10-K 1 r10k2000.txt 10K--DECEMBER 31, 2000 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 Commission File Number 0-25164 LUCOR, INC. Florida 65-0195259 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 790 Pershing Road Raleigh, North Carolina 27608 (Address of Principal Executive Offices) (Zip Code) 919-828-9511 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.02 par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. The aggregate market value of the voting stock held by non- affiliates of the Registrant, as of February 28, 2001, was $1,504,243 As of February 28, 2001, there were 2,334,633 shares of the Registrant's Class A Common Stock, $.02 par value, outstanding and 502,155 shares of the Registrant's Class B Common Stock, $.02 par value, outstanding. Lucor, Inc. Index to Form 10-K For the Year Ended December 31, 2000 PART I Page Item 1 - Business . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2 - Properties . . . . . . . . . . . . . . . . . . . . . . 5 Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . 6 Item 4 - Submission of Matters to a Vote of Security-Holders . . 6 PART II Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 6 Item 6 - Selected Financial Data . . . . . . . . . . . . . . . . 7 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . 9 Item 8 - Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . 44 PART III Item 10 - Directors and Executive Officers of the Registrant . . 44 Item 11 - Executive Compensation and Other Matters. . . . .. . 46 Item 12 - Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 48 Item 13 - Certain Relationships and Related Transactions . . . 49 PART IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . 51 PART I ------------------------------------------------------------------- Item 1 - Business General Lucor, Inc. (the "Registrant" or the "Company") is the largest franchisee of Jiffy Lube International, Inc. ("JLI") in the United States. These franchises consist of automotive fast oil change, fluid maintenance, lubrication, and general preventative maintenance service centers under the name "Jiffy Lube." As of December 31, 2000 the Company operated two hundred twelve service centers in eight states, including fifty-two service centers in the Raleigh-Durham, North Carolina area, twenty-seven service centers in the Cincinnati, Ohio area (which includes northern Kentucky), fifteen service centers in the Pittsburgh, Pennsylvania area, thirteen service centers in the Dayton, Ohio area, five service centers in the Toledo, Ohio area, eighteen service centers in the Nashville, Tennessee area, twenty-four in the Richmond and Tidewater Virginia areas, eight service centers in the Lansing, Michigan area, and fifty in the Atlanta, Georgia area. The operations of the service centers in each of these markets are conducted through subsidiaries of the Company, each of which has entered into area development (except Lansing and Atlanta) and franchise agreements with JLI. Unless the context otherwise requires, references herein to the Company or the Registrant refer to Lucor, Inc. and its subsidiaries. The Company acquired Navigator Real Estate, LLC from Navigator Management, Inc., during June 2000. Navigator Real Estate, LLC owned several properties leased by the Company and had loans outstanding for these properties which were acquired in late 1999 and early 2000. The purchase price for the membership interest of Navigator Real Estate, LLC was the capital investment of the original members. Navigator Management, Inc. is owned by two major shareholders of Lucor, Inc. For more information on the ownership of Navigator Management, Inc. see the Certain Relationships and Related Transactions section of this 10K Report. Due to disappointing revenue and profits, the Company made the decision in 1998 to close twelve of its Sears service centers. As a result of this decision, during the fourth quarter of 1998, the Company took a charge of $1,383,475. The Company closed six of these service centers during the first quarter of 1999, five additional service centers during the second quarter of 1999, and one service center during February 2000. The Company made the decision in 1999 to close nine additional service centers, four of which are located in Sears service centers. As a result of this decision, during the fourth quarter of 1999, the Company took a charge of $276,007. The Company closed four of these service centers during the fourth quarter of 1999 and closed the remaining three service centers in 2000. Within existing regions operating in 2000, the Company built one new "Jiffy Lube" service center and had five other service centers under development at the end of 2000. During 2000 the Company followed a growth strategy of purchasing or building new stores within areas where the Company already has a strong presence. The Company plans to focus on a similar strategy during 2001. Quick Lube Industry In the past, the traditional provider of oil change and lubrication services has been the corner gas station. The decline in the number of full-service gasoline stations has reduced the number of convenient places available to customers for performing basic preventative maintenance and fluid replacement service on their automobiles. The Company believes that this trend combined with convenience and service are significant factors in the continuing success of quick lube centers in the marketplace. (1) As of February 28, 2001, 2,143 Jiffy Lube service centers were open in the United States. Franchisees of JLI operated 1,663 of the service centers and JLI owned and operated the remaining 480 locations. (Source: National Oil & Lube News, March 2001) Of the total JLI franchised service centers, the Company operates 213 locations (as of March 1, 2001) making it the largest franchisee. According to National Oil & Lube News, March 2001 edition, there are approximately 6,431 fast lube chain service centers in operation as of February 28, 2001, representing an increase in the number of fast lube operations by 2% over 2000. Jiffy Lube is the largest fast lube operation chain, more than double the number of service centers run by the next largest chain. Services The products and services offered by the Company are designed to provide customers with a convenient way to perform preventative maintenance on their vehicles, typically in minutes and without an appointment. The Company's proprietary service mark "Signature Service" includes changing engine oil and filter, lubricating the chassis, checking for proper tire inflation, washing the windows, vacuuming the interior of the car, checking and replenishing fluids in the transmission, differential, windshield washer, battery and power steering, and examining the air filter, lights, and windshield wiper blades while performing a manufacturer's recommended service review. The pricing of a Signature Service ranges from $24.99 to $29.99, depending on the geographic area. The Company also offers several other products and services including fuel injection system cleaning, automotive additives, manual transmission, differential and transfer case fluid replacement, radiator coolant replacement, tire rotation, air filter replacement, breather element replacement, positive crankcase ventilator valve (PCV valves) replacement, wiper blade replacement, headlight, battery and light bulb replacement, complete transmission fluid replacement, preventative maintenance packages, and auto safety and emissions inspection services. The Company does not perform any repairs on vehicles, only preventative maintenance and fluid replacement services. In combination with JLI, the Company's "fleet" business is arranged with large, national and local consumers of lubrication services who may obtain such services at the Company's service centers. These services are billed by the Company to the fleet customers through JLI for national fleet customers and by the Company for local fleet customers. The Company solicits fleet business from local fleet customers in each of its markets. Service Centers A typical service center consists of approximately 2,200 square feet with three service bays, a customer lounge, storage area, a full basement and rest rooms. The operating staff at each service center consists of a manager, an assistant manager and usually eight additional employees. The service centers are open six or seven days a week. In general, the Company's service centers are well lit, clean, and provide customers an attractive surrounding and comfortable professional waiting area while their vehicle is serviced. Marketing The Company uses newsprint, public relations, direct marketing, radio and television advertising to market its products and services. In addition to the Company's marketing programs, JLI conducts national marketing programs for Jiffy Lube service centers, principally through television advertising. The Company does not pay any fee to JLI for their advertising programs. In addition to direct advertising, the Company emphasizes the development of goodwill in the communities in which it operates through involvement in community promotions. Some of the Company's community campaigns include Coats for Kids, Teaching Excellence, Jump Start on Reading, and Boy Scouts Scouting for Food. (2) Area Development Agreements and Franchise Agreements The Company operates Jiffy Lube service centers under individual franchise agreements that are part of broader exclusive development agreements with JLI, the franchisor. The exclusive development agreements require the Company to identify sites for and develop a specific number of service centers in specific territories and the separate franchise agreements each provide the Company the right to operate a specific service center for a period of 20 years, with two, 10-year renewal options. Each development agreement grants the Company exclusive rights to develop and operate a specific number of service centers within a defined geographic area, provided that a certain number of service centers are opened over scheduled intervals. Cincinnati, Dayton, Nashville, and Toledo. The Company amended its Area Development Agreement with JLI in August 1995 to include all of these areas. The Company has satisfied its obligations to develop service centers under its Area Development Agreement for these areas. The Company has a right of first refusal to develop service centers until July 31, 2019. Raleigh-Durham. The Company has satisfied its obligations to develop service centers under its Area Development Agreement for the Raleigh-Durham market area, and currently has a right of first refusal to develop any additional service centers which JLI may propose to develop or offer to others in this market. This right extends to December 31, 2006 in the Company's Raleigh-Durham market. Pittsburgh. The Company has satisfied its obligations to develop service centers under its Area Development Agreement for the Pittsburgh market area, and currently has a right of first refusal to develop any additional service centers which JLI may propose to develop or offer to others in this market. This right extends to June 30, 2019. Lansing. The Company has not entered into an Area Development Agreement regarding Lansing nor is the Company contemplating entering into an agreement at this time. Richmond/Tidewater. The Company has an assigned area development agreement which required the Company to develop one service center in each of the two years following assignment. The Company opened one service center in this area in 2000 and opened the second one in March 2001 to satisfy this agreement. The Company has a right of first refusal to develop service centers until December 31, 2008. Atlanta. The Company acquired fifty-three Jiffy Lube and Q Lube service centers located in the Atlanta, Georgia area on April 30, 1999. The Company has exclusive right to develop service centers in specified counties within the Atlanta area for three years. The Company has the right of first refusal for the sale of service centers or to develop service centers until April 30, 2009. The franchise agreements convey the right to use the franchisor's trade names, trademarks, and service marks with respect to specific service centers. The franchisor also provides general construction specifications for the design, color schemes and signage for a service center, training, operating manuals and marketing assistance. Each franchise agreement requires the franchisee to purchase products and supplies approved by the franchisor. The initial franchise fee payable by the Company upon entering into a franchise agreement for a service center varies based on the market area where the Company develops the center and the time of development of the center. For service centers which the Company may develop in 2001, the initial franchise fee ranges from $12,500 to $35,000. The franchise agreements generally require a monthly royalty fee of 5% of sales. The royalty fee is reduced to 4% of sales when the fee for a given month is paid in full by the 15th of the following month, a practice followed by the Company. (3) Management Services Agreement Each of the Company's operating subsidiaries has entered into a management service agreement with Navigator Management, Inc., a Florida corporation (Navigator), pursuant to which Navigator, as an independent contractor, operates, manages and maintains the service centers. Navigator is owned by Stephen P. Conway and Jerry B. Conway, both of whom are executive officers and directors of the Company and each subsidiary, as well as principal shareholders of the Company. These agreements continue until the termination of the last franchise agreement between the Company and JLI. For its services, Navigator receives an amount equal to a percentage of the annual net sales of each service center operated by a subsidiary, calculated as follows: Number of Management Fee Service Centers Per Service Center --------------- ------------------ Service centers 1 through 34 4.50% of the sales of these centers Service centers 35 through 70 3.00% of the sales of these centers Service centers 71 through 100 2.25% of the sales of these centers All other service centers 1.50% of the sales of these centers (4) Expansion Plans Within existing regions operating in 2000, the Company built one new "Jiffy Lube" service center and had five other service centers under development at the end of 2000. During 2000 the Company followed a growth strategy of purchasing or building new stores within areas where the Company already has a strong presence. The Company plans to focus on a similar strategy during 2001. Competition The quick oil change and lubrication industry is highly competitive with respect to the service location, product type, customer service, and price. The Company's service centers compete in their local markets with the "installed market" consisting of service stations, automobile dealers, independent operators and franchisees of automotive lubrication service centers, some of which operate multiple units offering nationally advertised lubrication products such as Havoline and Valvoline motor oil. Some of the Company's competitors are larger and have been in existence for a longer period than the Company. However, the Company is larger than the majority of independent operators in its markets and it believes that its size is an advantage in these markets as it affords the Company the benefits of marketing, name awareness and service as well as economies of scale for purchasing and easier access to capital for improvements. Government Regulation and Environmental Matters The Company's service centers store new oil and generate and handle large quantities of used automotive oils and fluids. Accordingly, the Company is subject to a number of federal, state and local environmental laws governing the storage and disposal of automotive oils and fluids. Noncompliance with such laws and regulations, especially those relating to the installation and maintenance of underground storage tanks (UST's) could result in substantial cost. As of December 31, 2000, six of the Company's service centers had UST's on the premises. All six locations have UST's at the requirement of local and state regulatory authorities. Those UST's in use comply with all Environmental Protection Agency regulations that became effective December 22, 1998. The Company is not aware that any leaks have occurred at any of its existing UST's. In addition, the Company's service centers are subject to local zoning laws and building codes that could adversely impact the Company's ability to construct new service centers or to construct service centers on a cost-effective basis. Employees As of December 31, 2000, the Company employed 2,011 people, of which 1,938 were engaged in operating the Company's Jiffy Lube Service Centers and the remainder were in management, development, marketing, finance and administrative capacities. None of the Company's employees are represented by unions. The Company considers its employee relations to be good. Item 2 - Properties Twenty-six of the Company's two hundred twelve service centers are owned, with the balance of the service centers leased. Most of the leases are for a twenty-year period with