to elect to continue to
measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APBO No. 25), but requires pro forma
disclosures of net earnings and earnings per share as if the fair value based
method of accounting had been applied. The Company plans to adopt SFAS in fiscal
1997 and anticipates that it will continue to elect to continue to measure
compensation costs under APBO No. 25, and will comply with the pro forma
disclosure requirements. Management believes the adoption of SFAS 123 will not
have a material impact on the Company's financial position or results of
operations.


                                      -13-
<PAGE>   15
FACTORS THAT MAY AFFECT FUTURE RESULTS

         All forward-looking statements contained in this Item 7 and in this
Report on Form 10-K are subject to, in additional to the other matters described
in this Report on Form 10-K, a variety of significant risks and uncertainties.
The following discussions highlights some of these risks and uncertainties.
Further, from time to time, information provided by the Company or statements
made by its employees may contain "forward-looking" information. The Company
cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors, including
those discussed below.

         Recent Operating Losses. For its year ended June 30, 1996, the Company
reported a loss of $8,557,836, primarily due to the factors discussed above.
Although the Company's new management has responded to this loss with the
measures described above, there can be no assurance that these or any other
measures will lead to profitability for the Company in fiscal 1997.

         Management Strategy. As discussed above, the Company's management has
undertaken a restructuring of operations in response to the Company's recent
losses. These measures are based upon new management's current understanding and
assumptions concerning the Company's operations and, accordingly, management may
modify its approach on these measures, or take additional measures, as it deems
appropriate. Further, there can be no assurance that management's strategy in
responding to the Company's losses will prove successful. In addition, the
restructuring may involve future warehouse closures, in which event the Company
would experience further associated charges.

         Need for Additional Capital. As discussed above, the Company is
continuing to experience cash flow difficulties. Continuation of the Company's
operations and the implementation of the Company's restructuring plans require
that it raise such additional working capital. Management is engaged in
discussions with two firms in an effort to raise additional funds. However,
there can be no assurance that the Company will be able to raise such required
additional working capital. If the Company is unable to raise additional working
capital in the near future, it is doubtful that it will be able to continue its
operations and will consider reorganization under federal bankruptcy laws.

         Expected Decrease in Gross Margin. As discussed above, the Company's
gross margin for the year ended June 30, 1996 was 38.5%, as compared to 46.4%
during the prior year. This decrease was primarily due to the diminishing
amortization of past purchase discounts, which were exhausted as of December 31,
1995. Accordingly, the Company expects a further decrease in its gross margin in
fiscal 1997, as compared to fiscal 1996.

         Defaults in Loan Covenants. As discussed above, the CIT Line, as
amended, contains certain reporting, operational and financial performance,
including a covenant that the Company install a new management information and
accounting system by November 30, 1996. The Company has entered into an
agreement with a vendor for the implementation of a new management information
and accounting system; however, this system is not expected to be operational by
November 30, 1996 and, accordingly, the Company has classified the entire
obligation as a current obligation in the accompanying consolidated financial
statements. If the Company's new management information and accounting system is
not operational by November 30, 1996, the Company will be in default of this
covenant at that date unless it receives a waiver from CIT. The Company's breach
of this or its other covenants under the CIT Line would give CIT the right to
call the outstanding amounts due on the CIT Line and enforce its rights against
substantially all of the Company's assets.


                                      -14-
<PAGE>   16
         Competition. The Company operates in a highly competitive environment
in the commercial segment of the automotive parts and accessories aftermarket.
The Company's primary competitors include traditional three-step aftermarket
channels, consisting primarily of independent and national warehouse
distributors and associations, such as NAPA and Carquest, and the associated
jobbers to whom they sell; traditional two-step distribution channels, including
original equipment channels through vehicle dealerships, retail parts stores,
specialty distributors and local and regional manufacturers; and APS Holding
Corporation, a national operator of "installer service warehouses". Many of the
Company's current and potential competitors are larger and have greater
financial resources.

         Dependence Upon Key Executives. The Company's success will be, to a
large extent, dependent upon the continued services of Richard McGorrian, its
Chief Executive Officer, and recruiting and making an orderly transition to a
qualified successor to S. Gerald Birin, its Chief Financial Officer. Mr. Birin
has resigned as an officer and director of the Company, effective October 23,
1996, and the Company is currently interviewing candidates for the position of
Chief Financial Officer. The loss of the services of Mr. McGorrian for any
reason, without an orderly transition to a qualified successor, or any
significant delay in recruiting a new Chief Financial Officer, would likely have
a material adverse effect on the Company's operations and results.

         Other Factors Affecting Market Price. The market price of the Company's
Common Stock may be adversely affected by a number of other factors, including
future sales of shares covered by a Registration Statement on Form S-3 (which
presently covers approximately 5.2 million shares), the possible exercise of
various warrants and options which could result in the issuance of up to
approximately 3.3 million additional shares, the conversion of up to $6.9
million of 9.0% Adjustable Convertible Subordinated Notes into a maximum
(subject to anti-dilution adjustments) of approximately 2.5 million shares, the
issuance of additional shares of Common and Preferred Stock, and fluctuations in
response to periodic variations in operating results, market conditions and
general economic conditions and factors external to the Company.


                                      -15-
<PAGE>   17
ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA













                           REDDI BRAKE SUPPLY CORPORATION AND SUBSIDIARY

                           CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF JUNE 30, 1996 AND 1995
                           AND FOR THE THREE YEARS
                           ENDED JUNE 30, 1996
                           TOGETHER WITH REPORTS OF
                           INDEPENDENT AUDITORS


                                      -16-
<PAGE>   18
                          INDEPENDENT AUDITORS' REPORT




The Board of Directors
Reddi Brake Supply Corporation and Subsidiaries:


We have audited the accompanying consolidated balance sheet of Reddi Brake
Supply Corporation and Subsidiaries as of June 30, 1996 and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. We have also audited the financial statement schedule for the year ended
June 30, 1996 listed in the accompanying index. These consolidated financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Reddi Brake Supply
Corporation and Subsidiaries as of June 30, 1996 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule for the year ended June 30, 1996, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that Reddi Brake Supply Corporation and Subsidiaries will continue as a going
concern. As discussed in note 2 to the consolidated financial statements, the
Company has suffered significant operating losses, used $7,976,653 of cash in
operations in 1996 and does not expect to be in compliance with certain debt
covenants in fiscal 1997 (note 7) and has an accumulated deficit of $26,685,249
as of June 30, 1996. These matters raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.



                                        KPMG Peat Marwick LLP

Los Angeles, California
September 19, 1996


                                      -17-
<PAGE>   19
                         Report of Independent Auditors

Board of Directors and Shareholders
Reddi Brake Supply Corporation

We have audited the accompanying consolidated balance sheets of Reddi Brake
Supply Corporation (formerly Wesco Auto Parts Corporation) as of June 30, 1995
and 1994 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are 
the responsibility of the Company's management.  Our audit also included the 
financial statement schedule listed in the Index at Item 14(a) for the years 
ended June 30, 1995 and 1994.  Our responsibility is to express an opinion on 
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Reddi Brake
Supply Corporation at June 30, 1995 and 1994, and the consolidated results of
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.  Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respect
the information set forth therein.



                                                          Ernst & Young LLP

Los Angeles, California
September 7, 1995, except for Note 6,
  as to which the date is October 12,
  1995




                                      -18-
<PAGE>   20
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             June 30, 1996 and 1995






<TABLE>
<CAPTION>
                          ASSETS                                 1996                1995
                                                             ------------        ------------

<S>                                                          <C>                 <C>      
Current assets:
    Cash and cash equivalents                                $    571,156           1,701,955
    Accounts receivable, less allowance for doubtful
      accounts of $560,000 and $275,000 in 1996 and
      1995, respectively                                        6,064,675           4,365,274
    Other receivables                                             428,126             146,160
    Inventories                                                24,921,223          25,178,851
    Supplies and prepaid expenses                                 141,216             100,077
    Notes and advances due from stockholder
       (note 9)                                                   242,632             641,418
    Notes receivable due from Hi-LO (note 3)                      662,256             671,011
                                                             ------------        ------------

           Total current assets                                33,031,284          32,804,746
                                                             ------------        ------------

Facilities and equipment, at cost (note 12):
    Fixtures and equipment                                      2,376,618           2,289,851
    Leasehold improvements                                        229,457             217,847
    Equipment under capital leases                              4,095,440           3,253,233
                                                             ------------        ------------
                                                                6,701,515           5,760,931
    Less accumulated depreciation and amortization              3,081,225           1,272,020
                                                             ------------        ------------

           Facilities and equipment, net                        3,620,290           4,488,911
                                                             ------------        ------------

Notes receivable due from Hi-LO (note 3)                        1,548,599           2,210,945

Deposits                                                          302,266             273,495

Debt issuance costs, less accumulated amortization
    of $144,572 and $18,673 in 1996 and 1995,
    respectively                                                  634,422             429,485

Intangible assets, less accumulated amortization of
    $901,853 and $153,072 in 1996 and 1995,
    respectively                                                  789,388             740,113


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

                                                             $ 39,926,249          40,947,695
                                                             ============        ============


<CAPTION>
           LIABILITIES AND STOCKHOLDERS' EQUITY                  1996                1995
                                                             ------------        ------------

<S>                                                          <C>                 <C>      
Current liabilities:
    Short-term borrowings (note 7)                           $  6,955,467           7,206,235
    Current installments of obligations under capital
      leases (note 12)                                          1,124,810           1,069,111
    Accounts payable                                            6,598,710           9,808,209
    Accrued expenses                                            1,302,282             878,063
    Accrued payroll                                               912,164             424,568
    Current portion of deferred compensation (note 9)                --               221,096
    Accrued costs related to discontinued operations
      (note 3)                                                  1,296,850           1,002,830
                                                             ------------        ------------

           Total current liabilities                           18,190,283          20,610,112
                                                             ------------        ------------

Obligations under capital leases, less current
    installments (note 12)                                        940,925           1,495,257

Deferred compensation, less current portion (note 9)                 --               239,884

Deferred tax liabilities (note 5)                                 467,000             467,000

Subordinated convertible debt, 9% coupon (note 8)               6,900,000           6,900,000

Commitments and contingencies (note 12)

Stockholders' equity (note 6):
    Preferred stock, $.0001 par value.  Authorized
      2,500,000 shares, none issued                                  --                  --
    Class A and B preferred stock, $10.00 issue price 
      Authorized and outstanding 950,000 shares in
      1996                                                      9,547,244                --
    Common stock, $.0001 par value.  Authorized
      35,000,000 shares; issued and outstanding
      17,866,520 and 16,416,700 shares in 1996 and
      1995, respectively                                            1,786               1,641
    Additional paid-in capital                                 30,564,260          29,308,970
    Accumulated deficit                                       (26,685,249)        (18,075,169)
                                                             ------------        ------------

           Net stockholders' equity                            13,428,041          11,235,442
                                                             ------------        ------------

                                                             $ 39,926,249          40,947,695
                                                             ============        ============
</TABLE>

See accompanying notes to consolidated financial statements.



                                      -19-
<PAGE>   21
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations

                    Years ended June 30, 1996, 1995 and 1994


<TABLE>
<CAPTION>
                                                                           1996                1995               1994
                                                                       ------------        ------------       ------------

<S>                                                                    <C>                 <C>                <C>       
Net sales                                                              $ 62,725,468          46,695,341         21,003,497

Cost of goods sold                                                       38,548,308          25,010,103         11,398,234
                                                                       ------------        ------------       ------------

           Gross profit                                                  24,177,160          21,685,238          9,605,263
                                                                       ------------        ------------       ------------

Expenses:
    Store operating and selling                                          21,802,719          15,404,074          6,492,893
    General and administrative                                            7,534,414           4,717,139          1,871,949
    Write-off of computer equipment and certain intangibles
      (note 11)                                                           1,238,000                --                 --
    Provision for store closures (note 10)                                  721,794                --                 --
    New store development                                                      --               597,470            151,033
    Issuance of shares of common stock to consultant (note 6)                  --                  --            1,548,400
    Exchange of EBIT shares for shares of common stock (note 6)                --                  --            9,255,036
                                                                       ------------        ------------       ------------
                                                                         31,296,927          20,718,683         19,319,311
                                                                       ------------        ------------       ------------

           Income (loss) from operations                                 (7,119,767)            966,555         (9,714,048)

Interest expense, net of interest income of approximately
    $254,000, $175,000 and $43,000 in 1996, 1995 and 1994,
    respectively                                                          1,423,069             850,201            369,601
                                                                       ------------        ------------       ------------

           Income (loss) from continuing operations before
              income taxes and discontinued operations                   (8,542,836)            116,354        (10,083,649)

Income taxes (note 5)                                                        20,000              50,000               --
                                                                       ------------        ------------       ------------
           Income (loss) from continuing operations                      (8,562,836)             66,354        (10,083,649)

Discontinued operations (note 3):
    Loss from operations of discontinued Wesco Auto Parts
      Division                                                                 --                  --           (2,758,721)
    Loss on disposal of Wesco Auto Parts Division, including
      provision for estimated operating losses during the phase-
      out period                                                               --                  --           (3,500,000)
                                                                       ------------        ------------       ------------

           Net income (loss)                                           $ (8,562,836)             66,354        (16,342,370)
                                                                       ============        ============       ============

Earnings (loss) per common share:
    Income (loss) before discontinued operations                       $       (.52)               --                 (.71)
    Loss from discontinued operations                                          --                  --                 (.45)
                                                                       ------------        ------------       ------------

           Net income (loss) per common share                          $       (.52)               --                (1.16)
                                                                       ============        ============       ============

Weighted average number of common shares outstanding                     16,528,268          16,393,930         14,123,484
                                                                       ============        ============       ============
</TABLE>

See accompanying notes to consolidated financial statements.



