##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K



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

For the fiscal year ended December 31, 2000

or



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

For the transition period from
               to

Commission file number 333-57883

SPINCYCLE, INC

(Exact name of registrant as specified in its
charter)


|                                                                     |  |                                     
|-------------------------------------------------------------------- |  | ------------------------------------
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Delaware                                                             |  | 41-1821793                          
|(State of Incorporation)                                             |  | (I.R.S. Employer Identification No.)
|                                                                    
|15990 N. Greenway Hayden Loop, Suite #400, Scottsdale,
	Arizona      |  | 85260                               
|(Address of principal executive offices)                             |  | (Zip Code)                          
|                                                                    
|Registrants telephone number, including area
	code:  (480) 707-9999

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  

  No

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

As of April 2, 2001, the Company had 303,165 shares of
capital stock outstanding, comprised of 27,763 shares of common
stock, 76,974 shares of series A convertible preferred
stock, 125,498 shares of series B convertible preferred
stock, and 72,930 shares of series C convertible preferred
stock.









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TABLE OF CONTENTS



|         |                                                                                               |  |  |  |  |  |  | 
|-------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  
|         | Item 1. Business                                                                             
|         | Item 2. Properties                                                                           
|         | Item 3. Legal Proceedings                                                                    
|         | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II 
|         | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|         | Item 6. Selected Financial Data                                                              
|         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|         | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|         | Item 8. Financial Statements and Supplementary Data                                          
|         | Item 9. Changes in and Disagreements with Accountants on Accounting And Financial Disclosure 
|PART III
|         | Item 10. Directors and Executive Officers of the Registrant                                  
|         | Item 11. Executive Compensation                                                              
|         | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|         | Item 13. Certain Relationships and Related Transactions                                      
|PART IV 
|         | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|EX-27.1 



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SPINCYCLE, INC.

INDEX

|           |           |  |                                                                                        |      |  |    | 
|---------- | --------- |  | -------------------------------------------------------------------------------------- | ---- |  | -- | 
|           |           |  |                                                                                        | Page
|           |           |  |                                                                                        |     
|          
|          
|          
|          
|PART I     |           |  | 2                                                                                      |     
|          
|          
|          
|          
|           | Item  1.  |  | Business                                                                               |      |  | 2  | 
|          
|          
|          
|          
|           | Item  2.  |  | Properties                                                                             |      |  | 3  | 
|          
|          
|          
|          
|           | Item  3.  |  | Legal Proceedings                                                                      |      |  | 3  | 
|          
|          
|          
|          
|           | Item  4.  |  | Submission of Matters to a Vote of Security Holders                                    |      |  | 3  | 
|          
|          
|          
|          
|PART II    |           |  | 4                                                                                      |     
|          
|          
|          
|          
|           | Item  5.  |  | Market for Registrants Common Equity and Related
	Stockholder Matters                 |      |  | 4  | 
|          
|          
|          
|          
|           | Item  6.  |  | Selected Financial Data                                                                |      |  | 4  | 
|          
|          
|          
|          
|           | Item  7.  |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |      |  | 7  | 
|          
|          
|          
|          
|           | Item  7A. |  | Quantitative and Qualitative Disclosures About Market Risk                             |      |  | 12 | 
|          
|          
|          
|          
|           | Item  8.  |  | Financial Statements and Supplementary Data                                            |      |  | 13 | 
|          
|          
|          
|          
|           | Item  9.  |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |      |  | 34 | 
|          
|          
|          
|          
|PART III   |           |  | 34                                                                                     |     
|          
|          
|          
|          
|           | Item  10. |  | Directors and Executive Officers of the Registrant                                     |      |  | 34 | 
|          
|          
|          
|          
|           | Item  11. |  | Executive Compensation                                                                 |      |  | 35 | 
|          
|          
|          
|          
|           | Item  12. |  | Security Ownership of Certain Beneficial Owners and Management                         |      |  | 38 | 
|          
|          
|          
|          
|           | Item  13. |  | Certain Relationships and Related Transactions                                         |      |  | 39 | 
|          
|          
|          
|          
|PART IV    |           |  | 39                                                                                     |     
|          
|          
|          
|          
|           | Item  14. |  | Exhibits, Financial Statement Schedules, and Reports on
	Form 8-K                      |      |  | 39 | 
|          
|          
|          
|          
|SIGNATURES |           |  | 40                                                                                     |     

1



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##### Table of Contents



SPINCYCLE, INC.






PART I





Item 1.  Business

SpinCycle, Inc. (SpinCycle), a Delaware corporation,
was founded in October 1995 to develop and implement
SpinCycles unique concept of a national chain of branded
coin-operated laundromats and to serve as a platform for a
nationwide consolidation in the coin-operated laundromat
industry. SpinCycle was formed with the goal of becoming the
leading operator of high quality coin-operated laundromats in
the United States by establishing SpinCycle as a national brand,
providing a superior level of customer service and by exercising
disciplined management control in executing its business plan.
In sharp contrast to many existing laundromats, a SpinCycle
laundromat is an inviting, spacious and well-equipped facility
that is conveniently located, clean, well-lighted and always
attended.

Between April 1996, when we opened our first store, through
1998 we acquired and developed stores at a rapid pace. By
year-end 1996 we had opened 14 stores, in 1997 we added
57 stores, in 1998 we added 93 stores (in 1998 we
closed one store following a lease buyout by a landlord) in 1999
we had a net increase of nine stores; we closed three stores
that were purchased in previous years as part of multi-location
acquisitions. As of April 2, 2001, we had 172 stores
in 25 markets, including 109 developed stores and 63
acquired stores. Our stores are located primarily in densely
populated urban markets.

Our developed stores are generally between 3,500 and 5,500
square feet, significantly larger than the 1,500 to 2,500 square
feet of a typical laundromat, and generally contain
50 washers of varied capacities and 54 large capacity
dryers. Each store is staffed during operating hours by at least
one customer service representative who assists customers,
maintains the facility and performs other services, if offered.
Customers can sort and fold laundry while watching color
television with cable programming at 12 to 14 folding stations
and purchase food, beverages and laundry supplies from vending
machines. Our acquired stores typically conform to a SpinCycle
developed store in terms of location (physical location and area
demographics), store size and machine mix and are converted to a
SpinCycle store with new signage, fresh paint and installation
of our computer and point of sale systems.

In 1998, in order to maximize machine utilization, and increase
store revenue we introduced several initiatives as potential
revenue generators. We began offering Wash and Fold
whereby customers deliver their laundry to our stores and our
staff washes, dries and folds it, generally within one day. We
use premium soap, softeners and other laundry products in this
service. As of December 31, 2000 we were offering Wash
& Fold in approximately 80% of our stores. In order to
facilitate revenue growth and increase customer convenience, we
also began offering full-sized laundry and soap products in our
stores in addition to the single load-sized boxes of laundry
soap that are dispensed through vending machines. As of
December 31, 2000 we were offering full-sized laundry soap
sales in approximately 95% of our stores.

In October 1999, based on the success of the programs we
initiated in 1998, we began test marketing a pick-up and
delivery service for home laundry in the Miami market. Customers
of the service have their laundry picked up, professionally
laundered and then returned to them. In addition to everyday
laundry, the customers can have their dry cleaning picked up,
processed by a third-party dry cleaning partner, and returned to
them. The customer is provided with a small (approximately 15
lbs.), medium (approximately 25 lbs.), or large
(approximately 40 lbs.) bag in which to place the
customers laundry to be processed. The bag is returned to
the customer washed, dried and folded along with all of their
laundry.

In order to advance the scale of this service, we formed a joint
venture with Shell Chemical Company in May 2000 through our
wholly owned subsidiary, Cleanwave, Inc. The venture is named
Cleanwave LLC and handles the logistics, transportation,
customer service and cash collection of the service. We provide
the laundry labor, laundry facilities and packaging services and
receive a price per pound for this processing at a rate, which
is based upon volume. Additionally, we receive a fee for
providing administrative services such as accounting, human
resources and purchasing to the venture. (See FOOTNOTE 17. Notes
to Financial Statements herein).

2



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##### Table of Contents



During the second fiscal quarter of 2001, we expect to solicit
our shareholders and subordinated debt holders in order to seek
their consent to restructure our outstanding subordinated debt
via a debt for equity exchange. Completion of the restructuring
is contingent upon, among other things, the consent of
(i) the holders of at least 90% of the subordinated debt,
(ii) the holders of at least a majority of our common,
Series B and Series C shares, (iii) the holders
of at least 76% of our series A shares, and (iv) the
consent of our senior lenders. If we accomplish this, we will
have substantially reduced the amount of debt on our balance
sheet, the holders of our subordinated debt will own
substantially all of SpinCycle, and SpinCycle will be in a
position to add locations to our existing markets in which we
have had the greatest success through the use of internally
generated cash flow and the procurement of additional growth
capital. Absent this transaction, we expect to be unable to make
the semi-annual interest payments on our subordinated debt, in
the amount of approximately $9.24 million, and would likely face
bankruptcy. We can make no assurances that the proposed
restructuring will be completed. (See ITEM 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Overview herein).

The Coin Laundry Association estimates the coin-operated
laundromat business is a $2.0  $3.0 billion industry
with approximately 25,000 laundromats nationwide. The industry
is generally characterized by small, unattractive stores with
limited customer service. The industry is highly fragmented with
approximately 89% of the owners operating two or fewer stores
and only 4% of the owners operating more than five stores.
Although there is no single chain of laundromats with which we
compete on a national basis, we experience significant
competition in all of our markets from local mom and
pop operators, and in some markets, from local or regional
chains. In Texas, for example, we compete against Kwik Wash,
which is a chain of approximately 150 stores owned by Coinmach
Corporation, a publicly traded company. While Coinmach
Corporation has substantially greater resources than SpinCycle,
its laundromats are on average smaller, deliver significantly
inferior service and, in general, we believe they pose little
competitive threat. We also compete against other laundry
services, including laundry facilities available in apartment
buildings, which are often run by large route operators whose
resources are often substantially greater than ours.

As of December 31, 2000, we had 945 total employees of whom
485 are full time and 460 are part-time. Each of our full-time
employees is eligible for medical benefits, which management
believes helps us hire and retain the best available employees.
Our part-time employees work primarily in our stores and are
engaged primarily in customer service functions.




Item 2.  Properties

As of December 31, 2000, we had opened a total of
172 stores in 25 markets. SpinCycle stores are
generally located in densely populated urban markets:
Albuquerque, Atlanta, Austin, Baltimore, Chicago, Cleveland,
Dallas, Detroit, El Paso, Houston, Indianapolis, Kansas City,
Los Angeles, Miami, Milwaukee, Minneapolis, Norfolk,
Philadelphia, Phoenix, Richmond, San Antonio, San Diego, St.
Louis, Washington, D.C. and West Palm Beach. Our stores
generally range in size from 3,500 to 5,500 square feet. We
lease 166 of our locations and own six of the sites. As of
April 2, 2001 we were also party to three leases for stores
which we do not believe we will open in 2001 and for which we
are currently paying rent. Our store leases are generally for
ten-year initial terms with four five-year renewal options.
SpinCycle leases its headquarters, which is located at 15990
North Greenway Hayden Loop, Suite 400, Scottsdale, Arizona
85260 pursuant to a five-year lease with two five-year renewal
options.




Item 3.  Legal Proceedings

We are currently involved in various legal proceedings of a
character normally incident to businesses like ours. We do not
believe that the outcome of these proceedings will have a
material adverse effect on the financial condition or results of
operations of our company.




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

None.

3



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##### Table of Contents






PART II




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

During the year ended December 31, 2000 we issued options
to purchase an aggregate of 17,450 shares of our common stock to
our employees, substantially all of which have an exercise price
of $75 and substantially all of which vest 33% per year on each
anniversary of grant. There is no public market for any of our
equity securities. As of April 2, 2001, we had
approximately 45 holders of our common stock and
approximately 174 holders of our equity securities. We have not
paid any dividends and do not expect to pay any dividends in the
near future.




Item 6.  Selected Financial Data

The following table reflects our summary historical financial
and certain other data for the periods indicated, and should be
read in conjunction with our financial statements, including the
related notes thereto, and Managements Discussion
and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K. Our
1996 fiscal year was for the period from January 1, 1996
through December 31, 1996. On December 1, 1997, we
elected to change our financial reporting to a 13 period
fiscal year, comprised of 13 four-week periods (each period
containing four Monday through Sunday weeks). Additionally, our
fiscal year ends on the Sunday nearest December 31. As
such, our 1997 fiscal year was the period from January 1,
1997 through December 28, 1997, our 1998 fiscal year was
the period from December 29, 1997 through December 27,
1998, our 1999 fiscal year was the period from December 28,
1998 through December 26, 1999, and our 2000 fiscal year
was the period from December 27, 1999 through
December 31, 2000 (53 weeks). The following summary
historical statement of operations data, insofar as it relates
to each of the fiscal years 1996 through 2000, has been derived
from audited annual financial statements.

|                                                        |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  
|------------------------------------------------------- |  | ---------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------------ | ------- | ---- |  | - | --------- | ---- |  | - | --------- | -
|                                                        |  |                       
|                                                        |  | Fiscal Year Ended     
|                                                        |  |                       
|                                                        |  | December 31,           |         | December 28, |  | December 27, |         | December 26, |  | December 31,
|                                                        |  | 1996                   |         | 1997         |  | 1998         |         | 1999         |  | 2000        
|                                                        |  |                        |         |              |  |              |         |              |  |             
|                                                        |  |                       
|                                                        |  | (dollars in thousands)
|                                                       
|                                                       
|                                                       
|                                                       
|Statement of Operations Data:                           |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  
|                                                       
|                                                       
|                                                       
|                                                       
|Revenues                                                |  | $                      | 1,015   |              |  | $            | 8,653   |              |  | $            | 30,936  |      |  | $ | 52,174    |      |  | $ | 54,852    |  
|                                                        |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  
|Operating income (loss)                                 |  |                        | (3,873  | )            |  |              | (13,337 | )            |  |              | (15,270 | )    |  |   | (13,953   | )    |  |   | (9,458    | )
|                                                        |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  
|Net income (loss) before extraordinary loss             |  |                        | (3,894  | )            |  |              | (13,796 | )            |  |              | (24,321 | )    |  |   | (29,663   | )    |  |   | (28,622   | )
|                                                       
|                                                       
|                                                       
|                                                       
|Extraordinary loss from early extinguishment of debt    |  |                        |        |              |  |              |        |              |  |              | (334    | )(1) |  |   | (782      | )(2) |  |   |          |  
|                                                        |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  
|Net income (loss)                                       |  |                        | (3,894  | )            |  |              | (13,796 | )            |  |              | (24,655 | )    |  |   | (30,445   | )    |  |   | (28,622   | )
|                                                       
|                                                       
|                                                       
|                                                       
|Re-pricing of series C preferred stock(3)               |  |                        |        |              |  |              |        |              |  |              | (1,459  | )    |  |   |          |      |  |   |          |  
|                                                       
|                                                       
|                                                       
|                                                       
|Accretion of mandatorily redeemable preferred stock     |  |                        |        |              |  |              | (1,941  | )            |  |              | (756    | )    |  |   |          |      |  |   |          |  
|                                                        |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  
|Net income (loss) applicable to holders of common stock |  | $                      | (3,894  | )            |  | $            | (15,737 | )            |  | $            | (26,870 | )    |  | $ | (30,445   | )    |  | $ | (28,622   | )
|                                                        |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  
|Net loss per common share                               |  | $                      | (117.42 | )            |  | $            | (412.76 | )            |  | $            | (937.60 | )    |  | $ | (1,096.60 | )    |  | $ | (1,030.94 | )
|                                                        |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  
|Weighted average number of common shares outstanding    |  |                        | 33,162  |              |  |              | 38,127  |              |  |              | 28,658  |      |  |   | 27,763    |      |  |   | 27,763    |  
|                                                       
|                                                       
|                                                       
|                                                       
|Cash dividends declared                                 |  |                        |        |              |  |              |        |              |  |              |        |      |  |   |          |      |  |   |          |  
|                                                        |  |                        |         |              |  |              |         |              |  |              |         |      |  |   |           |      |  |   |           |  