generally one to two, ten year options to renew. Twelve of the company's owned service centers are secured by a mortgage held by Enterprise Mortgage Acceptance Company, LLC ("EMAC"). Ninety-five of the leased service centers are secured by a leasehold mortgage held by EMAC. Eleven of the Company's owned service centers are secured by a mortgage held by Franchise Finance Corporation of America. Three of the Company's owned service centers are secured by a mortgage held by Central Carolina Bank. The Company also owns a 13,500 square foot office building in Raleigh, North Carolina which is secured by a mortgage to Centura Bank as described in the notes to the financial statements. (5) Item 3 - Legal Proceedings The Company is involved in lawsuits and claims arising in the normal course of business. Although the outcome of these lawsuits and claims are uncertain, Management believes that these lawsuits and claims are adequately covered by insurance or they will not (singly or in the aggregate) have a material adverse affect on the Company's business, financial condition, or operations. Those lawsuits and claims against the Company which have not been resolved and which can be estimated and are probable to occur have been accounted for in the Company's financial statements. Item 4 - Submission of Matters to a Vote of Security Holders On January 8, 2001, the Company and principal shareholders and executive officers, Stephen P. Conway and Jerry B. Conway, jointly filed a preliminary Schedule 13e-3 describing a proposal for a 20 to 1 reverse stock split of the Company's Class A Common Stock. It is anticipated that such proposal will be voted on at a special meeting of the Company's shareholder to take place during the second quarter of 2001. If the reverse split reduces the number of registered Class A Common Stock to below 300, the Company's Board of Directors has indicated that they will support a termination of public registration of the Class A Common Stock under the 1934 Act. Further information regarding this transaction may be obtained by reference to the above-referenced Schedule 13e-3 filing. PART II ------------------------------------------------------------------- Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters The Company has two classes of Common Stock consisting of Class A Common Stock and Class B Common Stock. The Class A stock is traded on The NASDAQ Stock Marketr on the Over the Counter Bulletin Board market under the symbol LUCR. The Class B Common Stock is closely held and not traded in any public market. As of December 31, 2000, there were approximately 462 holders of record of the Class A Common Stock and two record holders of the Class B Common Stock. No cash dividends have ever been paid on either class of the Company's Common Stock. The following table shows high and low sales prices for the Class A Common Stock of Lucor as reported on the NASDAQ - Over the Counter Bulletin Board market in 2000 and the NASDAQ SmallCaps Market in 1999. 2000 1999 Market Price Market Price ------------ ------------ Quarter Ended High Low High Low ------------- ---- --- ---- --- March 31 $ 4.13 $ 1.38 $ 5.00 $ 3.50 June 30 $ 3.25 $ 1.53 $ 4.94 $ 3.94 September 30 $ 1.75 $ .88 $ 5.25 $ 3.06 December 31 $ 1.63 $ .28 $ 4.25 $ 1.75 Item 6 - Selected Financial Data The selected consolidated financial data of the Company set forth on the following page are qualified by reference to, and should be read in conjunction with, the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this 10-K Report. The statement of loss data for each of the years in the five year period ended December 31 and the Balance Sheet data as of December 31, 1996, 1997, 1998, 1999, and 2000 are derived from audited Consolidated Financial Statements. (6) LUCOR, INC. Five Year Summary of Selected Financial Data 2000 1999 1998 1997 1996 Income Statement Data: Net sales $107,287,910 $84,018,095 $55,307,206 $42,678,313 $37,772,799 Cost of sales 24,194,192 18,683,931 12,715,861 9,979,363 8,951,465 ----------- ----------- ----------- ----------- ----------- Gross profit 83,093,718 65,334,164 42,591,345 32,698,950 28,821,334 ----------- ----------- ----------- ----------- ----------- Costs and expenses: Direct 41,463,413 32,905,302 20,449,478 16,494,374 14,059,886 Operating 19,933,755 16,264,016 10,981,273 8,923,880 7,786,260 Depreciation, amortization 3,682,787 2,752,908 2,217,366 2,056,059 2,001,300 Selling, general, admin. 14,237,578 11,496,058 7,388,269 5,928,152 5,455,291 Impairment loss(service center closings) -- 276,007 1,383,475 -- -- ----------- ----------- ----------- ----------- ----------- 79,317,533 63,694,291 42,419,861 33,402,465 29,302,737 Income (loss) from operations 3,776,185 1,639,873 171,484 (703,515) (481,403) Interest expense (5,874,441) (3,764,526) (2,664,938) (1,480,679) (1,176,149) Loss before provision for income taxes and extra- ordinary item (1,619,950) (1,844,969) (2,287,498) (2,122,038) (1,464,994) Loss before extra- ordinary item (1,727,950) (1,972,626) (2,114,481) (1,581,443 (1,201,988) Extraordinary loss(net of tax) -- -- -- (258,625) -- Net loss $(1,727,950) $(1,972,626) $(2,114,481) $(1,840,068) $(1,201,988) =========== =========== =========== =========== =========== Preferred dividend (140,000) (140,000) (140,000) (140,000) (133,287) Loss before extra- ordinary item available to common shareholders $(1,867,950) $(2,112,626) $(2,254,481) $(1,721,443) $(1,335,275) =========== =========== =========== =========== =========== Basic and diluted loss per common share: Loss before extraordinary item available to common shareholders $(0.66) $(0.75) $(0.80) $(0.61) $(0.54) Extraordinary item - - - (0.09) - ----------- ----------- ----------- ----------- ----------- Net loss per common share availabLE to common shareholders $(0.66) $(0.75) $(0.80) $(0.70) $(0.54) =========== =========== =========== =========== =========== Cash dividends declared per share -0- -0- -0- -0- -0- Weighted average common shares outstanding - basic and diluted 2,835,136 2,828,480 2,824,868 2,842,367 2,451,683

(7) December 31, ------------ 2000 1999 1998 1997 1998 ---- ---- ---- ---- ---- Balance Sheet Data: Cash and other current assets $ 8,039,029 $14,219,757 $ 6,933,928 $ 6,614,374 $5,213,281 Property and equipment, net 43,252,463 33,419,225 23,292,926 21,839,319 22,506,488 Other assets, net 32,752,738 34,703,046 16,052,634 4,766,587 4,907,840 ----------- ----------- ----------- ----------- ----------- Total assets $84,044,230 $82,342,028 $46,279,488 $33,220,280 $32,627,609 =========== =========== =========== =========== =========== Current obligations/debt 15,076,054 14,770,039 6,984,231 4,757,756 5,335,200 Long-term liabilities 65,747,673 62,486,911 32,167,303 18,855,114 16,304,431 Preferred stock, redeemable -- -- 2,000,000 2,000,000 2,000,000 Stockholders' equity 3,220,503 5,085,078 5,127,954 7,607,410 8,987,978

(8) Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction The Company is engaged through its subsidiaries in the automotive fast oil change, fluid maintenance lubrication, and general preventative maintenance service business at two hundred twelve service centers in eight states, including fifty-two service centers in the Raleigh-Durham, North Carolina area, twenty-seven service centers in the Cincinnati, Ohio area (which includes northern Kentucky), fifteen service centers in the Pittsburgh, Pennsylvania area, thirteen service centers in the Dayton, Ohio area, five service centers in the Toledo, Ohio area, eighteen service centers in the Nashville, Tennessee area, twenty-four in the Richmond and Tidewater Virginia area, eight service centers in the Lansing, Michigan area, and fifty in the Atlanta, Georgia area. During 1999, the Company acquired 102 stores in several regions. The Company also built five service centers. On March 31, 1999, the Company acquired 20 "Q Lube" facilities located in the markets of Cincinnati, Ohio, Dayton, Ohio, Lansing, Michigan and Nashville, Tennessee. The Company acquired 53 Jiffy Lube and Q Lube service centers located in the Atlanta, Georgia area on April 30, 1999. On December 16, 1999, the Company executed a Stock Purchase Agreement with Quick 10 Corporation ("Quick 10") to purchase 23 quick lube service centers in the Raleigh/Durham area and 4 quick lube service centers in the Greensboro and Winston Salem, North Carolina area. The Company also acquired two service centers from independent operators in the Virginia region. All service centers acquired in 1999 were converted to Jiffy Lube service centers in 2000. At the end of 1999, the Company had two hundred nineteen Jiffy Lube service centers in operation. During 2000, the Company added one service center in the Richmond, Virginia area. At year-end the Company had five other service centers under development. During 2000 the Company leased four service centers in the Greensboro and Winston Salem, North Carolina areas to a Jiffy Lube operator who owns stores in that region. At the end of 2000, the Company had two hundred twelve Jiffy Lube service centers in operation. During the third quarter of 2000 the Company discovered a discrepancy in the purchase price of the seventy-three service centers acquired in April and May of 1999. The discrepancy resulted in a reduction of the purchase price by $881,000. The results for the third quarter of 2000 reflect the adjustment of the purchase price by reducing the amount of goodwill associated with the acquisition and reducing a note and trade payable to the seller. In addition, the Company adjusted the previously recognized amortization expense for goodwill and the interest expense for the note payable. The cumulative income adjustment recognized in the third quarter of 2000 was approximately $115,000. Management reviewed the impact of this adjustment on prior periods and previous public filings. Management concluded that the amount of the adjustment related to each prior period is not material and restatements would not be necessary. Results of Operations The Company's primary indicator of business activity is revenue generated. Costs are measured as a percentage of net sales. Cost of sales and direct costs (which includes labor at the retail level and other volume-related operating costs) can be expected to vary approximately in line with sales volumes. Operating costs include store occupancy costs, insurance, royalties paid to the franchisor, management fees and other lesser categories of expenses. Store occupancy costs can be expected to vary, either with periodic, contractual rent increases at leased locations or as a function of sales for those leases which have a sales based rent schedule. Real estate taxes are subject to periodic adjustments. Royalty fees paid to the franchisor are 4% of sales and management fees are paid at rates described above (see Management Services Agreement). The majority of the Company's service centers are open six days per week and average 308 days of operation per year. (9) The Company experienced a net loss for 2000 of $1,727,950. There were several factors that produced this loss. Sales were lower than could otherwise be expected in the first quarter of 2000, because the North Carolina and Virginia areas experienced a severe snowstorm that caused the closure or curtailment of activity at these service centers for up to a week. The Company estimates that it lost $850,000 in sales due to the storm plus the stores' repairs costs that resulted. Due to an industry wide softening of demand for automotive services, sales were lower than expected in the fourth quarter of 2000. During 2000, the Company incurred several non-recurring costs, mainly associated with the assimilation of the newly acquired regions. These costs included store repairs and maintenance and training. In addition, the Company closed several service centers that were generating operating losses and cancelled development projects for which expenditures had been made. Pennzoil-Quaker State Company, the major supplier of oil for the Company, implemented four price increases in the cost of oil during February, April, May, and October of 2000 thus increasing the Company's cost of sales from 1999. The Company estimates this increase in cost of sales to be approximately $1,168,000 in 2000. The Company's response to this price increase was to make the reduction of the costs of materials purchased a priority, to increase the price of its basic signature service oil change, and to promote sales through the packaging of services that have higher margins. However, these measures could not totally offset the effect of the four price increases in oil from the major supplier Pennzoil-Quaker State Company. 2000 Compared to 1999 Net sales increased by 27.7% from 1999 to 2000 due to the increase in base business and the effect of the 102 stores acquired and built during 1999 operating for all of 2000. Percent 2000 1999 Increase ---- ---- -------- Same stores (1) $ 62,702,461 $ 61,758,899 1.5% New Stores 44,585,449 22,259,196 ------------ ------------ Total new sales change $107,287,910 $ 84,018,095 27.7% ============ ============ (1) Opened as of January 1, 1999 The Company's average daily sales per service center increased by 3% when comparing 2000 with 1999. Sales were lower than could otherwise be expected in the first quarter of 2000, because the North Carolina and Virginia areas experienced a severe snowstorm that caused the closure or curtailment of activity at these service centers for up to a week. The Company estimates that it lost $850,000 in sales due to the storm. Sales were lower than expected in the fourth quarter of 2000, due to an industry wide softening of demand for automotive services. Cost of sales, which represents the direct cost of material sold to the customer (oil, filters, lubricants, wiper blades, additives, etc.) increased as a percent of sales from 22.2% to 22.6% comparing 1999 to 2000. Pennzoil-Quaker State Company, the major supplier of oil for the Company, implemented four price increases in the cost of oil during 2000 thus increasing the Company's cost of sales. This increase was partially offset by the Company's continued efforts to reduce costs of materials purchased, an increase in the price of its basic signature service oil change, and increased sales of services that have little or no material content. (10) Direct operating costs increased by $8,558,111 or 26.0% in 2000 as compared to 1999. As a percent of sales these costs decreased from 39.2% in 1999 to 38.6% in 2000. This decrease is due to higher volume at the service centers thus reducing the direct labor required as a percent of sales by spreading the fixed nature of some of these costs over the higher volume. Operating costs increased by $3,669,739 or 22.6% in 2000 as compared to 1999. This increase is less than the percentage of sales increase. As a percent of sales, operating costs decreased from 19.4% of sales in 1999 to 18.6% of sales in 2000. Operating costs consist primarily of facility related costs such as rents, real estate and personal property taxes plus royalties paid to JLI as part of the franchise agreement and management fees paid to Navigator Management, Inc. Since some of these costs are fixed (mainly rent), the cost per sales dollar decreases as the sales increase. Depreciation and amortization costs increased by $929,879 in 2000 as compared to 1999. The majority of the increase in depreciation and amortization expense for 2000 is due to the acquisition of the service centers in 1999 as previously noted plus additional depreciation associated with the cost of major renovations to stores acquired in 1999. Selling, general, and administrative (SGA) costs increased by $2,741,520 or 23.8% in 2000 as compared to 1999. As a percent of sales, SGA costs decreased by 0.4%. Increases in SG&A expense is the result of increased regional and corporate requirements associated with stores acquired and built in 1999. In 1999, the Company recorded an impairment loss of $276,007 reflecting its anticipation of closing nine stores. Four of the stores were Sears, three of which were acquired in the Atlanta acquisition. The remaining five stores did not meet expected operating results. The Company closed four of these service centers during the fourth quarter of 1999. The remaining five service centers were closed during 2000. No such impairment loss was recorded in 2000. Interest expense increased $2,109,915 in 2000 compared to 1999. The increase reflects additional borrowing required by the Company associated with the additional service centers acquired or built during 1999. Other income increased by $198,622 in 2000 compared to 1999. Other income increased due to higher commissions on vending sales due to the larger number of stores. A charge of $108,000 was made for income taxes due mainly to state income taxes. The Company has substantial net operating loss carryforwards for Federal and some states, however the tax benefit generated by these net operating loss carryforwards are being offset by valuation reserves. Dividends on Series A preferred stock were $140,000 in 2000 and 1999. 