                                      -20-
<PAGE>   22
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

                Consolidated Statements of Stockholders' Equity
                    Years ended June 30, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                  PREFERRED STOCK                COMMON STOCK
                             ---------------------------  ---------------------------   ADDITIONAL                        NET
                              NUMBER OF                    NUMBER OF                      PAID-IN       ACCUMULATED   STOCKHOLDERS'
                                SHARES         AMOUNT        SHARES         AMOUNT        CAPITAL         DEFICIT        EQUITY
                             ------------    -----------  ------------    -----------   ----------      -----------   --------------
<S>                          <C>             <C>          <C>             <C>           <C>            <C>               <C>
Balance at June 30, 1993               --    $        --   16,261,148     $     1,626    12,110,064    (1,799,153)       10,312,537

Issuance of stock to 
  Consultant in 
  connection with 
  consulting agreement,
  November 1993                        --             --      980,000              98     1,548,302            --         1,548,400
Issuance of stock through
  private placement--
  December 1993, net of
  expenses                             --             --    1,360,544             136     5,265,344            --         5,265,480
Repurchase of stock from
  Mr. Sheerin, December
  1993                                 --             --   (1,000,000)           (100)   (1,499,900)           --        (1,500,000)
Surrender of stock by 
  Mr. Sheerin, December
  1993                                 --             --     (400,000)            (40)           40            --                -- 
Exercise of employee
  incentive stock options              --             --      180,281              18       463,915            --           463,933
Exercise of various 
  options and warrants                 --             --      310,667              31       778,025            --           778,056
Surrender of shares from
  EBIT Escrow                          --             --   (3,000,000)           (300)          300            --                --
Exchange of EBIT Shares
  for Common Shares                    --             --    1,542,506             154     9,254,882            --         9,255,036
Net loss                               --             --           --              --            --   (16,342,370)      (16,342,370)
                             ------------    -----------  ------------    -----------    ----------   -------------   --------------

Balance at June 30, 1994               --             --   16,235,146           1,623    27,920,972   (18,141,523)        9,781,072

Issuance of stock to 
  Mr. Sheerin, November
  1994                                 --             --      150,000              15       834,360            --           834,375
Surrender of stock by 
  consultant, November
  1994                                 --             --     (100,000)            (10)           10            --                --
Exercise of employee
  incentive stock options              --             --      176,136              17       639,532            --           639,549
Exercise of warrants                   --             --       26,667               3        96,665            --            96,668
Foreclosure of stock      
  owned by Dr. Douglass                --             --      (71,249)             (7)     (182,569)           --          (182,576)
Net income                             --             --           --              --            --        66,354            66,354 
                             ------------    -----------  ------------    -----------    ----------    -----------   --------------

Balance at June 30, 1995               --             --   16,416,700           1,641    29,308,970   (18,075,169)       11,235,442

Issuance of Class A and
  Class B preferred stock         950,000      9,500,000           --              --    (1,320,900)           --         8,179,100
Dividends accrued on
  preferred stock                      --         47,244           --              --            --       (47,244)               --
Issuance of stock in
  connection with the
  settlement of
  litigation                           --             --       80,000               8       134,922            --           135,000
Issuance of common stock
  in connection with the
  acquisition of Express
  Undercar Parts Nevada                --             --      695,109              70     1,246,093            --         1,246,163
Issuance of common stock
  to attorney for services
  rendered in connection
  with the acquisition of
  Express Undercar Parts
  Nevada                               --             --        9,333               1        17,182            --            17,183
Issuance of common stock
  in connection with the
  acquisition of Express
  Undercar Parts 
  California                           --             --      594,761              59     1,096,977            --         1,097,036
Issuance of common stock
  to attorney for services
  rendered in connection
  with the acquisition of
  Express Undercar Parts
  California                           --             --       11,570               1        21,340            --            21,341
Issuance of common stock 
  to attorney                          --             --       30,000               3        61,872            --            61,875
Issuance of common stock               --             --       50,000               5        47,495            --            47,500
Foreclosure of stock 
  owned by former
  employee                             --             --      (20,953)             (2)      (49,761)           --           (49,763)
Net loss                               --             --           --              --            --    (8,562,836)       (8,562,836)
                             ------------    -----------  ------------    -----------    ----------    -----------   --------------

Balance at June 30, 1996          950,000    $ 9,547,244   17,866,520     $     1,786    30,564,260   (26,685,249)       13,428,041
                             ============    ===========  ============    ===========    ==========    ===========   ==============

</TABLE>

See accompanying notes to consolidated financial statements.

                                      -21-
<PAGE>   23
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended June 30, 1996, 1995 and 1994


<TABLE>
<CAPTION>
                                                                         1996               1995               1994
                                                                      -----------        -----------        -----------

<S>                                                                   <C>                <C>                <C>         
Cash flows from operating activities:
    Net income (loss)                                                 $(8,562,836)            66,354        (16,342,370)
                                                                      -----------        -----------        -----------

    Adjustments to reconcile net income (loss) to net cash used
      in operating activities:
        Depreciation and amortization                                   1,229,855            968,087          1,180,099
        Amortization of intangibles                                        75,752             70,662             70,633
        Amortization of debt issuance costs                               124,940             18,673               --
        Write-off of computer equipment and certain
          intangibles                                                   1,238,000               --                 --
        Change in allowance for doubtful accounts                         285,000           (135,000)           360,000
        Accrued costs related to discontinued operations                  294,020           (201,176)         3,500,000
        Deferred income taxes                                                --                 --              403,000
        Common stock issued as compensation                                  --                 --            1,548,400
        Exchange of EBIT shares for common stock                             --                 --            9,255,036
        Compensation related to nonqualified stock options                   --                 --              107,500
        (Gain) loss on sale of equipment                                   (3,446)             9,496             48,227
        Loss on foreclosure of note receivable from officer               122,836            236,184               --
        Change in assets and liabilities associated with
          operating activities:
            Accounts receivable                                        (1,606,720)        (1,551,986)        (1,364,439)
            Inventories                                                 3,003,146        (15,876,548)        (5,243,378)
            Other receivables                                            (262,827)           (27,686)           359,946
            Supplies and prepaid expenses                                 (19,960)           154,729             50,562
            Note and advances due from officer                               --             (179,635)           602,432
            Note receivable due from Hi-LO                                   --              (39,339)              --
            Deposits                                                      (42,474)            (4,752)            (1,896)
            Accounts payable and accrued expenses                      (4,138,092)         3,516,930          1,948,340
            Accrued payroll                                               421,183           (408,314)           513,073
            Deferred compensation                                        (135,030)              --                 --
                                                                      -----------        -----------        -----------

                    Total adjustments                                     586,183        (13,449,675)        13,337,535
                                                                      -----------        -----------        -----------

                    Net cash used in operating activities              (7,976,653)       (13,383,321)        (3,004,835)
                                                                      -----------        -----------        -----------

Cash flows from investing activities:
    Purchase of fixtures and equipment                                   (190,233)          (875,904)        (1,422,460)
    Proceeds from sale of equipment                                       190,692            343,174             14,822
    Cash advances to officer                                                 --                 --             (485,000)
    Proceeds from sale of Wesco Auto Parts Division                          --            6,598,695               --
    Note receivable principal payments from Hi-LO                         671,101            315,746               --
                                                                      -----------        -----------        -----------

                    Net cash provided by (used in) investing
                      activities                                          671,560          6,381,711         (1,892,638)
                                                                      -----------        -----------        -----------
</TABLE>


                                   (Continued)


                                      -22-
<PAGE>   24
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, Continued




<TABLE>
<CAPTION>
                                                                        1996                1995                1994
                                                                    ------------        ------------        ------------

<S>                                                                 <C>                 <C>                 <C>      
Cash flows from financing activities:
    Advances on short-term borrowings                               $ 41,297,140          16,075,000           4,784,550
    Payments on short-term borrowings                                (41,797,908)        (14,373,520)         (3,975,000)
    Finance fees paid for LOC                                           (329,877)               --                  --
    Payments on notes payable and obligations under capital
      lease                                                           (1,259,369)         (1,038,604)           (415,749)
    Proceeds from exercise of options and warrants                          --               578,029           6,400,071
    Proceeds from issuance of preferred stock                          8,179,100                --                  --
    Proceeds from issuance of common stock                                85,208                --                  --
    Repurchase of common stock                                              --                  --            (1,500,000)
    Proceeds from issuance of subordinated debt, net                        --             6,451,842                --
                                                                    ------------        ------------        ------------

                    Net cash provided by financing activities          6,174,294           7,692,747           5,293,872
                                                                    ------------        ------------        ------------

                    Net increase (decrease) in cash and cash
                      equivalents                                     (1,130,799)            691,137             396,399



Cash and cash equivalents, beginning of year                           1,701,955           1,010,818             614,419
                                                                    ------------        ------------        ------------

Cash and cash equivalents, end of year                              $    571,156           1,701,955           1,010,818
                                                                    ============        ============        ============

Supplemental disclosure:
    Cash paid for interest                                          $  1,677,000             873,000             380,000
    Cash paid for income taxes                                              --                81,000                --
                                                                    ============        ============        ============

Noncash investing and financing activities - common stock
    issued for acquisitions (note 1)                                $  2,374,000                --                  --
                                                                    ============        ============        ============
</TABLE>


See accompanying notes to consolidated financial statements.


                                      -23-
<PAGE>   25
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995



(1)    ORGANIZATION AND ACQUISITION

       Reddi Brake Supply Corporation, a Nevada corporation (the Company),
       through its subsidiary, Reddi Brake Supply Company, Inc. (Reddi Brake)
       operates 92 units (see note 10) in 29 states that provide two-step
       distribution of brake systems, chassis components and other undercar
       parts mainly to the professional installer. Prior to November 1, 1994,
       the Company also operated an 8-unit chain of stores in Southern
       California under the Wesco Auto Parts name (the Wesco Division). This
       chain was sold to Hi-LO Automotive, Inc. (Hi-LO), a Delaware corporation,
       on November 1, 1994 (see note 3).

       On April 23, 1993, the Company entered into a definitive agreement for
       the acquisition (the Acquisition) of Reddi Brake Supply Company, Inc., a
       California corporation, which was completed on April 30, 1993. The
       Acquisition was consummated through the merger of Reddi Brake Supply
       Company, Inc. into a wholly owned subsidiary of the Company. The purchase
       price was an aggregate of $1,550,000 in cash, 583,500 shares of the
       Company's common stock (the Acquisition Shares) with a then market value
       of $1,604,625, acquisition costs of $451,451 and the assumption of
       liabilities of $1,654,789. Reddi Brake Supply Company's operations have
       been included in the accompanying consolidated financial statements from
       May 1, 1993. The purchase price exceeded the fair value of net assets
       acquired by $893,214 and was allocated to intangibles, $442,500, and
       costs in excess of fair value of net assets acquired (goodwill), $450,714
       (see note 11).

       In connection with the Acquisition, each of the 3,000,000 shares of the
       Company's then outstanding special stock was exchanged for one share of
       the Company's common stock and concurrently placed into an escrow
       account. On September 19, 1994, the Company reached an agreement with the
       holders of rights to receive the common stock held in the escrow account
       (see note 6).

       Effective April 30, 1996, the Company acquired all of the outstanding
       shares of Express Undercar Parts Nevada, from Allen J. Sheerin
       (stockholder) and Bryan Morford (stockholder) through the issuance of
       695,109 shares of its common stock valued at $1,279,000. Express Undercar
       Parts Nevada operates three warehouses in Nevada, providing two-step
       distribution of undercar parts mainly to the professional installer.
       Effective May 31, 1996, the Company acquired all of the outstanding
       shares of Express Undercar Parts California, from the stockholder through
       the issuance of 594,761 shares of its common stock valued at $1,095,000.
       Express Undercar Parts California operates four warehouses in Orange
       County, California, providing two-step distribution of undercar parts
       mainly to the professional installer. The acquisitions have been
       accounted for as a purchase and the results of operations have been
       included in the consolidated financial statements since the effective
       date of the related acquisition. The excess of purchase price over the
       estimated fair values of the net assets acquired aggregating $798,000 has
       been allocated to a noncompete agreement ($100,000) and goodwill
       ($698,000) and is being amortized over 3 and 20 years, respectively. The
       acquisitions were not material to the Company's financial position or
       results of operations.


(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

       The consolidated financial statements include the accounts of Reddi Brake
       Supply Corporation and its wholly owned subsidiaries (collectively
       referred to as the Company). All significant intercompany accounts and
       transactions have been eliminated in consolidation.




                                      -24-
<PAGE>   26
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued



LIQUIDITY

The Company has significant operating losses, used $7,976,653 of cash in
operations in 1996, does not expect to be in compliance with certain debt
covenants in fiscal 1997 (note 7) and as of June 30, 1996 has an accumulated
deficit of $26,685,000. These matters raise substantial doubt about the
Company's ability to continue as a going concern.

The Company implemented a formal plan to close certain of its operating
facilities during fiscal 1997 and is currently pursuing additional financing.
However, there is no assurance that the reduction in operating costs coupled
with additional financing will be sufficient to sustain continuing operations.

INVENTORIES

The Company's inventories, consisting primarily of finished goods, are stated at
the lower of FIFO (first-in, first-out) cost or market.

The Company receives, from certain suppliers of product, purchase discounts for
the initial inventory purchase of a new store. These purchase discounts are
recorded as a reduction of cost of goods sold over the Company's estimated
aggregate inventory turn. This monthly reduction in the cost of goods sold
produces a result which is not materially different than the result which would
be obtained if the Company allocated the discount to each particular stock
keeping unit acquired in the initial inventory. Under the Company's method of
accounting for such discounts, inventory, net of the unamortized discount is
stated at the lower of cost or market which would approximate that computed in
all material respects, by allocating the discount to each item purchased. The
Company reduced costs of goods sold by such discounts in the amounts of
approximately $2,081,000, $4,725,000 and $1,542,000 for the years ended June 30,
1996, 1995 and 1994, respectively. At June 30, 1996, no unamortized discounts
remained.

In addition, the Company receives, from certain suppliers of product, purchase
discounts and rebates related to volume purchasing. These discounts and rebates
are recognized as reductions in the cost of goods sold to the extent the related
inventory has been sold, based on the Company's annualized aggregate inventory
turn. Under the Company's method of accounting for such discounts and rebates,
to the extent that the inventory for which the discounts and rebates relate has
not been sold, inventory net of the unamortized discounts and rebates is stated
at the lower of cost or market, which would approximate that computed in all
material respects, by allocating the discounts and rebates to each item
purchased. The Company reduced costs of goods sold by such discounts in the
amounts of approximately $1,133,000, $1,157,000 and $185,000 for the years ended
June 30, 1996, 1995 and 1994, respectively. At June 30, 1996, approximately
$104,000 of unamortized discounts remained.

REVENUE RECOGNITION AND CUSTOMER RECEIVABLES

The Company recognizes revenue upon delivery of merchandise to the customer. No
provision for returns is provided as customer returns historically, net of
vendor returns for credit, have not been significant.

The Company performs a credit evaluation for new customers and grants credit to
customers meeting the Company's requirements, and typically does not require
collateral or other security. Additionally, the Company routinely assesses the
collectibility of its customer receivables. An allowance for doubtful accounts
is maintained at a level which management believes is sufficient to cover
potential credit losses.


                                      -25-
<PAGE>   27
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued



CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.

DEPRECIATION AND AMORTIZATION

Fixtures and equipment and leasehold improvements are stated at cost and are
depreciated or amortized over the estimated useful lives or lease terms, using
the straight-line method. The estimated useful lives are as follows:

              Fixtures and equipment         3 to 7 years
              Leasehold improvements         Lesser of lease term or useful
                                                life of improvements


EQUIPMENT UNDER CAPITAL LEASES

Equipment under capital leases is being amortized over the term of the lease or,
when the Company takes possession of the asset at the end of the lease, the
estimated useful life of the asset using the straight-line method.

PREOPENING EXPENSES

All costs of a noncapital nature incurred in opening a new store are charged to
expense when the new store opens.

WARRANTY

The Company does not maintain a warranty reserve because it generally has been
able to return defective parts to its vendors for full credit, even if the
return occurs after the expiration of the vendor's stated warranty period. The
amount of customer-returned defective parts for which vendors would not grant
the Company credit was not material to the results of operations for each of the
three years ended June 30, 1996. In the opinion of management, such amounts are
not expected to be material to the results of operations in future years.

NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share has been computed using the weighted average
number of shares of common stock outstanding during the three years ended June
30, 1996. For the year ended June 30, 1995, the aggregate dilution of common
stock equivalents was less than 3% of income per common share, and therefore,
the Company is reporting only primary income per share. Common stock equivalents
were not included in the weighted average number of shares because of their
antidilutive effect during the years ended June 30, 1996 and 1994. Also, the
weighted average number of shares at June 30, 1994 does not include 3,000,000
shares of common stock held in an escrow account due to the contingent nature of
these shares (see note 6).


                                      -26-
<PAGE>   28
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


              
              
INCOME TAXES

The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.

IMPAIRMENT OF LONG-LIVED ASSETS

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), issued in March 1995 and effective for fiscal years beginning after
December 15, 1995, establishes accounting standards for the recognition and
measurement of impairment of long-lived assets, certain identifiable intangibles
and goodwill either to be held or disposed of. The Company plans to adopt SFAS
121 in fiscal 1997. Management believes the adoption of SFAS 121 will not have a
material impact on the Company's financial position or results of operations.

STOCK COMPENSATION

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), issued in October 1995 and effective for fiscal years
beginning after December 15, 1995, encourages, but does not require, a
fair-value-based method of accounting for employee stock options or similar
equity instruments. SFAS 123 allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APBO No. 25), but requires pro forma disclosures
of net earnings and earnings per share as if the fair-value-based method of
accounting had been applied. The Company plans to adopt SFAS 123 in fiscal 1997
and anticipates that it will continue to elect to continue to measure
compensation costs under APBO No. 25, and will comply with the pro forma
disclosure requirements. Management believes the adoption of SFAS 123 will not
have a material impact on the Company's financial position or results of
operations.

BUSINESS CONCENTRATIONS

The Company provides two-step distribution of undercar parts mainly to
professional installers through warehouses located throughout the United States.
The industry is impacted by the general economy. Changes in the marketplace may
significantly affect management's estimates and the Company's performance.

ADVERTISING COSTS

The Company expenses nonreimbursable advertising costs as costs are incurred.
The amounts charged to advertising and sales promotion expense during the years
ended June 30, 1996, 1995 and 1994 were approximately $395,000, $250,000 and
$200,000, respectively.



                                      -27-
<PAGE>   29
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)    DISCONTINUED OPERATIONS

       On September 25, 1994, the Company's Board of Directors adopted a plan to
       sell the Wesco Division. Net assets of the discontinued operations at
       June 30, 1994 consisted primarily of inventory and furniture, fixtures
       and equipment amounting to approximately $10 million after deducting an
       allowance for the estimated loss on disposal.

       The estimated loss on the disposal of Wesco of $3.5 million consisted of
       an estimated loss on disposal of the business of $3.2 million and
       provision of $300,000 for anticipated losses until disposal. Summary
       operating results of the discontinued operation for the fiscal year ended
       June 30, 1994 are as follows:

<TABLE>
<S>                                           <C>         
                     Net sales                $ 25,843,481
                     Cost of goods sold        (15,065,847)
                                              ------------

                           Gross profit         10,777,634

                     Operating expenses        (13,536,355)
                                              ------------

                           Net loss           $ (2,758,721)
                                              ============
</TABLE>


       On November 1, 1994, the Company completed the sale of its Wesco Division
       to Hi-LO. In the transaction, the Company sold to Hi-LO substantially all
       the operating assets of the Wesco Division for a price of approximately
       $9.8 million. The Wesco Division incurred a loss of $134,989 on net
       assets of $8,193,351 for the period from July 1, 1994 through October 31,
       1994. This loss was previously reserved for at the end of fiscal 1994. As
       of June 30, 1995, the Company had a reserve of approximately $1.0 million
       to cover future expenses associated with potential lease expenses related
       to the Wesco Division which management believed to be adequate. During
       the fourth quarter of fiscal 1996, the Company reassessed the adequacy of
       the reserve and determined that an additional provision of approximately
       $350,000 was required. The additional provision is included in general
       and administrative expense in the 1996 consolidated statement of
       operations.

       Approximately $6.6 million of the purchase price was paid by Hi-LO in
       cash at the closing. The balance of the purchase price is payable under
       two promissory notes, each bearing interest at the rate of 8.30% per
       annum as follows: (a) a note in the principal amount of $1,895,016, which
       is payable in 12 equal quarterly installments of principal ($157,918
       each) plus accrued interest with any remaining balance due on October 31,
       1997 and (b) a note (the Convertible Note) in the principal amount of
       $1,263,437, which provides for quarterly payments of interest only and
       payment of the entire outstanding balance of principal on October 31,
       1999.

       The Convertible Note is convertible at the option of the Company, in
       whole or in part, at any time on or after November 1, 1996 through
       October 31, 1999, into shares of Hi-LO common stock based on a conversion
       price of $13.46 per share. The Company's conversion rights may be
       accelerated upon a change in control of Hi-LO and the conversion price is
       subject to antidilution adjustments upon the occurrence of certain
       events. Assuming no adjustment to the conversion price, a maximum 93,859
       shares of Hi-LO's common stock may be acquired upon conversion of the
       Convertible Note.


(4)    FAIR VALUE OF FINANCIAL INSTRUMENTS

       The following methods and assumptions were used to estimate the fair
       value of each class of financial instruments for which it is practicable
       to estimate that value.


                                      -28-
<PAGE>   30
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued



       Cash and cash equivalents, accounts receivable, other receivables, notes
       and advances due from stockholders, trade accounts payables and accrued
       expenses: The carrying amounts approximate the fair value of financial
       instruments due to their short-term nature.

       Notes receivable due from Hi/LO: The fair value is determined as the
       present value of expected future cash flows discounted at the interest
       rate currently offered by the Company. The fair value of the note
       receivable approximates the carrying value.

       Short-term borrowings: The carrying amount of the line of credit reflects
       the fair value based on current rates available to the Company for
       borrowings with similar terms.

       Subordinated Convertible Debt: Due to the Company's financial position,
       it is unable to determine the fair value of the Subordinated Convertible
       Debt.


(5)    INCOME TAXES

       Income taxes for the years ended June 30, 1996, 1995 and 1994 are as
       follows:

<TABLE>
<CAPTION>
                                1996         1995         1994
                              -------       -------      -------
<S>                           <C>            <C>         <C>    
       Federal:
           Current            $  --          10,000        --
           Deferred              --            --          --
                              -------       -------       ----
                                 --          10,000        --
                              -------       -------       ----

       State:
           Current             20,000        40,000        --
           Deferred              --            --          --
                              -------       -------       ----
                               20,000        40,000        --
                              -------       -------       ----

                  Total       $20,000        50,000        --
                              =======       =======       ====
</TABLE>


       Deferred tax assets (liabilities) were composed of the following at June
       30, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                           1996               1995
                                                                       -----------        -----------

<S>                                                                    <C>                <C>    
       Capitalization of inventory costs                               $ 1,067,000            921,000
       Accrual for discontinued operations                                 650,000            447,000
       Net operating loss carryforward                                   6,232,000            476,000
       Alternative minimum tax credit carryovers                           177,000            118,000
       Reserves for inventory                                                 --              332,000
       Accrued severance payments                                             --              157,000
       Auto lease interest expense                                      (1,055,000)              --
       Tax depreciation in excess of financial reporting amounts           (61,000)          (479,000)
       Other, net                                                          385,000            165,000
                                                                       -----------        -----------

                Net deferred assets                                      7,395,000          2,137,000

       Valuation allowance                                              (7,862,000)        (2,604,000)
                                                                       -----------        -----------

                Total net deferred liability                           $  (467,000)          (467,000)
                                                                       ===========        ===========
</TABLE>


                                      -29-


<PAGE>   31
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       Income taxes (benefit) differs from the amounts computed by applying the
       Federal statutory income tax rates as a result of the following:

<TABLE>
<CAPTION>
                                                          1996               1995               1994
                                                      -----------        -----------        -----------

<S>                                                                      <C>            <C>        
       Income taxes (benefit) at statutory rate       $(2,996,980)          40,000         (5,556,000)
       State income taxes, net                             20,000           26,000               --
       Limitation on net operating loss                      --               --              526,000
       Exchange of EBIT shares                               --               --            3,146,000
       Valuation allowance                              2,996,980          (66,000)         1,862,000
       Permanent differences                                 --             50,000             22,000
                                                      -----------         --------        -----------
                                                                          
                                                      $    20,000           50,000               --
                                                      ===========         ========        ===========
</TABLE>

       The Company has a net operating loss carryforward of approximately
       $13,100,000, which may be available, subject to limitations, to offset
       future taxable income through fiscal year 2010.

       The Company's 1994, 1993 and 1992 Federal income tax returns, and the
       1992, 1991 and 1990 Federal income tax returns of the Company's April
       1993 acquisition, Reddi Brake, are being audited by the Internal Revenue
       Service. The outcome of this audit is not expected to have a material
       adverse effect on the financial position or results of operation of the
       Company.

       The Company has a valuation allowance of $7,862,000 as of June 30, 1996
       related to deferred tax assets. In assessing the realizability of
       deferred tax assets, management considers whether it is more likely than
       not that some portion or all of the deferred tax assets will be realized.
       The ultimate realization of deferred tax assets is dependent upon the
       generation of future taxable income during the periods in which those
       temporary differences become deductible. Management considers the
       projected future taxable income and tax planning strategies in making
       this assessment. Based upon historical taxable income (losses) and
       projections for future taxable income, management believes it is more
       likely than not that the Company will not realize the benefits of these
       deductible differences.


 (6)   STOCKHOLDERS' EQUITY

       ISSUANCE OF COMMON STOCK  TO  CONSULTANTS

       Effective as of October 15, 1993, the Company entered into a Consulting
       Agreement (the Consulting Agreement) with Liviakis Financial
       Communications, Inc. (Consultant) whereby the Consultant agreed to assist
       and consult the Company in matters concerning mergers and acquisitions,
       corporate finance, investor relations and financial public relations. As
       full compensation for services to be provided by Consultant, the Company
       issued to Consultant 980,000 unregistered, restricted shares (the
       Consultant Shares) of the Company's common stock, which were valued by
       the Company's Board of Directors, based on an independent valuation, at
       $1.58 per share, a discount of 45% of the closing bid price of the
       Company's common stock on October 14, 1993. The Company recorded a
       noncash charge to earnings of $1,548,000 for the year ended June 30,
       1994. In September 1994, Consultant agreed to surrender for cancelation
       100,000 shares of common stock previously issued to it as a consulting
       fee. In March 1996, the Company agreed to issue an additional 80,000
       shares of its common stock to settle a dispute regarding the registration
       of the shares pursuant to the Consulting Agreement. Accordingly, the
       Company recorded an expense of $159,000 related to the issuance of these
       shares during fiscal year 1996.


                                      -30-
<PAGE>   32
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       In connection with the Consulting Agreement, (a) the Company's former
       Chairman, Allen J. Sheerin, surrendered 400,000 shares of common stock
       back to the Company for cancelation and (b) the Company repurchased
       1,000,000 shares of common stock from Mr. Sheerin for $1.50 per share.
       The source of cash consideration to fund the Company's repurchase of
       these shares was cash proceeds from a December 1993 private placement
       discussed below. In addition, Mr. Sheerin surrendered all 585,000 of his
       Class C warrants and 235,000 of his 535,000 Class D warrants back to the
       Company for cancelation (see Warrants and Options).

       PRIVATE PLACEMENT

       On December 2, 1993, the Company completed a private placement (the
       Placement) of 1,360,544 shares of its common stock, $.0001 par value (the
       Common Stock), and 266,667 two-year warrants entitling the holder of each
       warrant to purchase one share of common stock at an exercise price of
       $5.50 per share (the Warrants) (the Common Stock and the Warrants are
       collectively referred to herein as the Securities), at a price of $4.41
       per unit consisting of one share of common stock and .196 of a Warrant.
       The Company received approximately $5.3 million in net proceeds from the
       Placement. The offering and sale of the Securities in the Placement were
       not registered under the Securities Act of 1933, as amended (the Act), in
       reliance upon the exemption from registration provided by Regulation S
       promulgated under the Act for offerings and sale of securities conducted
       outside of the United States under specified conditions. The exercise
       price of the warrants has been changed to $3.50 per share and the term
       has been extended by two years.

       EBIT ESCROW

       In connection with the Acquisition (see note 1), each of the 3,000,000
       shares of the Company's then outstanding special stock was exchanged for
       one share of common stock and concurrently placed into an escrow account
       (the EBIT Escrow). These shares were to be released from the EBIT Escrow
       if, as and at such time(s) as the Company exceeded certain earnings
       before interest and taxes (EBIT) targets on or before, in most cases,
       June 30, 1998, provided that, to the extent that the Company did not
       exceed such targets by such date, these shares would thereupon be
       canceled.

       On September 19, 1994, the Company reached an agreement whereby the
       holders of rights to receive up to 3,000,000 shares of the common stock
       held in the EBIT Escrow surrendered their rights in exchange for the
       issuance of a 1,542,506 shares of common stock to them. As a result of
       the issuance of such shares, the Company recorded a noncash charge to
       earnings of $9,255,036 ($6 per share) for the year ended June 30, 1994.

       PREFERRED STOCK

       On March 25, 1996 and April 23, 1996, the Company authorized the issuance
       of 400,000 of Class A preferred stock, $10 issue price and 550,000 shares
       of Class B preferred stock $10 issue price. Subsequent to the
       authorization of the preferred stock, the Company completed private
       placements of the 950,000 shares of preferred stock. The shares earn
       dividends at a rate of 4% of the original issue price and are convertible
       into the Company's common stock at a 20% discount. The Company received
       approximately $8.3 million in net proceeds from the placements. The
       offerings and sale of the Securities in the Placement were not registered
       under the Securities Act of 1933, as amended (the Act), in reliance upon
       the exemption from registration provided by Regulation S promulgated
       under the Act for offerings and sale of securities conducted outside of
       the United States under specified conditions.


                                      -31-

<PAGE>   33
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


INCENTIVE STOCK OPTIONS

In August 1990, the Board of Directors approved the 1990 Incentive Stock Option
Plan (the 1990 Plan) to grant key employees options to purchase up to a maximum
of 500,000 shares of the Company's Common Stock. In September 1991, the Board of
Directors approved the 1991 Incentive Stock Option Plan (the 1991 Plan) to grant
key employees options to purchase up to a maximum of 650,000 shares of the
Company's Common Stock. On January 21, 1992, the Board of Directors adopted, and
the Company's stockholders subsequently approved, the 1992 Incentive Stock
Option Plan (the 1992 Plan) to grant key employees options to purchase up to a
maximum of 1,000,000 shares of the Company's Common Stock. On September 25,
1994, the Board of Directors approved the 1994 Directors' Stock Option Plan (the
1994 Plan) to grant members of Reddi Brake's Board of Directors, who is a
Non-Employee Director, the option to purchase 25,000 shares plus an additional
10,000 shares upon each successive anniversary. Exercise prices of all stock
options granted under the 1990 Plan, the 1991 Plan, the 1992 Plan and the 1994
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. Options granted to a participant who, at the time of the grant,
possesses more than 10% of the combined voting power of all classes of stock of
the Company must have an exercise price of at least 110% of the fair market
value of the Common Stock on the date of grant. Options may have a maximum term
of 10 years or 5 years for 10% owners.