4



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##### Table of Contents



|                                          |  |                        |        |              |  |              |         |              |  |              |         |   |  |   |         |   |  |   |          |  
|----------------------------------------- |  | ---------------------- | ------ | ------------ |  | ------------ | ------- | ------------ |  | ------------ | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                          |  |                       
|                                          |  | Fiscal Year Ended     
|                                          |  |                       
|                                          |  | December 31,           |        | December 28, |  | December 27, |         | December 26, |  | December 31,
|                                          |  | 1996                   |        | 1997         |  | 1998         |         | 1999         |  | 2000        
|                                          |  |                        |        |              |  |              |         |              |  |             
|                                          |  |                       
|                                          |  | (dollars in thousands)
|                                         
|                                         
|                                         
|                                         
|Balance Sheet Data:                       |  |                        |        |              |  |              |         |              |  |              |         |   |  |   |         |   |  |   |          |  
|                                         
|                                         
|                                         
|                                         
|Working Capital                           |  | $                      | (5,325 | )            |  | $            | 5,409   |              |  | $            | (930    | ) |  | $ | 1,750   |   |  | $ | (142,751 | )
|                                         
|                                         
|                                         
|                                         
|Property and equipment                    |  |                        | 12,841 |              |  |              | 53,969  |              |  |              | 100,657 |   |  |   | 95,242  |   |  |   | 83,302   |  
|                                         
|                                         
|                                         
|                                         
|Total assets                              |  |                        | 13,809 |              |  |              | 75,496  |              |  |              | 128,256 |   |  |   | 119,544 |   |  |   | 104,693  |  
|                                         
|                                         
|                                         
|                                         
|Total debt                                |  |                        | 4,592  |              |  |              | 35,926  |              |  |              | 103,432 |   |  |   | 128,148 |   |  |   | 144,121  |  
|                                         
|                                         
|                                         
|                                         
|Total liabilities                         |  |                        | 10,890 |              |  |              | 46,330  |              |  |              | 115,593 |   |  |   | 137,326 |   |  |   | 151,097  |  
|                                         
|                                         
|                                         
|                                         
|Mandatorily redeemable preferred stock(8) |  |                        | 6,810  |              |  |              | 48,793  |              |  |              |        |   |  |   |        |   |  |   |         |  
|                                         
|                                         
|                                         
|                                         
|Convertible preferred stock(8)            |  |                        |       |              |  |              |        |              |  |              | 50,846  |   |  |   | 50,846  |   |  |   | 50,846   |  
|                                         
|                                         
|                                         
|                                         
|Stockholders equity (deficit)            |  |                        | (3,891 | )            |  |              | (19,627 | )            |  |              | 12,663  |   |  |   | (17,782 | ) |  |   | (46,404  | )

|                                                      |  |                                               |        |              |  |              |         |              |  |              |         |   |  |   |        |   |  |   |        |  
|----------------------------------------------------- |  | --------------------------------------------- | ------ | ------------ |  | ------------ | ------- | ------------ |  | ------------ | ------- | - |  | - | ------ | - |  | - | ------ | -
|                                                      |  | As of                                         |        | As of        |  | As of        |         | As of        |  | As of       
|                                                      |  | December 31,                                  |        | December 28, |  | December 27, |         | December 26, |  | December 31,
|                                                      |  | 1996                                          |        | 1997         |  | 1998         |         | 1999         |  | 2000        
|                                                      |  |                                               |        |              |  |              |         |              |  |             
|                                                      |  |                                              
|                                                      |  | (dollars in thousands, except per share data)
|                                                     
|                                                     
|                                                     
|                                                     
|Selected Operating Data:                              |  |                                               |        |              |  |              |         |              |  |              |         |   |  |   |        |   |  |   |        |  
|                                                     
|                                                     
|                                                     
|                                                     
|Cash flows provided by (used in) Operating activities |  | $                                             | 2,380  |              |  | $            | (8,973  | )            |  | $            | (3,877  | ) |  | $ | (618   | ) |  | $ | 1,445  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Cash flows provided by (used in) Investing activities |  |                                               | (8,504 | )            |  |              | (22,862 | )            |  |              | (58,936 | ) |  |   | (9,092 | ) |  |   | (1,924 | )
|                                                     
|                                                     
|                                                     
|                                                     
|Cash flows provided by (used in) Financing activities |  |                                               | 6,479  |              |  |              | 39,724  |              |  |              | 58,803  |   |  |   | 9,597  |   |  |   | (1,541 | )
|                                                     
|                                                     
|                                                     
|                                                     
|EBITDA(4)(5)                                          |  |                                               | (3,305 | )            |  |              | (10,516 | )            |  |              | (5,685  | ) |  |   | 2,536  |   |  |   | 5,378  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Store EBITDA(6)                                       |  |                                               | (651   | )            |  |              | 213     |              |  |              | 5,736   |   |  |   | 12,969 |   |  |   | 16,736 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Depreciation and amortization                         |  |                                               | 568    |              |  |              | 2,341   |              |  |              | 9,562   |   |  |   | 14,310 |   |  |   | 14,658 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Capital expenditures(7)                               |  | $                                             | 13,391 |              |  | $            | 54,220  |              |  | $            | 68,312  |   |  | $ | 9,845  |   |  | $ | 1,946  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Stores open at end of period                          |  |                                               | 14     |              |  |              | 71      |              |  |              | 163     |   |  |   | 172    |   |  |   | 172    |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our net loss for the year ended December 27, 1998, includes
	the extraordinary loss associated with the write off of
	approximately $334 of unamortized deferred financing costs
	related to two of our prior credit facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(2) | Our net loss for the year ended December 26, 1999 includes
	the extraordinary loss associated with the write off of
	approximately $782 of unamortized deferred financing costs
	related to the replacement of our former bank credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(3) | We have recognized the fair value of the 7,295 shares of common
	stock issued pursuant to the re-pricing of the series C
	convertible preferred stock as a return to the series C
	preferred stockholders. Accordingly, this amount has been
	deducted from our net loss in determining the net loss available
	to common stockholders for purposes of calculating basic and
	diluted earnings per share. See also Note 9 of our Financial
	Statements.                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | EBITDA is defined as earnings before interest expense, taxes,
	depreciation and amortization. EBITDA is presented because we
	believe it is a widely accepted financial indicator of an
	entitys ability to incur and service debt. While EBITDA is
	not intended to represent cash flow from operations as defined
	by generally accepted accounting principles (GAAP)
	and should not be considered as an indicator of operating
	performance or an alternative to cash flow (as measured by GAAP)
	as a measure of liquidity, it is included herein to provide
	additional information with respect to our ability to meet our
	future debt service, capital expenditures and working capital
	requirements. Other entities may measure EBITDA in a manner
	different than we measure it.

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | EBITDA for the fiscal years ended December 31, 2000,
	December 26, 1999, December 27, 1998 and
	December 28, 1997, excludes the losses on impairment and
	disposal of long-lived assets of $178, $2,178, $23 and $480,
	respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(6) | Store EBITDA is EBITDA before allocation of any selling, general
	and administrative expenses. While Store EBITDA is not intended
	to represent operating income or loss as defined by GAAP (as
	GAAP operating income or loss includes such allocation of
	selling, general and administrative expenses) and should not be
	considered as an indicator of operating performance as measured
	by GAAP, it is included herein to provide additional information
	with respect to store-level cash operating margins.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(7) | Capital expenditures includes the purchase of laundromat
	equipment pursuant to a supply agreement and financed with
	borrowings in connection with our former senior credit
	facilities of approximately $0, $164, $2,455 and $31,358 in
	fiscal 2000, 1999, 1998 and 1997, respectively. The capital
	expenditures for 1997 include approximately $11,485 of
	laundromat equipment for use in stores opened in 1998. The
	capital expenditures for 1998 and 1997 include approximately
	$872 and $4,120 for land acquired and held for sale-leaseback
	transactions, $1,919 of which is shown under the heading
	Land held for sale-leaseback on our balance sheet at
	December 31, 2000. Capital expenditures also include the cash
	outlay to acquire new businesses (net of cash acquired) and
	equipment financed with long-term debt. Such outlays totaled
	approximately $26,880 and $12,064 for the years ended
	December 27, 1998 and December 28, 1997, respectively.
|   
|(8) | Concurrently with the closing of the sale of our senior discount
	notes, the put rights previously associated with our series A
	and series B convertible preferred stock were terminated, and
	therefore, those shares were no longer mandatorily redeemable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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

Overview

SpinCycle is a specialty retailing company engaged in the
coin-operated laundry business. Our company was founded in
October 1995 to develop and implement SpinCycles
unique concept of a national chain of branded coin-operated
laundromats and to serve as a platform for a nationwide
consolidation in the coin-operated laundromat industry. Our
company was formed with the goal of becoming the leading
operator of high quality coin-operated laundromats in the United
States by establishing SpinCycle as a national brand, providing
a superior level of customer service and by exercising
disciplined management control in our expansion and business
plan. During 2000, we experienced moderate growth within our
mature developed stores. We realized positive EBITDA in 2000. We
experienced flat same store sales for our mature (both acquired
and developed) stores. Our average store EBITDA has increased
over the past three years from approximately $36,000 for fiscal
1998 to approximately $75,000 for fiscal 1999 and to
approximately $97,000 for fiscal 2000.

To date, our primary use of capital has been for the development
and acquisition of laundromats and for general corporate
purposes. Between April 1996, when we opened our first store,
through 1998 we acquired and developed stores at a rapid pace
and at year-end 1996, 1997, 1998, 1999 and 2000 we had 14, 71,
163, 172 and 172 stores, respectively. We are also party to
three leases for property that we do not intend to develop as
stores by year-end 2001. We have not made any further
commitments for acquisitions or new store developments. We
closed three stores during 1999, all of which were part of
multi-store acquisitions from prior years.

Our development and acquisition of laundromats has required
significant capital resources. To date, we have not been
profitable and have generated net operating losses and negative
cash flow from operations. As such, our expansion has been
facilitated through private equity investments, proceeds from
the issuance of our senior discount notes, borrowings from our
credit facilities and revenue generated from our stores. Until
such time as we can restructure our debt position, which we
expect to allow us to access sources of expansion capital, we
will be unable to expand and expect we would likely face
bankruptcy.

We continue to maintain a significant backlog of potential
development sites, but do not expect to sign any additional
commitments to develop stores prior to procuring additional
growth capital or generating sufficient cash flow from
operations. This lack of significant growth capital prompted a
significant decrease in our growth rate, and in
February 1999 and again in April 1999 we implemented a
reduction in force. These reductions in force were primarily
focused on our growth-related and administrative personnel,
including regional directors of development and acquisitions and
corporate and field level construction managers.

During the second fiscal quarter of 2001, we expect to solicit
our shareholders and subordinated debt holders in order to seek
their consent to restructure our outstanding subordinated debt
via a debt for equity exchange. Completion of the restructuring
is contingent upon, among other things, the consent of,
(i) the holders of at least 90% of the subordinated debt,
(ii) the holders of at least a majority of our common,
Series B and Series C shares, (iii) the holders
of at least 76% of our series A shares, and (iv) the
consent of our senior lenders. If we accomplish this, we will
have substantially reduced the amount of debt on our balance
sheet, the holders of our subordinated debt will own
substantially all of SpinCycle, and SpinCycle will be in a
position to add locations to our existing markets in which we
have had the greatest success through the use of internally
generated cash flow and the procurement of additional growth
capital. Absent this transaction, we expect to be unable to make
the semi-annual interest payments on our subordinated debt, in
the amount of approximately $9.24 million, and would likely face
bankruptcy. We can make no assurances that the proposed
restructuring will be completed.

During 1999, our quarter to quarter performance increased
significantly compared to prior years, primarily due to our
maturing store base. Our first, second and third quarters
consisted of three periods (12 weeks) in 1998, while the
fourth quarter contained four periods (16 weeks). Beginning
in 1999, our first, second and fourth quarters contain three
periods, and our third quarter contains four periods.

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Results of Operations

Year Ended December 31, 2000 Compared
to Year Ended December 26, 1999:

Our fiscal year ends on the Sunday nearest December 31. The
fiscal year ending in 2000 comprised 53 weeks while the
fiscal years ending in 1999 and 1998 each comprised
52 weeks. All references to years in this document are to
fiscal years, unless otherwise stated.

In our comparative analysis, comparing 2000 to 1999, we will
also discuss change in average fiscal year performance for the
respective periods in order to enhance the comparability.
Average fiscal year performance is defined as fiscal year
performance divided by the number of weeks associated with each
year (53 for fiscal 2000 and 52 for fiscal 1999) and multiplied
by 52.

Revenues.Our revenues were approximately $54.9 million
for 2000, an increase of approximately $2.7 million from
approximately $52.2 million in 1999. Approximately $1.1 million
of the revenue increase was due to fiscal 2000 including one
additional week compared to fiscal 1999. On an average fiscal
year basis, our revenues were approximately $53.8 million for
2000, an increase of approximately $1.6 million from
approximately $52.2 million in 1999. Our growth in revenue was
primarily attributable to the continued maturation of our
developed and acquired stores.

Store Operating Expenses, excluding depreciation and
amortization.Our store operating expenses, excluding
depreciation and amortization (store operating
expenses) were approximately $38.1 million in 2000, a
decrease of approximately $1.0 million from approximately $39.1
million in 1999. On an average fiscal year basis, our store
operating expenses were approximately $37.4 million for 2000, a
decrease of approximately $1.7 million from approximately $39.1
million in 1999. The decrease in store operating expenses was
primarily attributable to the addition of approximately 30
multi-unit managers during fiscal 2000 which enabled us to
reduce the number of hours worked by our customer service
representatives in many of our stores. Our store operating
expenses as a percentage of revenues decreased from 75% in 1999
to approximately 69% in 2000. This decrease is a result of the
maturation of certain developed stores and the aforementioned
change in our field management structure.

Pre-opening Costs.We had no pre-opening costs in 2000, a
decrease of approximately $117,000 from approximately $117,000
in 1999. We expense our pre-opening costs as incurred. This
decrease was the result of not opening any additional stores in
2000.

Store EBITDA.Our Store EBITDA was approximately $16.7
million in 2000, an increase of approximately $3.7 million from
store EBITDA of $13.0 million in 1999. On an average fiscal year
basis, our Store EBITDA was approximately $16.4 million for
2000, an increase of approximately $3.4 million from
approximately $13.0 million in 1999. This increase was primarily
attributable to the continuing maturation of our stores and the
changes we made to our field management structure.

Depreciation and Amortization.Our depreciation and
amortization expense was approximately $14.7 million in 2000, an
increase of approximately $350,000 from approximately $14.3
million in 1999. Approximately $275,000 of the increase in
depreciation was due to fiscal 2000 including one additional
week compared to fiscal 1999. On an average fiscal year basis,
our depreciation was approximately $14.4 million for 2000, an
increase of approximately $70,000 from approximately $14.3
million in 1999. This increase was principally due to our
purchases of replacement machines, computer equipment and
facility modifications required to operate our stores.

Selling, General and Administrative Expenses.Our
selling, general and administrative expenses were approximately
$11.4 million in 2000, an increase of approximately $924,000
from approximately $10.4 million in 1999. Approximately $214,000
of the increase in selling, general and administrative expenses
was due to fiscal 2000 including one additional week compared to
fiscal 1999. On an average fiscal year basis, our selling,
general and administrative expenses were approximately $11.1
million for 2000, an increase of approximately $710,000 from
approximately $10.4 million in 1999. The increase was primarily
attributable to our increase in multi-unit managers required to
institute our field management restructuring. Selling, general
and administra-

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Losses on impairment and disposal of long-lived assets.Our losses on impairment and disposal of long-lived assets
were approximately $178,000 in 2000, a decrease of approximately
$2.0 million from approximately $2.2 million in 1999. Losses on
impairment and disposal of long-lived assets totaled
approximately $2.2 million for 1999 and included losses on store
closures of approximately $1.0 million, impairment of under
performing stores of $585,000, a loss on sale-leaseback
transaction of $390,000 and other losses on asset dispositions
in the normal course of business of $199,000. (see notes 2 and 3
to our financial statements for further details.) These
transactions included write downs of leasehold improvements and
goodwill associated with the closed and impaired stores. The
balance sheet at December 26, 1999 includes accrued lease
obligations aggregating $528,000 relating to the closed stores.

Interest Income and Interest Expense, net.Our interest
income was approximately $79,000 in 2000, a decrease of
approximately $49,000 from approximately $128,000 in 1999. On an
average fiscal year basis, our interest income was approximately
$78,000 for 2000, a decrease of approximately $50,000 from
approximately $128,000 in 1999. The decrease in interest income
was primarily attributable to a lower average cash balance
during 2000 as compared to 1999. Interest expense, net of
capitalized interest was approximately $19.2 million in 2000, an
increase of approximately $3.4 million from approximately $15.8
million in 1999. On an average fiscal year basis, our interest
expense, net was approximately $18.9 million for 2000, an
increase of approximately $3.1 million from approximately $15.8
million in 1999. Our increase in interest expense, net was
primarily attributable to the accretion of interest expense
related to our senior discount notes outstanding since April
1998 and interest expense for borrowings on our credit
facilities. Our outstanding borrowings under the LaSalle Bank
National Association facility were approximately $6.5 million at
the end of fiscal year 2000. Our outstanding borrowings under
the Alliance Laundry Systems LLC facility were $3.0 million at
the end of fiscal 2000.

Net Loss before Extraordinary Loss.The net loss before
extraordinary loss recorded in 2000 was $28.6 million, a
decrease of approximately $1.1 million from the $29.7 million
net loss recorded in 1999. On an average fiscal year basis, our
net loss before extraordinary loss was approximately $28.1
million for 2000, a decrease of approximately $1.6 million from
approximately $29.7 million in 1999. Our decreased loss was
primarily attributable to our increase in store EBITDA generated
by our maturing store base partially offset by an increase in
our interest expense related to senior discount notes
outstanding since April 1998 and interest expense for
borrowings on our bank credit facility.

Extraordinary Loss from Early Extinguishment of Debt.During fiscal 2000, we did not incur any loss from the
extinguishment of debt. During fiscal 1999, the extraordinary
loss relates to the write-off of the unamortized balance of debt
issuance costs that were paid in connection with our former bank
credit facility. (See note 15 to our financial statements.)
These costs were written off as a result of the replacement of
this facility with the LaSalle Bank and Alliance facilities.