1999 Compared to 1998 Net sales increased by 51.9% from 1998 to 1999 due to the increase in base business over the previous year as well as the impact of new service centers which were opened and acquired during 1999 as indicated on the following table: Percent 2000 1999 Increase ---- ---- -------- Same stores $ 60,563,606 $ 55,307,206 9.5% New Stores 23,454,489 -- ------------ ------------ Total new sales change $ 84,018,095 $ 55,307,206 51.9% ============ ============ (11) The Company's average daily sales per service center increased by 13% when comparing 1999 with 1998. The average daily sales per service center for base business in 1999 increased 22.5% when comparing 1999 and 1998 results. The Company anticipates improved average daily sales per service center in the service centers acquired in 1999 during the first quarter of 2000. Sales were lower than could otherwise be expected in the third quarter of 1999 due to two hurricanes that interrupted business in the Company's two largest regions, Raleigh-Durham, North Carolina and Tidewater-Richmond, Virginia. The hurricanes caused most of the service centers in these regions to close and drastically reduced business at other stores. One service center closed for approximately two months due to flood damage from the hurricanes. The repair costs were not significant. Cost of sales, which represents the direct cost of material sold to the customer (oil, filters, lubricants, wiper blades, additives, etc.) decreased as a percent of sales from 23.0% to 22.2%. The decrease in the cost of sales reflects the Company's continued efforts to reduce costs of materials purchased, an increase in the price of its basic signature service oil change, and increased sales of services that have little or no material content. Pennzoil- Quaker State Company, the major supplier of oil for the Company, implemented a price increase of approximately four cents per quart in August 1999 which increased the Company's cost of sales but was offset by other savings and the price increase. Direct operating costs increased by $12,455,824 or 60.9% in 1999 as compared to 1998. As a percent of sales these costs increased from 37.0% in 1998 to 39.2% in 1999. Labor costs accounted for a majority of this increase, representing an increase of approximately 1.1% of sales. This increase is the result of higher labor costs at the newly acquired service centers, including higher fixed labor charges at stores for store management at these service centers, most of which have lower sales per store. Other direct costs increased approximately 1.1%. This increase is the result of start up costs associated with the newly acquired service centers. Without the acquisitions, direct costs for 1999 would have been approximately 37.7%. Operating costs increased by $5,282,743 or 48.1% in 1999 as compared to 1998. This increase is less than the percentage of sales increase. As a percent of sales, operating costs decreased from 19.9% of sales in 1998 to 19.4% of sales in 1999. Operating costs consist primarily of facility related costs such as rents, real estate and personal property taxes plus royalties paid to JLI as part of the franchise agreement and management fees paid to Navigator Management, Inc. Since some of these costs are fixed (mainly rent), the cost per sales dollar decreases as the sales increase. Depreciation and amortization costs increased by $535,542 in 1999 compared to 1998. The majority of the increase in depreciation and amortization expense for 1999 is due to the acquisition of the service centers as noted above. Selling, general, and administrative (SGA) costs increased by $4,107,789 or 55.6% in 1999 as compared to 1998. As a percent of sales, SGA costs increased by 0.3%. The increase in these costs reflect additional costs required due to the acquisition of additional service centers and the required costs associated with their administration and marketing. In 1999, the Company recorded an impairment loss of $276,007 reflecting its anticipation of closing nine stores. Four of the stores are Sears, three of which were acquired in the Atlanta acquisition. The remaining five stores are not meeting expected operating results. The Company closed four of these service centers during the fourth quarter of 1999 and has closed two service centers during the first quarter of 2000. The remaining three service centers are scheduled to close by December 31, 2000. (12) In 1998, the Company recorded an impairment loss of $1,383,475 reflecting the write down of assets at twelve of its sixteen service centers located at Sears auto centers. The Company closed six of these service centers during the first quarter of 1999, five additional service centers during the second quarter of 1999, and one service center during February 2000. Interest expense increased by $1,099,588 in 1999 compared to 1998 reflecting the increased debt acquired due to the acquisitions as noted above. Other income increased by $73,728 in 1999 compared to 1998. This increase is the result of additional interest and commission income for the year. A charge of $127,657 was made for income taxes due mainly to state income taxes. The Company has substantial net operating loss carryforwards for Federal and some states, however the tax benefit generated by these net operating loss carryforwards are being offset by valuation reserves. Dividends on Series A preferred stock were $140,000 in 1999 and 1998. Liquidity and Capital Resources As of December 31, 2000, the Company had cash and current assets of $8,039,029 and short term obligations (including the current portion of long term debt) of $15,076,054 for net working capital deficit of $7,037,025. Cash provided by operations amounted to $3,079,414. Net cash used in investing activities was $12,540,151. A majority of the working capital decrease has resulted from the use of funds in capital improvements made to stores acquired in 1999 and to build new service centers. The positive cash flow resulted from the net loss after income tax adding back the non-cash items of depreciation and amortization, plus decreases in account receivables, inventories and prepaid expenses offset by a decrease in accounts payable. The Company acquired Navigator Real Estate, LLC from Navigator Management, Inc., during June 2000, increasing the total assets and liabilities of the Company by approximately $3,708,000. The properties and debt are carried on the records of the Company on the same basis as they were under Navigator Management, Inc. There was no gain or loss on the transaction recorded by Navigator Management, Inc. During the third quarter of 2000 the Company discovered a discrepancy in the purchase price of the seventy-three service centers acquired in April and May of 1999. The discrepancy resulted in a reduction of the purchase price by $881,000. The results for the third quarter of 2000 reflect the adjustment of the purchase price by reducing the amount of goodwill associated with the acquisition and reducing a note and trade payable to the seller. In addition, the Company adjusted the previously recognized amortization expense for goodwill and the interest expense for the note payable. The cumulative income adjustment recognized in the third quarter of 2000 was approximately $115,000. Management reviewed the impact of this adjustment on prior periods and previous public filings. Management concluded that the amount of the adjustment related to each prior period is not material and restatements would not be necessary. Debt increased by $6,892,851 during 2000. The Company borrowed $3,742,065 from two sources to provide funds for the addition of service centers that were built or under construction but not completed during 2000. The remaining increase of $3,150,786 was debt acquired as a result of the acquisition of Navigator Real Estate. The Company borrowed funds during the second quarter of 2000 through an agreement with Franchise Finance Corporation of America for $715,000. This loan carries an interest rate of 10.41% and is amortized over a twenty-five year period with a balloon payment after twenty years. These funds were used in the construction of a new service center. During the second quarter of 2000, the Company also borrowed $247,690 from Franchise Finance Corporation to be used for construction of an additional service center. This loan is for interest only until completion of the site at which time the interest rate will be 10% and the loan will be amortized over a twenty-five year period with a balloon payment after twenty years. (13) The Company borrowed funds during the third quarter of 2000 through an agreement with Franchise Finance Corporation of America for $800,000. This loan carries an interest rate of 9.95% and is amortized over a twenty-five year period with a balloon payment after twenty years. These funds were used in the construction of a new service center. During the third quarter of 2000, the Company also borrowed $274,320 from Franchise Finance Corporation to be used for construction of an additional service center. This loan is for interest only until completion of the site at which time the interest rate will be 10.32% and the loan will be amortized over a twenty-five year period with a balloon payment after twenty years. During the third quarter of 2000, The Company borrowed $274,320 to be used for construction of an additional service center. The loan is from a line of credit from Central Carolina Bank. This loan is for interest only until completion of the site at which time the interest on this loan is paid at an adjustable rate on the principal amount outstanding. The adjustable rate is the three month LIBOR plus two and one-quarter percent (2.25%). The rate will change on the first business day of the month following any change in the ninety day LIBOR rate. This loan is amortized over a twenty-year period with a balloon payment after fifteen years. During the fourth quarter of 2000, the Company also borrowed $589,711 from Franchise Finance Corporation to be used for construction of an additional service center. This loan is for interest only until completion of the site at which time the interest rate will be 10.51% and the loan will be amortized over a twenty-five year period with a balloon payment after twenty years. During the fourth quarter of 2000, The Company borrowed $841,024 to be used for construction of additional service centers. The loan is from a line of credit from Central Carolina Bank. This loan is for interest only until completion of the site at which time the interest on this loan is paid at an adjustable rate on the principal amount outstanding. The adjustable rate is the three month LIBOR plus two and one-quarter percent (2.25%). The rate will change on the first business day of the month following any change in the ninety day LIBOR rate. This loan is amortized over a twenty-year period with a balloon payment after fifteen years. Management believes that cash generated from its operations and cash on hand will be sufficient to satisfy the Company's operating requirements for the next twelve months. Any acquisitions or new service center sites will require the Company to incur debt or obtain additional credit facilities. Although the Company is reviewing these possibilities, there can be no assurance that such financing will be available. Forward Looking Statements Certain statements in this Form 10-K "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, the following: competition, success of operating initiative, advertising and promotional efforts, adverse publicity, acceptance of new product offerings, availability, locations and terms of sites for store development, changes in business strategy or development plan, availability and terms of capital, labor and employee benefit costs, changes in government regulation, regional weather conditions, and other factors specifically referred to in this 10-K. (14) Item 8 - Consolidated Financial Statements and Supplementary Data Page Consolidated Financial Statements: Independent Auditors' Report 15 Consolidated Balance Sheets as of December 31, 2000 and 1999 16 Consolidated Statements of Loss for the years ended December 31, 2000, 1999 and1998 17 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 18 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 19 Notes to Consolidated Financial Statements 20 Financial Statement Schedule: All schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. LUCOR, INC. AND SUBSIDIARIES Consolidated Financial Statements December 31, 2000 and 1999 (With Independent Auditors' Report Thereon) Independent Auditors' Report To the Board of Directors and Stockholders Lucor, Inc. and Subsidiaries Raleigh, North Carolina We have audited the accompanying consilidated balance sheets of Lucor, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of loss, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lucor, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Raleigh, North Carolina March 9, 2001 (15) Consolidated Balance Sheets December 31, 2000 and 1999 2000 1999 Assets ------ ------ Current assets: Cash and cash equivalents $ 2,043,096 $ 7,182,191 Accounts receivable, trade, net of allowance for doubtful accounts of $39,887 and $59,265 at December 31, 2000 and 1999, respectively 474,138 745,883 Accounts receivable, other 829,534 722,786 Inventories 4,171,695 4,885,220 Prepaid expenses 520,566 683,677 ------------- ------------- Total current assets 8,039,029 14,219,757 ------------- ------------- Property and equipment, net of accumulated depreciation (notes 3, 6 and 7) 43,252,463 33,419,225 ------------- ------------- Other assets: Franchise and operating rights, net of accumulated amortization of $788,424 and $501,724 at December 31, 2000 and 1999, respectively (note 8) 8,099,266 8,385,966 Goodwill, net of accumulated amortization of $1,195,603 and $612,630 at December 31, 2000 and 1999, respectively 20,407,201 21,871,239 Leasehold, license, application, area development, loan acquisition, and non-compete agreements, net of accumulated amortization of $1,900,127 and $1,451,568 at December 31, 2000 and 1999, respectively 4,132,124 4,285,748 Deposits 70,154 96,593 Other assets 43,993 63,500 ------------- ------------- 32,752,738 34,703,046 ------------- ------------- $ 84,044,230 $ 82,342,028 ============= ============= Liabilities and Stockholder's Equity Current liabilities: Current portion of long-term debt (note 7) 2,658,812 3,136,090 Current portion of line of credit (note 6) 1,115,352 -- Current portion of other long-term liabilities (note 17) 200,000 200,000 Accounts payable 4,726,514 5,428,011 Income tax payable 16,134 43,002 Accrued expenses: Payroll 1,436,391 1,159,206 Management fees (note 5) 1,072,025 779,180 Property taxes 568,258 517,649 Other 3,247,568 3,471,901 Preferred dividend 35,000 35,000 ------------- ------------- Total current liabilities 15,076,054 14,770,039 ------------- ------------- Long-term debt, net of current portion (note 7) 62,645,127 60,178,661 Line of credit, net of current portion (note 6) 1,091,502 -- Deferred gain (note 9) 68,969 90,348 Deferred revenue and other long-term liabilities (note 17) 1,741,075 2,067,902 Deferred taxes (note 4) 201,000 150,000 -------------- ------------- Total long-term liabilities 65,747,673 62,486,911 Stockholders' equity (notes 10, 11, 12 and 13): Series A preferred stock, $100 par value, 20,000 shares authorized, issued and outstanding 2,000,000 2,000,000 Preferred stock, $.02 par value, ($.10 liquidation preference), authorized 5,000,000 shares, no shares issued and outstanding -- -- Common stock, Class "A", $.02 par value, 5,000,000 shares authorized, 2,333,133 and 2,331,633 shares issued and outstanding at December 31, 2000 and 1999, respectively 46,662 46,632 Common stock, Class "B", $.02 par value, 2,500,000 shares authorized, 502,155 shares issued and outstanding at December 31, 2000 and 1999 10,043 10,043 Additional paid-in capital 9,448,044 9,444,699 Treasury stock at cost (760 shares at December 31, 2000 and 1999) (3,437) (3,437) Accumulated deficit (8,280,809) (6,412,859) ------------- ------------- Total stockholders' equity 3,220,503 5,085,078 ------------- ------------- Commitments and contingencies (note 9) $ 84,044,230 $ 82,342,028 ============= ============= See accompanying notes to consolidated financial statements. (16) LUCOR, INC. AND SUBSIDIARIES Consolidated Statements of Loss Years ended December 31, 2000, 1999 and 1998 2000 1999 1998 ------ ------ ------ Net sales $107,287,910 84,018,095 55,307,206 Cost of sales (note 5) 24,194,192 18,683,931 12,715,861 ------------ ------------ ------------ Gross profit 83,093,718 65,334,164 42,591,345 ------------ ------------ ------------ Costs and expenses: Direct 41,463,413 32,905,302 20,449,478 Operating (note 5) 19,933,755 16,264,016 10,981,273 Depreciation and amortization 3,682,787 2,752,908 2,217,366 Selling, general and administrative 14,237,578 11,496,058 7,388,269 Impairment loss - service center assets (note 14) -- 276,007 1,383,475 ------------ ------------ ------------ 79,317,533 63,694,291 42,419,861 ------------ ------------ ------------ Income from operations 3,776,185 1,639,873 171,484 ------------ ------------ ------------ Interest expense (5,874,441) (3,764,526) (2,664,938) Other income 478,306 279,684 205,956 ------------ ------------ ------------ (5,396,135) (3,484,842) (2,458,982) ------------ ------------ ------------ Loss before provision for income taxes (1,619,950) (1,844,969) (2,287,498) Income tax benefit (expense) (note 4) (108,000) (127,657) 173,017 ------------ ------------ ------------ Net loss $ (1,727,950) (1,972,626) (2,114,481) ============ ============ ============ Net loss $ (1,727,950) (1,972,626) (2,114,481) Preferred dividend (140,000) (140,000) (140,000) ------------ ----------- ------------ Loss available to common shareholders $ (1,867,950) (2,112,626) (2,254,481) ============ ============ ============ Basic and diluted loss per common share: Net loss per common share available to common shareholders $ (0.66) (0.75) (0.80) ============ ============ ============ Weighted average common shares outstanding: Basic and dilutive 2,835,136 2,828,480 2,824,868 ============ ============ ============ See accompanying notes to consolidated financial statements. (17) LUCOR, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended December 31, 2000, 1999 and 1998 Preferred Stock Common Stock ------------------ ----------------------------------- Number of Shares Number ---------------- of Par Class Class Par shares value "A" "B" value Balance at December 31, 1997 -- -- 2,145,733 702,155 56,967 Repurchase of shares (note 10) -- -- (39,000) -- (780) Exchange of shares (note 10) -- -- 200,000 (200,000) -- Stock issued for employee bonuses and directors' fees (note 13) -- -- 9,400 -- 188 Net loss -- -- -- -- -- Preferred dividend (note 11) -- -- -- -- -- ------ --------- ----------- -------- ------- Balance at December 31, 1998 -- -- 2,316,133 502,155 56,365 Waiver of redemption rights (note 11) 20,000 2,000,000 -- -- -- Stock issued for employee bonuses and director's fees (note 13) -- -- 15,500 -- 310 Net loss -- -- -- -- -- Preferred dividend (note 11) -- -- -- -- -- ------ --------- ----------- -------- ------- Balance at December 31, 1999 20,000 2,000,000 2,331,633 502,155 $ 56,675 Stock issued for directors' fees (note 13) -- -- 1,500 -- 30 Net loss -- -- -- -- -- Preferred dividend (note 11) -- -- -- -- -- ------ --------- ----------- -------- ------- Balance at December 31, 2000 20,000 $2,000,000 2,333,133 502,155 $ 56,705 ====== ========= =========== ======== =======