The 1990 Plan, 1991 Plan and the 1992 Plan authorized the Compensation Committee
to include stock option provisions which permit the acceleration of vesting in
the event of a change in control of the Company resulting from certain
occurrences.

The Company has issued incentive stock options to certain employees and
directors under the 1991, 1992 and 1994 Incentive Stock Option Plans. To date,
no incentive stock options have been granted under the 1990 Plan. A summary of
the outstanding incentive stock options is as follows:

<TABLE>
<CAPTION>
                                                    INCENTIVE STOCK OPTIONS OUTSTANDING
                                                   ---------------------------------------
                                                    NUMBER OF SHARES      PRICE PER SHARE
                                                   ------------------    -----------------

<S>                                                <C>                   <C> 
       Balance at June 30, 1993                          631,217           $1.00 - 4.00
                                                                         
           Granted                                        97,000            2.25 - 4.88
           Exercised                                    (180,281)           1.00 - 4.00
           Canceled                                      (91,000)           1.00 - 3.50
                                                       ---------         
                                                                         
       Balance at June 30, 1994                          456,936            1.00 - 4.88
                                                                         
           Granted                                       119,500            3.00 - 3.81
           Exercised                                    (176,136)           1.00 - 4.88
           Canceled                                     (103,800)           1.00 - 3.00
                                                       ---------         
                                                                         
       Balance at June 30, 1995                          296,500            3.00 - 4.88
                                                                         
           Granted                                     1,404,000            1.53 - 6.12
           Exercised                                          --                   --
           Canceled                                     (677,500)           2.19 - 6.12
                                                       ---------         
                                                                         
       Balance at June 30, 1996                        1,023,000           $1.53 - 6.12
                                                       =========           ============
</TABLE>
                                                                        


                                      -32-
<PAGE>   34
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued



The 1990, 1991, 1992 and 1994 Plans reserve a total of 2,650,000 shares of the
Company's Common Stock for issuance to directors, officers and employees. At
June 30, 1996, options for 1,023,000 shares were outstanding, 366,417 shares
were exercised, 1,631,550 shares had been canceled and 1,260,583 shares were
available for issuance. There are 385,800 incentive stock options that are
currently exercisable at prices ranging from $2.03 to $6.12 per share at June
30, 1996.

OPTIONS AND WARRANTS

As of June 30, 1993, the Company had outstanding 750,000 Class C Warrants and
750,000 Class D Warrants, each of which entitles the holder to purchase one
share of Common Stock at an exercise price of $2.50 per share and $3.50 per
share, respectively. During fiscal 1994, in connection with the Consulting
Agreement (see note 6), the Company's former Chairman, Allen J. Sheerin, agreed
to surrender all 585,000 of his Class C Warrants and 235,000 of his 535,000
Class D Warrants back to the Company for cancelation. As of June 30, 1994, the
Company had outstanding 127,500 Class C Warrants and 477,500 Class D Warrants.
Each remaining Class C and D Warrant is exercisable at any time through December
31, 1996, except for 337,500 Class D Warrants exercisable at any time through
June 30, 1998.

The Company has issued options and warrants to purchase Common Stock to certain
stockholders and directors. A summary of the outstanding options and warrants is
as follows;

<TABLE>
<CAPTION>
                                                                  OPTIONS AND WARRANTS OUTSTANDING
                                                               ---------------------------------------
                                                               NUMBER OF SHARES      PRICE PER SHARE
                                                               ------------------    -----------------

<S>                                                            <C>                   <C> 
       Balance at June 30, 1993                                     2,416,633          $ .95 - 5.00
                                                                                      
           Granted                                                    585,667           3.00 - 5.00
           Exercised                                                 (310,667)           .95 - 3.63
           Canceled                                                  (820,000)          2.50 - 3.50
                                                                   ----------         
                                                                                      
       Balance at June 30, 1994                                     1,871,633            .95 - 6.27
                                                                                      
           Granted                                                    275,000           6.13 - 6.27
           Exercised                                                  (26,667)                 3.63
           Canceled                                                   (45,000)                 3.88
                                                                   ----------         
                                                                                      
       Balance at June 30, 1995                                     2,074,966            .95 - 6.27
                                                                                      
           Granted                                                    440,000           1.50 - 7.00
           Exercised                                                       --                  --
           Canceled                                                  (192,466)                 3.63
                                                                   ----------         
                                                                                      
       Balance at June 30, 1996                                     2,322,500          $ .95 - 7.00
                                                                   ==========          ============
</TABLE>



                                      -33-
<PAGE>   35
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       There are 2,322,500 options and warrants currently exercisable at prices
       ranging from $.95 to $7.00 per share at June 30, 1996. The Company has
       reserved 4,293,929 shares of its Common Stock to accommodate the
       potential exercise of such options and warrants and the potential
       conversion of the Subordinated Convertible Debt into 1,971,429 shares of
       Common Stock (see note 8) (subject to customary antidilution
       adjustments).

       CONVERSION OF PREFERRED SHARES TO COMMON STOCK

       Subsequent to June 30, 1996, holders of the Company's preferred stock
       converted approximately 565,000 of the 950,000 preferred shares
       outstanding into approximately 8,242,000 shares of common stock.


 (7)   SHORT-TERM BORROWINGS

       Pursuant to a commercial loan agreement (the Loan Agreement) between the
       Company and Sumitomo Bank of California (the Bank), the Company had a
       working capital line of credit (the Sumitomo Line). The maximum credit
       available under the Sumitomo Line was the lesser of (a) $7.2 million or
       (b) the sum of 80% of eligible accounts receivable and 25% of eligible
       inventory. Borrowings under the Sumitomo Line bore interest at a rate
       equal to the Bank's prime lending rate plus 1.00%. In addition, the Bank
       charged a fee of .375% per month on the unused portion of the line. The
       Sumitomo Line matured on October 31, 1995.

       In November 1995 (as amended on March 18, 1996), the Company obtained a
       working capital line of credit with the CIT Group. The maximum credit
       available under the CIT Line is the lessor of (a) $13 million or (b) the
       sum of 85% of eligible accounts receivable and 55% of eligible inventory.
       Borrowings under the CIT Line bear interest at a rate equal to the CIT's
       prime lending rate (8.25% at June 30, 1996) plus 1.50%. In addition, CIT
       charges a fee of .5% of the unused portion of the line. Borrowings are
       collateralized by the Company's accounts receivable, note receivable from
       Hi-LO, inventory, fixtures and equipment. Under the terms of the CIT
       line, the Company must comply with certain reporting, operational and
       financial performance covenants, including a covenant that the Company
       upgrade and improve its accounting systems by November 1996. The Company
       does not expect to be in compliance with this covenant at November 1996
       and has accordingly classified the entire obligation as a current
       obligation in the accompanying consolidated financial statements. As of
       June 30, 1996, the Company was in compliance with all covenants. The line
       expires in November 1998.


(8)    SUBORDINATED CONVERTIBLE DEBT

       On February 9, 1995, the Company completed a private placement (the
       Placement) of 9% Adjustable Convertible Subordinated Debentures due 2005
       (the Debentures) in the aggregate principal amount of $6.9 million.
       Interest on the unpaid principal is payable quarterly on April 30, July
       31, October 31 and January 31 of each year. The Company may call the
       Debentures after January 17, 1998. The Debentures are subordinated to all
       of the obligations due to the Company's Bank and suppliers and are
       convertible into shares of the Company's Common Stock at a conversion
       price of $6.27 per share which represents a 20% premium over the ten-day
       average closing price ($5.225) of the Common Stock ending January 17,
       1995 (the Conversion Commence Date). The conversion price is subject to
       reduction on the first three anniversaries of the Conversion Commencement
       Date if and to the extent the average trading price of the Common Stock
       for the respective ten-day periods prior to each of the first three
       anniversaries of the Conversion Commencement Date is less than 80% of the
       initial conversion price of $5.225 or, if applicable, the adjusted
       conversion price then in effect, provided that the conversion price may
       not be so decreased below $3.50 per share (with a maximum of two such
       reductions). The conversion price is also subject to customary
       antidilution adjustments.

       At June 30, 1996, the conversion price was adjusted to $3.50 per share
       (the Adjusted Conversion Price).



                                      -34-
<PAGE>   36
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       In addition, the Company issued, as partial compensation to the Placement
       agent, Allen & Company Incorporated, and certain finders, 150,000
       warrants, each entitling the holder to purchase one share of Common Stock
       at an adjusted conversion price of $3.50 per share (the Warrants).
       Holders of shares issuable upon conversion of the Debentures or exercise
       of the Warrants have demand and piggyback rights to have such shares
       registered, at the Company's expense, under the Securities Act of 1993
       (the Act).

       The Company received approximately $6.5 million in net proceeds from the
       Placement. The offering and sale of the securities in the Placement were
       not registered under the Act, in reliance upon the exemption from
       registration provided by Regulation D promulgated under the Act.


(9)    RELATED PARTY TRANSACTIONS

       Effective August 12, 1994, the Company's Chairman, Allen J. Sheerin,
       resigned his position as Chairman and Director to pursue other interests.
       In connection with his resignation, commencing July 1, 1994, the Company
       began paying Mr. Sheerin a total of $750,000 in 36 equal monthly
       installments of $20,833 through June 1997 (netted against his $10,000 per
       month installment debt payments to the Company, as described below). The
       Company recorded a $665,000 charge for the present value of this amount
       in its 1994 fiscal year. In addition, on April 7, 1994, the Company
       granted Mr. Sheerin five-year options to purchase 150,000 shares of
       Common Stock at $4.41 a share and extended Mr. Sheerin's deadline for
       exercise of his 300,000 Class D Warrants from June 30, 1996 to June 30,
       1997. Upon consummation of the acquisition of Express Car Underparts
       Nevada (see note 1), the exercise price on the five-year options was
       changed from $4.41 a share to $3.00. Additionally, the deadline for
       exercise of his 300,000 Class D Warrants was extended from June 30, 1997
       to June 30, 1998.

       On November 1, 1994, in conjunction with the sale of the Wesco Division
       to Hi-LO (see note 3), the Company negotiated the cancelation of a lease
       obligation with Mr. Sheerin. Mr. Sheerin leased the West Covina,
       California Wesco store location to the Company under an operating lease
       which had 15 years remaining on its term. This lease was terminated at
       the closing of the sale of the Wesco Division, with Hi-LO entering into a
       new five-year lease with Mr. Sheerin. The cancelation had the effect of
       relieving the Company of responsibility for approximately $8 million of
       lease payments over the final 15 years of the lease term. In
       consideration of the cancelation of the West Covina lease, the Company
       agreed to issue Mr. Sheerin 150,000 shares of the Company's Common Stock
       and to grant him registration rights with respect to these and other
       shares of Common Stock owned by him. The issuance of shares generated a
       charge of $834,375, based on a fair market price at the time of issuance
       of $5.5625 per share. This expense was charged to the reserve for
       discontinued operations which was established by the Company in fiscal
       1994.

       Effective April 30, 1996, the Company acquired all of the outstanding
       shares of Express Undercar Parts Nevada, of which Mr. Sheerin was a 75%
       owner (see note 1).

       Effective May 31, 1996, the Company acquired all of the outstanding
       shares of Express Undercar Parts, California, of which Mr. Sheerin was a
       100% owner (see note 1).

       The Company continues to lease a warehouse from Mr. Sheerin (see note
       12).

       Mr. Sheerin is a 40% owner of Innovative Systems Corporation (Innovative)
       which formerly provided computer consulting to Wesco Division's wholesale
       and retail operations. Total payments to Innovative consists of payments
       for software licensing fees, computer hardware and software and
       maintenance and were as follows: none in 1996, $58,000 in 1995 and
       $280,000 in 1994.


                                      -35-
<PAGE>   37
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       The amounts due from stockholder at June 30, 1996 consist of advances to
       Mr. Sheerin, evidenced by a promissory note dated April 7, 1994, which
       bears interest at 10% per annum and is secured by certain real property.
       The balance of the note is due in June 1997 and, accordingly, is
       classified as a current asset in the accompanying consolidated financial
       statements. The note is in default and the Company has informal
       arrangements to collect the balance by June 1997.

       As of August 31, 1995, Bruce Douglass, the Company's former President and
       Chief Operating Officer, owed the Company $418,760 representing an
       initial advance of $375,000 made on January 28, 1994 to Mr. Douglass plus
       accrued interest of $43,760. This advance was evidenced by a nonrecourse
       promissory note with interest at 8% per annum and was secured by a pledge
       of 71,249 shares of the Company's Common Stock. Effective August 31,
       1995, Mr. Douglass resigned his position to pursue other interests. In
       connection with his resignation, Mr. Douglass' obligation became
       immediately due and payable. As Mr. Douglass did not repay this
       obligation, the Company foreclosed on the shares pledged to it and,
       accordingly, recorded a fiscal 1996 charge of approximately $236,000 as
       the difference between the amount owed and the market value of the Common
       Stock as of August 31, 1995 ($2.5625 per share).


(10)   STORE CLOSURES

       The Company implemented a formal plan to close 14 of its stores during
       fiscal year 1996 and recognized a charge of approximately $721,000. The
       charge primarily relates to handling and freight costs to return
       inventory to vendors or to other stores and a provision for the
       settlement of future lease commitments. At June 30, 1996, the Company had
       returned the related inventories and settled 8 of the lease arrangements.
       Management believes its provision at June 30, 1996 to settle the
       remaining 6 lease arrangements is adequate.

       In July 1996, the Company closed 7 of its underperforming warehouses and
       recorded a charge of approximately $200,000. The charge will be included
       in the Company's 1997 results of operations. The Company has distributed
       the related inventories to its other stores and is currently in
       negotiations to settle the leases.


(11)   WRITE-OFF OF COMPUTER EQUIPMENT AND CERTAIN INTANGIBLES

       During the fourth quarter of fiscal year 1996, the Company performed an
       evaluation of its existing computer systems and determined them to be
       inadequate to support future operations of the Company. A decision was
       made by Company management to replace its existing computer systems
       during fiscal year 1997. This decision led the Company to adjust the
       carrying value of its existing computer systems, resulting in a $565,000
       impairment charge.

       During the fourth quarter of fiscal 1996, the Company re-evaluated and
       recognized a charge for the impairment of goodwill and certain intangible
       assets, related to the 1993 acquisition of Reddi Brake Supply Company of
       $388,000 and $285,000, respectively. In determining the impairment, the
       Company estimated future operating cash flows to be derived over the
       remaining life of the goodwill and intangible assets which indicated that
       future undiscounted operating cash flows were insufficient to recover the
       carrying value of the goodwill and intangible assets. The impairment was
       recorded based upon the estimated present value of the future cash flows,
       which in the opinion of management approximated fair value.