Year Ended December 26, 1999 Compared
to Year Ended December 27, 1998:

Revenues.Our revenues were approximately $52.2 million
for 1999, an increase of approximately $21.3 million from
approximately $30.9 million in 1998. Our growth in revenue was
primarily attributable to the continued maturation of our
developed and acquired stores and net increase of nine stores
since the end of 1998.

Store Operating Expenses, excluding depreciation and
amortization.Our store operating expenses, excluding
depreciation and amortization (store operating
expenses) were approximately $39.1 million in 1999, an
increase of approximately $14.6 million from approximately $24.5
million in 1998. The increase in store operating expenses was
primarily attributable to the 93 stores that we added at various
points during 1998 being operational for all of 1999 and the net
increase of nine stores in 1999. Our store operating expenses as
a percentage of revenues decreased from 79% in 1998 to
approximately 75% in 1999. This decrease was a result of the
maturation of certain developed stores and our slowed growth in
1999 which has enabled us to further concentrate our efforts
toward operating efficiencies.

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Pre-opening Costs.Our pre-opening costs were
approximately $117,000 in 1999, a decrease of approximately
$575,000 from approximately $692,000 in 1998. We expense our
pre-opening costs as incurred. This decrease was the result of
our slowed growth during 1999.

Store EBITDA.Our Store EBITDA was approximately $13.0
million in 1999, an increase of approximately $7.3 million from
store EBITDA of $5.7 million in 1998. This increase was
primarily attributable to a net increase of nine stores during
1999, a full years operating results from the 93 stores
that were opened during 1998, increased revenue from the
operations and maturation of both new and existing stores and
increased control of store operating expenses.

Depreciation and Amortization.Our depreciation and
amortization expense was approximately $14.3 million in 1999, an
increase of approximately $4.7 million from approximately $9.6
million in 1998. This increase was principally due to our
purchases of property and equipment in connection with our 1998
and 1999 expansion.

Selling, General and Administrative Expenses.Our
selling, general and administrative expenses were approximately
$10.4 million in 1999, a decrease of approximately $1.0 million
from approximately $11.4 million in 1998. The decrease was
primarily attributable to two reductions in force that were
initiated in February and April of 1999 in which 28 general and
administrative employees were released from their employment.
Selling, general and administrative expenses decreased as a
percentage of revenue to 20% in 1999 from 37% in 1998. This
decrease was due to increased revenue generated from a larger
base of mature and maturing stores opened in 1998 and 1999 and
the initiation of the two reductions in force during 1999.

Losses on impairment and disposal of long-lived assets.Losses on impairment and disposal of long-lived assets
totaled approximately $2.2 million for 1999 and included losses
on store closures of approximately$1.0 million, impairment of
under performing stores of $585,000, a loss on sale-leaseback
transaction of $390,000 and other losses on asset dispositions
in the normal course of business of $199,000. (see notes 2 and 3
to the companys financial statements for further details.)
These transactions included write downs of leasehold
improvements and goodwill associated with the closed and
impaired stores. The balance sheet at December 26, 1999
includes accrued lease obligations aggregating $528,000 relating
to the closed stores.

Interest Income and Interest Expense, net.Our interest
income was approximately $128,000 in 1999, a decrease of
approximately $1.2 million from approximately $1.3 million in
1998. The decrease in interest income was primarily attributable
to a lower average cash balance during 1999 as compared to 1998
when we had the proceeds of our senior discount notes on hand.
Interest expense, net of capitalized interest was approximately
$15.8 million in 1999, an increase of approximately $5.4 million
from approximately $10.4 million in 1998. Our increase in
interest expense, net was primarily attributable to the
accretion of interest expense related to our senior discount
notes outstanding since April 1998 and interest expense for
borrowings on our bank credit facility. Our outstanding
borrowings under the LaSalle facility were approximately $7.5
million at the end of fiscal year 1999. Our outstanding
borrowings under the Alliance facility were $3.0 million at the
end of fiscal 1999.

Net Loss before Extraordinary Loss.The net loss before
extraordinary loss recorded in 1999 was $29.7 million, an
increase of approximately $5.4 million from the $24.3 million
net loss recorded in 1998. Our increased loss was primarily
attributable to depreciation and amortization associated with
the number of new stores both acquired and developed since the
end of 1997, the increase in interest expense discussed above
and the increase in losses on impairment and disposal of
long-lived assets of $2.2 million.

Extraordinary Loss from Early Extinguishment of Debt.The
extraordinary loss relates to the write-off of the unamortized
balance of debt issuance costs that were paid in connection with
our former bank credit facility. (See note 15 to our financial
statements.) These costs were written off as a result of the
replacement of this facility with the LaSalle and Alliance
facilities.

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Liquidity and Capital Resources

Net Cash Provided by Operating Activities. Our net cash
provided by operating activities was approximately $1.4 million
in 2000, an increase of approximately $2.0 million compared to
our net cash used in operating activities of approximately
$618,000 in 1999. This increase was due primarily to a decrease
of approximately $4.5 million in operating loss during 2000
partially offset by a decrease in our accrued payables and
deferred rent of approximately $2.4 million at fiscal year end
2000 as compared to fiscal year end 1999.

Net Cash Used in Investing Activities.Our net cash used
in investing activities was approximately $1.9 million in 2000,
a decrease of approximately $7.2 million compared to net cash
used in investing activities of approximately $9.1 million in
1999. The decrease was due to our cessation of expansion
activities during 2000. In 2000 we did not open any stores as
compared to 12 stores opened in 1999.

Net Cash Used in Financing Activities.Net cash used in
financing activities was approximately $1.5 million in 2000, an
increase of approximately $11.1 million from net cash provided
by financing activities of approximately $9.6 million in 1999.
During 2000, we paid down our revolving line with LaSalle by
$1.0 million and did not borrow any additional funds.

For fiscal 2001 increasing energy costs and repair and
maintenance expenses related to our aging laundry equipment may
negatively impact our liquidity. In order to combat these
increases we are contemplating pricing increases aimed at
neutralizing the impact of these increased costs. In addition,
during the second fiscal quarter of 2001, we expect to solicit
our shareholders and subordinated debt holders in order to
restructure our outstanding subordinated debt via a debt for
equity exchange. The legal and administrative costs related to
this transaction may be substantial, further reducing our
liquidity.

The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the regular course
of business. We generated approximately $5.4 million of EBITDA
during fiscal 2000. Beginning on November 1, 2001, absent
the aforementioned restructuring, we will be required to make
semi-annual cash payments of approximately $9.24 million on our
senior discount notes. Additionally, on September 30, 2001,
we will be required to repay the principal balance owing on the
LaSalle facility. These payments, which are substantially in
excess of any historic net cash flow we have generated, will be
in addition to our selling, general and administrative expense
and any other interest or other expenses we may have at that
time, which has caused us to classify all debt as current. These
factors, among others, raise substantial doubt about our ability
to continue as a going concern. If we complete the proposed
restructuring, we will have substantially reduced the amount of
debt on our balance sheet, the holders of our subordinated debt
will own substantially all of SpinCycle, and we may be in a
position to add locations to our existing markets in which we
have had the greatest success through the use of internally
generated cash flow and may have access to additional growth
capital. Absent this transaction, we expect to be unable to make
the semi-annual interest payments on our subordinated debt, in
the amount of approximately $9.24 million, and would likely face
bankruptcy. There is a possibility that after we restructure our
notes, a portion of the debt remains outstanding, as the
restructuring plan only requires 90% of the note holders to give
their consent. The financial statements do not include any
adjustments relating to the realization of assets and
classification of liabilities that might be necessary should we
be unable to continue as a going concern.

In June 1998, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 133
entitled Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting
standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. If specific conditions
are met, a derivative may be specifically designated as a hedge
of specific financial exposure. The accounting for changes in
the fair value of a derivative depends on the intended use of
the derivative and, if it is used in hedging activities, it
depends on the effectiveness as a hedge. SFAS 133 is effective
for all fiscal quarters of fiscal years beginning after
June 15, 2000. SFAS 133 should not be applied
retroactively to financial statements of prior periods. We will
adopt SFAS 133 when required. Because of our minimal use of
derivatives, we do not anticipate that the adoption of SFAS 133
will have a significant effect on earnings or financial position.

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Potential Loss of Net Operating Losses

As of December 31, 2000, we had net operating losses
(NOLs) of approximately $59.0 million for U.S.
federal income tax purposes. These NOLs, if not utilized to
offset taxable income in future periods, will begin to expire in
2011. Section 382 of the Internal Revenue Code of 1986, as
amended, and regulations promulgated thereunder, impose
limitations on the ability of corporations to use NOLs if the
corporation experiences a more than 50% change in ownership
during any three year period. It is probable that we have
experienced one or more ownership changes in 1996, 1997 and 1998
as a result of raising various rounds of private equity or that
such an ownership change may have occurred or be deemed to have
occurred due to events beyond our control (such as transfers of
common stock by certain stockholders or the exercise or
treatment of our issued and outstanding warrants, conversion
rights or stock options). Further, there can be no assurance
that we will not take additional actions, such as the issuance
of additional stock, that would cause an ownership change to
occur. In addition, the NOLs are subject to examination by the
Internal Revenue Service (IRS), and are thus subject
to adjustment or disallowance resulting from any such IRS
examination.

Seasonality

Coin-operated laundromat industry data, as well as data
generated from our mature stores, indicates that the coin
operated laundry business experiences seasonal variations in
operating performance during the later spring and summer
seasons. We believe this seasonality is a result of the reduced
volume of heavier clothing worn during the spring and summer
months, which results in lower laundry machine usage. We believe
the seasonal effect was exacerbated by the fact that
substantially all of our change machines were incapable of
recognizing the then newly released $5 and $10 bills due to a
technical defect in the changers. We observed the effect of such
seasonality in the 164 stores that were mature for the entire
2000 fiscal year. During the 2000 fiscal year, revenues in these
stores decreased approximately 16.2%, from a peak during the
third period to a low in the eighth period. These 164 stores
experienced a significant increase in revenues in the final
quarter of the year, completing the seasonal cycle. As we now
have a significant base of data regarding seasonality, we have
adjusted our 2001 budgets to account for the seasonal patterns
experienced in 2000.

Forward-Looking Statements

Statements that are not historical facts, including statements
about our confidence in our prospects, strategies and
expectations about expansion into new markets, growth in
existing markets, comparable store sales and ability to attract
new sources of financing or ability to refinance or restructure
existing indebtedness, are forward-looking statements that
involve risks and uncertainties. These risks and uncertainties
include, but are not limited to, (1) our historical and
anticipated losses and negative cash flow; (2) debt service
requirements, restrictions and covenants related to our
substantially leveraged financial position;
(3) considerable competition from local and regional
operators in all of our markets; and (4) our ability to
hire, train, retain and assimilate competent management and
store-level employees. No assurance can be given that the
existing stores will achieve sales and profitability comparable
to our strategic plan. There can be no assurance that an
adequate revenue base will be established or that we will
generate sufficient positive cash flow from operations to
satisfy our debt service obligations beginning on
November 1, 2001. Any investor or potential investor in
SpinCycle must consider these risks and others that are detailed
in this report.




Item 7A.  Quantitative and Qualitative
Disclosures about Market Risk

Not applicable.

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Item 8.  Financial Statements and Supplementary
Data

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and



In our opinion, the accompanying balance sheets and the related
statements of operations, of mandatorily redeemable preferred
stock and shareholders equity (deficit) and of cash
flows present fairly, in all material respects, the financial
position of SpinCycle, Inc. at December 31, 2000 and
December 26, 1999, and the results of its operations and
its cash flows for the three years in the period ended
December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company has
recurring losses from operations, negative working capital and
upcoming interest and debt principal payments significantly in
excess of historical cash flows generated by the Company. These
factors raise substantial doubt about the Companys ability
to continue as a going concern. Managements plans in
regard to these matters are also described in Note 2. However,
there is no assurance that these plans will be completed as
described. The financial statements do not include any
adjustments that might result from this uncertainty.



| |                           
| | --------------------------
| | PricewaterhouseCoopers LLP

Phoenix, Arizona



13



---



##### Table of Contents



SPINCYCLE, INC.

BALANCE SHEETS

|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |             |             |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | ----------- | - | ----------- | ----------- | ----------- | -
|                                               |                                                                                                                                                 | December 31,                               |            | December 26,
|                                               |                                                                                                                                                 | 2000                                       |            | 1999        
|                                               |                                                                                                                                                 |                                            |            |             
|ASSETS                                         |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents                                                                                                                       |                                            | $          | 2,104,952    |             |   | $           | 4,125,919   |            
|                                              
|                                              
|                                              
|                                              
|                                               | Landlord allowances                                                                                                                             |                                            |            | 77,250       |             |   |             | 176,340     |            
|                                              
|                                              
|                                              
|                                              
|                                               | Prepaid expenses                                                                                                                                |                                            |            | 147,756      |             |   |             | 92,490      |            
|                                              
|                                              
|                                              
|                                              
|                                               | Inventory                                                                                                                                       |                                            |            | 272,131      |             |   |             | 298,477     |            
|                                              
|                                              
|                                              
|                                              
|                                               | Land held for sale-leaseback                                                                                                                    |                                            |            | 1,418,003    |             |   |             | 1,919,209   |            
|                                              
|                                              
|                                              
|                                              
|                                               | Other current assets                                                                                                                            |                                            |            | 1,370,539    |             |   |             | 685,508     |            
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                               |                                                                                                                                                 | Total current assets                       |            |              | 5,390,631   |   |             |             | 7,297,943   |  
|                                              
|                                              
|                                              
|                                              
|Property and equipment, net                    |                                                                                                                                                 |                                            | 83,803,437 |              |             |   | 95,241,610  |            
|                                              
|                                              
|                                              
|                                              
|Goodwill, net                                  |                                                                                                                                                 |                                            | 11,858,006 |              |             |   | 12,634,520  |            
|                                              
|                                              
|                                              
|                                              
|Other assets                                   |                                                                                                                                                 |                                            | 3,640,518  |              |             |   | 4,370,021   |            
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                               |                                                                                                                                                 | Total assets                               |            | $            | 104,692,592 |   |             | $           | 119,544,094 |  
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable                                                                                                                                |                                            | $          | 1,065,344    |             |   | $           | 885,231     |            
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued utilities                                                                                                                               |                                            |            | 1,039,808    |             |   |             | 1,296,144   |            
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued expenses                                                                                                                                |                                            |            | 1,421,878    |             |   |             | 2,666,326   |            
|                                              
|                                              
|                                              
|                                              
|                                               | Current portion of deferred rent                                                                                                                |                                            |            | 493,335      |             |   |             | 493,335     |            
|                                              
|                                              
|                                              
|                                              
|                                               | Current portion of long-term debt                                                                                                               |                                            |            | 144,121,270  |             |   |             | 207,460     |            
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                               |                                                                                                                                                 | Total current liabilities                  |            |              | 148,141,635 |   |             |             | 5,548,496   |  
|                                              
|                                              
|                                              
|                                              
|Long-term debt                                 |                                                                                                                                                 |                                            |           |              |             |   | 127,940,845 |            
|                                              
|                                              
|                                              
|                                              
|Deferred rent                                  |                                                                                                                                                 |                                            | 2,633,730  |              |             |   | 3,407,741   |            
|                                              
|                                              
|                                              
|                                              
|Other liabilities                              |                                                                                                                                                 |                                            | 321,201    |              |             |   | 428,520     |            
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                               |                                                                                                                                                 | Total liabilities                          |            |              | 151,096,566 |   |             |             | 137,325,602 |  
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            
|Shareholders equity (deficit):                |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                              
|                                              
|                                              
|                                              
|                                               | Series A, Series B and Series C convertible
	preferred stock, $.01 par value, 370,000 shares authorized,
	275,402 shares issued and outstanding |                                            |            | 50,845,810   |             |   |             | 50,845,810  |            
|                                              
|                                              
|                                              
|                                              
|                                               | Common stock, $.01 par value, 630,000 shares authorized, 27,763
	shares issued and outstanding                                                  |                                            |            | 278          |             |   |             | 278         |            
|                                              
|                                              
|                                              
|                                              
|                                               | Common stock warrants                                                                                                                           |                                            |            | 5,625,000    |             |   |             | 5,625,000   |            
|                                              
|                                              
|                                              
|                                              
|                                               | Additional paid-in capital  common stock                                                                                                       |                                            |            | 1,430,259    |             |   |             | 1,430,259   |            
|                                              
|                                              
|                                              
|                                              
|                                               | Accumulated deficit                                                                                                                             |                                            |            | (104,305,321 | )           |   |             | (75,682,855 | )          
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                               |                                                                                                                                                 | Total shareholders equity (deficit)       |            |              | (46,403,974 | ) |             |             | (17,781,508 | )
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            
|                                               |                                                                                                                                                 | Total liabilities and shareholders equity |            | $            | 104,692,592 |   |             | $           | 119,544,094 |  
|                                               |                                                                                                                                                 |                                            |            |              |             |   |             |            

The accompanying notes are an integral part of these financial
statements.

14



---



##### Table of Contents



SPINCYCLE, INC.