LUCOR, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended December 31, 2000, 1999 and 1998 Treasury Stock ---------------- Additional Number paid-in of Retained capital shares Cost deficit ---------- ------ ------ --------- Balance at December 31, 1997 9,599,642 760 (3,437) (2,045,752) Repurchase of shares (note 10) (274,220) -- -- -- Exchange of shares (note 10) -- -- -- -- Stock issued for employee bonuses and directors' fees (note 13) 49,837 -- -- -- Net loss -- -- -- (2,114,481) Preferred dividend (note 11) -- -- -- (140,000) --------- ---- ------ ----------- Balance at December 31, 1998 9,375,259 760 (3,437) (4,300,233) Waiver of redemption rights (note 11) -- -- -- -- Stock issued for employee bonuses and director's fees (note 13) 69,440 -- -- -- Net loss -- -- -- (1,972,626) Preferred dividend (note 11) -- -- -- (140,000) --------- ---- ------ ----------- Balance at December 31, 1999 9,444,699 760 (3,437) (6,412,859) --------- ---- ------ ----------- Stock issued for directors' fees (note 13) 3,345 -- -- -- Net loss -- -- -- (1,727,950) Preferred dividend (note 11) -- -- -- (140,000) --------- ---- ------ ----------- Balance at December 31, 2000 9,448,044 760 $ (3,437) (8,280,809) ========= ==== ====== =========== See accompanying notes to consolidated financial statements. (18) LUCOR, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998 2000 1999 1998 ------------ ------------ ------------ Cash flows from operations Net loss $ (1,727,950) (1,972,626) (2,114,481) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred gain (4,666) (2,747) (229) Depreciation of property and equipment 2,364,555 1,818,457 1,410,487 Amortization of intangible assets and pre-opening costs 1,318,232 934,451 806,879 Loss on impaired assets -- 276,007 1,383,475 Loss on sale of property and equipment 348,658 -- -- Write-off of pre-opening costs -- 15,742 -- Write-off of franchise rights 22,000 -- -- Stock issued as employee bonuses and directors' fees 3,375 69,750 50,025 Provision for deferred taxes 51,000 150,000 189,000 Changes in assets and liabilities, excluding effects of acquisitions: Decrease (increase) in accounts receivable, trade 271,745 (320,075) (1,577) Increase in accounts receivable, other (106,748) (274,180) (359,863) Decrease (increase) in other assets 19,507 (49,793) (13,707) Decrease (increase) in inventories 713,525 (483,329) 181,503 Decrease (increase) prepaid expenses 163,111 255,251 (180,188) Decrease in income tax receivable -- 40,241 426,282 Increase in income tax payable (26,868) 43,002 -- Increase (decrease) in accounts payable and accrued expenses (330,062) 4,416,661 858,352 ------------ ------------ ------------ Net cash provided by operating activities 3,079,414 4,916,812 2,635,958 ------------ ------------ ------------ Cash flows from investing activities: Purchase of property and equipment (8,900,093) (4,420,502) (3,231,300) Acquisition of additional service centers and related assets (3,611,556) (30,127,338) (14,100,861) Acquisition of area development agreement and other intangible assets (102,844) (34,891) (303,881) Decrease (increase) in deposits 26,439 (20,642) (6,423) Pre-opening costs -- -- (66,840) Proceeds from sale of property and equipment 26,951 2,145,886 988,376 Deferred gain 20,952 (38,388) (54,707) ------------ ------------ ------------ Net cash used in investing activities (12,540,151) (32,495,875) (16,775,636) ------------ ------------ ------------ Cash flows from financing activities: Repurchase of common stock -- -- (275,000) Loan origination costs (107,573) (139,483) (424,188) Dividend paid (140,000) (140,000) (140,000) Repayments of capital lease -- (23,631) (25,481) Increase (decrease) in other long term liabilities (326,827) 2,267,902 -- Proceeds from borrowings 6,892,851 31,602,353 17,320,557 Repayment of debt (1,996,809) (2,075,746) (594,769) ------------ ------------ ------------ Net cash provided by financing activities 4,321,642 31,491,395 15,861,119 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents (5,139,095) 3,912,332 1,721,441 Cash and cash equivalents at beginning of year 7,182,191 3,269,859 1,548,418 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 2,043,096 7,182,191 3,269,859 ============ ============ ============ LUCOR, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998 2000 1999 1998 ------------ ------------ ------------ Supplementary disclosures: Interest paid $ 5,705,799 3,553,956 2,430,559 ============ ============ ============ Income tax paid $ 60,620 93,866 17,500 ============ ============ ============ Acquisitions of service centers: Accounts receivable acquired -- 69,674 61,193 Inventory acquired -- 1,999,938 445,276 Prepaid expenses acquired -- 521,793 43,503 Franchise and operating rights acquired -- -- 8,887,690 Leasehold rights and franchise fees acquired -- 233,500 872,269 Noncompete acquired -- 175,800 -- Fair value of other assets acquired, principally property and equipment 3,817,493 10,889,886 2,188,499 Goodwill -- 17,925,981 1,603,548 Accounts payable and accrued expenses acquired (205,937) (1,689,234) -- Expenses -- -- (1,117) ------------ ------------ ------------ Cash paid, net of cash acquired $ 3,611,556 30,127,338 4,100,861 ============ ============ ============ Supplementary schedule of non-cash financing and investing activities (note 19): Decrease in goodwill related to acquisition adjustment (881,066) -- -- Decrease in debt related to acquisition adjustment 700,000 -- -- Decrease in accounts payable related to acquisition adjustment 181,066 -- -- ------------ ------------ ------------ Total acquisition adjustment $ -- -- -- ============ ============ ============

During 1998, the Company transferred $324,410 from property and equipment into various asset accounts See accompanying notes to consolidated financial statements (19) LUCOR, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2000 and 1999 (1)Nature of Business Lucor, Inc. (the "Company") is the largest franchisee of Jiffy Lube International, Inc. ("JLI") in the United States. These franchises consist of automotive fast oil change, fluid maintenance, lubrication, and general preventative maintenance service centers under the name "Jiffy Lube". As of December 31, 2000, the Company operated two hundred twelve service centers in eight states, including fifty-two service centers in the Raleigh-Durham, North Carolina area, twenty-seven service centers in the Cincinnati, Ohio area (which includes northern Kentucky), fifteen service centers in the Pittsburgh, Pennsylvania area, thirteen service centers in the Dayton, Ohio area, five service centers in the Toledo, Ohio area, eighteen service centers in the Nashville, Tennessee area, twenty-four in the Richmond and Tidewater Virginia area, eight service centers in the Lansing, Michigan area, and fifty in the Atlanta, Georgia area. The operations of the service centers in each of these markets are conducted through subsidiaries of the Company, each of which has entered into area development (except for Lansing and Atlanta) and franchise agreements with JLI. These franchise agreements generally require a monthly royalty fee of 5% of sales. The royalty fee is reduced to 4% of sales when the fee for a given month is paid in full by the fifteenth of the following month, a practice followed by the Company. The Company purchases, leases, as well as constructs these service centers. The Company operated two hundred twelve and two hundred nineteen service centers at December 31, 2000 and 1999, respectively. (2)Summary of Significant Accounting Policies Basis of Consolidation The accompanying consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Inventories Inventories of oil, lubricants and other automobile supplies are stated at the lower of cost (first-in, first-out) or market. Receivables The Company provides an allowance for doubtful receivables equal to the estimated collection losses that will be incurred in collection of all receivables. Estimated losses are based on historical collection experience, as well as a review by management of the current status of all receivables. Deferred Revenues Funds received, but not yet earned, are reported as deferred revenues. When the funds are deemed to be earned they are reported as revenues. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is computed by the straight-line method over the term of the lease or estimated useful lives of the improvements, whichever is less. Repairs and maintenance are charged to operations as incurred, and expenditures for additions and improvements are capitalized. Costs of construction of certain long-lived assets include capitalized interest which is amortized over the estimated useful lives of the related assets. (20) Intangible Assets The Company evaluates, when circumstances warrant, the recoverability of its goodwill on the basis of undiscounted cash flow projections. The acquisition costs related to franchise and operating rights, goodwill, license fees and acquisition/application fees are capitalized based on relative fair values and amortized over the related franchise terms. The costs related to area development and non-compete agreements are capitalized and amortized over the related agreement term. The costs related to the issuance of debt are capitalized and amortized over the lives of the related debt. Amortization of other assets is being computed using the straight-line method over the following lives: Lives (Years) ------- Franchise and operating rights 30 Goodwill 15, 20 and 40 License fees 10, 15 and 20 Area development agreement 10 Acquisition/Application fees 20 and 40 Loan acquisition costs 9, 15 and 25 Non-compete agreements 2, 5 and 10 During 1999, the Company adopted American Institute of Certified Public Accountants Statement of Position No. 98-5, Reporting on the Costs of Start-Up Activities (SOP 98-5) requiring that costs incurred during start-up activities, including organization costs, be expensed as incurred. The adoption resulted in the write-off of $19,693 representing the balance of all pre-opening costs previously recorded as well as the related accumulated amortization of such costs totaling $3,951. The Company no longer capitalizes organization and pre- opening costs. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Advertising The Company expenses the cost of advertising as incurred. (21) Basic and Diluted Loss Per Common Share The basic loss per common share has been computed based upon the weighted average of shares of common stock outstanding. Diluted loss per common share has been computed based upon the weighted average of shares of common stock outstanding and shares that would have been outstanding assuming the issuance of common stock for all dilutive potential common stock outstanding. The Company's outstanding stock options and warrants represent the only potential dilutive common stock outstanding. The amounts of loss used in the calculations of diluted and basic loss per common share were the same for all the years presented. Diluted net loss per common share is equal to the basic net loss per common share for the years ended December 31, 2000, 1999, and 1998 as common equivalent shares from stock options of 555,500, 487,250 and 423,750, respectively, and stock warrants of 130,000 would have an antidilutive effect. Stock Options The Company has adopted Statement of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock-Based Compensation. As permitted under this standard, the Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees in accounting for its stock options and other stock-based employee awards. Pro forma information regarding net loss and loss per share, as calculated under the provisions of SFAS 123, are disclosed in note 13. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Reclassifications Certain accounts included in the 1999 financial statements have been reclassified to conform to the 2000 presentation. These reclassifications have no effect on net loss or stockholders' equity as previously reported. (22) (3)Property and Equipment Major classifications of property and equipment together with their estimated useful lives are summarized below: Lives 2000 1999 (years) Land $ 7,828,784 4,995,740 N/A Buildings 16,325,819 13,886,844 31.5 and 39 Point of sale systems and computer hardware 796,390 723,809 3, 5 and 7 Equipment 12,097,744 11,429,224 5, 7 and 10 Furniture and fixtures 1,218,982 878,878 7 Signs 1,667,657 1,326,504 7 Transportation equipment 305,720 427,864 5 Leasehold improvement 9,195,150 5,331,515 31.5, 39, or lease term Software 75,300 75,300 3 or lease term Construction in progress, including related land 3,043,876 1,436,821 N/A ----------- ----------- 52,555,422 40,512,499 Accumulated depreciation (9,302,959) (7,093,274) ----------- ----------- $ 43,252,463 33,419,225 (4) Income Taxes The components of income tax expense (benefit) attributable to loss before income taxes and extraordinary item for the years ended December 31, 2000, 1999 and 1998 consisted of the following: 2000 1999 1998 ---- ---- ---- Current: Federal $ - - - State 57,000 40,000 15,983 -------- -------- -------- 57,000 40,000 15,983 -------- -------- -------- Deferred: Federal - 281,000 (305,000) State 51,000 (193,343) 116,000 -------- -------- -------- 51,000 87,657 (189,000) -------- -------- -------- Total $ 108,000 127,657 (173,017) ======== ======== ======== The components of deferred tax assets and deferred tax liabilities as of December 31, 2000 and 1999 are as follows: 2000 1999 ---- ---- Deferred tax assets: Inventories $ 43,000 27,000 Deferred revenue 42,000 36,000 Impairment loss - 109,000 Allowance for doubtful receivable 16,000 24,000 State net economic loss carryforwards 1,042,000 785,000 Federal net operating loss carryforward 4,701,000 3,359,000 Tax credit carryforward 56,000 56,000 --------- --------- Total gross deferred tax assets 5,900,000 4,396,000 Less valuation allowance (2,221,000 (1,656,000) --------- --------- Net deferred tax assets 3,679,000 2,740,000 --------- --------- Deferred tax liabilities: Depreciation (3,880,000 (2,890,000) --------- --------- Total gross deferred tax liabilities (3,880,000 (2,890,000) --------- --------- Net deferred tax liability $ (201,000) (150,000) ========= ========= (23) At December 31, 2000, the Company has net operating loss carryforwards for federal income tax purposes of $13,827,000 which begin to expire in 2012. The Company also has net operating loss carryforwards for state tax purposes of $17,403,000 which begin to expire in 2005. The Company has established a valuation allowance against a portion of its deferred tax assets due to the uncertainty surrounding the realization of such assets. The valuation allowance for deferred tax assets as of January 1, 2000 was $1,656,000. The net change in total valuation allowance for the year ended December 31, 2000 was an increase of $565,000. In addition, the Company has alternative minimum tax credit carryforwards of $56,000 which are available to reduce future federal regular income taxes, if any, over an indefinite period. The reasons for the difference between actual income tax expense (benefit) attributable to loss before extraordinary item for the years ended December 31, 2000, 1999 and 1998 and the amount computed by applying the statutory federal income tax rate to loss before income taxes are as follows: 2000 1999 1998 ---------------- ----------------- ----------------- % of % of % of pretax pretax pretax Amount loss Amount loss Amount loss ------ ------ ------ ------ ------ ------ Income tax benefit at statutory rate $ (550,783) (34.0%) $ (627,290) (34.0%) $ (777,749) (34.0%) State income taxes, net of federal income tax 71,280 4.4% (101,207) (5.5%) 87,109 3.8% Increase in valuation allowance 426,731 26.3% 858,499 46.5% 500,000 21.9% Nondeductible goodwill 135,266 8.4% - - - - Other, net 25,506 1.6% (2,345) (0.1%) 17,623 0.8% ---------- ------ ---------- ------ ----------- ------ Income tax expense (benefit) $ 108,000 6.7% $ 127,657 6.9% 173,017 (7.5%) ========== ====== ========== ====== =========== ======