                                      -36-
<PAGE>   38
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(12)   COMMITMENTS AND CONTINGENCIES

       LEASES

       Reddi Brake continues to lease a 15,000-square-foot warehouse in West
       Covina, California from Mr. Allen J. Sheerin (stockholder). The lease
       expires February 2008, with two renewal options of five years each.
       Monthly lease payments are approximately $14,320 plus taxes, insurance
       and maintenance and annual CPI increases. The Company paid approximately
       $172,000, $320,000 and $616,000 in 1996, 1995 and 1994, respectively, to
       Mr. Sheerin. Such amounts include the lease of a Wesco store for the
       first four months of fiscal 1995 and the fiscal year 1994.

       Reddi Brake also leases its Santa Barbara, California Reddi Brake outlet
       from a general partnership, of which Bruce Douglass, the Company's former
       President and Chief Operating Officer, is a partner, at a minimum monthly
       rental of $2,800, pursuant to a written lease expiring May 1, 1998. The
       Subsidiary also leases its Ventura, California Reddi Brake outlet and
       administrative offices from a general partnership, of which Mr. Douglass
       is a partner, at a minimum monthly rental of $7,250, pursuant to a
       written lease expiring on May 1, 1998. Each of these leases is subject to
       rent increases based upon the applicable interest rate under the
       landlord's mortgages for the leased premises. These leases also provide
       for the tenants' payment of taxes, insurance and maintenance costs. The
       Company paid approximately $121,000, $135,000 and $116,000 in 1996, 1995
       and 1994, respectively, to these two general partnerships.

       The Company leases its other locations from unaffiliated parties. These
       other leases expire on various dates through July 2003 and certain leases
       may be extended by the Company for additional terms.

       Future minimum payments on all capital leases and noncancelable operating
       lease commitments at June 30, 1996 are as follows:

<TABLE>
<CAPTION>
                                                   CAPITAL         OPERATING 
                                                    LEASES           LEASES           TOTAL
                                                  ----------       ----------       ----------

<S>                                               <C>              <C>              <C>      
       Year ending June 30:
           1997                                   $1,301,719        2,012,311        3,314,030
           1998                                      806,933        1,898,550        2,705,483
           1999                                      198,138        1,002,142        1,200,280
           2000                                      103,111          298,340          401,451
           2001                                       41,401          232,029          273,430
           Thereafter                                   --          1,219,100        1,219,100
                                                  ----------       ----------       ----------

                                                   2,451,302       $6,662,472       $9,113,774
                                                                   ==========       ==========

           Less imputed interest                     385,567
                                                  ----------

                  Present value of minimum
                     capital lease payments        2,065,735

           Less current portion                    1,124,810
                                                  ----------

                                                  $  940,925
                                                  ==========
</TABLE>


                                      -37-
<PAGE>   39
                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


The Company entered into capital lease obligations for equipment during the
years ended 1996, 1995 and 1994 that totaled $540,000, $2,629,000 and
$1,294,000, respectively.

Amortization expense related to equipment under capital leases during the years
ended 1996, 1995 and 1994 was approximately $788,000, $608,000 and $237,000,
respectively.

Total rent expense under operating leases was approximately $1,922,000,
$1,629,000 and $2,226,000 during the years ended 1996, 1995 and 1994,
respectively.

LEGAL MATTERS

A class action lawsuit was filed on October 31, 1995 against the Company and
certain former officers and/or directors in the United States District Court for
the Central District of California. An agreement of settlement has been entered
into and is now subject to a finding by the Court that the terms of the
settlement are fair. Under this agreement of settlement, the total settlement
amounts and attorneys' fees to be paid by the Company would not have a material
adverse impact on its results of operations or financial condition. Consummation
of the settlement is subject to the finding by the Court, and there can be no
assurance that such settlement will be consummated.

In connection with the class action, a separate lawsuit was filed on October 6,
1995 against the Company and certain former officers and/or directors. An
agreement of settlement has been entered into and is subject to the settlement
of the class action. Under this agreement of settlement, the total settlement
amounts and attorneys' fees to be paid by the Company would not have a material
adverse impact on its results of operations or financial condition. Consummation
of the settlement is subject to the finding by the Court, and there can be no
assurance that such settlement will be consummated.

The Company is also involved in routine litigation incidental to the conduct of
its business. The Company, after consultation with its counsel, believes that no
litigation currently pending will have a material adverse effect on its
financial position or results of operations.

EMPLOYEE'S SAVINGS RETIREMENT PLAN

In March 1993, the Company established a tax-qualified 401(k) Savings Retirement
Plan (401(k) Plan). All employees who have completed one year of service and at
least 1,000 hours of service in that year with the Company are eligible to join
the 401(k) Plan on the first day of each calendar quarter. All eligible
employees may contribute from 1% to 15% of their annual compensation on a
pre-tax basis. The Company does not make matching contributions.


                                      -38-

<PAGE>   40

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

         As previously reported in the Company's Report on form 8-K/A #1, dated
February 7, 1996, on January 19, 1996, the Audit Committee of the Board of
Directors approved the dismissal of its independent accountants, Ernst & Young
LLP, and elected to engage KPMG Peat Marwick, LLP to audit Reddi Brake's June
30, 1996 financial statements. Ernst & Young LLP's reports on the financial
statements of Reddi Brake for the fiscal years ended June 30, 1994 and June 30,
1995 did not contain any adverse opinion or disclaimer of opinion, nor were such
reports qualified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended June 30, 1994 and 1995, and the subsequent interim
period to January 19, 1996, there were no disagreements between Reddi Brake and
Ernst & Young LLP on any matter of accounting principles or practices, financial
statements disclosure or auditing scope or procedure.

                                    PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information as of October 10,
1996 with respect to the Company's directors and executive officers:


<TABLE>
<CAPTION>
      Name               AGE    POSITION
      ----               ---    --------
<S>                      <C>    <C>                                          
      Eric Openshaw      41     Interim Chairman of the Board of Directors
      Richard McGorrian  56     President, Chief Executive Officer and Director
      S. Gerald Birin    39     Executive Vice President, Chief Financial
                                Officer, Secretary and Director
</TABLE>

BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS

         ERIC OPENSHAW was appointed to the Board of Directors in July 1995 and
was appointed Interim Chairman of the Board in February 1996. Since July 1995,
Mr. Openshaw has been a Vice President of Oracle Corporation, providing
consulting services to Oracle's clients in the Western United States. From June
1986 to June 1995, Mr. Openshaw was a partner at KPMG Peat Marwick LLP, where he
was the head of its management consulting practice for the Pacific Southwest.

         RICHARD MCGORRIAN served as Vice President - Marketing of Reddi Brake
from November 1995 until February 1996, when he was elected President, Chief
Executive Officer and Chief Operating Officer. Mr. McGorrian was appointed to
the Board of Directors in February 1996. From September 1994 until October 1995,
Mr. McGorrian served first as the Executive Vice President of Service Operations
and then as the Executive Vice President of total company operations and a
director of Auto Expo Inc., an automobile parts and service chain. From January
1990 until September 1994, Mr. McGorrian served as a Regional Director for Midas
International's muffler and brake shops.

         S. GERALD BIRIN has served as the Chief Financial Officer and Secretary
of Reddi Brake since November 1995 and was appointed to the additional office of
Executive Vice President in February 1996. Mr. Birin was appointed to the Board
of Directors in February 1996. From April 1991 to October 1995, Mr. Birin served
as the Chief Financial Officer of Beach Patrol, Inc., a privately-held
manufacturer of women's and girls' swimwear and related sportswear.


                                      -39-
<PAGE>   41
         Directors are elected annually to serve until the next annual meeting
of stockholders and until their successors are elected and qualified. Executive
officers are elected by and serve at the discretion of the Board of Directors.
No family relationships exist between any of the directors or officers of Reddi
Brake.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

         Section 16(a) of the Securities Exchange Act of 1934 requires Reddi
Brake's officers and directors, and persons who own more than ten percent of a
registered class of Reddi Brake's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
Securities and Exchange Commission regulations to furnish Reddi Brake with
copies of all Section 16(a) forms they file. Based solely on review of the
copies of such forms furnished to Reddi Brake, or written representations that
no Forms 5 were required, Reddi Brake believes that during the period from July
1, 1995 to June 30, 1996 all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten-percent beneficial owners were complied
with.

ITEM 11:          EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table summarizes all compensation paid to (a) Richard
McGorrian, Reddi Brake's President and Chief Executive Officer, (b) S. Gerald
Birin, Reddi Brake's Executive Vice President, Chief Financial Officer and
Secretary, (c) William M. Leider, who served as Reddi Brake's Chief Executive
Officer from May 1995 until February 1996 and, additionally, as Reddi Brake's
President and Chief Operating Officer from September 1995 until February 1996,
and (d) Gordon Werner, who served as Reddi Brake's Chairman of the Board since
February 1995 and Vice Chairman of the Board from June 1992 until February 1995,
for services rendered in all capacities to Reddi Brake and its subsidiary for
the fiscal years ended June 30, 1996, 1995 and 1994. No other executive officer
of Reddi Brake earned in excess of $100,000 in salary and bonus during fiscal
1996.


                                      -40-
<PAGE>   42
<TABLE>
<CAPTION>
                                                                                                                       ALL OTHER
                                                      ANNUAL COMPENSATION              LONG TERM COMPENSATION       COMPENSATION ($)
                                                      -------------------              ----------------------       ----------------

                                                                                   OTHER ANNUAL             AWARDS
NAME AND PRINCIPAL POSITION                YEAR     SALARY($)     BONUS ($)      COMPENSATION ($)         OPTIONS (#)
---------------------------                ----     ---------     ---------      ----------------         -----------
<S>                                        <C>        <C>              <C>             <C>                <C>             <C>      
Richard McGorrian                          1996       107,653          -                 -                450,000         85,500(1)
President and Chief Executive
Officer

S. Gerald Birin                            1996        88,382          -                 -                250,000         57,000(1)
Executive Vice President, Chief
Financial Officer and Secretary

William M. Leider                          1996       178,000          -                 -                 75,000         50,000(3)
Former President, Chief Executive          1995        10,000                                              25,000
Officer and Chief Operating
Officer(2)

Gordon Werner                              1996       112,600          -               29,500(4)               _            3,684(3)
Former Chairman of the Board               1995        93,000          -               39,256(5)            25,000            -
                                           1994        48,000          -                  -                   -               -
</TABLE>
--------------------------

(1)      Consists of a percentage of the net cash proceeds to the Company from
         the issuance of Class B Preferred Stock in April 1996, payable to
         Messrs. McGorrian and Birin pursuant to the terms of their respective
         employment agreements. See "Employment Agreements," below.

(2)      Mr. Leider was appointed Chief Executive Officer of Reddi Brake in May
         1995 and was additionally appointed President and Chief Operating
         Officer in September 1995. Mr. Leider's employment with Reddi Brake was
         terminated in February 1996. Does not include approximately $26,000 and
         $11,687 paid to Leider, Murphy & Associates, a consulting firm of which
         Mr. Leider is a principal, during fiscal 1995 and fiscal 1996,
         respectively, for consulting services rendered to the Company. For a
         description of the consulting fees paid to Leider, Murphy & Associates,
         see "Item 13. Certain Relationships and Related Transactions," below.

(3)      Consists of severance payments made to Messrs. Leider and Werner.

(4)      Consists of consulting fees and lodging, travel and entertainment
         expenses paid by the Company on behalf of Mr. Werner.

(5)      Consists of lodging, travel and entertainment expenses paid by the
         Company on behalf of Mr. Werner.


                                      -41-
<PAGE>   43
OPTION GRANTS IN LAST FISCAL YEAR

         The following table sets forth certain information at June 30, 1996 and
for the fiscal year then ended with respect to stock options granted to the
individuals named in the Summary Compensation Table.

<TABLE>
<CAPTION>
                                                                                                        POTENTIAL REALIZABLE VALUE
                           NUMBER OF        PERCENTAGE OF                                                 AT ASSUMED ANNUAL RATES
                           SECURITIES       TOTAL OPTIONS                                                     OF STOCK PRICE
                           UNDERLYING        GRANTED TO     PER SHARE    MARKET PRICE ON                     APPRECIATION FOR
                            OPTIONS         EMPLOYEES IN    EXERCISE        DATE OF        EXPIRATION        OPTION TERM (1)
NAME                        GRANTED          FISCAL YEAR      PRICE          GRANT            DATE            5%        10% 
----                       ---------        -------------    -------        -------          ------           --       ---
<S>                        <C>                 <C>            <C>            <C>            <C>          <C>       <C>
Richard McGorrian          150,000(2)          18.99%         $2.19          $2.19          11/01/05          $0        $0
                           450,000(3)          56.96%         $1.50          $1.50          02/29/06     $33,750   $67,500


S. Gerald Birin            150,000(2)          18.99%         $2.38          $2.38          11/09/05          $0        $0
                           250,000(3)          31.65%         $1.65          $1.50          02/29/06          $0        $0

William M. Leider            25,000             3.17%         $3.00          $2.44          02/07/01          $0        $0

                             25,000             3.17%         $5.00          $2.44          02/07/01          $0        $0

                             25,000             3.17%         $7.00          $2.44          02/07/01          $0        $0
</TABLE>
---------------------------------

(1)      The potential realizable values shown under these columns represent the
         future value of the options (net of exercise price) assuming the market
         price of the Common Stock were to appreciate by 0%, 5% and 10%,
         respectively, during each year of the options' ten-year term. The rates
         of appreciation are prescribed by regulations of the Securities and
         Exchange Commission and are not intended to forecast possible future
         appreciation of Reddi Brake Common Stock.

(2)      These options were cancelled on February 9, 1996 and replaced by the
         options referred to in footnote (3).

(3)      These options were granted on February 9, 1996 to replace the options
         referred to in footnote (2). See "Ten-Year Option Repricings" table,
         below.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUE

         The following table sets forth information with respect to the named
executive officers with respect to the unexercised stock options held by them as
of the end of fiscal 1996. No stock options were exercised by any of the named
executive officers during fiscal 1996.



<TABLE>
<CAPTION>
                          NUMBER OF SECURITIES   
                         UNDERLYING UNEXERCISED          VALUE OF UNEXERCISED IN-THE-
                            OPTIONS HELD AT                     MONEY OPTIONS
                            JUNE 30, 1996(#)                 AT JUNE 30, 1996($)
                           ------------------               --------------------
                              EXERCISABLE/                       EXERCISABLE/
NAME                         UNEXERCISABLE                     UNEXERCISABLE(1)
----                         -------------                     ----------------
<S>                         <C>                               <C>    
Richard McGorrian           150,000/300,000                    $56,250/$112,500

S. Gerald Birin              83,333/166,667                    $18,750/$37,500

William M. Leider            75,000/0                         $0      /      $0

</TABLE>


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

(1)      Based on the difference between the closing price on the Nasdaq
         National Market of Reddi Brake Common Stock on that date ($1.875) and
         the exercise price.


