SecProbe.io

CORRESP
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May 12, 2005

Ms. Linda Cvrkel

Branch Chief

U. S. Securities and Exchange Commission

Washington D.C. 20549

Re:                               Precision Auto Care, Inc.

Form 10-KSB for the fiscal year ended June 30, 2004

Form 10-Q for the quarter ended September 30, 2004 and December
31, 2004

Commission file #: 000-29478

Dear Ms. Cvrkel:

I
am in receipt of your letter dated April 19, 2005.  The following is our response to each of the
comments in the order that they appeared in your letter.

Form 10-KSB
for the year ended June 30, 2004

Gain on Debt Restructuring

1.             We note from your response to
comment 1 that your determination of the appropriateness of the reduction in
trade payables related to Praxis was based on the advice of legal counsel.
Please supplementally tell us how you met the criteria necessary to consider a
liability extinguished, as set forth in paragraph 16 of SFAS 140.

Response:

As we have previously disclosed,
substantially all of the assets of Praxis Autopartes, S.A. de C.V., were sold
to Shell Oil-Mexico. Certain liabilities that had accumulated over time did not
convey to Shell-Mexico in the transaction. The Company had not received any
communication from the vendors identified on the list of payables and certain
source documentation supporting these balances was never able to be located
when we made the decision to cease operations in Mexico. The question arose as
to whether the Parent Company would ever be liable for these amounts since the
subsidiary was insolvent.  Our internal
counsel conferred with counsel in Mexico about the Parent Company’s liability
for obligations owed by its subsidiary, Praxis, and was informed that Mexican
law does not permit piercing the corporate veil unless the Mexican subsidiary
is not properly registered or properly incorporated.  Praxis and the other related subsidiaries in
Mexico were properly incorporated and registered.  Therefore it was our counsel’s position that

none of the amounts would ever have to be
paid by the Parent Company or any of its other wholly-owned subsidiaries.

We also believe that certain of the Accounts
Payable that were on the books of Praxis may have been previously paid, thus
extinguishing the debt. We believe this because even at this date, none of the
vendors have contacted the Company about being owed any money.

Note 7. Debt Restructuring

2.             We note from your response to
comment 5 that the deal was viewed a debt restructuring and in your view
accounted for appropriately since the loan was never made with the intent of
being converted to stock or any other form of equity. However, we continue to
believe that gains on extinguishment of debt with related parties, in this
case, principal shareholders, should be classified as an equity transaction
based on paragraph 20, footnote 1 of APB 26, irrespective of whether these
shareholders own less than controlling interests. Please revise your financial
statements to reflect the gain on this transaction as an equity transaction in
your financial statements. Additionally, please tell us how the $10.36/share “fair
value” per share for the preferred stock was calculated or determined.

Response:

Pursuant to your direction, we will revise
our financial statements to reflect the gain on this transaction as an equity
transaction. As part of the negotiation to restructure the debt, Precision
Funding LLC agreed to take 500,000 shares of redeemable preferred stock for
$5,180,000 ($10.36/share). The shares of preferred stock may be redeemed by the
holder based on the terms of the agreement.

3.             We
note from your response to comment 6 that you do not believe Board LLC is a
related party because all but 2 of the 9 members were former board members.
Please supplementally tell us about the other 2 members, their position in
Board LLC, and if they have the ability to indirectly or directly control or
significantly influence the Company. Please refer to the definition of related
party in the glossary to SFAS 57. Also, tell us the nature and terms of any
ownership interests in the Company that were held by the 9 members at the time
of the debt restructuring transaction. We may have further comment upon receipt
of your response.

Response:

The
other two members in the Board LLC who were not former Board Members are Sam
Ibrahim and Woody Allen. Messr. Allen and Ibrahim are current Board Members.
Their position in the Board LLC was that of a partner like the other seven
members. As two of the five Board members in the Company, they cannot control
or significantly influence

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the
Company. These gentlemen did not vote on the transaction in question in which
the Company effectively paid $250K in cash and 400,000 warrants valued at
$222,000 to extinguish a $633,000 debt. The 9 members in the Board LLC held
approximately 12% of the outstanding common stock at the time of this
transaction.

Form 10-Q
for the period ended December 31, 2004

Note 3. Master License Agreement

4.             We note from your response to
comment 8 that the $130,000 of revenue relates to the majority of the initial non-refundable
fee paid by Hung Yue Holdings. Although your accounting for this non-refundable
fee is consistent with your policy disclosed in Note 2 to your Form 10-KSB, it
is not installment method accounting as disclosed in Note 3 of your Form
10-QSB. Please supplementally tell us what part of the master franchise
agreement will be accounted for using the installment method of accounting and
what extended payment terms are involved in the agreement. If the installment
method will only be used for the individual future franchises, revise your
disclosure in future filings to clarify that the revenue recognized at December
31, 2004 related to the signing of the area development agreement which is a
non-refundable fee of which you have fulfilled substantially all required
obligations, and that future franchises under the master license agreement will
be accounted for using the installment method of accounting due to extended
payment terms.

Response:

The disclosure in future filings will be
revised to clarify the recognition of the revenue from the China
agreement.  For your review, below is the
disclosure language that we intend to use:

In August 2004, the Company signed a master
franchise agreement with Hung Yue Holdings (Hong Kong) Co., Ltd. giving that
firm’s affiliate, Precision Tune Auto Care (China) Company Limited, a license
to open and operate at least 330 Precision Tune Auto Care (PTAC) car care
centers in China over the next seven years. Under the terms of the agreement,
Hung Yue Holdings is obligated to pay the Company approximately $2.1 million.

A deposit payment of $50,000 was paid into
escrow prior to executing the agreement and $100,000 was paid on August 31,
2004, upon execution. Additional payments of $50,000 were to be paid by
November 30, 2004 and December 31, 2004, respectively.

However, due to unforeseen circumstances Hung
Yue Holdings has requested additional time to make these payments. Accordingly,
revenue of $130,000 was recognized through December 31, 2004, in connection
with the signing of the master franchising agreement,

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and $20,000 was deferred. The revenue was
recognized as the Company had substantially fulfilled all required obligations.

The Company has received a portion of the
remaining installment payments relating to the signing of the master franchise
agreement and recognized additional revenue of $10,000 for the three months
ended March 31, 2005.

The Company will also receive a $250,000
payment on the first anniversary of signing the master franchise agreement, and
a minimum of $1.6 million payable in seven annual installments beginning on
August 31, 2005, relating to the opening of car care centers in China.  No future revenue will be recognized until
collection of such amounts is probable.
Additionally, revenue from future franchises under the master license
agreement will be recognized when the Company’s obligations have been satisfied
and collection of the franchise fee is probable.  No centers were opened as of March 31, 2005.

As requested, the Company acknowledges that:

•                  the company is responsible
for the adequacy and accuracy of the disclosure in the filings;

•                  staff comments or changes to
disclosure in response to staff comments do not foreclose the Commission from
taking any action with respect to the filing; and

•                  the company may not assert
staff comments as a defense in any proceeding initiated by the Commission or
any person under the federal securities laws of the United States.

Sincerely,

  /s/ Robert R. Falconi

Robert R. Falconi

President and Chief Operating Officer

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