(24) (5)Related Party Transactions Prior to 1998, the Company, through its subsidiaries, entered into management agreements with CFA Management, Inc. ("CFA") which was owned by certain stockholders of the Company, to operate, manage and maintain all of the subsidiaries' service centers. On December 1, 1997, CFA assigned its management agreement with the Company to Navigator Management, Inc, which is owned by certain stockholders of the Company. These management agreements expire on various dates through 2002 but may be extended. For its services, Navigator Management, Inc. receives a percentage of annual net sales based on the particular service center. Number of Management fee service centers per service center --------------- ------------------ Service centers 1 through 34 4.50% Service centers 35 through 70 3.00% Service centers 71 through 100 2.25% All other service centers 1.50% Management fees paid to related parties in 2000, 1999 and 1998 were $2,262,251, $1,869,479, and $1,402,919, respectively. Included in accrued expenses payable at December 31, 2000 and 1999 were amounts due to Navigator Management, Inc. of $1,072,025 and $779,180, respectively. The Company purchases gasoline and engine additive products, wiper blades, windshield glass treatment and other automotive products from Auto Parts Unlimited, formally O.H. Distributors, Inc., which is owned by certain stockholders of the Company. Purchases of these products amounted to $3,778,416, $3,282,944, and $1,624,381 in 2000, 1999, and 1998, respectively. Included in accounts payable at December 31, 2000 and 1999 were amounts due to Auto Parts Unlimited of $161,560 and $64,030, respectively. The Company purchased oil, oil filters and other inventory items from Pennzoil-Quaker State Company ("PQSC") (previously Pennzoil Products Company) in the amount of $11,922,871, $8,651,241, and $5,883,516 during the years ended December 31, 2000, 1999, and 1998, respectively. In addition to these purchases, the Company paid rent in the amount of $207,476, $200,739, and $196,116, and dividends on preferred stock of $140,000, $140,000 and $140,000 to PQSC during the years ended December 31, 2000, 1999 and 1998, respectively. Included in accounts payable at December 31, 2000 and 1999 were amounts due to PQSC of $1,998,106 and $1,473,226, respectively. Also included in accrued expenses at both December 31, 2000 and 1999 was $35,000 for preferred dividends due to PQSC. The Company enters into transactions with Jiffy Lube International ("JLI"), a subsidiary of PQSC. These transactions include payments for royalties, operating expenses, and license fees. In addition, JLI enters into transactions to credit the Company for national fleet accounts, rebates for grand openings, and charges for Sears credit cards. The net amount of these transactions were payments to JLI of $2,004,602 and $715,663 in 2000 and 1999, respectively, and receipts of $212,753 from JLI in 1998. In addition to these transactions, the Company paid rent in the amount of $4,252,338, $2,731,730, and $1,835,540 to JLI during the years ended December 31, 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, accounts receivable included amounts due from JLI amounting to $103,349 and $408,318, respectively. Included in accrued expenses at December 31, 2000 and 1999 were amounts due to JLI for royalties of $351,805 and $307,225, respectively. During June 2000, the Company acquired Navigator Real Estate, LLC from Navigator Management, Inc. The assets of Navigator Real Estate, LLC consisted of several properties leased by the Company. The purchase price of $50,000 was paid for the membership interest of Navigator Real Estate, LLC and represents the capital investment of the original members. The Navigator Real Estate, LLC acquisition was accounted for similar to a pooling of interest since it was between companies under common control. Navigator Management, Inc. is owned by two major shareholders of Lucor, Inc. (25) (6) Lines of Credit During 2000, the Company obtained five secured lines of credit from two financial institutions with an aggregate borrowing capacity of $4,420,000 for the construction of service centers. Three of the lines were obtained from Central Carolina Bank (CCB) with a borrowing capacity of $2,820,000. The total outstanding on these lines at December 31, 2000 was $1,115,352. Interest is payable monthly at LIBOR plus 2.25% (8.653% at December 31, 2000). Principal on these lines is due on demand. Two of the lines were obtained from Franchise Finance Corporation of America (FFCA) with borrowing capacity of $1,600,000. The total outstanding on these lines at December 31, 2000 was $1,091,502. Principal payments related to these lines will commence two months subsequent to the final draw down and will continue for 240 consecutive months. During the time when the line has not been completely drawn down, interest will accrue at LIBOR plus 3.5% (9.903% at December 31, 2000). The interest rate shall be calculated such that the minimum rate applicable is 8.15% with a cap of 16.15%. Interest during the interim period will be added to the principal amount. At the time when principal payments commence, the fixed interest rate will be calculated as the greater of 9.5% or the 10-year U.S. Treasury Rate in effect on the tenth calendar day preceding the date on which FFCA initially anticipates the final disbursement day will occur plus 4%. (7) Long-Term Debt Long-term debt consists of: December 31, ------------------------ 2000 1999 ------------------------ Notes payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $107,740, including interest at 8.54%, to maturity date of April 2013, secured by real property of the Company (a) $ 9,838,944 10,271,330 Notes payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $161,066, including interest at 8.76%, to maturity date of January 2013 and 2023, secured by real property of the Company (b) 16,870,640 17,304,691 Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $17,923, including interest at 8.67%, to maturity date of of January 2013, secured by real property of the Company (c) 1,625,942 1,696,685 Notes payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $17,796, including interest at 8.54%, to maturity date of February 2013, secured by real property of the Company (d) 1,618,118 1,684,249 Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $5,690, including interest at 8.67%, to maturity date of April 2013, secured by real property of the Company (e) 516,166 538,616 Note payable, Jay C. Howell, due on demand, with monthly installments of interest at 12% beginning March 1, 1997, secured by a Leasehold Mortgage and Security Agreement and the Continuing and Unconditional Guarantee executed by the Company 400,000 400,000 (26) December 31, ----------------------- 2000 1999 ----------------------- Note payable, Centura Bank, in 59 monthly installments of principal of $4,823, plus interest of prime plus .5% beginning July 10, 1998 (10.00% at December 31, 2000), plus a balloon payment at maturity date of March 2004, secured by real property of the Company (f) $ 754,059 811,942 Note payable, Franchise Finance Corporation of America, in monthly installments of $7,863, including interest at 9.5%, to maturity date of April 2024 secured by real property of the Company (g) 884,069 893,928 Note payable, Franchise Finance Corporation of America, in monthly installments of $3,495, including interest at 9.5%, to maturity date of April 2024 secured by real property of the Company (h) 392,920 397,301 Company (h) Note payable, Franchise Finance Corporation of America, in monthly installments of $4,106, including interest at 9.5%, to maturity date of April 2024 secured by real property of the Company (i) 461,681 466,829 Note payable, Franchise Finance Corporation of America, in monthly installments of $7,252, including interest at 9.5%, to maturity date of May 2024 secured by real property of the Company (j) 816,099 825,119 Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $8,884, including interest at 9.7%, to maturity date of January 2015, secured by real property of the Company (k) 817,108 841,000 Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $8,876, including interest at 9.7%, to maturity date of January 2020, secured by real property of the Company (l) 924,274 939,000 Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $27,407, including interest at 9.25%, to maturity date of July 2014, secured by real property of the Company (m) 2,538,540 2,628,065 (27) December 31, ----------------------- 2000 1999 ----------------------- Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $65,940, including interest at 9.25%, to maturity date of July 2014, secured by real property of the Company (n) $ 6,107,560 6,322,952 Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $5,409, including interest at 9.5%, to maturity date of October 2014, secured by real property of the Company (o) 498,711 514,044 Note payable, Jiffy Lube International, in one balloon payment of $700,000, at a maturity date of April 1, 2000 (p) - 700,000 Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $157,475, including interest at 9.79%, to maturity date of January 2015, secured by real property of the Company (q) 14,412,961 14,831,000 Note payable, Enterprise Mortgage Acceptance Corporation, in monthly installments of $17,429, including interest at 9.79%, to maturity date of January 2009, secured by real property of the Company (r) 1,164,951 1,248,000 Note payable, Franchise Finance Corporation of America, in monthly installments of $7,241, including interest at 9.95%, to maturity date of September 2020, secured by real property of the Company (s) 798,161 - Note payable, Franchise Finance Corporation of America, in monthly installments of $7,918, including interest at 10.51%, to maturity date of June 2020, secured by real property of the Company (t) 834,439 - Note payable, Franchise Finance Corporation of America, in monthly installments of $6,705, including interest at 10.41%, to maturity date of June 2020, secured by real property of the Company (u) 711,920 - Note payable, Franchise Finance Corporation of America, in monthly installments of $7,451, including interest at 10.32%, to maturity date of April 2020, secured by real property of the Company (v) 795,293 - (28) December 31, ----------------------- 2000 1999 ----------------------- Note payable, Franchise Finance Corporation of America, in monthly installments of $6,661, including interest at 10%, to maturity date of June 2020, secured by real property of the Company (w) $ 729,625 - Note payable, Franchise Finance Corporation of America, in monthly installments of $5,556, including interest at 10%, to maturity date of November 2019, secured by real property of the Company (x) 791,758 - ----------- ----------- 65,303,939 63,314,751 Less current portion (2,658,812) (3,136,090) ----------- ----------- $ 62,645,127 60,178,661 =========== =========== The following are the maturities at December 31, 2000 of long- term debt for each of the next five years and in the aggregate. 2001 $ 2,658,812 2002 2,468,243 2003 2,697,661 2004 3,471,528 2005 3,165,684 Thereafter 50,842,011 ------------ $ 65,303,939 ============ (a) During 1998, the Company entered into 10 Loan and Security Agreements with Enterprise Mortgage Acceptance Corporation. The principal amount of $10,915,000 related to these loans is to be repaid in 180 consecutive installments commencing on April 1, 1998. These loans contain restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants became effective April 1, 1999. The Company was in compliance with these covenants at December 31, 2000. (b) During 1997, the Company entered into 14 Loan and Security Agreements with Enterprise Mortgage Acceptance Corporation. The principal amount of $7,078,000 related to 9 of these loans is to be repaid in 177 consecutive installments commencing on April 1, 1998. Interest only payments of $51,669 were made for three months, commencing January 1, 1998. The principal amount of $10,871,000 related to 5 of these loans is to be repaid in 297 consecutive installments commencing on April 1, 1998. Interest only payments of $79,358 were made for three months, commencing January 1, 1998. These loans contain restrictive covenants pertaining to fixed charge coverage ratios. The Company was in compliance with these covenants at December 31, 2000. (c) During 1998, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Corporation. The principal amount of $1,787,000 related to this loan is to be repaid in 177 consecutive installments commencing on July 1, 1998. Interest only payments of $12,911 were made for three months, commencing April 1, 1998. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants became effective April 1, 1999. The Company was in compliance with these covenants at December 31, 2000. (29) (d) During 1998, the Company entered into 2 Loan and Security Agreements with Enterprise Mortgage Acceptance Corporation. The principal amount of $1,787,000 related to these loans is to be repaid in 177 consecutive installments commencing on June 1, 1998. Interest only payments of $12,717 were made for three months, commencing February 3, 1998. These loans contain restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants became effective February 3, 1999. The Company was in compliance with these covenants at December 31, 2000. (e) During 1998, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Corporation. The principal amount of $572,000 related to this loan is to be repaid in 180 consecutive installments commencing on April 1, 1998, This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants became effective April 1, 1999. The Company was in compliance with these covenants at December 31, 2000. (f) In February 1999, the Company modified its note payable, entered into in June 1998, to Centura Bank. The note was increased to $868,223, payable in 59 monthly installments of principal of $4,823 plus interest of prime plus .5% beginning April 10, 1999. A balloon payment is due at maturity date of March 2004. The Company used the funds to retire its 1995 corporate office building loan and finance the expansion of its corporate office. (g) During 1999, the Company entered into a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $900,000 related to this loan is to be repaid in 300 consecutive installments commencing on May 1, 1999. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective May 1, 2001. (h) During 1999, the Company entered into a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $400,000 related to this loan is to be repaid in 300 consecutive installments commencing on May 1, 1999. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective May 1, 2001. (i) During 1999, the Company entered into a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $470,000 related to this loan is to be repaid in 300 consecutive installments commencing on May 1, 1999. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective May 1, 2001. (j) During 1999, the Company entered into a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $830,000 related to this loan is to be repaid in 300 consecutive installments commencing on June 1, 1999. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective June 1, 2001. (30) (k) During 1999, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Company The principal amount of $841,000 related to this loan is to be repaid in 180 consecutive installments commencing on January 1, 2000. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective January 1, 2001. The Company was in compliance with these covenants at December 31, 2000. (l) During 1999, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Company. The principal amount of $939,000 related to this loan is to be repaid in 240 consecutive installments commencing on January 1, 2000. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective January 1, 2001. The Company was in compliance with these covenants at December 31, 2000. (m) During 1999, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Company. The principal amount of $2,663,000 related to this loan is to be repaid in 180 consecutive installments commencing on July 1, 1999. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants became effective July 1, 2000. At December 31, 2000, the Company met the fixed charge coverage ratio at the consolidated entity level, however, that ratio was not met at the subsidiary level. Under the loan agreement, the failure to maintain the fixed charge coverage ratio does not constitute an event of default. The agreement allows a cure period of six months to comply with the requirement. The Company has prepared a plan to satisfy the fixed charge coverage ratio and will take the necessary actions to be in compliance with the requirement as of June 30, 2001. (n) During 1999, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Company. The principal amount of $6,407,000 related to this loan is to be repaid in 180 consecutive installments commencing on July 1, 1999. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants became effective July 1, 2000. At December 31, 2000, the Company met the fixed charge coverage ratio at the consolidated entity level, however, that ratio was not met at the subsidiary level. Under the loan agreement, the failure to maintain the fixed charge coverage ratio does not constitute an event of default. The agreement allows a cure period of six months to comply with the requirement. The Company has prepared a plan to satisfy the fixed charge coverage ratio and will take the necessary actions to be in compliance with the requirement as of June 30, 2001. (o) During 1999, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Company. The principal amount of $518,000 related to this loan is to be repaid in 180 consecutive installments commencing on October 1, 1999. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants became effective October 1, 2000. At December 31, 2000, the Company met the fixed charge coverage ratio at the consolidated entity level, however, that ratio was not met at the subsidiary level. Under the loan agreement, the failure to maintain the fixed charge coverage ratio does not constitute an event of default. The agreement allows a cure period of six months to comply with the requirement. The Company has prepared a plan to satisfy the fixed charge coverage ratio and will take the necessary actions to be in compliance with the requirement as of June 30, 2001. (31) (p) During 1999, the Company entered into a Loan and Security Agreement with Jiffy Lube International. The obligation was satisfied during 2000 as a result of an adjustment to the purchase price of the 73 service centers acquired in 1999. See additional discussion at note 19. (q) During 1999, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Company. The principal amount of $14,831,000 related to this loan is to be repaid in 180 consecutive installments commencing on January 1, 2000. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective January 1, 2001. The Company was in compliance with these covenants at December 31, 2000. (r) During 1999, the Company entered into a Loan and Security Agreement with Enterprise Mortgage Acceptance Company. The principal amount of $1,248,000 related to this loan is to be repaid in 108 consecutive installments commencing on January 1, 2000. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective January 1, 2001. The Company was in compliance with these covenants at December 31, 2000. (s) During 2000, the Company entered into a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $800,000 related to this loan is to be repaid in 240 consecutive installments commencing on October 1, 2000. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective October 1, 2002. (t) During 2000, the Company entered into a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $838,000 related to this loan is to be repaid in 240 consecutive installments commencing on July 1, 2000. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective July 1, 2002. (u) During 2000, the Company entered into a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $715,000 related to this loan is to be repaid in 240 consecutive installments commencing on July 1, 2000. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective July 1, 2002. (32) (v) During 2000, the Company entered into a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $800,000 related to this loan is to be repaid in 240 consecutive installments commencing on May 1, 2000. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective May 1, 2002. (w) During 2000, the Company acquired a Loan and Security Agreement with Franchise Finance Corporation of America. The principal amount of $733,010 related to this loan is to be repaid in 240 consecutive installments commencing on October 7, 2001. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective July 1, 2002. (x) During 2000, the Company assumed a Loan and Security Agreement with Franchise Finance Corporation of America. The original loan agreement was entered into by Navigator Real Estate, LLC in October 1999. The Company assumed the loan during the acquisition in 2000. The principal amount of $800,000 related to this loan is to be repaid in 240 consecutive installments commencing on November 1, 1999. This loan contains restrictive covenants pertaining to fixed charge coverage ratios. These restrictive covenants become effective November 1, 2001. (8) License and Area Development Agreements The Company operates Jiffy Lube service centers under individual franchise agreements that are part of broader exclusive development agreements with JLI, the franchisor. The exclusive development agreements require the Company to identify sites for and develop a specific number of service centers in specific territories and the separate franchise agreements each provide the Company the right to operate a specific service center for a period of 20 years, with two, 10- year renewal options. Each development agreement grants the Company exclusive rights to develop and operate a specific number of service centers within a defined geographic area, provided that a certain number of service centers are opened over scheduled intervals. The franchise agreements convey the right to use the franchisor's trade names, trademarks, and service marks with respect to specific service centers. The franchisor also provides general construction specifications for the design, color schemes and signage for a service center, training, operating manuals and marketing assistance. Each franchise agreement requires the franchisee to purchase products and supplies approved by the franchisor. The initial franchise fee payable by the Company upon entering into a franchise agreement for a service center varies based on the market area where the Company develops the center and the time of development of the center. For service centers which the Company may develop in 2001, the initial franchise fee ranges from $12,500 to $35,000. (33) Raleigh-Durham The Company has satisfied its obligations to develop service centers under its Area Development Agreement for the Raleigh- Durham market area, and currently has a right of first refusal to develop any additional service centers which JLI may propose to develop or offer to others in this market. This right extends to December 31, 2006 in the Raleigh-Durham market. On December 16, 1999 the Company purchased all of the outstanding stock of Quick 10 Corporation ("Quick 10"), which included twenty seven service centers in North Carolina. Pittsburgh Under its area development agreement for the Pittsburgh area, the Company has satisfied its obligations to develop eight service centers by June 30, 2000. The Company has the right to develop service centers in its Pittsburgh territory through June 30, 2004. After that date, the franchisor may develop or franchise others to develop service centers in the Company's territory but only after providing the Company with the first right of refusal to develop any such centers, which right extends through June 30, 2019. Cincinnati and Other Areas The Company has satisfied its obligations to develop service centers under its Area Development Agreement for the Cincinnati market area, and currently has a right of first refusal to develop any additional service centers which JLI may propose to develop or offer to others in this market. The Company has amended its Area Development Agreement for the Cincinnati market area to include Toledo, Dayton and Nashville areas and operate a specific number of centers within the defined geographical areas until July 31, 2004. The agreement also covers twenty-three Q Lube service centers purchased from JLI during 1999. The Company has satisfied its development obligation. The Company has a first right of refusal to develop service centers until July 31, 2019. Lansing On May 1, 1996, the Company purchased substantially all of the assets of Quick Lube, Inc. which included six service centers in the Lansing, Michigan area. The Company has not entered into an Area Development agreement regarding Lansing. Atlanta On April 30, 1999, pursuant to Purchase Agreements between the Company and Q Lube, Inc. and Jiffy Lube International, Inc., the Company acquired 20 Q Lube service centers and 53 Jiffy Lube service centers (73 service center acquisition). Fifty Q Lube and Jiffy Lube service centers are located in the Atlanta, Georgia area and twenty-three are located in the Cincinnati market area. The Company has not entered into an Area Development agreement for the Atlanta area. The Company does, however, have the right to develop service centers in specified counties within the Atlanta area for three years. The Company has the right of first refusal for the sale of service centers or to develop service centers until April 30, 2009. Richmond and Tidewater On April 1, 1998, the Company purchased substantially all of the assets of Tidewater Lube Ventures, Inc. and Lube Venture East, Inc., which included twenty one Jiffy Lube service centers in the Richmond and Tidewater, Virginia areas, and two Jiffy Lube service centers in Eastern North Carolina. The Company was also assigned an area development agreement as part of the purchase which requires the Company to develop one service center in each of the next two years. At December 31, 2000, the Company has satisfied the service center development under the assigned area development agreement. The Company has a first right of refusal to develop service centers until December 31, 2008. (34) (9) Commitments and Contingencies During 1996, the Company leased software costing $75,300 under a capital lease agreement which expired in 1999. The Company has entered into operating leases for the buildings and improvements used in the service centers. Substantially all of the leases are net leases. Several of the leases stipulate rent increases based on various formulas for cost of living, percentage of sales, and cost of money increases. Future minimum lease payments under noncancellable operating leases at December 31, 2000 are: 2001 $ 6,239,472 2002 6,252,991 2003 5,934,581 2004 5,653,618 2005 5,182,755 Thereafter 35,418,992 ------------ Total minimum lease payments $ 64,682,409 ============= The Company sold a service center in 1998 for $637,640, and leased it back from the purchaser for a period of twenty years. The resulting lease is being accounted for as an operating lease, and the resulting deferred gain of $54,936 is being amortized over the life of the lease. The lease requires the Company to observe certain operating restrictions and covenants and contains four five-year lease renewal options by the Company. The Company sold a service center in 1999 for $775,347, and leased it back from Navigator Real Estate, LLC for a period of twenty years. The resulting deferred gain of $38,388 was amortized over the life of the lease until it was eliminated through the acquisition of Navigator Real Estate, LLC in 2000. The Company performed leasehold improvements for which it was reimbursed $20,952 greater than the cost from the lessor. The related gain is being amortized over the remaining life of the lease. Rent expense, including contingent rentals, for the years ended December 31, 2000, 1999 and 1998 was $10,195,185, $8,462,269, and $5,913,642, respectively. As of December 31, 2000 and 1999, the Company had capital expenditure purchase commitments outstanding of approximately $828,631 and $185,800, respectively. (35) (10) Common Stock The Company currently has two classes of common stock authorized. Class A common stock has one vote per share, but may be voted only in connection with: (i) the election of directors; (ii) the sale, lease, exchange, or other disposition of all, or substantially all, of the Company's assets; and (iii) the removal of Navigator Management, Inc. or a successor management company under a Management Agreement with a subsidiary. Class B shareholders have the right to elect a majority of the Directors of the Company. All shares of Class B common stock have equal voting rights and have one vote per share in all matters to be voted upon by the shareholders. Class B shareholders have preemptive rights. Upon the sale for cash of shares of any class of common stock of the Company, each Class B shareholder has the right to purchase that number of shares offered at the offering price, so that Class B shareholders are entitled to maintain their overall pro rata holdings of common stock. Holders of Class A common stock and preferred stock have no preemptive rights. In April 1998, an officer of the Company exchanged 200,000 shares of Class B common stock for 200,000 shares of Class A common stock. On May 1, 1998, the Company repurchased 39,000 shares of Class A common stock from Quick Lube, Inc. at a contractual value of $7.05. The shares were subsequently retired. On June 15, 1998, the Company granted warrants for the purchase of 100,000 shares of unregistered Class A common stock to a third party. The warrants are exercisable for five years, in installments of 20% of the shares each year, at an exercise price of $5 per share, beginning on June 15, 1998. No warrants have been exercised as of December 31, 2000. (11) Series A Preferred Stock During 1995 the Company entered into a stock purchase agreement with PQSC, whereby the Company established 20,000 shares of Series A Redeemable Preferred Stock which were issued to PQSC at a price of $100 each together with warrants to purchase 30,000 shares of Class A common stock at a price of $15 per share. No warrants have been exercised as of December 31, 2000. The Company had the right and option at any time to redeem all, but not part, of the Series A Redeemable Preferred Stock by paying in full $100 ("Redemption Price") per share plus any accrued and unpaid dividends. Prior to 1999, PQSC had the right to cause the Company to redeem all, but not part of the Series A Redeemable Preferred Stock by paying the Redemption Price at any time from and after the seventh anniversary of the date of issuance of the Series redeemable Preferred Stock. During 1999, the Company negotiated a waiver of the PQSC redemption rights, which had the affect of reclassifying the Preferred Stock into stockholders' equity. Under the agreement, the Company agreed to increase the dividend from its current $7 per share to $15 per share beginning on the seventh anniversary of the issuance of the preferred stock. The holders of Series A Preferred Stock shall be entitled to receive cumulative dividends accruing from the date of issuance, payable semiannually on March 31, and September 30, of each year. If, at any time, the Company fails to make a semiannual dividend payment on any payment date for any period for which the applicable coverage ratio exceeded 1.25 to 1 and the Company is permitted under the terms of its Credit Facilities to pay dividends, the dividend rate shall increase by $0.50 per share per annum. The increased dividend rate shall remain in effect until the date all accrued dividends are paid in full. The Company paid dividends of $140,000 during the years ended December 31, 2000, 1999, and 1998. The holders of the Series A preferred stock shall have no voting rights. In the event of any liquidation, dissolution or winding up of the Company, holders of each share of the Series A preferred stock are entitled to an amount per share equal to the original price of the Series A preferred stock plus accumulated dividends up through and including the payment date before any payment shall be made to the holders of any stock ranking on liquidation junior to the Series A preferred stock, including the common stock. (36) (12) Preferred Stock The Company also has preferred stock with a par value of $0.02. As of December 31, 2000 and 1999, 5,000,000 shares were authorized, but no shares had been issued or were outstanding. (13) Stock Plans 1991 Nonqualified Stock Plan The Company has adopted a non-qualified stock plan (as amended) with 150,000 shares of Class "A" common stock reserved for the grant of stock or options to key employees, officers and directors of the Company. Option prices may be less than the fair market value of the common stock on the date the options are granted. All shares granted are subject to significant restrictions as to disposition by the optionee. At December 31, 2000, and 1999, 40,940 shares were authorized and no shares were granted. Omnibus