                                      -42-
<PAGE>   44
                           TEN-YEAR OPTION REPRICINGS

<TABLE>
<CAPTION>
                                                                                                                      LENGTH OF
                                           SECURITIES       MARKET PRICE                                           ORIGINAL OPTION
                                           UNDERLYING        OF STOCK AT     EXERCISE PRICE                        TERM REMAINING
                                       NUMBER OF OPTIONS       TIME OF         AT TIME OF       NEW EXERCISE         AT DATE OF
NAME                     DATE             REPRICED (#)        REPRICING        REPRICING            PRICE             REPRICING
----                    ------           --------------      -----------      -----------          -------         ------------
<S>                    <C>                <C>                   <C>              <C>                <C>              <C>       
Richard McGorrian      02/29/96           450,000 (1)           $1.50            $2.19              $1.50            117 months

S. Gerald Birin        02/29/96           250,000 (1)           $1.50            $2.38              $1.65            117 months
</TABLE>
---------------------------------

(1)      These options replaced 150,000 options previously granted to each of
         Messrs. McGorrian and Birin.

         The Compensation Committee of the Board of Directors (the "Committee"),
which is charged with responsibility for administering the Company's incentive
stock option plans, granted Mr. McGorrian, effective November 1, 1995, an option
to purchase 150,000 shares of the Company's Common Stock at an exercise price of
$2.19 per share (the "Original McGorrian Option"). In February 1996, the
Committee determined that, in light of Mr. McGorrian's increased duties and
responsibilities as President and Chief Executive Officer of the Company, it
would be in the Company's best interests to (a) accept Mr. McGorrian's surrender
of the Original McGorrian Option to the Company for cancellation and (b) grant
Mr. McGorrian a new option to purchase 450,000 shares of the Company's Common
Stock at an exercise price of $1.50 per share. Effective November 9, 1995, the
Committee granted Mr. Birin an option to purchase 150,000 shares of the
Company's Common Stock at an exercise price of $2.38 per share (the "Original
Birin Option"). In February 1996, the Committee determined that, in light of Mr.
Birin's increased duties and responsibilities as Executive Vice President and
Chief Financial Officer of the Company, it would be in the Company's best
interests to (a) accept Mr. Birin's surrender of the Original Birin Option to
the Company for cancellation and (b) grant Mr. Birin a new option to purchase
250,000 shares of the Company's Common Stock at an exercise price of $1.65 per
share.

         ERIC OPENSHAW

COMPENSATION OF DIRECTORS

         On September 25, 1994, the Board of Directors adopted the Reddi Brake
Supply Corporation 1994 Directors' Stock Option Plan (the "Directors' Plan"),
which was approved at Reddi Brake's 1994 Annual Meeting of Stockholders. Under
the Directors' Plan, each non-employee director is granted an initial stock
option to purchase 25,000 shares of Common Stock and thereafter will receive
annual grants of stock options (on each successive anniversary of the date on
which he or she was granted an initial stock option) to purchase 10,000 shares
of Common Stock, so long as he or she continues to serve as a non-employee
director. All stock options will have an exercise price equal to the fair market
value of the Common Stock on the date of grant.

         Pursuant to the provisions of the Directors' Plan, on September 25,
1994, the non-employee directors then serving (Gordon Werner, Stanley Timmins,
Jay Matulich, Federico Pignatelli and William Leider) each were granted a stock
option to purchase 25,000 shares of Common Stock at an exercise price of $6.125
per share, the fair market value of the Common Stock on the date of grant, and
in September 1995, Messrs. Werner, Timmins and Pignatelli each received an
additional option to purchase 10,000 shares of Common Stock at an exercise price
of $2.875 per share, the fair market

                                    
                                      -43-
<PAGE>   45
value of the Common Stock on the date of grant. Upon his election to the Board
in July 1995, Mr. Openshaw received an option to purchase 25,000 shares of
Common Stock under the Directors' Plan at an exercise price of $3.1875 per
share, the fair market value of the Common Stock on the date of grant, and in
July 1996, Mr. Openshaw received an additional option to purchase 10,000 shares
of Common Stock at an exercise price of $1.125 per share, the fair market value
of the Common Stock on the date of grant. Upon his election to the Board in
September 1996, Martin E. Janis, a former director, received an option to
purchase 25,000 shares of Common Stock under the Directors' Plan at an exercise
price of $.59 per share, the fair market value of the Common Stock on the date
of grant.

         In accordance with the terms of the Directors' Plan, the unexercised
portion of the stock options granted to each of Messrs. Matulich, Pignatelli and
Leider expired 90 days following their respective resignations from the Board,
the unexercised portion of the stock options granted to Mr. Werner expired 90
days following the expiration of his term as a director, any unexercised portion
of Mr. Timmins' options will expire on December 4, 1996, and any unexercised
portion of Mr. Janis' option will expire on January 7, 1997.

         All directors are reimbursed for their travel expenses incurred in
attending Board or Committee meetings. Reddi Brake currently does not pay any
cash compensation to non-employee directors in consideration of their regular
services as members of the Board of Directors. During the fiscal year ended June
30, 1996, prior to becoming an employee of the Company, Mr. Werner received
compensation in the amount of $8,000 for his part-time consulting services to
the Company in his capacity as Chairman of the Board.

EMPLOYMENT AGREEMENTS

         Mr. Leider served as Reddi Brake's Chief Executive Officer from May
1995 until February 1996 and, additionally, as Reddi Brake's President and Chief
Operating Officer from September 1995 until February 1996. Effective February 7,
1996, Mr. Leider resigned from his positions as Chief Executive Officer,
President and Chief Operating Officer pursuant to the terms and conditions of
the Separation Agreement between Mr. Leider and Reddi Brake, dated February 7,
1996 (the "Separation Agreement"). Under the Separation Agreement, for six
months following his resignation, Mr. Leider received severance pay at a monthly
rate of $10,000. In addition, Mr. Leider was granted one five-year warrant to
purchase 25,000 shares of the Company's Common Stock at an exercise price of
$3.00 per share, one five-year warrant to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $5.00 per share and one five-year
warrant to purchase 25,000 shares of the Company's Common Stock at an exercise
price of $7.00 per share.

         Mr. McGorrian serves as President and Chief Executive Officer pursuant
to the terms of a written employment agreement which provides for an employment
term of three years running from February 1996 through February 1999, subject to
a one year extension at the option of either Mr. McGorrian or the Company, and
an annual base salary of $175,000, together with a bonus of between $50,000 and
$200,000 if certain income targets are met. Mr. McGorrian's employment agreement
also provides for the payment to Mr. McGorrian of additional compensation, if
there is a change in ownership or control of Reddi Brake during his employment
term, equal to sixty percent of a portion of the net consideration received by
the Company and/or its stockholders. If the net consideration received by the
Company and/or its stockholders in connection with a change in ownership or
control of Reddi Brake is less than $60 million, however, Mr. McGorrian will not
receive any additional amount under the terms of his employment agreement.


                                      -44-
<PAGE>   46
         Mr. Birin has served as Executive Vice President, Chief Financial
Officer and Secretary pursuant to the terms of a written employment agreement
which provided for an annual base salary of $150,000, together with a bonus of
between $25,000 and $100,000 if certain income targets are met.


ITEM 12:          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of October 10, 1996, certain
information with respect to (i) each person who is known by Reddi Brake to be
the beneficial owner of more than five percent (5%) of the outstanding Common
Stock, (ii) each director of Reddi Brake, (iii) each executive officer of Reddi
Brake expected to be named in the summary compensation table in Reddi Brake's
next annual proxy statement and (iv) all directors and executive officers as a
group.


<TABLE>
<CAPTION>
                                                                              
                                                               BENEFICIAL OWNERSHIP
                                                                OF COMMON STOCK(1)
                                                      ------------------------------------
NAME AND ADDRESS                                      SHARES OWNED        PERCENT OF CLASS
----------------                                      ------------        ----------------
<S>                                                     <C>                     <C>  
Allen J. Sheerin(2)................................     2,567,757               9.59%
2657 Windmill Parkway
Henderson, NV  89014

Eric Openshaw(3)...................................        35,000                 *
748 South Walnut Avenue
San Dimas, CA  91773

Richard McGorrian(4)...............................       150,000                 *
1376 Walter Street
Ventura, CA  93003

S. Gerald Birin(4).................................        83,333                 *
1376 Walter Street
Ventura, CA  93003

William M. Leider(5)...............................        75,000                 *
4676 Admiralty Way, Suite 300
Marina del Rey, CA  90292

All directors and executive officers as a group (3
persons)(3)(4).....................................       268,333               1.01%
</TABLE>
---------------------------------
*        Less than 1%.

(1)      Based on an aggregate of 26,236,830 shares of Common Stock outstanding
         and, with respect to particular persons, shares underlying options or
         warrants exercisable now or within the next 60 days. Except as
         otherwise indicated in this and the following footnotes, (a) no effect
         has been given to shares issuable upon exercise of outstanding warrants
         or options or upon the conversion of outstanding convertible
         securities, and (b) each of the persons listed in the above table has
         sole voting and investment power with respect to his shares indicated
         therein.

(2)      Includes (a) 50,000 shares held by the AJS Charitable Trust, (b)
         362,500 shares of Common Stock issuable upon exercise of 50,000 Class C
         Common Stock Purchase Warrants and

                                      -45-
<PAGE>   47
         312,500 Class D Common Stock Purchase Warrants at an exercise price of
         $2.50 per share, (c) 150,000 shares of Common Stock issuable upon
         exercise of a five-year stock option, at an exercise price of $3.00 per
         share, granted in connection with Mr. Sheerin's resignation as Chief
         Executive Officer and President and (d) 20,000 shares of Common Stock
         issuable upon exercise of a ten-year stock option, at an exercise price
         of $3.00 per share. Further, this includes 197,895 shares held by Irene
         Sheerin, Successor Trustee of the Kanamaru Family Trust, Trust B, as to
         which shares Mr. Sheerin disclaims beneficial ownership.

(3)      Includes up to 35,000 shares of Common Stock issuable upon exercise of
         the stock options granted to Mr. Openshaw under the Reddi Brake Supply
         Corporation 1994 Directors' Stock Option Plan.

(4)      Includes up to 150,000 shares issuable to Mr. McGorrian, at an exercise
         price of $1.50 per share, upon the exercise of presently exercisable
         stock options under the 1991 Incentive Stock Option Plan, and up to
         83,333 shares issuable to Mr. Birin, at an exercise price of $1.65 per
         share, upon the exercise of presently exercisable stock options under
         the 1992 Incentive Stock Option Plan.

(5)      Includes up to 25,000 shares issuable at an exercise price of $3.00 per
         share, up to 25,000 shares issuable at an exercise price of $5.00 per
         share, and up to 25,000 shares issuable at an exercise price of $7.00
         per share upon the exercise of presently exercisable options granted to
         Mr. Leider in connection with his resignation as Chief Executive
         Officer and President in February 1996.


ITEM 13:          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company leases from Mr. Sheerin, the former Chairman of the Board,
Chief Executive Officer and President of Reddi Brake, the approximately 15,000
square foot building which formerly housed the additional inventory and office
space of the West Covina Wesco store, at a present monthly rental of
approximately $14,500, under a written lease expiring April 30, 2008, subject to
two renewal options of five years each. This lease is subject to annual rent
increases based on the applicable CPI during its initial term, and is further
subject to increase to the then prevailing market rental rate upon exercise of
each renewal option. This lease also provides for the tenant's payment of taxes,
insurance and maintenance costs.

         On May 28, 1996, Reddi Brake purchased from Mr. Sheerin seventy-five
percent (75%) and from Bryan Morford, Reddi Brake's General Manager- Western
Region, twenty-five percent (25%) of all of the outstanding shares
(collectively, the "Express Nevada Shares") of common stock of Express Undercar
Parts Warehouse, Inc., Nevada ("Express Nevada"), which owned and operated three
automotive warehouse locations in Nevada, for a purchase price of $1.279
million, payable in 695,109 shares of Reddi Brake Common Stock. Messrs. Sheerin
and Morford were granted registration rights with respect to all shares of Reddi
Brake Common Stock which they received as consideration for their Express Nevada
Shares. In connection with Reddi Brake's acquisition of Express Nevada, Reddi
Brake agreed to reduce the exercise price of Class D Warrants held by Mr.
Sheerin and two of his transferees from $3.50 per share to $2.50 per share and
extend the expiration date of such Class D Warrants from June 30, 1997 to June
30, 1998. In addition, Reddi Brake agreed to reduce the exercise price of a
five-year stock option to purchase 150,000 shares of Reddi Brake Common Stock
granted to Mr. Sheerin in connection with his resignation as Reddi Brake's Chief
Executive Officer and President from $4.41 per share to $3.00 per share and the
exercise price of a ten-year stock option to purchase 20,000 shares of Reddi
Brake Common Stock held by Mr. Sheerin from $5.00 per share to $3.00 per share.


                                      -46-
<PAGE>   48
         On June 28, 1996, Reddi Brake purchased from Mr. Sheerin all of the
outstanding shares (collectively, the "Express California Shares") of common
stock of Express Undercar Parts Warehouse of California, Inc. ("Express
California"), which owned and operated four automotive warehouse locations in
Orange County, California, for a purchase price of $1,095,000, payable in
594,761 shares of Reddi Brake Common Stock. Mr. Sheerin was granted registration
rights with respect to all shares of Reddi Brake Common Stock which he received
as consideration for his Express California Shares.

         From time to time before October 1991, Reddi Brake advanced various
cash amounts to Mr. Sheerin on an open book account, the aggregate outstanding
amount of which, including accrued but unpaid interest at the rate of 10% per
annum, as of April 7, 1994, is evidenced by an Amended and Restated Promissory
Note (the "Amended Note"), dated April 7, 1994, in the principal amount of
$574,637. The Amended Note bears interest at the rate of 10% per annum, and
requires Mr. Sheerin to make payments of principal and interest at the rate of
$10,000 per month, with all remaining principal and accrued interest due and
payable on June 30, 1996. Effective February 7, 1994, Mr. Sheerin resigned from
his position as Chief Executive Officer and President of Reddi Brake pursuant to
the terms of a Settlement Agreement between Reddi Brake and Mr. Sheerin (the
"Settlement Agreement"). Under the Settlement Agreement, Reddi Brake agreed to
pay Mr. Sheerin a total of $750,000 in thirty-six equal installments of $20,833
each, commencing July 1, 1994.

         As of April 30, 1996, Reddi Brake owed Mr. Sheerin $277,811.72 under
the Settlement Agreement, and Mr. Sheerin owed Reddi Brake an outstanding
balance of $459,609.96 on the Amended Note. On June 28, 1996, Reddi Brake agreed
to (a) cancel Mr. Sheerin's obligations to return to Reddi Brake a good faith
deposit of $50,000 made in connection with Reddi Brake's acquisition of Express
California and reduce the outstanding balance of principal and accrued but
unpaid interest on the Amended Note by the net amount of $227,811.72, to a
remaining balance of $231,798.24, in consideration of Mr. Sheerin's cancellation
of the full amount of indebtedness remaining under the Settlement Agreement and
(b) extend the due date of the Amended Note from June 30, 1996 to July 13, 1996.
As of September 30, 1996, Mr. Sheerin was in default under the Amended Note,
which had an outstanding balance of $248,798. The Company has an informal
arrangement to collect such balance by June 30, 1997.