STATEMENTS OF OPERATIONS

|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |             |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------ | ----------- | ------------ | - | ------------ | ----------- | ----------- | - | - | ----------- | ----------- | -
|                                                                                      |                                                                           |             
|                                                                                      |                                                                           | Years Ended 
|                                                                                      |                                                                           |             
|                                                                                      |                                                                           | December 31, |             | December 26, |   | December 27,
|                                                                                      |                                                                           | 2000         |             | 1999         |   | 1998        
|                                                                                      |                                                                           |              |             |              |   |             
|Revenues                                                                              |                                                                           | $            | 54,852,361  |              |   | $            | 52,173,829  |             |   | $ | 30,936,080  |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Cost of revenues  store operating expenses, excluding
	depreciation and amortization |                                                                           |              | 38,116,451  |              |   |              | 39,087,921  |             |   |   | 24,508,404  |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Preopening costs                                                                      |                                                                           |              |            |              |   |              | 116,882     |             |   |   | 691,890     |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Depreciation and amortization                                                         |                                                                           |              | 14,657,923  |              |   |              | 14,310,352  |             |   |   | 9,561,742   |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Selling, general and administrative expenses                                          |                                                                           |              | 11,357,645  |              |   |              | 10,433,310  |             |   |   | 11,420,877  |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Losses on impairment and disposal of long-lived assets                                |                                                                           |              | 177,892     |              |   |              | 2,177,972   |             |   |   | 22,913      |            
|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |            
|                                                                                      | Operating loss                                                            |              |             | (9,457,550   | ) |              |             | (13,952,608 | ) |   |             | (15,269,746 | )
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Interest income                                                                       |                                                                           |              | 79,262      |              |   |              | 128,017     |             |   |   | 1,299,615   |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Interest expense, net of amount capitalized                                           |                                                                           |              | (19,244,178 | )            |   |              | (15,838,664 | )           |   |   | (10,351,341 | )          
|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |            
|                                                                                      | Loss before extraordinary loss                                            |              | $           | (28,622,466  | ) |              | $           | (29,663,255 | ) |   | $           | (24,321,472 | )
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Extraordinary loss from early extinguishment of debt                                  |                                                                           |              |            |              |   |              | (781,558    | )           |   |   | (333,596    | )          
|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |            
|                                                                                      | Net loss                                                                  |              | $           | (28,622,466  | ) |              | $           | (30,444,813 | ) |   | $           | (24,655,068 | )
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Repricing of Series C preferred stock                                                 |                                                                           |              |            |              |   |              |            |             |   |   | (1,459,000  | )          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Accretion of redeemable preferred stock                                               |                                                                           |              |            |              |   |              |            |             |   |   | (755,667    | )          
|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |            
|                                                                                      | Net loss applicable to holders of common stock                            |              | $           | (28,622,466  | ) |              | $           | (30,444,813 | ) |   | $           | (26,869,735 | )
|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |            
|Net loss per common share (both basic and diluted):                                   |                                                                           |              |             |              |   |              |             |             |   |   |             |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Net loss applicable to holders of common stock before
	extraordinary loss |              | $           | (1,030.96    | ) |              | $           | (1,068.45   | ) |   | $           | (925.96     | )
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Extraordinary loss from early extinguishment of debt                                  |                                                                           |              |            |              |   |              | (28.15      | )           |   |   | (11.64      | )          
|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |            
|Net loss applicable to holders of common stock                                        |                                                                           | $            | (1,030.96   | )            |   | $            | (1,096.60   | )           |   | $ | (937.60     | )          
|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |            
|Weighted average number of common shares outstanding                                  |                                                                           |              | 27,763      |              |   |              | 27,763      |             |   |   | 28,658      |            
|                                                                                      |                                                                           |              |             |              |   |              |             |             |   |   |             |            

The accompanying notes are an integral part of these financial
statements.

15



---



##### Table of Contents



SPINCYCLE, INC.

STATEMENTS OF MANDATORILY REDEEMABLE PREFERRED STOCK

AND SHAREHOLDERS EQUITY (DEFICIT)


|                                                                      |                                                                                 |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------ | ------ | --------------- |  | --------------- | --------- | ------------- |  | ------------ | -------- | ------ |  | ---------- | ----------- | ---------- | - | ------ | ------- |  |  | - | ---------- | ------- | - | - | - |  |  |  | ------ | ------- | - | - | --- | ---- | -
|                                                                      |                                                                                 |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |           
|                                                                      |                                                                                 |              |        | Mandatorily     |  |                 |           |               |  |              |          |       
|                                                                      |                                                                                 | Common Stock |        | Redeemable      |  | Convertible     |           |               |  |             
|                                                                      |                                                                                 | Warrants     |        | Preferred Stock |  | Preferred Stock |           | Stock         |  | Common Stock
|                                                                      |                                                                                 |              |        |                 |  |                 |           | Subscriptions |  |             
|                                                                      |                                                                                 | Shares       |        | Amount          |  | Shares          |           | Amount        |  | Shares       |          | Amount |  | Receivable |             | Shares     |   | Amount
|                                                                      |                                                                                 |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |       
|Balance at December  28, 1997                                         |                                                                                 |              |       |                 |  | $               |          |               |  |              | 262,213  |        |  | $          | 48,792,805  |            |   |        |        |  |  | $ |           |         |   | $ |  |  |  |  | 38,487 |         |   | $ | 385 |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Repurchase of common stock                                                      |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        | (18,019 | ) |   |     | (180 | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Issuance of Series C Redeemable Preferred Stock, net                            |              |        |                 |  |                 |           |               |  |              |          | 13,189 |  |            |             | 2,904,500  |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Accretion of Series A and Series  B Redeemable
	Preferred Stock                 |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             | 755,667    |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Issuance of Common Stock Warrants                                               |              |        | 26,661          |  |                 |           | 5,625,000     |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Issuance of 7,295 shares of common stock (Series C
	repricing @ $200 per share) |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             | (1,459,000 | ) |        |         |  |  |   |            |         |   |   |   |  |  |  |        | 7,295   |   |   |     | 73   |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Series C Redeemable Preferred Stock Issuance Costs Paid                         |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             | (93,448    | ) |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Cancellation of put rights on Mandatorily Redeemable Preferred
	Stock |                                                                                 |              |        |                 |  |                 |           |               |  |              | (275,402 | )      |  |            | (50,900,524 | )          |   |        | 275,402 |  |  |   | 50,900,524 |         |   |   |   |  |  |  |        |         |   |   |     |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Series C Convertible Preferred Stock Issuance Costs Paid                        |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            | (54,714 | ) |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Common Stock Issuance Costs Paid                                                |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Net loss                                                                        |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                      |                                                                                 |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |     
|Balance at December 27, 1998                                          |                                                                                 |              | 26,661 |                 |  |                 | 5,625,000 |               |  |              |         |        |  |            |            |            |   |        | 275,402 |  |  |   | 50,845,810 |         |   |   |  |  |  |  | 27,763 |         |   |   | 278 |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Net loss                                                                        |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                      |                                                                                 |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |     
|Balance at December 26, 1999                                          |                                                                                 |              | 26,661 |                 |  |                 | 5,625,000 |               |  |              |         |        |  |            |            |            |   |        | 275,402 |  |  |   | 50,845,810 |         |   |   |  |  |  |  | 27,763 |         |   |   | 278 |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Net loss                                                                        |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |      |  
|                                                                      |                                                                                 |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |     
|Balance at December 31, 2000                                          |                                                                                 |              | 26,661 |                 |  | $               | 5,625,000 |               |  |              |         |        |  | $          |            |            |   |        | 275,402 |  |  | $ | 50,845,810 |         |   | $ |  |  |  |  | 27,763 |         |   | $ | 278 |     
|                                                                      |                                                                                 |              |        |                 |  |                 |           |               |  |              |          |        |  |            |             |            |   |        |         |  |  |   |            |         |   |   |   |  |  |  |        |         |   |   |     |     

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                      |                                                                                 |            |           |             |   |   |              |             |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------- | --------- | ----------- | - | - | ------------ | ----------- | -
|                                                                      |                                                                                 | Additional |           |            
|                                                                      |                                                                                 | Paid-in    |           | Accumulated
|                                                                      |                                                                                 | Capital    |           | Deficit    
|                                                                      |                                                                                 |            |           |            
|Balance at December  28, 1997                                         |                                                                                 | $          | 9,273     |             |   | $ | (19,636,761  | )          
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Repurchase of common stock                                                      |            |           | (9,273      | ) |   |              | (190,546    | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Issuance of Series C Redeemable Preferred Stock, net                            |            |           |             |   |   |              |             |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Accretion of Series A and Series  B Redeemable
	Preferred Stock                 |            |           |             |   |   |              | (755,667    | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Issuance of Common Stock Warrants                                               |            |           |             |   |   |              |             |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Issuance of 7,295 shares of common stock (Series C
	repricing @ $200 per share) |            |           | 1,458,927   |   |   |              |             |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Series C Redeemable Preferred Stock Issuance Costs Paid                         |            |           |             |   |   |              |             |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Cancellation of put rights on Mandatorily Redeemable Preferred
	Stock |                                                                                 |            |           |             |   |   |              |            
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Series C Convertible Preferred Stock Issuance Costs Paid                        |            |           |             |   |   |              |             |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Common Stock Issuance Costs Paid                                                |            |           | (28,668     | ) |   |              |             |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Net loss                                                                        |            |           |             |   |   |              | (24,655,068 | )
|                                                                      |                                                                                 |            |           |             |   |   |              |            
|Balance at December 27, 1998                                          |                                                                                 |            | 1,430,259 |             |   |   | (45,238,042  | )          
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Net loss                                                                        |            |           |             |   |   |              | (30,444,813 | )
|                                                                      |                                                                                 |            |           |             |   |   |              |            
|Balance at December 26, 1999                                          |                                                                                 |            | 1,430,259 |             |   |   | (75,682,855  | )          
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Net loss                                                                        |            |           |             |   |   |              | (28,622,466 | )
|                                                                      |                                                                                 |            |           |             |   |   |              |            
|Balance at December 31, 2000                                          |                                                                                 | $          | 1,430,259 |             |   | $ | (104,305,321 | )          
|                                                                      |                                                                                 |            |           |             |   |   |              |            

The accompanying notes are an integral part of these financial
statements.

16



---



##### Table of Contents



SPINCYCLE, INC.

STATEMENTS OF CASH FLOWS

|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |           |           |             |  
|------------------------------------------------------------------------------------------ | ------------------------------------------------------ | --------------------- | --------------------------------------------------- | ------------ | ---------- | ------------ | ----------- | ---------- | ---------- | ---------- | ----------- | --------- | --------- | ----------- | -
|                                                                                           |                                                        |                      
|                                                                                           |                                                        | Years Ended          
|                                                                                           |                                                        |                      
|                                                                                           |                                                        | December 31,          |                                                     | December 26, |            | December 27,
|                                                                                           |                                                        | 2000                  |                                                     | 1999         |            | 1998        
|                                                                                           |                                                        |                       |                                                     |              |            |             
|Cash flows provided by (used in) operating activities:                                     |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Net loss                                                                                   |                                                        | $                     | (28,622,466                                         | )            |            | $            | (30,444,813 | )          |            | $          | (24,655,068 | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Adjustments to reconcile net loss to net cash provided by (used
	in) operating activities: |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Depreciation and amortization                          |                       |                                                     | 14,657,923   |            |              |             | 14,310,352 |            |            |             | 9,561,742 |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Losses on impairment and disposal of long-lived assets |                       |                                                     | 177,892      |            |              |             | 2,186,911  |            |            |             |          |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Extraordinary loss from early extinguishment of debt   |                       |                                                     |             |            |              |             | 781,558    |            |            |             | 333,596   |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Amortization of debt issuance costs                    |                       |                                                     | 918,742      |            |              |             | 979,923    |            |            |             | 728,719   |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Amortization of discount on long-term debt             |                       |                                                     | 17,269,406   |            |              |             | 14,243,841 |            |            |             | 8,584,476 |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Changes in assets and liabilities:                     |                       |                                                     |              |            |              |             |            |            |            |             |           |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Landlord allowances   |                                                     |              | 99,091     |              |             |            | 605,288    |            |             |           | 299,768   |            
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Prepaid expenses      |                                                     |              | (55,266    | )            |             |            | 489,516    |            |             |           | (98,180   | )          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Inventory             |                                                     |              | 26,346     |              |             |            | (185,513   | )          |             |           | (41,447   | )          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Other current assets  |                                                     |              | (685,031   | )            |             |            | 1,975      |            |             |           | 265,398   |            
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Other assets          |                                                     |              | (140,709   | )            |             |            | (74,829    | )          |             |           | (412,660  | )          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Accounts payable      |                                                     |              | 180,112    |              |             |            | (4,101,765 | )          |             |           | (963,090  | )          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Construction payables |                                                     |              |           |              |             |            | (389,393   | )          |             |           | (561,849  | )          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Accrued utilities     |                                                     |              | (256,336   | )            |             |            | 292,378    |            |             |           | 386,987   |            
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Accrued expenses      |                                                     |              | (1,351,767 | )            |             |            | (252,059   | )          |             |           | 957,851   |            
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                        | Deferred rent         |                                                     |              | (774,011   | )            |             |            | 938,795    |            |             |           | 1,736,553 |            
|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                           |                                                        |                       | Net cash provided by (used in) operating activities |              | $          | 1,443,926    |             |            | $          | (617,835   | )           |           | $         | (3,877,204  | )
|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|Cash flows provided by (used in) investing activities:                                     |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Purchase of fixed assets                                                                   |                                                        |                       | (1,921,814                                          | )            |            |              | (9,518,380  | )          |            |            | (38,624,850 | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Proceeds from sale of fixed assets                                                         |                                                        |                       |                                                    |              |            |              | 55,260      |            |            |            | 94,253      |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Net proceeds from sale-leaseback transactions                                              |                                                        |                       |                                                    |              |            |              | 534,333     |            |            |            | 6,827,018   |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Acquisition of businesses, net of cash acquired                                            |                                                        |                       |                                                    |              |            |              |            |            |            |            | (26,880,283 | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Capitalized interest                                                                       |                                                        |                       | (1,612                                              | )            |            |              | (163,332    | )          |            |            | (351,787    | )        
|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                           |                                                        |                       | Net cash used in investing activities:              |              | $          | (1,923,426   | )           |            | $          | (9,092,119 | )           |           | $         | (58,935,649 | )
|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|Cash flows provided by (used in) financing activities:                                     |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Advances from shareholder                                                                  |                                                        |                       |                                                    |              |            |              |            |            |            |            |            |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Payments of debt                                                                           |                                                        |                       | (1,441,531                                          | )            |            |              | (9,575,833  | )          |            |            | (47,689,160 | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Debt issuance costs paid                                                                   |                                                        |                       | (222,778                                            | )            |            |              | (711,443    | )          |            |            | (6,016,805  | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Increase in debt                                                                           |                                                        |                       | 122,843                                             |              |            |              | 19,884,051  |            |            |            | 104,156,083 |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Proceeds from issuance of common stock warrants                                            |                                                        |                       |                                                    |              |            |              |            |            |            |            | 5,625,000   |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Proceeds from issuance of stock                                                            |                                                        |                       |                                                    |              |            |              |            |            |            |            | 2,904,500   |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Stock issuance costs paid                                                                  |                                                        |                       |                                                    |              |            |              |            |            |            |            | (176,827    | )        
|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                           |                                                        |                       | Net cash provided by (used in) financing activities |              | $          | (1,541,466   | )           |            | $          | 9,596,775  |             |           | $         | 58,802,791  |  
|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|Net increase (decrease) in cash and cash equivalents                                       |                                                        |                       | (2,020,967                                          | )            |            |              | (113,180    | )          |            |            | (4,010,062  | )        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Cash and cash equivalents, beginning of period                                             |                                                        |                       | 4,125,919                                           |              |            |              | 4,239,099   |            |            |            | 8,249,161   |          
|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|Cash and cash equivalents, end of period                                                   |                                                        | $                     | 2,104,952                                           |              |            | $            | 4,125,919   |            |            | $          | 4,239,099   |          
|                                                                                           |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|Supplemental disclosure of non-cash financing activities:                                  |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Stock subscriptions for issuance of redeemable preferred stock                             |                                                        | $                     |                                                    |              |            | $            |            |            |            | $          |            |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Equipment financed with long-term debt                                                     |                                                        | $                     | 22,247                                              |              |            | $            | 164,219     |            |            | $          | 2,454,840   |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Repurchase of common stock                                                                 |                                                        | $                     |                                                    |              |            | $            |            |            |            | $          | 199,999     |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Accretion of mandatorily redeemable preferred stock                                        |                                                        | $                     |                                                    |              |            | $            |            |            |            | $          | 755,667     |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Issuance of common stock (Series C repricing)                                              |                                                        | $                     |                                                    |              |            | $            |            |            |            | $          | 1,459,000   |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Cash flow during the year for the following:                                               |                                                        |                       |                                                     |              |            |              |             |            |            |            |             |          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Interest paid                                                                              |                                                        | $                     | 1,012,186                                           |              |            | $            | 654,611     |            |            | $          | 1,370,023   |          

The accompanying notes are an integral part of these financial
statements.

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##### Table of Contents



SPINCYCLE, INC.

NOTES TO FINANCIAL STATEMENTS

1.  Organization

SpinCycle, Inc. (SpinCycle or the
Company) is a specialty retailing company engaged in
the coin-operated laundry business. The Company currently
operates 172 stores in 25 markets throughout the United States.
The Company was incorporated under the laws of the state of
Minnesota on October 10, 1995 and subsequently
reincorporated under the laws of the State of Delaware.