Stock Plan On December 27, 1994, the Company adopted a stock award and incentive plan (the "Plan") which permits the issuance of options, stock appreciation rights (SARs), limited SARs, restricted stock, and other stock-based awards to directors and employees of the Company. The Plan reserves 600,000 shares of Class "A" common stock for grants and provides that the term of each award, typically ten years, be determined by the committee of the board of directors (the "Committee") charged with administering the Plan. These shares are subject to certain transfer restrictions as determined by the committee. Under the terms of the plan, options granted may be either nonqualified or incentive stock options and the exercise price, determined by the committee, may not be less than the fair market value of a share on the date of grant. SARs and limited SARs granted in tandem with an option shall be exercisable only to the extent the underlying option is exercisable and the grant price shall be equal to a percent, as determined by the committee, of the amount by which the fair market value per share of stock exceeds the exercise price of the SAR. All stock options issued have 5 year vesting periods, and are exercisable in 20% increments each year. No SARs or limited SARs have been granted by the Company. Stock option activity under the Omnibus Stock Plan during the periods indicated is as follows: Weighted average Number exercise of price options ------- -------- Balance at December 31, 1997 442,750 $ 6.14 Cancelled (19,000) 7.02 ------- -------- Balance at December 31, 1998 423,750 6.10 Granted 70,000 3.75 Cancelled (6,500) 6.88 ------- -------- Balance at December 31, 1999 487,250 5.75 Granted 90,000 2.00 Cancelled (21,750) 5.31 ------- -------- Balance at December 31, 2000 555,500 $ 5.16 ======= ======== At December 31, 2000, the range of exercise prices and weighted average remaining contractual life of outstanding options was $2.00-$8.00 and 5.1 years, respectively. No stock awards were granted under this plan in 2000. The Company granted stock awards of 15,500 shares to employees at a market value of $69,750 during the year ended December 31, 1999 which has been reflected as an expense. The Company granted awards of 8,400 shares to employees at a market value of $44,400 during the year ended December 31, 1998 which has been reflected as an expense. At December 31, 2000, 1999 and 1998, there were 600,000 shares authorized, and 20,600, 88,850, and 167,850 shares, respectively, available under the Omnibus Stock Plan. Of the outstanding options, 313,300, 211,900, and 117,250 were exercisable at December 31, 2000, 1999 and 1998, and the weighted average exercise price was $5.70, $6.00, and $6.22, respectively. (37) Directors' Stock Award Plan On April 4, 1995, the Company adopted a stock award plan for the outside directors ("Directors' Plan"). The Directors' Plan reserves 15,000 shares of Class "A" common stock for issuance under awards to be granted under the Directors' Plan. The Company granted awards of 1,500 shares at a market value of $3,375 during the year ended December 31, 2000 which has been reflected as an expense. No shares were granted under this plan during 1999. The Company granted awards of 1,000 shares at a market value of $5,625 during the year ended December 31, 1998 which has been reflected as an expense. At December 31, 2000, 1999 and 1998, 5,620, 4,120, and 4,120 shares were outstanding, respectively, and 9,380, 10,880, and 10,880 available, respectively, under the Directors' Plan. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Corporation's stock option plans been determined based on the fair value at the grant date for awards in 2000, 1999 and 1998 and consistent with the provisions of SFAS No. 123, the Corporation's net loss and loss per share would have been as presented in the pro forma amounts indicated below: As Reported Pro Forma ----------------------------------------- ------------------------------------------ 2000 1999 1998 2000 1999 1998 ------ ------ ------ ------ ------ ------ Net loss available to common shareholders $ (1,867,952) (2,112,626) (2,254,481) (1,934,583) (2,212,967) (2,334,007) ============ ============ ============ ============ ============ ============ Basic and diluted net loss per common share available to common shareholders $ (.66) (.75) (.80) (.68) (.78) (.83) ============ ============ ============ ============ ============= ============

The pro forma effect on net loss for 2000, 1999 and 1998 is not representative of the pro forma effect on net loss in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 2000 1999 -------- -------- Expected dividend yield 0% 0% Expected stock price volatility 69.1% 64.1% Risk-free interest rate 5.17% 6.35% Expected life of options 5 years 5 years The weighted average fair value of options granted during 2000 and 1999 is $.46 and $.90 per share, respectively. No options were granted during 1998. (38) (14) Impairment Loss As of December 31, 1999, the Company was operating nine service centers for which, as a result of continued disappointing revenue and profits generated by the service centers, the Company performed an impairment review of its long-lived assets, in accordance with Statement of Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS No. 121"). During the fourth quarter of 1999, the Company determined that estimated future undiscounted cash flows of the operations were below the carrying value of the long-lived assets. Accordingly, during the fourth quarter of 1999, the Company adjusted the carrying value of the long-lived assets, primarily equipment, point of sale systems, furniture and fixtures, leasehold improvements and franchise fees, to their estimated fair value, resulting in a noncash impairment loss of $276,007 ($0.10 per share). The estimated fair value was based on anticipated future cash flows discounted at a rate commensurate with the risk involved. As of December 31, 1998, the Company was operating sixteen Jiffy Lube Service Centers within Sears Auto Centers. As a result of continued disappointing revenue and profits generated by the service centers located in Sears, the Company performed an impairment review of its long-lived assets, in accordance with SFAS No. 121. During the fourth quarter of 1998, the Company determined that estimated future undiscounted cash flows of the Sears operations were below the carrying value of the Sears long-lived assets. Accordingly, during the fourth quarter of 1998, the Company adjusted the carrying value of the Sears long-lived assets, primarily equipment, point of sale systems, furniture and fixtures, leasehold improvements and franchise fees, to their estimated fair value, resulting in a noncash impairment loss of $1,383,475 ($0.50 per share). The estimated fair value was based on anticipated future cash flows discounted at a rate commensurate with the risk involved. (15) Profit Sharing Plan During 1994, effective for years beginning after January 1, 1995, the Company adopted a profit sharing plan pursuant to Section 401(k) of the Internal Revenue Code ("Code") whereby participants may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code. The plan provides for a discretionary matching contribution by the Company. Employees are eligible for the plan after being employed full time for six consecutive months. For the years ended December 31, 2000, 1999 and 1998, the Company contributed $77,903, $71,383, and $64,492, respectively, to the plan. (16) Fair Value of Financial Instruments The Company's financial instruments are cash and cash equivalents, notes payable and long-term debt, and various receivables and payables. The fair value of notes payable and long-term debt are estimated by discounting cash flows through the maturity dates. The carrying values of these on-balance sheet financial instruments approximate fair value. (39) (17) Deferred Revenue and Other Long Term Liabilities During 1999, the Company acquired, through the purchase of Quick 10, a long-term purchase agreement for oil and filters entered into by Quick 10 in 1997. The supplier provided the Company with $1,250,000 of business development funds which are reflected in other long-term liabilities. The business development funds are amortized based on the Company's purchases of oil and filters. The Company can terminate the agreement by paying the supplier the unamortized portion of the business development funds. During 1999 and 1998, Quick 10 received $250,000 and $200,000, respectively of additional business development funds under the same purchase agreement, increasing the remaining purchase obligation by equal amounts. As of December 31, 2000 the Company's remaining purchase obligation totaled approximately $1,141,000. The agreement requires that an annual minimum purchase requirement be met, with such requirement ending in 2008. The Company met its minimum purchase requirements in 2000. As a result of its purchase of Quick 10 in December 1999, the Company entered into a five year non-compete agreement with the former shareholders of Quick 10 which began in January 2000. At December 31, 2000, the Company has reflected the remaining portion of the non-complete agreement of $200,000 as current portion of other long-term liabilities and $600,000 as other long-term liabilities. To fund the non-complete agreement, the Company obtained $1,000,000 from Jiffy Lube International as compensation for the termination of the Quick 10 operating name for the acquired service centers. (18) Unaudited Pro Forma Results of Acquisitions The Tidewater acquisition in 1998, and the Quick 10 acquisition and 73 service center acquisition in 1999, were accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of loss do not include any revenues or expenses related to these acquisitions prior to the closing dates. The proforma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined companies. Following are the Company's unaudited pro forma results for 1999 and 1998 assuming the acquisitions occurred at the beginning of each period presented: 1999 ------------------------------------------------------ 73 Service Lucor Centers Quick Total 10 ----------- ----------- ----------- ------------ Net sales $63,047,033 27,778,671 14,496,492 105,322,196 Net income (loss) (690,958) (1,737,531) 1,289,846 (1,137,506) Income (loss) available to common shareholders (830,958) (1,737,531) 1,289,846 (1,277,506) Basic and diluted loss per common share: Net loss per common share available to common shareholders $ (0.45) ==========

1998 --------------------------------------------------------------------------- 73 Service Lucor Tidewater Centers Quick Total 10 ----------- ----------- ----------- ----------- ----------- Net sales $44,945,272 10,361,934 24,366,578 12,221,493 91,895,277 Net income (loss) (2,428,860) 314,379 1,843,881 1,169,244 898,644 Income (loss) available to common shareholders (2,568,860 314,379 1,873,881 1,169,244 758,644 Basic and diluted loss per common share: Net loss per common share available to common shareholders $ 0.27 ==========

(40) (19) Acquisition Adjustment During 2000, the Company discovered a discrepancy in the purchase price of the 73 service centers acquired in March, 1999. The discrepancy resulted in a reduction of the purchase price of approximately $881,000. As a result of this adjustment, the Company reduced the amount of goodwill associated with the acquisition and reduced a note payable and accounts payable to the seller. (20) Preliminary Filings During 2000, the Company filed a preliminary proxy statement with the Securities and Exchange Commission for a special meeting of the Company's shareholders to consider and vote to approve an amendment to the Company's Amended and Restated Article of Incorporation which will effect a 20 to 1 reverse stock split of the Company's Class A and Class B common stock. The proxy statement has not been finalized. (41) LUCOR, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2000 and 1999 (18) Unaudited Quarterly Results Unaudited quarterly financial information for 2000 and 1999 is set forth in the table below: March June September December ------------------ ------------------ ------------------ ------------------ 2000 1999 2000 1999 2000 1999 2000 1999 -------- -------- -------- -------- -------- -------- -------- -------- Net sales $ 25,710 14,795 27,331 21,585 27,361 23,563 26,886 24,075 Gross profit (1) 19,854 11,532 21,244 16,845 21,309 18,108 20,687 18,849 Net income (loss) (1) (122) (208) 227 409 (568) (1,014) (1,265) (1,160) Preferred dividend (35) (35) (35) (35) (35) (35) (35) (35) Income (loss) available to common shareholder (1) (157) (243) 192 374 (603) (1,049) (1,300) (1,195) Basic and diluted income (loss) per common share (0.06) (0.09) 0.07 0.13 (0.21) (0.37) (0.46) (0.42)

(1) The Company recorded an adjustment in the quarter ended December 31, 2000 that increased gross profit by approximately $190,000 and decreased net loss and net loss available to common shareholders by approximately $190,000 related to prior quarters. This impact on prior quarters is considered immaterial. (42) Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None (43) PART III ------------------------------------------------------------------------------- Item 10 - Directors and Executive Officers of the Registrant David M. Barnett has served as Vice President of Marketing since October 1993. Prior to his appointment as a Vice President, he served as the director of sales and marketing from February 1991. Before joining the Company, Mr. Barnett was employed in the advertising industry in several positions and left as an account service executive. Mr. Barnett graduated from North Carolina State University in 1988. Anthony J. Beisler, III has been a director of the Company since 1991. He practices law, specializing in insurance defense, with Beisler & Beisler, Fort Lauderdale, Florida and has practiced law in excess of twenty years. He is not actively engaged in the day to day operations of the Company. Kendall A. Carr is the Vice President of Finance and Chief Financial Officer for the Company. He started with the Company in January 1996 at which time he was appointed to his current position. Mr. Carr served as Controller for Limitorque Corporation from 1988 until 1993. From 1993 through 1994, Mr. Carr served as the Chief Financial Officer for Walter Kidde Portable Equipment, Inc. and in 1995 he served as the Controller of Precision Concepts, Inc. He graduated summa cum laude from SUNY at Buffalo in 1978, and received his MBA from James Madison University in 1988. He is a licensed CPA. Jerry B. Conway is co-founder of the Company and has been the President, Chief Operating Officer, and Director of the Company since the Company was organized in 1990. He is an executive officer and director of each of the Company's subsidiaries, as well as President and principal shareholder of CFA Management Inc. and Navigator, which provide management services to the Company's subsidiaries. Mr. Conway oversees and directs the management of the Company. He has worked in the retail service industry for over twenty-six years, and has been involved specifically with Jiffy Lube since 1986. Mr. Conway is a high honor graduate, Beta Gamma Sigma, of Michigan State University in 1977. He also chairs several committees as well as serves on the Board of Directors of JLAF (Jiffy Lube Association of Franchisees). Mr. Conway is also President of Auto Parts Unlimited. Stephen P. Conway is co-founder of the Company and has served as Chairman of the Board and Chief Executive Officer since the Company was organized in 1990. He is an executive officer and director of each of the Company's subsidiaries as well as the Vice President and a principal shareholder of CFA Management, Inc. and Navigator, which provide management services to the Company's subsidiaries. Mr. Conway is a shareholder and officer of Fiduciary Asset Management, Inc., Boca Raton, Florida, a Registered Investment Adviser, and a principal of Financial Assets Corporation, a securities broker-dealer in Boca Raton. Mr. Conway is also Vice President of Auto Parts Unlimited. Michael D. Davis has served the Company as the Vice President of Administration since July 1998. Prior to his appointment as Vice President he served as Director of Administration for the Company from January 1996. Prior to joining the Company Mr. Davis served as the Assistant Controller for Hooters of America, Inc. from 1991 through 1994. Mr. Davis graduated magna cum laude from Berry College in 1990 and received his MBA from the University of Georgia in 1995. D. Fredrico Fazio has been a director of the Company since 1991. He is the managing partner of the civil trial law firm of Fazio, Dawson, DiSalvo, Cannon, Abers & Podrecca, in Fort Lauderdale, Florida and has practiced law in excess of twenty years. Mr. Fazio is also involved in real estate development in Fort Lauderdale, Florida. He is not actively engaged in the day to day operations of the Company. (44) Martin Kauffman has served the Company as the Controller since 1987. He has had extensive financial experience during his previous twenty-year employment with Exxon Corporation. Mr. Kauffman is a licensed CPA, and is a graduate of Rutgers