         Effective February 7, 1996, William M. Leider resigned from his
positions as Reddi Brake's Chief Executive Officer, President and Chief
Operating Officer. In connection with his resignation, Reddi Brake agreed to pay
Mr. Leider a total of $60,000 in six equal monthly installments of $10,000 each,
commencing February 1996. In addition, Mr. Leider was granted one five-year
warrant to purchase 25,000 shares of the Company's Common Stock at an exercise
price of $3.00 per share, one five-year warrant to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $5.00 per share and one five-year
warrant to purchase 25,000 shares of the Company's Common Stock at an exercise
price of $7.00 per share.

         During fiscal 1996, Reddi Brake paid to Leider, Murphy & Associates, a
consulting firm of which Mr. Leider is a principal, approximately $11,687 for
consulting services.


                                      -47-
<PAGE>   49
                                     PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)1.    Financial Statements:

         The following consolidated financial statements of Reddi Brake Supply
Corporation and its wholly-owned subsidiary are included in Part II, Item 8 of 
this report.
                                                                         Page 
         Reports of Independent Auditors................................. 17 
         Consolidated Balance Sheets as of June 30, 1996 and 1995........ 19
         Consolidated Statements of Operations for the three years 
         ended June 30, 1996............................................. 20
         Consolidated Statements of Stockholders' Equity for the three 
           years ended June 30, 1996..................................... 21
         Consolidated Statements of Cash Flows for the three years 
           ended June 30, 1996........................................... 22 
         Notes to Consolidated Financial Statements...................... 24

         (a)2.    Financial Statement Schedule:

                  Schedule II -     Valuation and Qualifying Accounts

         Schedules other than those listed above are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.

         (b) Reports on Form 8-K:

             None.

         (c) Exhibits:

             The following exhibits are filed as part of this Report:

          2.1     Agreement and Plan of Reorganization, dated as of September
                  16, 1991.(1)

          2.2     Plan of Disposition of the Wesco Division.(12)

          3.1     Articles of Incorporation.(2)

          3.2     Bylaws.(2)

          3.3     October 4, 1991 Amendments to the registrant's Articles of
                  Incorporation.(1)

          4.1     Form of certificate representing shares of the registrant's
                  Common Stock.(1)


                                      -48-
<PAGE>   50
          4.2     Form of certificate representing the registrant's Class C
                  Warrants.(1)

          4.3     Form of certificate representing the registrant's Class D
                  Warrants.(1)

          4.4     Form of Warrant Agreement, dated October 1991, between the
                  registrant and the original warrantholders, relating to the
                  Class C Warrants.(1)

          4.5     Form of Warrant Agreement, dated October 1991, between the
                  registrant and the original warrantholders, relating to the
                  Class D Warrants.(1)

          4.6     Form of Registration Rights Agreement, dated October 1991.(1)

          4.7     Warrant to Purchase Common Stock, dated June 25, 1992.(6)

          4.8     Form of Warrant to Purchase Common Stock, dated July 24,
                  1992.(6)

          4.9     Warrants to Purchase Common Stock, dated April 27, 1993.(7)

          4.10    Form of Note Purchase Agreement, dated January 17, 1995, among
                  the registrant, Allen & Company Incorporated and certain
                  purchasers of the registrant's 9% Adjustable Convertible
                  Subordinated Debentures due 2005.(15)

          4.11    Form of Warrant Certificates, dated January 3, 1995 and
                  February 9, 1995.(15)

          4.12    Certificate of Designation of Class A Preferred Stock dated
                  March 18, 1996.(18)

          4.13    Certificate of Amendment of Certificate of Designation of
                  Class A Preferred Stock dated March 28, 1996.(18)

          4.14    Certificate of Designation of Class B Preferred Stock dated
                  March 18, 1996.(18)

          4.15    Certificate of Amendment of Certificate of Designation of
                  Class B Preferred Stock dated March 28, 1996.(18)

          4.16    Certificate of Amendment of Certificate of Designation of
                  Class B Preferred Stock dated April 22, 1996.(18)

          4.17    Certificate of Amendment of Certificate of Designation of
                  Class B Preferred Stock dated May 7, 1996.(18)

          10.1    Incentive Stock Option Plan, dated August 14, 1990.(3)*

          10.2    Incentive Stock Option Plan, dated September 16, 1991,
                  together with the first amendment thereto.(3)*

          10.3    Incentive Stock Option Plan, dated January 21, 1992.(4)*

          10.4    Form of Stock Option Agreement, dated October 18, 1991,
                  between the registrant and each of its non-employee
                  directors.(4)*

          10.5    Lease, dated March 1, 1988, between Allen J. Sheerin and the
                  Subsidiary.(4)


                                      -49-
<PAGE>   51
          10.6    Equipment Lease Agreement, dated April 10, 1989, between Allen
                  J. Sheerin and the Subsidiary.(4)

          10.7    Sublease Agreement, dated May 14, 1991, between General
                  Automotive, Inc. and the Subsidiary.(4)

          10.8    Standard Industrial Lease, dated December 17, 1986, between
                  Leonard H. Hammonds & Katherine M. Hammonds and the
                  Subsidiary.(4)

          10.9    Sublease Agreement, dated September 26, 1991, between the
                  Subsidiary and PACCAR Automotive, Inc.(4)

          10.10   Lease Agreement, dated February 1992, between the registrant
                  and Sterik Company.(5)

          10.11   Sublease Agreement, dated May 28, 1992, between the registrant
                  and Pay Less Drug Stores Northwest, Inc., a Maryland
                  corporation.(6)

          10.12   Shopping Center Lease, dated May 29, 1992, between the
                  registrant and College Square Joint Venture, a California
                  joint venture.(6)

          10.13   Commercial Loan Agreement, dated December 1, 1992, between the
                  registrant and Sumitomo Bank of California ("Sumitomo").(9)

          10.14   Plan and Agreement of Merger, dated April 23, 1993.(10)

          10.15   Form of Lease Agreement, dated May 1, 1993, between the
                  Subsidiary and 1376 Walter Street Partners.(7)

          10.16   Form of Lease Agreement, dated May 1, 1993, between the
                  Subsidiary and Douglass-Curwood #2 Partnership.(7)

          10.17   Form of Amendment to Commercial Loan Agreement, dated June 15,
                  1993, between the registrant and Sumitomo.(7)

          10.18   Form of Amendment to Commercial Loan Agreement, dated August
                  6, 1993, between the registrant and Sumitomo.(11)

          10.19   Settlement Agreement, dated April 7, 1994, between the
                  registrant and Allen J. Sheerin.(12)*

          10.20   Consulting Agreement, effective as of February 7, 1994,
                  between the registrant and Allen J. Sheerin.(12)*

          10.21   Stock Option Agreement, dated April 7, 1994, between the
                  registrant and Allen J. Sheerin.(12)*

          10.22   Form of Stock Conversion Agreement, dated September 19, 1994,
                  between the registrant and each holder of EBIT Rights.(12)

          10.23   Promissory Note, dated September 23, 1994, issued by the
                  registrant in favor of California State Bank.(12)

                                      -50-
<PAGE>   52
          10.24   Amendment Agreements Numbers 1 and 2 to First Amended and
                  Restated Commercial Loan Agreement, dated May 9, 1994 and
                  August 15, 1994, respectively, between the registrant and
                  Sumitomo.(12)

          10.25   Motor Vehicle Lease Agreement, dated July 17, 1994, between
                  the registrant and Donlen Corporation.(12)

          10.26   GE Capital Fleet Services Master Fleet Agreement, dated April
                  27, 1995, between the registrant and GE Capital Fleet
                  Services.(13)

          10.27   Motor Vehicle Fleet Open End Operating Lease Agreement between
                  the registrant and PHH Vehicle Management Services
                  Corporation.(13)

          10.28   Asset Purchase Agreement, dated October 31, 1994, between the
                  registrant and Hi/LO Automotive, Inc. ("Hi/LO").(14)

          10.29   Promissory Note, dated November 1, 1994, between the
                  registrant and Hi/LO.(15)

          10.30   Convertible Promissory Note, dated November 1, 1994, between
                  the registrant and Hi/LO.(15)

          10.31   Amendment Agreements Numbers 4 and 5 to First Amended and
                  Restated Commercial Loan Agreement, dated as of November 30,
                  1994 and January 27, 1995, respectively, between the
                  registrant and Sumitomo.(15)

          10.32   Registration Rights Agreement, dated October 31, 1994, between
                  the registrant and Allen J. Sheerin.(14)

          10.33   Amendment Agreement Number 6 to First Amended and Restated
                  Commercial Loan Agreement, dated as of May 30, 1995, between
                  the registrant and Sumitomo.(16)

          10.34   Loan and Security Agreement between the CIT Group/Credit
                  Finance, Inc. and the registrant, dated November 27, 1995.(17)

          10.35   Engagement letter dated March 22, 1996 with Baytree
                  Associates, Inc.(18)

          10.36   Engagement letter dated May 7, 1996 with Baytree Associates,
                  Inc.(18)

          10.37   Amendment dated March 18, 1996 of Loan and Security Agreement
                  between the Company and The CIT Group/Credit Finance, Inc.(18)

          10.38   Separation Agreement, dated February 7, 1996, between the
                  registrant and William M. Leider.*

          10.39   Form of Stock Option Agreement, dated February 7, 1996,
                  between the registrant and William M. Leider.*

          10.40   Employment Agreement, dated February 15, 1996, between the
                  registrant and Richard McGorrian.*

                                      -51-
<PAGE>   53

          10.41   Employment Agreement, dated February 15, 1996, between the
                  registrant and S. Gerald Birin.*

          10.42   Stock Purchase Agreement, dated May 28, 1996, by and among the
                  registrant, Allen J. Sheerin and Bryan Morford.

          10.43   Registration Rights Agreement, dated May 28, 1996, by and
                  among the registrant, Allen J. Sheerin and Bryan Morford.

          10.44   Escrow Agreement, dated June 3, 1996, by and among the
                  registrant, Allen J. Sheerin, Bryan Morford and Corporate
                  Stock Transfer, Inc.

          10.45   Stock Purchase Agreement, dated June 28, 1996, by and between
                  the registrant and Allen J. Sheerin.

          10.46   Registration Rights Agreement, dated June 28, 1996, by and
                  between the registrant and Allen J. Sheerin.

          10.47   First Amendment to Escrow Agreement, dated June 28, 1996, by
                  and among the registrant, Allen J. Sheerin and Corporate Stock
                  Transfer, Inc.

          10.48   Agreement, dated June 28, 1996, between the registrant and
                  Allen J. Sheerin.

          10.49   Addendum to Amended and Restated Promissory Note dated April
                  7, 1994 by and between Allen J. Sheerin, as maker, and the
                  registrant, as holder, dated June 28, 1996.

          10.50   Form of Warrant Agreement between the registrant and Baytree
                  Associates, Inc.

          10.51   Letter Agreement effective as of July 1, 1996, between the
                  registrant and Martin E. Janis & Company.

          10.52   Stock Option Agreement, dated July 1, 1996, between the
                  registrant and Martin E. Janis & Company.

          10.53   Master Lease Agreement, dated September 13, 1996, between the
                  registrant and Data General Corporation.

          22.1    List of the registrant's subsidiaries.(4)

          23.1    Consent of KPMG Peat Marwick LLP

          23.2    Consent of Ernst & Young LLP. 

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

(1)      Previously filed in the Exhibits to the registrant's Current Report on
         Form 8-K dated October 22, 1991.

(2)      Previously filed in the Exhibits to the registrant's Registration
         Statement on Form S-18 (File No. 33-36686-D).

(3)      Previously filed in the Exhibits to the registrant's Registration
         Statement on Form S-8 (File No. 33-44544).


                                      -52-
<PAGE>   54
(4)      Previously filed in the Exhibits to the registrant's Transition Report
         on Form 10-K for the transition period from January 1, 1991 to June 30,
         1991.

(5)      Previously filed in the Exhibits to the registrant's Registration
         Statement on Form S-1 (File No. 33-45987).

(6)      Previously filed in the Exhibits to Post-Effective Amendment No. 1 to
         the registrant's Registration Statement on Form S-1 (File No.
         33-45987).

(8)      Previously filed in the Exhibits to Post-Effective Amendment No. 1 to
         the registrant's Registration Statement on Form S-1 (File No.
         33-50634).

(9)      Previously filed in the Exhibits to Post-Effective Amendment No. 3 to
         the registrant's Registration Statement on Form S-1 (File No.
         33-45987).

(10)     Previously filed in the Exhibits to the registrant's Current Report on
         Form 8-K, dated as of April 27, 1993.

(11)     Previously filed in the Exhibits to the registrant's Annual Report on
         Form 10-K for the fiscal year ended June 30, 1993.

(12)     Previously filed in the Exhibits to the registrant's Annual Report on
         Form 10-K for the fiscal year ended June 30, 1994.

(13)     Previously filed in the Exhibits to the registrant's Quarterly Report
         of Form 10-Q for the quarterly period ended March 31, 1995.

(14)     Previously filed in the Exhibits to the registrant's Current Report on
         Form 8-K, dated November 1, 1994.

(15)     Previously filed in the Exhibits to the registrant's Quarterly Report
         on Form 10-Q for the quarterly period ended December 31, 1994.

(16)     Previously filed in the Exhibits to the registrant's Annual Report on
         Form 10-K for the fiscal year ended June 30, 1995.

(17)     Previously filed in the Exhibits to the registrant's Quarterly Report
         on Form 10-Q for the quarterly period ended December 31, 1995.

(18)     Previously filed in the Exhibits to the registrant's Quarterly Report
         on Form 10-Q for the quarterly period ended March 31, 1996.

*        Management contract, compensatory plan or arrangement.