2.  Summary of Significant Accounting Policies

Basis of presentation

The financial statements include all accounts of SpinCycle.

Cash and cash equivalents

The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. The carrying value of cash equivalents approximates
fair value. At December 31, 2000, $141,059 of time deposits
were pledged as collateral on outstanding letters of credit
related to agreements in place with suppliers and as collateral
for the Companys corporate office lease agreement.

Concentration of risk

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

Use of estimates

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

Landlord allowances and deferred rent

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

Inventory

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

Property and equipment

Property and equipment are stated at cost. Capitalized amounts
include expenditures which materially extend the useful lives of
existing facilities and equipment. Expenditures for repairs and
maintenance, which do not materially extend the useful lives of
the related assets, are charged to expense as incurred. During
construction, the Company capitalizes interest monthly by
applying the effective interest rate on certain borrowings to
the average balance of expenditures. Interest capitalized during
the years 2000, 1999 and 1998 was $1,612, $163,332 and $351,787,
respectively.

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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

During fiscal 1999 the Company closed three stores and
recognized a loss of $1,003,653 including the writedown of
leasehold improvements and the accrual of lease obligations
remaining for these stores through the conclusion of their lease
terms. This loss has been included in the caption Loss on
impairment and disposal of long-lived assets in the
accompanying statements of operations. At December 31, 2000
the Company has also included $321,201 in other noncurrent
liabilities and $97,638 in accrued liabilities representing the
obligations remaining under the related leases.

Depreciation and amortization

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

|                                               |  |                                        
|---------------------------------------------- |  | ---------------------------------------
|                                               |  | Years                                  
|                                               |  |                                        
|Laundry equipment                              |  | 7 to 15                                
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  | Shorter of economic life or lease term.
|                                              
|                                              
|                                              
|                                              
|Computer and office equipment                  |  | 5                                      
|                                              
|                                              
|                                              
|                                              
|Store equipment (other than laundry equipment) |  | 5                                      

Goodwill and impairment of long-lived
assets

Goodwill represents the excess of cost over the net tangible and
identifiable intangible assets of acquired businesses. Goodwill
is stated at cost and is amortized on a straight-line basis over
15 years. Pursuant to SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, the Company evaluates the
recoverability of goodwill and its other long-lived assets
whenever a significant change in the business environment
indicates that expected future net cash flows (undiscounted and
without interest) would become less than the carrying amount of
the asset. Accumulated amortization of goodwill amounted to
$2,533,366 at December 31, 2000, $1,591,000 at
December 26, 1999 and $642,576 at December 27, 1998.

During the fourth quarter of fiscal 1999 the Company updated its
evaluation of the recoverability of goodwill and other
long-lived assets associated with certain under performing
stores that continue in operation. Based on this analysis, the
Company determined that the long-lived assets associated with
two stores were substantially impaired and, as a result,
recorded an impairment loss of $585,000. The impairment losses
were determined based on estimated net realizable values and
projections of net cash flows. This loss has been included in
the caption Losses on impairment and disposal of
long-lived assets in the accompanying statements of
operations. This loss has been applied against goodwill and
leasehold improvements associated with these stores.

Revenue recognition

The Company recognizes revenue upon performance of services.

Stock compensation

The Company measures compensation cost related to employee stock
options using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, Accounting for
Stock Issued to Employees. The fair value based method of
accounting is used for equity instruments issued to
non-employees for goods or services.

Income taxes

The Company accounts for income taxes under the liability method
of accounting pursuant to Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
Deferred tax assets and

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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities
using currently enacted tax rates.

As a result of the current uncertainty as to the future
realizability of the deferred tax asset, no income tax benefit
has been recorded in the financial statements.

Advertising costs

The Company expenses advertising costs as incurred. The Company
incurred $384,957, $320,485 and $1,026,193 in advertising costs
for the fiscal years ended December 31, 2000,
December 26, 1999 and December 27, 1998, respectively.

Pre-opening costs

The Company expenses pre-opening costs as incurred. The Company
incurred no pre-opening costs during the fiscal year ended
December 31, 2000 and $116,882 and $691,890 in pre-opening
costs during the years ended December 26, 1999 and
December 27, 1998 respectively.

Earnings per share

Net loss per common share is computed using the provisions of
Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings per Share, which requires the
presentation of basic earnings per share (EPS) and
diluted EPS. Basic EPS is computed by dividing the net loss
applicable to holders of common stock by the weighted average
number of common shares outstanding during each period. Diluted
EPS is computed by dividing the net loss by the weighted average
number of common shares outstanding during the period adjusted
for dilutive stock options and warrants and dilutive common
shares assumed to be issued on conversion of preferred stock to
common stock. Diluted EPS has not been presented as the
computation is anti-dilutive due to the Companys net loss
in each period.

Liquidity and Basis of Presentation

The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the regular course
of business. During fiscal 2000, the Company experienced a net
loss of $28,622,466 and at December 31, 2000 had an
accumulated deficit of $104,305,321. The Companys history
of losses has been largely due to the large general and
administrative infrastructure it put in place to handle the
rapid growth it has experienced, as well as depreciation and the
accretion of interest on its senior discount notes. Beginning on
November 1, 2001, the Company will be required to make
semi-annual cash interest payments of approximately $9.24
million on its senior discount notes. Additionally, on
September 30, 2001, the Company will be required to repay
the principal balance owing on the LaSalle facility. These
payments, which are substantially in excess of any historic net
cash flow the Company has generated, will be in addition to its
selling, general and administrative expense and any other
interest or other expenses it may have at that time, which has
caused the Company to classify all debt as current. These
factors, among others, raise substantial doubt about the
Companys ability to continue as a going concern. During
the second fiscal quarter of 2001, we expect to solicit our
shareholders and subordinated debt holders in order to
restructure our outstanding subordinated debt through a debt for
equity exchange. If we accomplish this, we will have
substantially reduced the amount of debt on our balance sheet,
the holders of our subordinated debt will own substantially all
of SpinCycle, and will be in a position to add locations to our
existing markets in which we have had the greatest success
through the use of internally generated cash flow and the
procurement of additional growth capital. Absent this
transaction, we expect to be unable to make the semi-annual
interest payments on our subordinated debt, in the amount of
approximately $9.24 million, and would likely face bankruptcy.
The financial statements do not include any adjustments relating
to the

20



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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

realization of assets and classification of liabilities that
might be necessary should the Company be unable to continue as a
going concern.

3.  Sale-Leaseback Transactions

On December 31, 1997, the Company entered into a
sale-leaseback transaction with newly formed SpinDevCo, L.L.C.
(SpinDevCo), a subsidiary of McMahon-Oliphant, Inc. SpinDevCo,
McMahon-Oliphant, Inc. and their affiliates have no relationship
or connection with the Company or any of its affiliates other
than the transaction described in this note. Eleven properties
consisting of land of $2.4 million and improvements of $4.0
million thereon that were previously acquired by the Company
were sold to SpinDevCo for approximately $6.4 million, then
leased back under an operating lease with a 20-year term. The
Company received approximately $1.5 million in cash and a note
in the principal amount of approximately $4.9 million, which was
originally due and payable on April 30, 1998. The note was
secured by mortgages on the properties. The transaction also
required the Company to contribute in cash approximately
$2,450,000 to be applied towards additional tenant improvements
for the properties. SpinDevCo requested, and on May 30,
1998 the Company granted, an extension (the Extended
Note) of the maturity date of the note through
September 30, 1998 in return for the payment of $125,000 of
accrued interest and additional interest payments through that
date. The purpose of this extension was to allow SpinDevCo
additional time to obtain the permanent financing with which to
repay the Companys note. On October 15, 1998, the
Company received approximately $4.9 million in cash from
SpinDevCo in repayment of outstanding principal and interest on
the Extended Note. Simultaneously, the Company purchased three
sites from SpinDevCo for approximately $1.75 million in cash,
the same amount for which it had previously sold them to
SpinDevCo. The Company is currently operating stores at these
three sites.

On June 17, 1999, the Company entered into a sale-leaseback
transaction with MBI Leasing, Inc. One property consisting of
land of $220,000 and improvements of $750,000 thereon that was
previously acquired by the Company was sold to MBI Leasing, Inc.
for approximately $535,000, then leased back under an operating
lease with a 20-year term. The Company received cash for this
transaction. The transaction qualifies for sale-leaseback
accounting in accordance with SFAS No. 98 Accounting
for Leases  Sale-Leaseback Transactions Involving
Real Estate. The Company recognized a loss on the sale of
approximately $390,000.

Land held for sale-leaseback of $1,919,209 at December 31,
2000 is stated at cost which approximates estimated net
realizable value.

4.  Property and Equipment

Property and equipment consists of the following:

|                              |                                |              |             |              |   |   |             |             |  
|----------------------------- | ------------------------------ | ------------ | ----------- | ------------ | - | - | ----------- | ----------- | -
|                              |                                | December 31, |             | December 26,
|                              |                                | 2000         |             | 1999        
|                              |                                |              |             |             
|Leasehold improvements        |                                | $            | 64,348,864  |              |   | $ | 63,634,738  |            
|                             
|                             
|                             
|                             
|Laundry equipment             |                                |              | 42,182,019  |              |   |   | 41,678,878  |            
|                             
|                             
|                             
|                             
|Land                          |                                |              | 501,206     |              |   |   |            |            
|                             
|                             
|                             
|                             
|Store equipment               |                                |              | 7,084,396   |              |   |   | 6,856,352   |            
|                             
|                             
|                             
|                             
|Computer and office equipment |                                |              | 8,272,773   |              |   |   | 8,062,340   |            
|                              |                                |              |             |              |   |   |             |            
|                              |                                |              | 121,888,052 |              |   |   | 120,232,308 |            
|                             
|                             
|                             
|                             
|                              | Less: Accumulated depreciation |              |             | (38,585,821  | ) |   |             | (24,990,698 | )
|                              |                                |              |             |              |   |   |             |            
|                              |                                | $            | 83,803,437  |              |   | $ | 95,241,610  |            
|                              |                                |              |             |              |   |   |             |            

Effective June 15, 1998, the Company revised its estimate
of the useful lives of its laundry equipment. Laundry equipment
was previously depreciated over ten years and those lives have
now been changed to

21



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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

periods that range from seven up to 15 years. The useful
life changes for laundry equipment were made to better reflect
the estimated periods during which these assets will remain in
service. The lives were revised for previously recorded assets
and newly acquired assets. The effect of the change was a
reduction to depreciation expense and a corresponding decrease
to the net loss applicable to holders of common stock for the
year ended December 27, 1998 of approximately $538,823, or
$18.80 per share.

Depreciation expense was $13,707,160, $13,361,828 and $8,917,958
for the years ended December 31, 2000, December 26,
1999 and December 27, 1998, respectively.

5.  Acquisitions

During the year ended December 27, 1998, the Company
acquired 40 existing coin laundry businesses for a total cash
outlay of $26,880,283, net of cash acquired. These acquisitions
were accounted for under the purchase method of accounting. In
connection with these acquisitions, the Company recorded
goodwill of $7,710,115 and did not assume any material
liabilities of the sellers other than, in certain cases,
assuming the leases of the related real property. Goodwill is
amortized on a straight-line basis over 15 years.

The following unaudited pro forma information presents a summary
of results of operations of the Company and the acquired coin
laundry businesses as if the acquisitions had occurred
January 1, 1998.

|                          |  |                   |             |  
|------------------------- |  | ----------------- | ----------- | -
|                          |  | Year ended       
|                          |  | December 27, 1998
|                          |  |                  
|                          |  | (unaudited)      
|                         
|                         
|                         
|                         
|Net sales                 |  | $                 | 37,897,974  |  
|                         
|                         
|                         
|                         
|Net loss                  |  | $                 | (25,389,546 | )
|                         
|                         
|                         
|                         
|Net loss per common share |  | $                 | (963.23     | )

These unaudited pro forma results have been prepared for
comparative purposes only and include certain adjustments, such
as additional depreciation expense as a result of a step-up in
the basis of fixed assets, additional amortization expense as a
result of goodwill and other intangible assets, and an increased
interest expense on acquisition debt. They do not purport to be
indicative of the results of operations which actually would
have resulted had the combinations been in effect on
January 1, 1998 or of future results of operations of the
entities.

6.  Other Assets

In connection with the issuance of the senior discount notes
(Notes), as discussed in Note 7, the Company
paid approximately $5.0 million of debt issue costs, which are
being amortized over the term of the Notes. In connection with
the LaSalle and Alliance credit facilities as discussed in
Note 7, the Company paid approximately $338,000 of debt
issue costs, which are being amortized over the term of these
facilities. The unamortized balance of these debt issue costs is
included as a component of other assets on the Companys
balance sheet at December 31, 2000 and December 26,
1999.

22



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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

7.  Long-term Debt

At December 31, 2000 and December 26, 1999, long-term
debt included:

|                                                                                                                                   |  |      |              |      |  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------------ | ---- |  | - | ----------- | -
|                                                                                                                                   |  | 2000 |              | 1999
|                                                                                                                                   |  |      |              |     
|12.75% Senior Discount Notes Due 2005 ($144,990,000 principal
	amount), net of unamortized discount                                |  | $    | 134,473,774  |      |  | $ | 117,204,370 |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Alliance Laundry Systems LLC Credit Facility; interest at prime
	plus 1.0%; due in installments through 2006                       |  |      | 2,969,913    |      |  |   | 3,000,000   |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|LaSalle Bank National Association Credit Facility; interest at
	either prime plus 1.0% or LIBOR plus 3.0%; due
	September 30, 2001 |  |      | 6,494,051    |      |  |   | 7,494,051   |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Other notes payable; interest at 11% due in various installments
	through September 2001                                           |  |      | 183,531      |      |  |   | 449,884     |  
|                                                                                                                                   |  |      |              |      |  |   |             |  
|                                                                                                                                   |  |      | 144,121,269  |      |  |   | 128,148,305 |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Less current portion                                                                                                               |  |      | (144,121,269 | )    |  |   | (207,460    | )
|                                                                                                                                   |  |      |              |      |  |   |             |  
|                                                                                                                                   |  | $    | 0            |      |  | $ | 127,940,845 |  
|                                                                                                                                   |  |      |              |      |  |   |             |  

Long-term debt is scheduled to mature during future fiscal years
as follows. However, as indicated in the following paragraph, it
is probable the debt will become due in full in 2001:

|           |  |   |             | 
|---------- |  | - | ----------- | 
|          
|          
|          
|          
|2001       |  | $ | 6,827,583   | 
|          
|          
|          
|          
|2002       |  |   | 600,000     | 
|          
|          
|          
|          
|2003       |  |   | 600,000     | 
|          
|          
|          
|          
|2004       |  |   | 600,000     | 
|          
|          
|          
|          
|2005       |  |   | 145,590,000 | 
|          
|          
|          
|          
|Thereafter |  |   | 419,913     | 
|           |  |   |             | 
|           |  | $ | 154,637,496 | 
|           |  |   |             | 

Although the Company is in compliance with its restrictive debt
covenants at the balance sheet date, historical operating
results indicate that it is probable that the Company will fail
to be able to make its interest payment on its senior discount
notes due in November 2001. This will trigger an event of
default under the note indenture and, pursuant to the terms of
the indenture, may make the Notes due and payable on that date.
In addition, cross-default provisions in the LaSalle and
Alliance facilities will also trigger as a result of the default
on the notes. As such, all debt has been classified as current.

On April 29, 1998, the Company completed the offering of
$144,990,000 aggregate principal amount at maturity of 12.75%
unsecured senior discount notes (the Notes) and
warrants (the Warrants) to purchase 26,661 shares of
the Companys common stock with an exercise price of $0.01
per share for gross proceeds to the Company of $100,001,053 (the
Offering). The net proceeds from the Offering of
approximately $96.8 million, net of underwriting expenses, were
used principally to pay certain other expenses of the Offering ,
repay approximately $46.9 million in existing indebtedness, to
provide funds for investment in new stores and for general
corporate purposes. The Notes will mature on May 1, 2005.
For the fiscal years ended December 31, 2000,
December 26, 1999 and December 27, 1998, the Company
accreted non-cash interest expense in the amount of $17,269,406,
$14,243,841 and $8,584,476, respectively. No cash interest will
accrue on the Notes prior to May 1, 2001. The Notes will
begin to accrue cash interest at a rate of 12.75% per annum
commencing May 1, 2001, and cash interest will be payable
thereafter on November 1 and May 1 of each year, commencing
November 1, 2001. The Notes will be redeemable at the
option of the Company, in

23



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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

whole or in part, on or after May 1, 2002, at the following
redemption prices if redeemed during the 12-month period
commencing on May 1 of the years set forth below:

|                    |  |            |         |  
|------------------- |  | ---------- | ------- | -
|                    |  | Redemption
|Period              |  | Price     
|                    |  |           
|2002                |  |            | 106.375 | %
|                   
|                   
|                   
|                   
|2003                |  |            | 103.188 | %
|                   
|                   
|                   
|                   
|2004 and thereafter |  |            | 100.000 | %

In addition, at any time and from time to time prior to
May 1, 2001, the Company may redeem in the aggregate up to
35% of the Accreted Value of the Notes with the proceeds of one
or more Public Equity Offerings following which there is a
Public Market, at a redemption price of 112.75% of the Accreted
Value to the date of redemption; provided, however, that at
least $94.2 million of the aggregate principal amount of the
Notes at maturity remain outstanding after any such redemption.
Upon a Change of Control, each holder of the Notes (a
Holder) will have the right to require the Company
to purchase all or any part of such Holders Notes at a
purchase price equal to 101% of the Accreted Value thereof, plus
accrued and unpaid interest, if any, to the date of purchase.