University. Douglas W. Roan has served as the Vice President of Development and Purchasing since October 1993. Prior to his appointment as Vice President he served as Director of Development for the Company from 1987. Mr. Roan has worked in the construction, development and purchasing industries for over twenty- seven years in various regions of the United States. Richard L. Rubin was appointed director on April 6, 1999. He is a sales and marketing specialist for a telecommunications company, ArtSelect, Inc. Prior to his experience in telecommunications, Mr. Rubin was involved in sales and marketing of commercial real estate and real estate private placements. He is not actively engaged in the day to day operations of the Company. R. Lewis Stanford was appointed director on April 6, 1999. He is the Vice President and General Counsel for the Company since September 1995. From 1992 until joining the Company, Mr. Stanford was associated with the law firm of Moore & Van Allen, PLLC, where he had a general corporate practice. Mr. Stanford graduated with highest honors and highest distinction from the University of North Carolina at Chapel Hill and received his JD with honors from the University of North Carolina School of Law in 1992. Mr. Stanford has worked in the auto industry and legal profession for eighteen years. Brady R. Thompson Sr. has served as Vice President of Operations since January of 2001. Prior to his appointment as Vice President of Operations for the Company, Mr. Thompson served as the Director of Operations, Regional Sales and Operations Manager and District Sales and Operations Manager. Mr. Thompson joined the Company in 1998. Before joining the Company, Mr. Thompson was employed with CB Squared Services, dba Jiffy Lube, where he served as a store General Manager for three and one-half years. Prior to Jiffy Lube, Mr. Thompson served in the United States Army for five years. (45) Item 11 - Executive Compensation and Other Matters The following table sets forth information concerning the compensation during the years ended December 31, 2000, 1999 and 1998 of the Chief Executive Officer of the Company during 2000 and the four other most highly compensated executive officers of the Company whose total salary and bonus for 2000 exceeded $100,000, for services in all capacities to the Company during 2000. Summary Compensation Table -------------------------- Long-Term Fiscal Compensation Name and Principal Position Year Annual Compensation ($) Awards --------------------------- ------ ----------------------- ------------ Options Salary Bonus (shares) ------ ----- -------- Stephen P. Conway (1) 2000 -0- -0- -0- Chief Executive Officer 1999 -0- -0- -0- 1998 -0- -0- -0- Jerry B. Conway (1) 2000 -0- -0- -0- Chief Operating Officer 1999 -0- -0- -0- 1998 -0- -0- -0- David M. Barnett 2000 $104,701 -0- 15,000 Vice President of Marketing 1999 95,254 2,400 10,000 1998 84,567 1,500 -0- Kendall A. Carr 2000 $105,660 -0- 15,000 Vice President of Finance 1999 99,130 2,400 10,000 and Chief Financial Officer 1998 94,713 1,500 -0- Douglas W. Roan 2000 $104,701 -0- 15,000 Vice President of Development 1999 96,890 2,400 10,000 1998 85,435 1,500 -0- R. Lewis Stanford 2000 $105,877 -0- 15,000 Vice President 1999 99,789 2,400 10,000 and General Counsel 1998 94,970 1,500 -0-

(1) The Company's Chief Executive Officer and the Company's President (collectively, the "Named Executive Officers") do not receive compensation directly from the Company. The Named Executive Officers receive compensation for services rendered to the Company from Navigator Management, Inc. (46) Stock Options Granted in 2000 The following table provides the specified information concerning grants of options to purchase the Company's Common Stock made during the year ended December 31, 2000, to the persons named in the Summary Compensation Table. Option Grants in 2000 --------------------- Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants in 2000 Option Term (1) ---------------------------------------------------------------------------------------------------------------- % of Total Options Granted Exercise Options to Employees Base Price Expiration Name Granted (#) (2) in 2000 ($/Sh) Date 5% ($) 10% ($) ----------------- --------------- --------------- ---------- ---------- ------- ------- David M. Barnett 15,000 16.67 $2.00 11/1/10 $8,288 $18,315 Kendall A. Carr 15,000 16.67 $2.00 11/1/10 $8,288 $18,315 Douglas W. Roan 15,000 16.67 $2.00 11/1/10 $8,288 $18,315 R. Lewis Stanford 15,000 16.67 $2.00 11/1/10 $8,288 $18,315

(1) Potential gains are net of exercise price, but before taxes associated with exercise. These amounts represent certain assumed rates of apprec- iation only, based on the Securities and Exchange Commission rules. Actual gains, if any, on stock option exercises are dependent on the future per- formance of the Common Stock, overall market conditions and the option holders' continued employment through the vesting period. The amounts reflected in this table may not necessarily be achieved. (2) All options granted in 2000 were granted pursuant to the Company's 1995 Omnibus Stock Option Plan. These options vest and become exercisable at the rate of one-fifth on each anniversary of the date of the grant for each full year of the optionee's continuous employment by the Company. Under the Company's 1995 Omnibus Stock Option Plan, the Board retains discretion to modify the terms, including the price, of outstanding options. (47) 12 - Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information with respect to beneficial ownership of the Common Stock as of January 31, 2001 by: (i) each person known to the Company to beneficially own more that 5% of the Class A Stock and Class B Stock; (ii) each director of the Company; and (iv) all directors and executive officers of the Company as a group. Except as otherwise indicated, each shareholder named has sole voting and investment power with respect to such shareholder's shares. Class A Common Stock --------------------- Number of Shares Number of Shares Total Percent Name Directly Owned Beneficially Owned Shares of Class ------ ----------------- -------------------- -------- ---------- Stephen P. Conway (5) 7,300 840,577 (1) 847,877 36.3% 790 Pershing Road Raleigh, North Carolina 27608 Jerry B. Conway (5) 153,930 838,577 (2) 992,507 42.5% 790 Pershing Road Raleigh, North Carolina 27608 D. Fredrico Fazio 302,659 0 302,659 13.0% 633 South Andrews Avenue Suite 500 Fort Lauderdale, Florida 33301 Anthony J. Beisler, III 46,582 39,060 (3) 85,642 3.7% 1001 Northeast 26th Street Fort Lauderdale, Florida 33305 Pennzoil Products Company 759,477 (4) 0 759,477 (4) 32.6% Pennzoil Place Post Office Box 2967 Houston, Texas 77252-2967 Kathleen D. Conway (5) 202,229 0 202,229 8.7% P.O. Box 2091 Blowing Rock, North Carolina 28605 Richard L Rubin 1,000 0 1,000 0.0% 503 East Fillmore Fairfield, Iowa 52556 R. Lewis Stanford 4,600 0 4,600 0.2% 790 Pershing Road Raleigh, North Carolina 27608 All directors and executive 530,058 879,637 1,409,695 60.4% officers as a group (11 persons)

(48) Class B Common Stock --------------------- Number of Shares Percent Name Directly Owned of Class ---- ----------------- -------- Stephen P. Conway (5) 292,409 58.2% 790 Pershing Road Raleigh, North Carolina 27608 Jerry B. Conway (5) 209,746 41.8% 790 Pershing Road Raleigh, North Carolina 27608 All directors and executive 502,155 100.0% officers as a group (11 persons) 1. Includes (i) 2,000 shares held as custodian for his children; (ii) 79,100 shares held by Navigator Management, Inc. ("Navigator") and CFA Management, Inc. both of which are owned 50%; and (iii) the jointly held irrevocable proxy to vote 759,477 shares of Class A Stock, as described more fully below in footnote 4. 2. Includes (i) 79,100 shares held by Navigator and CFA Management, Inc. both of which are owned 50% and (ii) the jointly held irrevocable proxy to vote 759,477 shares of Class A Stock, as more fully described below in footnote 4. 3. Includes (i) 14,550 shares held by the Anthony J. Beisler, III P.A. Money Purchase Pension Trust, and (ii) 24,510 shares held by Anthony J. Beisler, III P.A. Profit Sharing Trust. 4. Pursuant to the grant of an irrevocable proxy dated May 30, 1996, Stephen P. Conway and Jerry B. Conway, or either of them, are entitled to vote these 759,477 shares of Class A Stock. 5. Stephen P. Conway and Jerry B. Conway are brothers. Kathleen Conway is the former wife of Stephen P. Conway. Item 13 - Certain Relationships and Related Transactions Prior to 1998, the Company, through its subsidiaries, entered into management agreements with CFA Management, Inc. ("CFA") which was owned by certain shareholders of the Company, to operate, manage and maintain the subsidiaries' service centers. On December 1, 1997, CFA assigned its management agreement with the Company to Navigator Management, Inc. Navigator Management, Inc. is owned by certain shareholders of the Company. These management agreements expire on various dates through 2002 but may be extended. For its services, Navigator Management, Inc. receives a percentage of annual net sales calculated on the basis of all service centers as follows: Number of Management Fee Service Centers Per Service Center --------------- ------------------ Service centers 1 through 34 4.50% of the sales of these centers Service centers 35 through 70 3.00% of the sales of these centers Service centers 71 through 100 2.25% of the sales of these centers All other service centers 1.50% of the sales of these centers Management fees paid to Navigator Management, Inc. in 2000 were $2,262,251. Included in accrued expenses payable at December 31, 2000 were amounts due to Navigator Management, Inc. of $1,072,025. (49) The Company purchases gasoline, engine additives, wiper blades, windshield glass treatment and other automotive products from Auto Parts Unlimited ("APU"), which is owned by certain shareholders of the Company. Purchases of these products amounted to $3,778,416 in 2000. Included in accounts payable at December 31, 2000 were amounts due to APU of $161,560. The Company purchased oil, oil filters and other inventory items from Pennzoil-Quaker State Company ("PQSC") in the amount of $11,922,871 for the year ended December 31, 2000. In addition to these purchases, the Company paid rent in the amount of $207,476 and dividends on preferred stock of $140,000 to PQSC during the year ended December 31, 2000. Included in accounts payable at December 31, 2000 were amounts due to PQSC of $1,998,106. Also included in accrued expenses at December 31, 2000 was $35,000 for preferred dividends due to PQSC. The Company enters into transactions with Jiffy Lube International ("JLI"), a subsidiary of PQSC. These transactions include payments for royalties, operating expenses, and license fees. In addition, JLI enters into transactions to credit the Company for national fleet accounts, rebates for grand openings, and charges for Sears credit cards. The net amount of these transactions were payments of $2,004,602 to JLI in 2000. In addition to these transactions, the Company paid rent in the amount of $4,252,338 during the year ended December 31, 2000. At December 31, 2000 amounts receivable from JLI was $103,349. Included in accrued expenses at December 31, 2000 were amounts due to JLI for royalties of $351,805. The Company sold three service centers in 1999 to Navigator Real Estate which is owned by certain shareholders of the Company, and leased each of them back for a period of twenty years. The Company acquired Navigator Real Estate, LLC from Navigator Management, Inc., during June 2000. Navigator Real Estate owned several properties leased by the Company and had loans outstanding for these properties which were acquired in late 1999 and early 2000. The purchase price for the membership interest of Navigator Real Estate was the capital investment of the original members. Navigator Management, Inc. is owned by two major shareholders of Lucor, Inc. (50) PART IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: Financial statements and financial statement schedule - see Index to Consolidated Financial Statements at Item 8 of this report. (51) (a)(3) Exhibits: Unless otherwise indicated, the following exhibits are incorporated herein by reference from the Registrant's Registration Statement on Form S-1, File No. 33-71630 under the same exhibit reference number, and are made a part hereof by such reference. Exhibit Number Exhibit Description 3.1 Articles of Incorporation 3.2 By-Laws of the Registrant 3.3 Amendment to Articles of Incorporation 3.4 Amendment to Articles of Incorporation dated June 27, 1994 4.1 Form of Warrant Agreement 4.2 Form of Common Stock Certificate 4.3 Form of Warrant Certificate 10.1 Area Development Agreement - Carolina Lubes, Inc. 10.2 Right of First Refusal - Carolina Lubes, Inc. 10.3 (1) Area Development Agreement and Amendment - Cincinnati Lubes, Inc. 10.4 Omitted. This agreement is disclosed in exhibits 10.5 and 10.6 10.5 Standard License Agreement 10.6 Amendment to Standard License Agreement 10.7 (2) Amended and Restated Management Agreement of August 1988, with Amendments of September 1993 with Carolina Lubes, Inc., Cincinnati Lubes, Inc. and CFA Management, Inc. 10.8 (3) Deed, Note & Loan Agreement, Millbrook - Carolina Lubes, Inc. 10.12 (4) Area Development Agreement, Jiffy Lube - Pittsburgh Lubes 10.13 (5) Management Agreement between Pittsburgh Lubes, Inc. and CFA Management, Inc. 10.14 (6) Lucor, Inc. Omnibus Stock Plan 10.15 (7) Carolina Lubes First Right of Refusal Agreement with Jiffy Lube International, Inc. dated December 12, 1994 10.16 (8) Commercial Note - Centura Bank, Pershing Road 10.17 (9) Assignment and Assumption Agreement - P.B. Lubes and Carolina Lubes 10.18 (10) Lucor, Inc. Amended and Restated 1991 Non-Qualified Stock Plan 10.20 Standard Lease of Inspection Equipment - Carolina Lubes 10.21 (11) Citicorp Leasing Credit Facility form of preferred stock with designation of rights, and form of Sales Agreement 10.23 Franchise Agreement, Jiffy Lube - Pittsburgh Lubes Inc. and CFA Management, Inc. dated July 1, 1994 10.24 (12) Form of Loan Agreements with Enterprise Mortgage Acceptance Company, LLC 10.25 (12) Amendment to the Management Agreement between Carolina Lubes, Inc. and CFA Management, Inc. 10.26 (12) Amendment to the Management Agreement between Cincinnati Lubes, Inc. and CFA Management, Inc. 10.27 (12) Amendment to the Management Agreement between Pittsburgh Lubes, Inc. and CFA Management, Inc. 10.28 Management Agreement between Commonwealth Lubes, Inc. and Navigator Management Inc. 21 * Subsidiaries of the Company Filed herewith. (1) Originally filed as Exhibits 10.3 and 10.4 on Registrant's Registration Statement on Form S-1, File No. 33-71630. (2) Originally filed as Exhibit 10.8 on Registrant's Registration Statement on Form S-1, File No. 33-71630. (3) Originally filed as Exhibit 10.14 on Registrant's Registration Statement on Form S-1, File No. 33-71630. (4) Originally filed as Exhibit 10.24 on Registrant's Registration Statement on Form S-1, File No. 33-71630. (5) Originally filed as Exhibit 10.25 on Registrant's Registration Statement on Form S-1, File No. 33-71630. (6) Originally filed as Exhibit 10.26 on Registrant's Form 10-K filed for the year ended December 31, 1994. (7) Originally filed as Exhibit 10.27 on Registrant's Form 10-K filed for the year ended December 31, 1994. (8) Originally filed as Exhibit 10.16 on Registrant's Form 10-K filed for the year ended December 31, 1995. (9) Originally filed as Exhibit 10.17 on Registrant's Form 10-K filed for the year ended December 31, 1995. (10) Originally filed as Exhibit 10.18 on Registrant's Form 10-K filed for the year ended December 31, 1994. (11) Originally filed as Exhibit 10.6 on Registrant's Form 10-K filed for the year ended December 31, 1995. (12) Filed with original filing of the Registrant's Form 10-K for the year ended December 31, 1997. (52) Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LUCOR, INC. By /s/ Stephen P. Conway ----------------------------------------- Stephen P. Conway, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 2nd day of April, 2001. /s/ Stephen P. Conway ---------------------------- Stephen P. Conway Chairman, Chief Executive Officer and Director (Principal Executive Officer) /s/ Jerry B. Conway ---------------------------- President, Chief Operating Officer and Director Jerry B. Conway /s/ Kendall A. Carr ---------------------------- Vice President - Finance Kendall A. Carr (Principal Financial Officer and Principal Accounting Officer) ---------------------------- Director D. Fredrico Fazio /s/ Anthony J. Beisler, III ---------------------------- Director Anthony J. Beisler, III ---------------------------- Director Richard L. Rubin /s/ R. Lewis Stanford ---------------------------- Director R. Lewis Stanford (53) EXHIBIT 21 Lucor, Inc Subsidiaries of the Company Carolina Lubes, Inc. Cincinnati Lubes, Inc. Commonwealth Lubes, Inc. Pittsburgh Lubes, Inc. PB Lubes, Inc. Ohio Lubes, Inc. Tennessee Lubes, Inc. Tennessee Lubes One, LLC Tennessee Lubes Two, LLC Atlanta Lubes One, LLC Atlanta Lubes Two, LLC Vircal Lubes, Inc Quick 10 Corporation Navigator Real Estate, LLC (54)

LUCOR INC /FL/ 10-K