                                      -53-
<PAGE>   55
                                   SIGNATURES

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


                                          REDDI BRAKE SUPPLY CORPORATION


Date:  October 14, 1996                   By:  /s/ Richard McGorrian
                                               ---------------------------------
                                          Richard McGorrian, President and Chief
                                          Executive Officer

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


Date:  October 14, 1996                   /s/ Richard McGorrian
                                          --------------------------------------
                                          Richard McGorrian, President, Chief 
                                          Executive Officer and Director


Date:  October 14, 1996                   /s/ S. Gerald Birin
                                          --------------------------------------
                                          S. Gerald Birin, Executive Vice 
                                          President, Chief Financial Officer, 
                                          Secretary and Director


Date:  October 14, 1996                   /s/ Richard Wolff
                                          --------------------------------------
                                          Richard Wolff, Principal Accounting 
                                          Officer


Date:  October 14, 1996                   /s/ Eric Openshaw
                                          --------------------------------------
                                          Eric Openshaw, Chairman of the Board


                                      -54-
<PAGE>   56
                                    Schedule

                         REDDI BRAKE SUPPLY CORPORATION
                                AND SUBSIDIARIES

                 Schedule II - Valuation and Qualifying Accounts

                    Years ended June 30, 1996, 1995 and 1994


<TABLE>
<CAPTION>
               (a)                             (b)              (c)              (d)             (e)
-------------------------------------     -------------      ----------      -----------      ----------
                                            BALANCE AT       CHARGED TO                       BALANCE AT
                                           BEGINNING OF       COSTS AND      DEDUCTIONS/        END OF 
           DESCRIPTION                        PERIOD           EXPENSE       WRITE-OFFS         PERIOD 
-------------------------------------     -------------      ----------      -----------      ----------
                                          
<S>                                       <C>                <C>             <C>              <C>    
Year ended June 30, 1996 - allowance      
    for uncollectible accounts                $275,000          304,941        (19,941)          560,000
                                              ========         ========       ========          ========
                                                                                               
Year ended June 30, 1995 - allowance                                                           
    for uncollectible accounts                $410,000          255,399       (390,399)(1)       275,000
                                              ========         ========       ========          ========
                                                                                               
Year ended June 30, 1994 - allowance                                                           
    for uncollectible accounts                $140,000          536,494       (266,494)          410,000
                                              ========         ========       ========          ========
</TABLE>


(1)  Includes a $260,000 write-off of uncollectible accounts receivable related
     to the discontinued Wesco Auto Parts Division.

See accompanying independent auditors' report.



                                      S-1
<PAGE>   57
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                    Sequentially
Exhibit                                                                               Numbered
Number                              Description                                         Page
-------                             -----------                                     ------------

<S>        <C>                                                                      <C>
2.1        Agreement and Plan of Reorganization, dated as of September 16,
           1991.(1)                                                                       *

2.2        Plan of Disposition of the Wesco Division(12)                                  *

3.1        Articles of Incorporation.(2)                                                  *

3.2        Bylaws.(2)                                                                     *

3.3        October 4, 1991 Amendments to the registrant's Articles of
           Incorporation.(1)                                                              *

4.1        Form of certificate representing shares of the registrant's Common
           Stock.(1)                                                                      *
                                                                                          
4.2        Form of certificate representing the registrant's Class C
           Warrants.(1)                                                                   *
                                                                                         
4.3        Form of certificate representing the registrant's Class D
           Warrants.(1)                                                                   *
                                                                                          
4.4        Form of Warrant Agreement, dated October 1991, between the registrant
           and the original warrantholders, relating to the Class C Warrants.(1)          *
                                                                                          

4.5        Form of Warrant Agreement, dated October 1991, between the registrant
           and the original warrantholders, relating to the Class D Warrants.(1)          *
                                                                                          

4.6        Form of Registration Rights Agreement, dated October 1991.(1)                  *  
                                                                                          
4.7        Warrant to Purchase Common Stock, dated June 25, 1992.(6)                      *
                                                                                          
4.8        Form of Warrant to Purchase Common Stock, dated July 24, 1992.(6)              * 
                                                                                          
4.9        Warrants to Purchase Common Stock, dated April 27, 1993.(7)                    * 
                                                                                          
4.10       Form of Note Purchase Agreement, dated January 17, 1995,
           among the registrant, Allen & Company Incorporated and
           certain purchasers of the registrant's 9%
           Adjustable Convertible Subordinated Debentures due 2005.(15)                   *

4.11       Form of Warrant Certificates, dated January 3, 1995 and February 9,            *
           1995.(15)                                                                      

4.12       Certificate of Designation of Class A Preferred Stock dated March 18,
           1996.(18)                                                                      *
                                                                                          
4.13       Certificate of Amendment of Certificate of Designation of Class A
           Preferred Stock dated March 28, 1996.(18)                                      *
                                                                                          
4.14       Certificate of Designation of Class B Preferred Stock dated March 18,
           1996.(18)                                                                      *
                                                                                          
4.15       Certificate of Amendment of Certificate of Designation of Class B
           Preferred Stock dated March 28, 1996.(18)                                      *
                                                                                          
4.16       Certificate of Amendment of Certificate of Designation of Class B
           Preferred Stock dated April 22, 1996.(18)                                      *
</TABLE>


<PAGE>   58
<TABLE>
<CAPTION>
                                                                                    Sequentially
Exhibit                                                                               Numbered
Number                              Description                                         Page
-------                             -----------                                     ------------

<S>        <C>                                                                      <C>
4.17       Certificate of Amendment of Certificate of Designation of Class B
           Preferred Stock dated May 7, 1996.(18)                                         *

10.1       Incentive Stock Option Plan, dated August 14, 1990.(3)**                       *

10.2       Incentive Stock Option Plan, dated September 16, 1991, together with
           the first amendment thereto.(3)**                                              *

10.3       Incentive Stock Option Plan, dated January 21, 1992.(4)**                      *

10.4       Form of Stock Option Agreement, dated October 18, 1991, between the
           registrant and each of its non-employee directors.(4)**                        *

10.5       Lease, dated March 1, 1988, between Allen J. Sheerin and the
           Subsidiary.(4)                                                                 *

10.6       Equipment Lease Agreement, dated April 10, 1989, between Allen J.
           Sheerin and the Subsidiary.(4)                                                 *

10.7       Sublease Agreement, dated May 14, 1991, between General Automotive,
           Inc. and the Subsidiary.(4)                                                    *

10.8       Standard Industrial Lease, dated December 17, 1986, between Leonard
           H. Hammonds & Katherine M. Hammonds and the Subsidiary.(4)                     *

10.9       Sublease Agreement, dated September 26, 1991, between the Subsidiary
           and PACCAR Automotive, Inc.(4)                                                 *

10.10      Lease Agreement, dated February 1992, between the registrant and
           Sterik Company.(5)                                                             *

10.11      Sublease Agreement, dated May 28, 1992, between the registrant and
           Pay Less Drug Stores Northwest, Inc., a Maryland corporation.(6)               *

10.12      Shopping Center Lease, dated May 29, 1992, between the registrant and
           College Square Joint Venture, a California joint venture.(6)                   *

10.13      Commercial Loan Agreement, dated December 1, 1992, between the
           registrant and Sumitomo Bank of California ("Sumitomo").(9)                    *

10.14      Plan and Agreement of Merger, dated April 23, 1993.(10)                        *

10.15      Form of Lease Agreement, dated May 1, 1993, between the Subsidiary
           and 1376 Walter Street Partners.(7)                                            * 

10.16      Form of Lease Agreement, dated May 1, 1993, between the Subsidiary
           and Douglass-Curwood #2 Partnership.(7)                                        *
</TABLE>

<PAGE>   59
<TABLE>
<CAPTION>
                                                                                    Sequentially
Exhibit                                                                               Numbered
Number                              Description                                         Page
-------                             -----------                                     ------------

<S>        <C>                                                                      <C>
10.17      Form of Amendment to Commercial Loan Agreement, dated June 15, 1993,
           between the registrant and Sumitomo.(7)                                        *
                                                                                          
10.18      Form of Amendment to Commercial Loan Agreement, dated August 6, 1993,          
           between the registrant and Sumitomo.(11)                                       *
                                                                                          
10.19      Settlement Agreement, dated April 7, 1994, between the registrant and          
           Allen J. Sheerin.(12)**                                                        *
                                                                                          
10.20      Consulting Agreement, effective as of February 7, 1994, between the            
           registrant and Allen J. Sheerin.(12)**                                         *
                                                                                          
10.21      Stock Option Agreement, dated April 7, 1994, between the registrant            
           and Allen J. Sheerin.(12)**                                                    *
                                                                                          
10.22      Form of Stock Conversion Agreement, dated September 19, 1994, between          
           the registrant and each holder of EBIT Rights.(12)                             *
                                                                                          
10.23      Promissory Note, dated September 23, 1994, issued by the registrant            
           in favor of California State Bank.(12)                                         *
                                                                                          
10.24      Amendment Agreements Numbers 1 and 2 to First Amended and Restated             
           Commercial Loan Agreement, dated May 9, 1994 and August 15, 1994,              
           respectively, between the registrant and Sumitomo.(12)                         *
                                                                                          
10.25      Motor Vehicle Lease Agreement, dated July 17, 1994, between the                
           registrant and Donlen Corporation.(12)                                         *
                                                                                          
10.26      GE Capital Fleet Services Master Fleet Agreement, dated April 27,              
           1995, between the registrant and GE Capital Fleet Services.(13)                *
                                                                                          
10.27      Motor Vehicle Fleet Open End Operating Lease Agreement between the             
           registrant and PHH Vehicle Management Services Corporation.(13)                *
                                                                                          
10.28      Asset Purchase Agreement, dated October 31, 1994, between the                  
           registrant and Hi/LO Automotive, Inc. ("Hi/LO").(14)                           *
                                                                                          
10.29      Promissory Note, dated November 1, 1994, between the registrant and            
           Hi/LO.(15)                                                                     *
                                                                                          
10.30      Convertible Promissory Note, dated November 1, 1994, between the               
           registrant and Hi/LO.(15)                                                      *
</TABLE>
<PAGE>   60
<TABLE>
<CAPTION>
                                                                                    Sequentially
Exhibit                                                                               Numbered
Number                              Description                                         Page
-------                             -----------                                     ------------

<S>        <C>                                                                      <C>
10.31      Amendment Agreements Numbers 4 and 5 to First Amended and Restated
           Commercial Loan Agreement, dated as of November 30, 1994 and January
           27, 1995, respectively, between the registrant and Sumitomo.(15)               *

10.32      Registration Rights Agreement, dated October 31, 1994, between the
           registrant and Allen J. Sheerin.(14)                                           *

10.33      Amendment Agreement Number 6 to First Amended and Restated Commercial
           Loan Agreement, dated as of May 30, 1995, between the registrant and
           Sumitomo.(16)                                                                  *

10.34      Loan and Security Agreement between the CIT Group/Credit Finance,
           Inc. and the registrant, dated November 27, 1995.(17)                          *

10.35      Engagement letter dated March 22, 1996 with Baytree Associates,
           Inc.(18)                                                                       *

10.36      Engagement letter dated May 7, 1996 with Baytree Associates, Inc.(18)
                                                                                          *

10.37      Amendment dated March 18, 1996 of Loan and Security Agreement between
           the Company and the CIT Group/Credit Finance.(18)                              *

10.38      Separation Agreement, dated February 7, 1996, between the registrant
           and William M. Leider.**

10.39      Form of Stock Option Agreement, dated February 7, 1996, between the
           registrant and William M. Leider.**

10.40      Employment Agreement, dated February 15, 1996, between the registrant
           and Richard McGorrian.**

10.41      Employment Agreement, dated February 15, 1996, between the registrant
           and S. Gerald Birin.**

10.42      Stock Purchase Agreement, dated May 28, 1996, by and among the
           registrant, Allen J. Sheerin and Bryan Morford.

10.43      Registration Rights Agreement, dated May 28, 1996, by and among the
           registrant, Allen J. Sheerin and Bryan Morford.


10.44      Escrow Agreement, dated June 3, 1996, by and among the registrant,
           Allen J. Sheerin, Bryan Morford and Corporate Stock Transfer, Inc.
</TABLE>
<PAGE>   61
<TABLE>
<CAPTION>
                                                                                    Sequentially
Exhibit                                                                               Numbered
Number                              Description                                         Page
-------                             -----------                                     ------------

<S>        <C>                                                                      <C>
10.45      Stock Purchase Agreement, dated June 28, 1996, by and between the
           registrant and Allen J. Sheerin.

10.46      Registration Rights Agreement, dated June 28, 1996, by and between
           the registrant and Allen J. Sheerin.

10.47      First Amendment to Escrow Agreement, dated June 28, 1996, by and
           among the registrant, Allen J. Sheerin and Corporate Stock Transfer,
           Inc.

10.48      Agreement, dated June 28, 1996, between the registrant and Allen J.
           Sheerin.

10.49      Addendum to Amended and Restated Promissory Note dated April 7, 1994
           by and between Allen J. Sheerin, as maker, and the registrant, as
           holder, dated June 28, 1996.

10.50      Form of Warrant Agreement between the registrant and Baytree
           Associates, Inc.

10.51      Letter Agreement effective as of July 1, 1996, between the registrant
           and Martin E. Janis & Company.

10.52      Stock Option Agreement, dated July 1, 1996, between the registrant
           and Martin E. Janis & Company.

10.53      Master Lease Agreement, dated September 13, 1996, between the
           registrant and Data General Corporation

22.1       List of the registrant's subsidiaries.(4)                                                                       *

23.1       Consent of KPMG Peat Marwick LLP

23.2       Consent of Ernst & Young LLP.
</TABLE>

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

(1)      Previously filed in the Exhibits to the registrant's Current Report on
         Form 8-K dated October 22, 1991.

(2)      Previously filed in the Exhibits to the registrant's Registration
         Statement on Form S-18 (File No. 33-36686-D).

(3)      Previously filed in the Exhibits to the registrant's Registration
         Statement on Form S-8 (File No. 33-44544).

(4)      Previously filed in the Exhibits to the registrant's Transition Report
         on Form 10-K for the transition period from January 1, 1991 to June 30,
         1991.

<PAGE>   62
(5)      Previously filed in the Exhibits to the registrant's Registration
         Statement on Form S-1 (File No. 33-45987).

(6)      Previously filed in the Exhibits to Post-Effective Amendment No. 1 to
         the registrant's Registration Statement on Form S-1 (File No.
         33-45987).

(7)      Previously filed in the Exhibits to Post-Effective Amendment No. 1 to
         the registrant's Registration Statement on Form S-1 (File No.
         33-50634).

(8)      Previously filed in the Exhibits to Post-Effective Amendment No. 3 to
         the registrant's Registration Statement on Form S-1 (File No.
         33-45987).

(9)      Previously filed in the Exhibits to the registrant's Current Report on
         Form 8-K, dated as of April 27, 1993.

(10)     Previously filed in the Exhibits to the registrant's Annual Report on
         Form 10-K for the fiscal year ended June 30, 1993.

(11)     Previously filed in the Exhibits to the registrant's Annual Report on
         Form 10-K for the fiscal year ended June 30, 1994.

(13)     Previously filed in the Exhibits to the registrant's Quarterly Report
         of Form 10-Q for the quarterly period ended March 31, 1995.

(14)     Previously filed in the Exhibits to the registrant's Current Report on
         Form 8-K, dated November 1, 1994.

(15)     Previously filed in the Exhibits to the registrant's Quarterly Report
         on Form 10-Q for the quarterly period ended December 31, 1994.

(16)     Previously filed in the Exhibits to the registrant's Annual Report on
         Form 10-K for the fiscal year ended June 30, 1995.

(17)     Previously filed in the Exhibits to the registrant's Quarterly Report
         on Form 10-Q for the quarterly period ended December 31, 1995.

(18)     Previously filed in the Exhibits to the registrant's Quarterly Report
         on Form 10-Q for the quarterly period ended March 31, 1996.

*   Previously filed.
**  Management contract, compensatory plan or arrangement.