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

The Notes contain certain covenants, the most restrictive of
which is the ability to limit the Company from incurring
additional indebtedness and issuing preferred stock.

Prior to the Offering, the Company had in place a $45.0 million
credit facility from Raytheon Commercial Laundry, LLC
(Raytheon), one of the largest commercial laundry
equipment vendors, which had most recently provided the Company
with approximately $30.0 million of equipment financing and
$15.0 million of acquisition financing. This facility provided
100% financing for commercial laundry equipment purchases (based
upon list prices) and store acquisitions. The Company procured a
bank credit facility with LaSalle National Bank
(LaSalle) in March 1998, which provided the
Company with $15.0 million for acquisitions and general
corporate purposes. On April 29, 1998, the Company repaid all
indebtedness outstanding under these two facilities with the net
proceeds from the Offering and terminated the related loan
agreements (see Note 15.)

On April 29, 1998, the Company also closed a secured
revolving credit facility in the maximum principal amount of
$40.0 million with Heller Financial, Inc.

On November 17, 1999 the Company entered into a $12.0
million secured revolving credit facility with LaSalle to
replace its secured revolving credit facility from Heller.
Availability under the Heller facility was based upon a
borrowing base formula determined by income from store
operations and net book value of laundry equipment. At the time,
the Company had borrowed $9.3 million and had no additional
borrowing capacity on the $40.0 million Heller facility.

The LaSalle facility financial covenants include minimum
tangible net worth, a senior interest coverage ratio and a
minimum net book value of laundry equipment. The LaSalle
facility will mature on September 30, 2001, and requires
monthly payment of interest only until that date. All principal
and interest accrued but unpaid at maturity are payable on the
maturity date.

24



---



##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

Obligations under the LaSalle facility bears interest with
reference to either the Reference Rate or the
LIBOR Rate as we determine at the time the Company
incurs each obligation. Reference Rate Loans shall
bear interest at the rate of prime (as set by LaSalle from time
to time) plus 1.0%. LIBOR Rate Loans shall bear
interest at the rate of 3.0% plus the interest rate per annum
equal to the quotient obtained by dividing (x) the rate of
interest determined by LaSalle to be the average of the rate per
annum at which deposits in U.S. dollars are generally offered to
LaSalle in the London Interbank Market at 11:00 A.M. London
time, two business days before the first day of such interest
period, for a period equal to such interest period and in the
amount of the applicable LIBOR Rate Loan by (y) the
difference between 100% and any applicable reserve requirements
(rounded upward to the nearest whole multiple of 1/100 of one
percent per annum), including without limitation, any statutory
maximum requirement for LaSalle to hold reserves for
Eurocurrency Liabilities under Regulation D of
the Board of Governors of the Federal Reserve System (or any
similar reserves under any successor regulation or regulations).

Simultaneous with the closing of the LaSalle facility, the
Company entered into a revolving credit facility with Alliance
Laundry Systems LLC in the maximum principal amount of $3.0
million. Alliance is the Companys main laundry equipment
supplier. The Alliance facility requires monthly payments of
interest only, until and including the first business day of
September 2001. Thereafter, the facility requires
59 monthly payments comprised of $50,000 of principal plus
the accrued interest on the unpaid principal balance and a
sixtieth payment of accrued interest only. Obligations under the
Alliance facility shall bear interest at the rate of prime (as
set by LaSalle from time to time) plus 1.0%. The financial
covenants under the Alliance facility include minimum tangible
net worth, a senior interest coverage ratio and a minimum net
book value of laundry equipment.

In connection with these loans, LaSalle and Alliance entered
into an intercreditor agreement pursuant to which they agreed to
allocate between them first priority security interest upon
(I) all of the Companys now owned and hereafter
acquired real and personal property and all proceeds thereof and
(II) all general intangibles and other intangible assets
(including, without limitation, trademarks and trade names), of
the Companys, if any, and the proceeds thereof such that
Alliance has first priority with respect to those assets at and
in connection with 15 of the Companys stores and LaSalle
has a first priority security interest in the balance of the
Companys assets. The Company used the $3.0 million of
proceeds from the Alliance facility to pay down the LaSalle line
to approximately $7.1 million and to finance amounts it owed to
Alliance. Additionally, the Company drew approximately $350,000
to cover accrued interest on the Heller facility and costs
associated with the closing of the LaSalle and Alliance
facilities. The Company currently has $5.5 million of borrowing
availability under the LaSalle facility. LaSalle has reserved
the right to reduce the Companys availability under the
facility in an amount not to exceed $1.0 million if the Company
has not obtained appropriate consents from the landlords of all
of its leased stores on or before December 26, 1999.
Obtaining these consents was a closing condition which LaSalle
waived at closing. As of December 31, 2000 the Company had
obtained approximately 95% of the required consents. LaSalle has
not notified the Company that its ability has been limited by
$1.0 million. During the fourth quarter of 1999, the Company was
required to write off deferred financing charges which had been
capitalized in connection with the Heller facility.

The LaSalle and Alliance facilities specify customary events of
default including non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and
warranties, cross defaults to other agreements, bankruptcy and
insolvency events and material judgements and liabilities.

Effective September 30, 2000, the Company and LaSalle Bank
National Association executed an amendment to the LaSalle
Facility that modified the minimum tangible net worth and
capitalized expenditure covenants. Additionally, effective
September 30, 2000, the Company and Alliance Laundry
Systems LLC executed an amendment to the Alliance Facility that
modified the minimum tangible net worth covenant. The minimum
tangible net worth covenant was the covenant for which the
Company received waivers in its fourth quarter, 1999, its first
quarter 2000, and its second quarter, 2000.

25



---



##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

On September 18, 1998, the Company entered into an
agreement with PeopleSoft USA, Inc. (PeopleSoft) for
the purchase of a new accounting software system and the related
hardware, installation and training fees. The transaction was
financed through several installments of a note payable to
Newcourt Financial USA, Inc. The Company began utilizing the
software for substantially all of its accounting processes at
the beginning of its fiscal 1999 second quarter. As of
December 31, 2000, the Company owed $180,740 on this note.
The note bears interest at a rate of 11% and is due in several
installments, the last of which is due September 18, 2001.
The note agreement contains no financial covenants.

8.  Income Taxes

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

|                         |                                  |              |            |              |   |   |            |             |  
|------------------------ | -------------------------------- | ------------ | ---------- | ------------ | - | - | ---------- | ----------- | -
|                         |                                  | December 31, |            | December 26,
|                         |                                  | 2000         |            | 1999        
|                         |                                  |              |            |             
|Deferred tax assets:     |                                  |              |            |              |   |   |            |            
|                        
|                        
|                        
|                        
|                         | Net operating loss carryforwards |              | $          | 22,399,445   |   |   | $          | 17,694,768  |  
|                        
|                        
|                        
|                        
|                         | OID Interest                     |              |            | 13,528,433   |   |   |            | 8,358,631   |  
|                        
|                        
|                        
|                        
|                         | Other                            |              |            | 1,380,816    |   |   |            | 2,088,594   |  
|                         |                                  |              |            |              |   |   |            |            
|                         |                                  | $            | 37,308,694 |              |   | $ | 28,141,993 |            
|                         |                                  |              |            |              |   |   |            |            
|Deferred tax liabilities |                                  |              |            |              |   |   |            |            
|                        
|                        
|                        
|                        
|                         | Amortization                     |              |            | (336,755     | ) |   |            |            |  
|                        
|                        
|                        
|                        
|                         | Other                            |              |            | (33,688      | ) |   |            | (23,272     | )
|                         |                                  |              |            |              |   |   |            |            
|                         |                                  |              | (370,443   | )            |   |   | (23,272    | )          
|                         |                                  |              |            |              |   |   |            |            
|Net deferred tax asset   |                                  |              | 36,938,251 |              |   |   | 28,118,721 |            
|                        
|                        
|                        
|                        
|                         | Less: valuation allowance        |              |            | (36,938,251  | ) |   |            | (28,118,721 | )
|                         |                                  |              |            |              |   |   |            |            
|                         |                                  | $            |           |              |   | $ |           |            
|                         |                                  |              |            |              |   |   |            |            

In assessing the realizability of its deferred tax assets, the
Company considers whether it is more likely than not that some
or all of such assets will be realized. As a result of
historical operating losses, the Company has fully reserved its
net deferred tax assets as of December 31, 2000. The
Company will consider release of the valuation allowance once
profitable operations have been sustained.

As of December 31, 2000, the Company had net operating loss
carryforwards of approximately $59.0 million,which will
begin to expire in 2011. In the event of a change in ownership
as defined by section 382 of the Internal Revenue Code, a
significant limitation may be imposed on the availability of the
Companys net operating loss carryforwards. It is probable
that the Company has experienced one or more ownership changes
in prior years as a result of the Company raising various rounds
of private equity or that such an ownership change may have
occurred or be deemed to have occurred.

9.  Capital Stock

The Company has issued 76,974 shares of series A, 125,498 shares
of series B, and 72,930 shares of series C convertible preferred
stock (collectively, the Preferred Stock). Concurrently with the
closing of its 1998 senior discount note offering, the
redemption rights of the holders of the Preferred
Stock were terminated. The previous put rights could have
required the Company to purchase all of the Preferred Stock at
any time after June 1, 2001, at a redemption price equal to
the greater of the purchase price of the shares plus accrued but
unpaid dividends, if any, or, the appraised value of the shares.

Holders of the Preferred Stock are entitled to one vote for each
share held on all matters and do not have cumulative voting
rights. Dividends on the preferred stock are payable only when
declared by the Board of

26



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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

Directors and are not cumulative. Each share of the Preferred
Stock is convertible into one share of common stock on a
one-for-one basis and will be converted into common stock
concurrently with a qualified public offering of the
Companys common stock. The Company has reserved common
shares equivalent to the outstanding preferred shares. The
Preferred Stock has a liquidating preference over the common
stock. In the event of liquidation, the holders of Preferred
Stock are entitled to receive an amount equal to the price paid
for the shares to the Company and participate on a pro rata
basis with common stock shareholders for the remaining assets of
the Company. In connection with the issuance of the Preferred
Stock, the Company incurred approximately $1,043,000 of issuance
costs.

On April 14, 1998, 7,295 shares of the Companys
common stock were issued to series C stockholders in connection
with the re-pricing of the series C convertible preferred stock
offering, originally priced at $220 per share. Pursuant to a
stockholder consent dated March 18, 1998 and obtained as of
April 14, 1998, the series C offering was converted to a
unit offering, whereby each series C unit offered was comprised
of ten shares of series C preferred stock and one share of
common stock for $2,200 per unit. In accordance with existing
authoritative guidance, the additional fair value of the
consideration transferred to series C stockholders of $1,459,000
(i.e. the 7,295 shares of common stock issued in connection with
the conversion of the original offering to a unit offering
multiplied by $200 per share) has been treated as a return to
series C stockholders. Accordingly, $1,459,000 has been deducted
from the Companys net loss for the fiscal year ended
December 27, 1998 in determining the net loss applicable to
common shareholders for the calculation of earnings per share.

10.  Stock Options

The SpinCycle, Inc. 1995 Amended and Restated Stock Option Plan
(the Plan) provides for the issuance of employee
stock options. Under the provisions of the Plan, the
Compensation and Organization Committee (the
Committee), which is appointed by the Board of
Directors of the Company has the discretion to determine, among
other things, the employees to whom options may be granted; the
number of options to be granted; the vesting period assigned to
the options; and such other terms and conditions, consistent
with the terms of the Plan, as the Committee deems appropriate.
Substantially all options currently outstanding at
December 31, 2000 vest ratably over a five year period from
the date granted. The Committee also has the discretion to
determine whether options granted shall be Incentive Stock
Options (ISOs) within the meaning of section 411(a)
of the Internal Revenue Code or non-qualified stock options. The
Company has reserved 69,270 shares of its common stock for
issuance in connection with the Plan.

During 1997, the Companys Board of Directors approved a
similar stock option plan for non-employee directors (the
Director Option Plan). As of December 31, 2000,
options granted to purchase 400 shares of the Companys
common stock are outstanding. The Company has reserved 2,000
shares of its common stock for issuance in connection with this
plan.

The option price for all non-qualified stock options is also
determined by the Committee, provided that in no event shall it
be less than 85% of the fair market value of the stock at the
time the option is granted. The option price for each option
which is intended to qualify as an ISO shall be 100% of the fair
market value of the stock at the time the option is granted
(110% if the participant owns at least 10% of the stock
immediately before the ISO is granted). A summary of option
activity under both the Plan and the Director Option Plan for
each of the fiscal years ended December 27, 1998 and
December 26, 1999 and December 31, 2000 is as follows.

27



---



##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

|                                                                              |                    |        |         |          |   |   |        |        | 
|----------------------------------------------------------------------------- | ------------------ | ------ | ------- | -------- | - | - | ------ | ------ | 
|                                                                              |                    |        |         | Weighted
|                                                                              |                    |        |         | Average 
|                                                                              |                    | Option |         | Exercise
|                                                                              |                    | Shares |         | Price   
|                                                                              |                    |        |         |         
|Outstanding at December 28, 1997                                              |                    |        | 31,129  |          |   |   | 142.33 |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Activity during Fiscal Year 1998:                                             |                    |        |         |          |   |   |        |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Granted            |        |         | 21,173   |   |   |        | 200.00 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Exercised          |        |         |         |   |   |        |       | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Expired/terminated |        |         | (11,629  | ) |   |        | 146.84 | 
|                                                                              |                    |        |         |          |   |   |        |       
|Outstanding at December 27, 1998                                              |                    |        | 40, 673 |          |   |   | 171.00 |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Activity during Fiscal Year 1999:                                             |                    |        |         |          |   |   |        |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Granted            |        |         | 3,276    |   |   |        | 200.00 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Exercised          |        |         |         |   |   |        |       | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Expired/terminated |        |         | (9,925   | ) |   |        | 198.79 | 
|                                                                              |                    |        |         |          |   |   |        |       
|Outstanding at December 26, 1999                                              |                    |        | 34,024  |          |   | $ | 166.19 |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Activity during Fiscal Year 2000:                                             |                    |        |         |          |   |   |        |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Granted            |        |         | 17,570   |   |   |        | 76.37  | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Exercised          |        |         |         |   |   |        |       | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Expired/terminated |        |         | (2,392   | ) |   |        | 178.18 | 
|                                                                              |                    |        |         |          |   |   |        |       
|Outstanding at December 31, 2000                                              |                    |        | 49,202  |          |   | $ | 132.23 |       
|                                                                              |                    |        |         |          |   |   |        |       
|Exercisable at December 31, 2000                                              |                    |        | 15,445  |          |   | $ | 167.26 |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Exercisable at December 26, 1999                                              |                    |        | 14,284  |          |   | $ | 165.64 |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Exercisable at December 27, 1998                                              |                    |        | 7,680   |          |   | $ | 153.23 |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Weighted average grant-date fair value of options granted during
	fiscal 2000 |                    |        | 17,570  |          |   | $ | 0.00   |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Weighted average grant-date fair value of options granted during
	fiscal 1999 |                    |        | 3,276   |          |   | $ | 0.00   |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Weighted average grant-date fair value of options granted during
	fiscal 1998 |                    |        | 21,173  |          |   | $ | 45.27  |       

The following table summarizes information about our stock
options outstanding as of December 31, 2000:

|                |        |                     |  |                     |        |                  |  |             |      |                  |  |   |        |  |  |  |       |  |  |   |        | 
|--------------- | ------ | ------------------- |  | ------------------- | ------ | ---------------- |  | ----------- | ---- | ---------------- |  | - | ------ |  |  |  | ----- |  |  | - | ------ | 
|                |        |                     |  |                    
|                |        | Options Outstanding |  | Options Exercisable
|                |        |                     |  |                    
|                |        | Number              |  | Weighted-Average    |        |                  |  | Number      |      |                 
|Range of        |        | Outstanding         |  | Remaining           |        | Weighted-Average |  | Exercisable |      | Weighted-Average
|Exercise Prices |        | at 12/31/00         |  | Contractual Life    |        | Exercise Price   |  | at 12/31/00 |      | Exercise Price  
|                |        |                     |  |                     |        |                  |  |             |      |                 
|$               | 75.00  |                     |  |                     | 17,450 |                  |  |             | 9.17 |                  |  | $ | 75.00  |  |  |  |      |  |  | $ | 75.00  | 
|$               | 125.00 |                     |  |                     | 15,376 |                  |  |             | 6.31 |                  |  | $ | 125.00 |  |  |  | 6,960 |  |  | $ | 125.00 | 
|$               | 200.00 |                     |  |                     | 16,376 |                  |  |             | 7.67 |                  |  | $ | 200.00 |  |  |  | 8,985 |  |  | $ | 200.00 | 

28



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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been
recognized for the stock option agreements. Had compensation
cost for the Companys agreements been determined based on
the fair value at the grant date for awards in 2000, 1999 and
1998 consistent with the provisions of SFAS No. 123, the
Companys net loss and net loss per common share would have
been increased to the pro forma amounts indicated below:

|                                        |  |      |            |      |  |      |            |   |  |   |            |  
|--------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                        |  | 2000 |            | 1999 |  | 1998
|                                        |  |      |            |      |  |     
|Net loss  as reported                  |  | $    | 28,622,466 |      |  | $    | 30,444,813 |   |  | $ | 24,655,068 |  
|                                       
|                                       
|                                       
|                                       
|Net loss  pro forma                    |  | $    | 28,856,414 |      |  | $    | 30,560,658 |   |  | $ | 24,862,349 |  
|                                       
|                                       
|                                       
|                                       
|Net loss per common share  as reported |  | $    | (1,030.16  | )    |  | $    | (1,096.60  | ) |  | $ | (937.60    | )
|                                       
|                                       
|                                       
|                                       
|Net loss per common share  pro forma   |  | $    | (1,039.38  | )    |  | $    | (1,100.77  | ) |  | $ | (944.83    | )

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

|                                         |  |      |         |      |  |      |         |   |  |  |         |  
|---------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                         |  | 2000 |         | 1999 |  | 1998
|                                         |  |      |         |      |  |     
|Expected dividend yield                  |  |      | 0.00    | %    |  |      | 0.00    | % |  |  | 0.00    | %
|                                        
|                                        
|                                        
|                                        
|Weighted-average risk-free interest rate |  |      | 6.50    | %    |  |      | 4.96    | % |  |  | 5.26    | %
|                                        
|                                        
|                                        
|                                        
|Expected life of options                 |  |      | 5 years |      |  |      | 5 years |   |  |  | 5 years |  

11.  Commitments

The Company leases substantially all of its stores and corporate
offices under operating leases that are not cancelable. The
leases expire at various dates through 2029. The Company has the
option to extend the terms of the leases for periods ranging
from five to 31 years. Certain leases require payment of
property taxes, utilities, common area maintenance costs and
insurance. Minimum lease payments due under the agreements for
future fiscal years are as follows:

|           |  |   |            | 
|---------- |  | - | ---------- | 
|          
|          
|          
|          
|2001       |  | $ | 10,522,446 | 
|          
|          
|          
|          
|2002       |  |   | 9,793,094  | 
|          
|          
|          
|          
|2003       |  |   | 9,293,159  | 
|          
|          
|          
|          
|2004       |  |   | 8,523,225  | 
|          
|          
|          
|          
|2005       |  |   | 8,214,271  | 
|          
|          
|          
|          
|Thereafter |  |   | 35,457,724 | 
|           |  |   |            | 
|           |  | $ | 81,803,919 | 
|           |  |   |            | 

Rent expense totaled $10,139,661, $10,133,620 and $7,280,216 for
the years ended December 31, 2000, December 26, 1999
and December 27, 1998, respectively.

The Company has entered into employment agreements with one of
its executive officers. This agreement does not exceed four
years in term, provides for a covenant not to compete for a term
of one year subsequent to termination of the agreements, and
provides for the payment of one year of base salary in the event
that the employees are terminated. Pursuant to the terms of this
agreement, upon separation with the Company on January 31,
2001, our most recent Chief Executive Officer was paid for the
remaining portion of his employment agreement (through
November 30, 2001). (See ITEM 11. Executive
Compensation herein.)

12.  Executive Severance Agreements

As a result of the resignation of the Companys former CEO
and Chairman of the Board of Directors in January 1998, and
in accordance with the terms of his employment agreement, the
Company was obligated to

29



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##### Table of Contents



SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

pay this executive $400,000 over the remaining two-year term of
his employment agreement. This amount, including related payroll
taxes, was accrued at December 28, 1997. In addition, in
March of 1998, the Company agreed to repurchase 18,019 shares of
common stock owned by this executive for a sum of $200,000 to be
paid as salary in the third year after his resignation. The
current and long-term portions of this liability are included in
accrued expenses and other liabilities, respectively, on the
Companys balance sheet at December 26, 1999.

In addition, the Company forgave a loan outstanding to the
executive of $50,000, plus any interest accrued thereon. The
expense associated with this forgiveness of debt is included in
general and administrative expenses in the Companys
statement of operations for the year ended December 28,
1997. This executive also relinquished rights to any stock
options previously granted to him by the Company as well as his
subordinate right of first refusal with respect to certain other
common shares.

In July 1998, the Company and the Companys former
Chief Operating Officer, agreed that he would leave the
Companys employ. Later, a legal dispute arose concerning
his departure. In October 1998, the Company and he agreed
to submit their dispute regarding their employment separation
agreement to mediation. While mediation did not resolve the
matter, the dispute was settled in February 1999. As a
result of the settlement, the Companys former Chief
Operating Officer received $125,000 from the Company to be paid
as salary over one year and another $170,000 from the
Companys insurance carrier which was paid in February of
1999.

On June 26, 2000, the Companys Chief Development
Officer, resigned from the Company in order to accept the
position of chief operating officer for Cleanwave LLC, of which
the Company is a majority owner through its wholly-owned
subsidiary, Cleanwave, Inc. he retains limited duties with the
Company, related to real estate matters. He derives his
compensation from Cleanwave LLC.

13.  Related Party Transactions

Two directors of the Company are partners in a law firm that
provides legal services to the Company. The Company paid
approximately $410,000, $840,000 and $2.3 million in legal fees
and costs to this firm during the fiscal years ended
December 31, 2000, December 26, 1999 and
December 27, 1998.

14.  Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation
sale. The carrying amounts for cash and cash equivalents,
landlord allowances, accounts payable and accrued expenses
reported in the Companys balance sheet approximate fair
value based on the short maturity of those instruments. The
carrying value of the LaSalle and Alliance facilities and the
other note payable is a reasonable estimate of fair value as the
risk is commensurate with the terms and collateral of the
agreement. The fair value of the Companys publicly traded
debt was approximately $14.0 million based on the bid prices in
the public bond market as of December 31, 2000 and $24.6
million based on the bid prices in the public bond market as of
December 26, 1999.

15.  Extraordinary Loss From Early Extinguishment of
Debt

In connection with the termination of the Raytheon and LaSalle
loan agreements in 1998, the Company recognized an extraordinary
loss of approximately $334,000 for the write-off of the
unamortized balance of debt issue costs related to these
agreements. This amounted to a net loss per share amount of
$11.64. There was no tax effect on this loss, based on the
Company fully reserving against the deferred tax asset.

In connection with the termination of the Heller facility on
November 17, 1999 (as discussed in Note 7), the
Company recognized an extraordinary loss of approximately
$782,000 for the write-off of the unamortized

30



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SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

balance of debt issue costs related to this agreements. This
amounted to a net loss per share amount of $28.15. There was no
tax effect on this loss, based on the Company fully reserving
against the deferred tax asset.

16.  Reduction in Force

On February 8, 1999, eight general and administrative
employees were released from their employment with the Company
as part of a reduction in force. This reduction in force was
primarily focused on the Companys growth related
personnel, including regional directors of development and
acquisitions and corporate and field level construction
managers. In connection with this reduction in force, the
Company paid approximately $55,000 in severance and
approximately $11,000 in accrued vacation benefits to these
eight employees. These expenses were recorded in the first
quarter of 1999.

On April 23, 1999, 20 general and administrative employees,
including the Companys Chief Information Officer, were
released from their employment with the Company as part of a
reduction in force. In connection with this reduction in force,
the Company paid approximately $72,000 in severance and
approximately $20,000 in accrued vacation benefits to these
employees. These expenses were recorded in the second quarter of
1999.

As a result of the Companys slowed expansion and
development and public equity offering prospects, the
Companys Chief Financial Officer, left the Company
effective May 6, 1999. Additionally, the companys
general counsel, was terminated June 10, 1999.

17.  Joint Ventures

On January 7, 2000, the Company formed E-Wash, Inc., a
Delaware corporation, as a wholly owned subsidiary. The
Companys board of directors designated E-Wash, Inc. as an
unrestricted subsidiary of the Company on February 3, 2000.
On February 28, 2000, E-Wash, Inc. formed E-Wash, LLC, a
Delaware single member limited liability company. These entities
were re-named CleanWave, Inc. and CleanWave, LLC, respectively,
on March 6, 2000. On May 30, 2000, these entities were
renamed as Cleanwave, Inc. and Cleanwave, LLC, respectively. All
references herein are to the entities as they were named as of
the end of the Companys second fiscal quarter of 2000.

On May 1, 2000, SpinCycle, Inc., through its wholly owned
subsidiary, Cleanwave, Inc., entered into an amended and
restated limited liability company agreement for Cleanwave, LLC,
and a unit purchase agreement, among other transaction
documents, with Shell Chemical Company (Shell).
Cleanwave, LLC now conducts the pick up and delivery laundry
business, which the Company had been testing in its Miami,
Florida market since August 1999. Pursuant to the unit
purchase agreement, Shell acquired units representing a 30%
interest in Cleanwave, LLC. The balance of Cleanwave, LLC units
are owned by Cleanwave, Inc. (52.5%) and seven members of the
Companys senior management (17.5% in the aggregate). The
seven members of senior management of the Company own their
units pursuant to restricted unit agreements, which provide that
one-third of each individuals units vest as of the date of
grant (February 28, 2000) and vest an additional one-third
on each of the first two anniversaries of the grant date. As the
remainder of these grants vest in the future, the Company will
determine their current value at the vesting dates in order to
recognize compensation expense. The Companys stockholders
approved the grant of these restricted units as of June 30,
2000.

Shell received one-third (10%) of its 30% interest in Cleanwave,
LLC in exchange for services rendered and expenses undertaken on
behalf of the venture prior to closing: these expenses related
primarily to market research. Shell purchased the remaining
two-thirds (20%) of its interest for $5.0 million in cash. The
$5.0 million was used to operate the Cleanwave business in the
Miami market through year end 2000, and to pay certain expenses
incurred by the parties prior to closing, such as branding and
capital expenditures. Shell also has the opportunity to earn up
to an additional 11% ownership interest in Cleanwave, LLC if and
when

31



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SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

Cleanwave, LLC enters into certain strategic relationships with
specified third parties and/or Shell provides certain services
to Cleanwave, LLC.

Cleanwave, LLC and Shell, and certain related parties of each,
concurrently entered into an intellectual property transfer and
license agreement regarding the ownership and licensing of
existing intellectual property owned by the Company and/or
contributed to Cleanwave, LLC and future intellectual property
created by and/or on behalf of the Company, Cleanwave, LLC or
Shell. Cleanwave and Shell also entered into an interim services
and products agreement pursuant to which Cleanwave agrees to
grant Shell a right of first refusal to provide certain products
and services to Cleanwave.

The Company is providing the laundry processing services
(personnel and facilities) to Cleanwave, LLC for a one-year
period, subject to extension and termination as agreed by the
parties. All personnel previously hired to drive vans and staff
the call center have become Cleanwave employees. SpinCycle is
being compensated for providing laundry processing services on a
price per pound basis as well as with fees to offset training
and field management services and to offset occupancy costs. The
Company has also agreed to provide certain administrative
services, such as payroll processing, human resources, executive
staffing and information systems, to Cleanwave, LLC for a term
of one year, subject to extension by the parties. For these
services the Company will receive 5% of Cleanwave, LLCs
annual gross revenues, subject to a minimum annual amount of
$250,000. Intercompany expenses between Cleanwave, LLC and the
Company were immaterial for the fiscal quarter ended
December 31, 2000.

A provision related to transactions with affiliates in the
LaSalle and Alliance facilities required that the Company obtain
waivers to enable this transaction. The Company obtained a
waiver from its lenders, LaSalle Bank National Association and
Alliance Laundry Systems LLC, in connection with this
transaction.

Based on the substantive participation rights granted to Shell
under the amended and restated limited liability company
agreement, the Company is not deemed to have effective control
of Cleanwave, LLC, therefore the equity method of accounting is
being applied. Additionally, the Company does not have a cash
investment nor has it loaned any funds to Cleanwave, LLC
constituting a basis in its interest in Cleanwave, LLC. As a
consequence, the Company has not recorded any of Cleanwave,
LLCs losses to date under the equity method or eliminated
its portion of any intercompany transactions. The Company will
continue this accounting treatment until such time as Cleanwave,
LLC becomes profitable, which is not expected to occur in the
foreseeable future.

18.  Future Accounting Pronouncement

In June 1998, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 133
entitled Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting
standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. If specific conditions
are met, a derivative may be specifically designated as a hedge
of specific financial exposures. The accounting for changes in
the fair value of a derivative depends on the intended use of
the derivative and, if it is used in hedging activities, it
depends on the effectiveness as a hedge. SFAS 133 is effective
for all fiscal quarters of fiscal years beginning after
June 15, 2000. SFAS should not be applied retroactively to
financial statements of prior periods. The Company will adopt
SFAS 133 when required. Because of its minimal use of
derivatives, The Company does not anticipate that the adoption
of SFAS 133 will have a significant effect on earnings or
financial position.

19.  Subsequent Events

On January 31, 2001, the Companys Chief Executive
Officer separated from the Company. He has been paid a lump sum
for the period remaining (through November 30, 2001) on his
employment agreement with

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SPINCYCLE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

the Company. The Companys former Chief Executive Officer
also resigned as a director and chairman of the Companys
board of directors. Hereafter, he will be focusing his efforts
on Cleanwave, LLC, of which the Company is a majority owner, and
of which he continues to be chief executive officer and interim
president. Effective as of January 31, 2001, SpinCycle has
engaged another person to assume the duties of chief executive
officer on an interim basis.

Following the hiring of the Companys current Chief
Executive Officer, who has an extensive background in multi-unit
retail management, the Company decided that it was no longer in
need of a chief operating officer. On March 11, 2001, the
Company released its Chief Operating Officer from his. He will
be paid an additional 14 weeks salary according to his
severance agreement.

33



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##### Table of Contents








|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
	Accounting And Financial Disclosure

None.




PART III






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

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

|                        |  |     |    |          |  |                                
|----------------------- |  | --- | -- | -------- |  | -------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|John B. Morlock         |  |     | 45 |          |  | Interim Chief Executive Officer
|                       
|                       
|                       
|                       
|Christopher A. Lombardi |  |     | 40 |          |  | Chief Development Officer      
|                       
|                       
|                       
|                       
|Alfredo Brener          |  |     | 49 |          |  | Director                       
|                       
|                       
|                       
|                       
|Robert Lunn             |  |     | 51 |          |  | Director                       
|                       
|                       
|                       
|                       
|James E. Hutton         |  |     | 62 |          |  | Director                       
|                       
|                       
|                       
|                       
|John H. Muehlstein      |  |     | 46 |          |  | Director                       
|                       
|                       
|                       
|                       
|Peer Pedersen           |  |     | 76 |          |  | Director                       
|                       
|                       
|                       
|                       
|John Wallace            |  |     | 40 |          |  | Director                       

John B. Morlockhas been the Interim Chief Executive
Officer since February 2001. From February 2000
through December 2000, John was the Chief Executive Officer
of Clubhouse International Inc. owner and operator of three
country club themed restaurants and was the President and Chief
Operating Officer of Clubhouse from January 1999 though
January 2000. From November 1998 until January 1999,
John was an Operational Vice President for Hollywood
Entertainment Corp. hired to oversee one-half of the United
States operations after a restructuring. From May 1997
until April 1998, John was Senior Vice President of
Operations, supervising 300 stores across the United States for
Einstein Bros Bagels and oversaw the conversion of those stores
from franchises to company-owned stores. Prior to Einstein Bros
Bagels, John was a Senior Vice President of Operations with
Boston Chicken, Inc. since January 1992.

Christopher A. Lombardihas been the Chief Development
Officer since March 1996 also, since June 2001 Chris
also has been the Chief Operating Officer of Cleanwave, LLC,
SpinCycles joint venture with Shell Chemical Company. From
May 1994 to March 1996, Mr. Lombardi served as
Vice President of Development of Northstar Restaurants, Inc., a
franchise area developer for Boston Chicken, Inc., where he
coordinated and directed the real estate selection and
construction in developing 54 stores in 22 months. From May
1990 to May 1994, Mr. Lombardi served as Franchise
Operations Manager for Blockbuster Video, Inc. During his four
years at Blockbuster, Mr. Lombardis territory grew
from 29 to 79 stores in the Midwestern United States and Western
Canada.

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

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

34



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##### Table of Contents



Robert J. Lunnhas been a Director since July 2000.
Since April 1996 Bob has been the Managing Partner and Chief
Investment Officer of Lunn Partners, LLC, a private investment
banking firm, of which he is also the founder. From May 1994
until establishing Lunn Partners, Bob was with Lehman Brothers,
as a Managing Director and a member of the Lehman Brothers
Operating Committee as well as the head of the Financial
Services Division which included Private Client Services, Global
Management, Performance Based Funds Management. Prior to Lunn
Partners Bob was with Morgan Stanley & Co. from 1987 until
1994 and was elected a Managing Director in 1987. Mr. Lunn
serves on the boards of Shaw Industries, Inc. and Blue Rhino
Corporation as well as several other privately held companies
and not-for-profit institutions

John H. Muehlsteinhas been a Director since
April 1997. Since 1986, Mr. Muehlstein has been a partner
of Pedersen & Houpt, P.C., Chicago, Illinois, counsel to the
Company. Mr. Muehlsteins practice focuses on private
capital transactions and corporate finance. Mr. Muehlstein
is a director of Blue Rhino Corporation, Cleanwave, LLC and
several other privately held companies. Mr. Muehlstein is a
nephew of Mr. Pedersen, another of our directors.

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

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






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

Summary Compensation Table.The following table sets
forth the compensation we paid during the years ended
December 31, 2000, December 26, 1999 and
December 27, 1998 to our Chief Executive Officer and our
four other executive officers with annual compensation of
$100,000 or more (collectively, the Named Executive
Officers). We did not grant stock appreciation rights to
any Named Executive Officer during the year ended
December 31, 2000.

|                            |                            |        |      |                     |  |                        |         |              |  |               |   |              |  |  |   |     |     |  |        |       |     |  |   |   | 
|--------------------------- | -------------------------- | ------ | ---- | ------------------- |  | ---------------------- | ------- | ------------ |  | ------------- | - | ------------ |  |  | - | --- | --- |  | ------ | ----- | --- |  | - | - | 
|                            |                            |        |      |                     |  |                       
|                            |                            |        |      | Annual Compensation |  | Long-Term Compensation
|                            |                            |        |      |                     |  |                       
|                            |                            |        |      |                     |  | Other                  |         | Securities   |  |              
|                            |                            |        |      |                     |  | Annual                 |         | Underlying   |  | All Other    
|                            |                            | Fiscal |      | Salary              |  | Bonus                  |         | Compensation |  | Stock Options |   | Compensation
|Name and Principal Position |                            | Year   |      | ($)                 |  | ($)(1)                 |         | ($)(2)       |  | (#)           |   | ($)         
|                            |                            |        |      |                     |  |                        |         |              |  |               |   |             
|Peter L. Ax                 |                            |        | 2000 |                     |  |                        | 300,000 |              |  |               | 0 |              |  |  | 0 | (4) |     |  | 11,000 |       |     |  | 0 |  
|                            | Chief Executive Officer    |        |      | 1999                |  |                        |         | 250,000      |  |               |   | 100,000      |  |  |   | 0   | (4) |  |        | 0     |     |  |   | 0 | 
|                            | and Chairman(3)            |        |      | 1998                |  |                        |         | 252,007      |  |               |   | 0            |  |  |   | 0   | (4) |  |        | 3,038 | (5) |  |   | 0 | 
|                           
|                           
|                           
|                           
|Christopher A. Lombardi     |                            |        | 2000 |                     |  |                        | 82,500  | (6)          |  |               | 0 |              |  |  | 0 | (4) |     |  | 1,000  |       |     |  | 0 |  
|                            | Chief Development Officer  |        |      | 1999                |  |                        |         | 150,000      |  |               |   | 25,000       |  |  |   | 0   | (4) |  |        | 0     |     |  |   | 0 | 
|                            |                            |        | 1998 |                     |  |                        | 147,884 |              |  |               | 0 |              |  |  | 0 | (4) |     |  | 2,038  | (5)   |     |  | 0 |  
|                           
|                           
|                           
|                           
|Matthew B. Campbell         |                            |        | 2000 |                     |  |                        | 175,000 |              |  |               | 0 |              |  |  | 0 | (4) |     |  | 3,500  |       |     |  | 0 |  
|                            | Chief Operating Officer(7) |        |      | 1999                |  |                        |         | 150,000      |  |               |   | 50,000       |  |  |   | 0   | (4) |  |        | 0     |     |  |   | 0 | 
|                            |                            |        | 1998 |                     |  |                        | 128,076 |              |  |               | 0 |              |  |  | 0 | (4) |     |  | 1,400  |       |     |  | 0 |  




|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(1) | Bonuses, unless otherwise noted, are recorded in the year
	earned. Bonuses for 1999 were paid in January 2000.

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|    |                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The amounts presented for each of the Named Executive Officers
	are comprised primarily of relocation compensation related to
	SpinCycles move to Arizona and automobile allowances.                                                                                                                        
|   
|(3) | Mr. Ax was Chief Executive Officer and Chairman of the
	Board of Directors until his resignation on January 31,
	2001. Pursuant to the terms of his employment agreement,
	Mr. Ax has been paid a lump sum for the period remaining
	(through November 30, 2001) on his employment agreement
	with SpinCycle.
|   
|(4) | The amounts of such perquisites and other personal benefits are
	not shown because the aggregate amount of such compensation, if
	any, did not exceed the lesser of $50,000 or 10% of total salary
	and bonus reported for such executive officer.                                                           
|   
|(5) | Each of Messrs. Ax and Lombardi were granted fully vested
	options to purchase 38 shares of common stock in connection with
	their respective agreements to relocate to Arizona.                                                                                                                             
|   
|(6) | On June 26, 2000 Mr. Lombardi was hired as chief
	operating officer of Cleanwave, LLC. His salary is being paid by
	Cleanwave, but he continues in his capacity as chief development
	officer of SpinCycle, Inc.                                                                                             
|   
|(7) | Mr. Campbell was Chief Operating Officer for SpinCycle
	until he was released on March 11, 2001. Mr. Campbell
	will be paid an additional 14 weeks salary according to his
	severance agreement.                                                                                                             

Option Exercises and Fiscal Year End Option Values

The following table sets forth certain information with respect
to the value of the stock options held by the Named Executive
Officers at December 31, 2000. No Named Executive Officer
exercised any stock options or stock appreciation rights during
the year ended December 31, 2000 or had any stock
appreciation rights outstanding at December 31, 2000.

Fiscal Year End Option Values

|                        |  |                      |       |                      |  |        |        |          |  |  |   |  |  |  |   | 
|----------------------- |  | -------------------- | ----- | -------------------- |  | ------ | ------ | -------- |  |  | - |  |  |  | - | 
|                        |  |                      |       |                     
|                        |  | Number of Securities |       | Value of Unexercised
|                        |  | Underlying           |       | In-the-Money        
|                        |  | Unexercised Options  |       | Options At          
|                        |  | at December 31,      |       | December 31,        
|                        |  | 2000(#)(1)           |       | 2000($)(2)          
|                        |  |                      |       |                     
|                        |  | Vested               |       | Unvested             |  | Vested |        | Unvested
|                        |  |                      |       |                      |  |        |        |         
|Peter L. Ax             |  |                      | 1,238 | (3)                  |  |        | 20,800 | (4)      |  |  |  |  |  |  |  | 
|                       
|                       
|                       
|                       
|Christopher A. Lombardi |  |                      | 2,438 | (3)                  |  |        | 2,600  |          |  |  |  |  |  |  |  | 
|                       
|                       
|                       
|                       
|Matthew B. Campbell     |  |                      | 920   |                      |  |        | 4,580  |          |  |  |  |  |  |  |  | 




|    |                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the options granted to the Named Executive Officers were
	granted under the 1995 Option Plan. The options granted were for
	shares of our common stock. Unless otherwise noted, the options
	granted to the Named Executive Officers vest 20% on each
	anniversary of the grant.                                                            
|   
|(2) | Options to purchase 8,000 shares of common stock were granted to
	Mr. Ax and options to purchase 2,000 shares of common stock were
	granted to each Mr. Lombardi. These options have an
	exercise price of $125.00 per share. The balance of the options
	granted to the Named Executive Officers are exercisable at a
	price of $200.00 per share.
|   
|(3) | Each of Messrs. Ax and Lombardi were granted fully vested
	options to purchase 38 shares of common stock in connection with
	their respective agreements to relocate to Arizona. If not
	exercised prior to May 1, 2001, Mr. Axs options
	will lapse due to his separation from SpinCycle.                                                        
|   
|(4) | 8,000 of Mr. Axs options vest upon attainment of
	certain performance goals, provided, however that if such goals
	are not attained by January 31, 2002, such options shall be
	fully vested. As a result of Mr. Axs separation from
	SpinCycle, these options are no longer in effect.                                                          

Director Compensation; Non-Employee Director Stock Option
Plan

Currently, our directors receive no cash compensation for
serving on the Board of Directors. They do, however, receive
reimbursement for expenses reasonably incurred in connection
with their service to us as directors. In 1997, we adopted a
non-employee director stock option plan (the Director
Option Plan) to

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Employment Agreements

We have entered into employment agreements with Mr. Ax.
Mr. Axs agreement, effective as of December 1,
1996 has a term of four years with automatic one year extensions
thereafter, subject to the provision of at least six months
written notice by either party. The agreement includes a one
year post-termination non-competition clause. If Mr. Ax is
terminated by SpinCycle for any other reason except for
cause as defined in the agreement, Mr. Ax is
entitled to salary and benefits for the remainder of the term of
the agreement, including any bonuses accrued but unpaid as of
the date of termination. In the event of a merger, consolidation
or sale of all or substantially all of our assets, or a
reorganization or recapitalization pursuant to which at least a
majority of the equity investment and voting control is the same
as ours, then we may assign our obligations under the agreement
to the surviving or purchasing entity. Mr. Ax separated
from SpinCycle on January 31, 2001. Pursuant to this
agreement, Mr. Ax has been paid a lump sum for the period
remaining (through November 30, 2001) on his employment
agreement with the Company.

1995 Amended and Restated Stock Option Plan

We adopted a stock option plan in 1995, which was amended and
restated in 1997 (the 1995 Option Plan), to attract,
retain and motivate selected employees and officers. The 1995
Option Plan was approved by our stockholders in June 1997.
Pursuant to the 1995 Option Plan, options to purchase up to
69,270 shares of our common stock may be granted to our
employees or consultants. The 1995 Option Plan is administered
by the Compensation Committee which determines the persons who
are to receive options and the number of shares subject to each
option. As of December 31, 2000, options covering an
aggregate of 48,802 shares of common stock were outstanding, of
which 15,945 were vested and none had been exercised. We also
have outstanding one non-plan option to purchase 660 shares of
our common stock.

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Item 12.  Security Ownership of Certain
Beneficial Owners and Management

The following table sets forth certain information regarding
beneficial ownership of our capital stock as of April 2,
2001 by each person known by us to own beneficially more than 5%
of our capital stock; each of our directors; each of our Named
Executive Officers; and all of our executive officers and
directors as a group.

|                                  |                                              |                  |        |               |  |  |      |       |  
|--------------------------------- | -------------------------------------------- | ---------------- | ------ | ------------- |  |  | ---- | ----- | -
|                                  |                                              | Number of Shares |        |              
|                                  |                                              | of Capital Stock |        |              
|                                  |                                              | Beneficially     |        | Percent of   
|Name                              |                                              | Owned(1)         |        | Voting Rights
|                                  |                                              |                  |        |              
|Directors and Executive Officers: |                                              |                  |        |               |  |  |      |      
|                                 
|                                 
|                                 
|                                 
|Peer Pedersen(2)                  |                                              |                  | 25,366 |               |  |  | 8.37 |      
|                                 
|                                 
|                                 
|                                 
|John Wallace(3)                   |                                              |                  | 3,574  |               |  |  | 1.17 |      
|                                 
|                                 
|                                 
|                                 
|Christopher A. Lombardi(4)(5)     |                                              |                  | 3,238  |               |  |  | 1.06 |      
|                                 
|                                 
|                                 
|                                 
|James E. Hutton(6)                |                                              |                  | 1,088  |               |  |  | *    |      
|                                 
|                                 
|                                 
|                                 
|John H. Muehlstein(7)             |                                              |                  | 818    |               |  |  | *    |      
|                                 
|                                 
|                                 
|                                 
|Alfredo Brener(8)                 |                                              |                  | 35     |               |  |  | *    |      
|                                 
|                                 
|                                 
|                                 
|Robert Lunn(9)                    |                                              |                  | 0      |               |  |  | *    |      
|                                 
|                                 
|                                 
|                                 
|John Morlock(5)                   |                                              |                  | 0      |               |  |  | *    |      
|                                  |                                              |                  |        |               |  |  |      |      
|                                  | Total for Directors and Executive Officers   |                  |        | 34,116        |  |  |      | 11.25 | %
|                                  |                                              |                  |        |               |  |  |      |      
|Other Beneficial Owners:          |                                              |                  |        |               |  |  |      |      
|                                 
|                                 
|                                 
|                                 
|Dean Buntrock(10)                 |                                              |                  | 25,675 |               |  |  | 8.47 | %    
|                                 
|                                 
|                                 
|                                 
|Howard C. Warren(11)              |                                              |                  | 23,681 |               |  |  | 7.81 |      
|                                 
|                                 
|                                 
|                                 
|                                  | Total for All Beneficial Owners (10 persons) |                  |        | 83,472        |  |  |      | 27.53 | %
|                                  |                                              |                  |        |               |  |  |      |      




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



|    |                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes shares of common stock, series A stock,
	series B stock, series C stock, vested options to
	purchase common stock and options to purchase common stock,
	which will vest within 60 days of March 27, 2000.                                                                                                                  
|   
|(2) | Includes 4,352 shares of series A stock, 9,684 shares of
	series B stock, 9,559 shares of series C stock, 1,756
	shares of common stock and vested options to purchase 15 shares
	of common stock held by Mr. Pedersen. The business address
	of Mr. Pedersen is 161 North Clark Street,
	Suite 3100, Chicago, Illinois 60601.       
|   
|(3) | Includes 2,880 shares of series A stock and vested options
	to purchase 687 shares of common stock held by Mr. Wallace.
	The business address of Mr. Wallace is 3624 Piping
	Rock, Houston, Texas 77027.                                                                                                                             
|   
|(4) | Includes 1,200 shares of common stock and vested options to
	purchase 2,038 shares of common stock held by Mr. Lombardi.                                                                                                                                                                                                             
|   
|(5) | The address of each such person is 15990 N. Greenway/
	Hayden Loop, Suite 400, Scottsdale, Arizona 85260.                                                                                                                                                                                                                            
|   
|(6) | Includes 800 shares of series A stock, 230 shares of
	series C stock, 23 shares of common stock and vested
	options to purchase 35 shares of common stock held by
	Mr. Hutton. The business address of Mr. Hutton is
	1311  Merrilville Road, Crown Point, Indiana 46307.                                                            
|   
|(7) | Includes 484 shares of series B stock, 273 shares of
	series C stock and 27 shares of common stock held jointly
	by Mr.  Muehlstein and his wife. Mr. Muehlstein also
	has vested options to purchase 35 shares of common stock.
	Mr. Muehlsteins business address is 161  North
	Clark Street, Suite 3100, Chicago, Illinois 60601.
|   
|(8) | Includes vested options to purchase 35 shares of common stock
	held by Mr.  Brener. The business address of
	Mr. Brener is 5298 Memorial Drive, Houston, Texas
	77007.                                                                                                                                                               
|   
|(9) | Mr. Lunns address is One N. Franklin Street,
	Suite 750, Chicago, Illinois 60606.                                                                                                                                                                                                                                                   

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 2,096.5 shares of series C stock and 432 shares of
	common stock held by Mr. Buntrock, 386 shares of
	series A stock and 2,421 shares of series B stock held
	by Mr.  Buntrocks wife, and 772 shares of
	series A stock, 4,842 shares of series B stock, 11,366
	shares of series C stock and 1,137 shares of common stock
	held by The Butterfield Group L.L.C., of which Mr. 
	Buntrocks wife is the manager; 2,222.5 shares of
	series C stock held by Big Sky Limited Partnership, of
	which Mr. Buntrock is the sole general partner. The
	business address of Mr. Buntrock is Oakbrook Terrace Tower,
	One Tower Lane, Suite 2242, Oakbrook Terrace, Illinois
	60181.
|    
|(11) | Includes 4,351 shares of series A stock, 9,684 shares of
	series B stock, 8,769 shares of series C stock and 877
	shares of common stock. Mr. Warrens business address
	is c/ o Absolute Ventures, 420 Green Bay Road,
	Suite 103, Kenilworth, Illinois 60043.                                                                                                                                                                                                                                                                                                                                                                                                                       




Item 13.  Certain Relationships and Related
Transactions

In April 1998, Messrs. Buntrock and Pedersen, either
directly or through their affiliates, purchased $1,950,300 and
$2,000,020, respectively, of series C units, comprised of
series C stock and shares of common stock.

As part of our settlement of a claim made by one of our former
chief operating officers, we agreed to seek out a buyer for his
800 shares of our common stock. Mr. Pedersen, one of our
directors and the managing partner of our outside counsel,
purchased those shares in a private transaction on
March 12, 1999, for $120,000.

Messrs. Muehlstein and Pedersen are partners and members of
the management committee of the law firm of Pedersen &
Houpt, a Professional Corporation, which has served as our
counsel since March 1997. In that connection, the firm has
been paid fees for services rendered. In 2000 we paid Pedersen
& Houpt approximately $410,000 in fees.




PART IV




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

(a)  Exhibit 27.1

(b)  None.

(c)  None.

(d)  None.

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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.



| |                
| | ---------------
| | SPINCYCLE, INC.



| |    |                 
| | -- | ----------------
| | By | /s/ JOHN MORLOCK

| |                                
| | -------------------------------
| |                                
| | John Morlock                   
| | Interim Chief Executive Officer

Date: April 2, 2001

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Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which
Have Not Registered Securities Pursuant to Section of the
Securities Exchange Act

No annual report or proxy material is being sent to security
holders.

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INDEX TO EXHIBITS

Exhibit 27.1