<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 2, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1-13919
PAWNMART, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 75-2520896
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 COMMERCE STREET, SUITE 3600, FORT WORTH, TEXAS 76102
(Address of principal executive offices)
(817) 335-7296
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X]
The number of shares of Common Stock outstanding as of June 1, 1998 was
7,209,445. The number of Series A Redeemable Common Stock Purchase Warrants
outstanding as of June 1, 1998 was 1,380,000. The number Series B Redeemable
Common Stock Purchase Warrants outstanding as of June 1, 1998 was 1,380,000.
Transitional small business disclosure format (check one): Yes [ ] No [X]
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PAWNMART, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (note 2) $ 2,642 151
Accounts receivable 51 32
Pawn service charges receivable 207 233
Loans 2,153 2,421
Inventories, net 2,074 1,944
Prepaid expenses and other current assets 144 98
------------ ------------
Total current assets 7,271 4,879
------------ ------------
Property and equipment, net 815 802
Goodwill and other intangible assets, net 48 63
Debt issuance costs, net (note 2) 27 545
Other assets 139 388
------------ ------------
$ 8,300 6,677
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 486 1,051
Current installments of notes payable (note 2) 513 2,070
------------ ------------
Total current liabilities 999 3,121
------------ ------------
Long-term notes payable, net of current installments (note 2) -- 9,778
------------ ------------
999 12,899
------------ ------------
Stockholders' equity (deficit) (note 2):
Preferred stock, $.01 par value; authorized 10,000,000 shares;
3,661,200 shares issued at January 31, 1998 -- 37
Common stock, $.01 par value; authorized 20,000,000 shares;
7,230,877 and 1,950,424 shares issued at May 2, 1998 and
January 31, 1998, respectively 72 19
Series A redeemable common stock purchase warrants, $0.125 par
value; 1,380,000 warrants issued and outstanding at May 2, 1998 173 --
Series B redeemable common stock purchase warrants, $0.0625 par
value; 1,380,000 warrants issued and outstanding at May 2, 1998 86 --
Additional paid-in capital 22,241 7,657
Preferred stock discount -- (674)
Accumulated deficit (15,201) (13,191)
------------ ------------
7,371 (6,152)
Less treasury stock, at cost; 21,432 common shares at May 2, 1998
and 13,189 common shares and 25,000 preferred shares at
January 31, 1998 (70) (70)
------------ ------------
Total stockholders' equity (deficit) 7,301 (6,222)
------------ ------------
$ 8,300 6,677
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
PAWNMART, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
May 2, 1998 April 27, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Merchandise sales $ 1,842 1,614
Pawn service charges 775 674
Other 33 8
------------ ------------
Total revenues 2,650 2,296
Cost of sales 1,227 1,170
------------ ------------
1,423 1,126
------------ ------------
Expenses:
Store operating expenses 1,053 898
Corporate administrative expenses 759 400
Interest expense 809 419
Depreciation and amortization 121 131
------------ ------------
Total expenses 2,742 1,848
------------ ------------
Net loss (1,319) (722)
Preferred stock dividends 692 --
------------ ------------
Net loss to common stockholders $ (2,011) (722)
============ ============
Loss per common share (note 3):
Basic $ (0.63) (0.39)
============ ============
Diluted $ (0.63) (0.39)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PAWNMART, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
May 2, April 27,
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,319) (722)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 121 131
Amortization of debt issuance costs 85 60
Amortization of debt discount 495 --
Common stock issued for services 200 --
Changes in operating assets and liabilities:
Accounts receivable (19) (7)
Pawn service charges receivable 26 25
Inventories (130) (22)
Prepaid expenses and other current assets (46) 12
Other assets 249 10
Accounts payable and accrued liabilities (565) (286)
------------ ------------
Net cash used in operating activities (903) (799)
------------ ------------
Cash flows from investing activities:
Net decrease in pawn loans 268 239
Purchases of property and equipment (119) (82)
------------ ------------
Net cash provided by investing activities 149 157
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 135 719
Principal payments on notes payable (2,445) (80)
Net proceeds from issuance of common stock and warrants 5,583 --
Purchase of treasury stock -- (5)
Net proceeds from issuance of preferred stock -- 1
Payment of debt issuance costs (10) (92)
Preferred stock dividends paid (18) --
------------ ------------
Net cash provided by financing activities 3,245 543
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,491 (99)
Cash and cash equivalents at beginning of period 151 143
------------ ------------
Cash and cash equivalents at end of period $ 2,642 44
============ ============
Supplemental disclosures of cash flow information -
Cash paid for interest $ 376 358
============ ============
</TABLE>
Noncash Investing and Financing Activities:
On March 20, 1998, $9,520,000 in convertible subordinated debentures, net of
unamortized debt issuance costs of $443,000, were automatically converted into
2,380,000 shares of common stock and 3,661,200 shares of preferred stock were
automatically converted into 1,482,766 shares of common stock in connection with
the completion of the Company's initial public offering (note 2). During the
thirteen weeks ended May 2, 1998, the Company recognized $674,000 in preferred
stock dividends in connection with the amortization of preferred stock discounts
resulting from the preferred stock beneficial conversion feature. On May 1,
1998, the Company issued 44,445 shares of unregistered common stock to a
corporation in exchange for $200,000 in professional services associated with
marketing and new store site selection analysis.
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements were prepared in
accordance with generally accepted accounting principles for interim
financial information and therefore do not include all disclosures
necessary for complete financial statements. In the opinion of
management, all adjustments have been made that are necessary for a fair
presentation of the financial position and results of operations and cash
flows as of and for the periods presented. All such adjustments are of a
normal recurring nature. Due to a change in the Company's fiscal year end
during January 1998, the financial results as of and for the thirteen
weeks ended April 27, 1997 end six days earlier than the financial
results as of and for the thirteen weeks ended May 2, 1998. The results
of operations for the thirteen weeks ended May 2, 1998 and April 27, 1997
are not necessarily indicative of the results that may be expected for
the entire fiscal year or any other interim period.
The consolidated financial statements include the financial
statements of PawnMart, Inc. (the "Company") and its single purpose,
wholly owned subsidiaries PCI Finance 1994-I, Inc., PCI Finance 1995-I,
Inc., PCI Finance 1996-1, Inc., and PCI Finance 1996-2, Inc. All
significant intercompany balances and transactions have been eliminated
in consolidation. The consolidated financial statements should be read in
conjunction with the consolidated financial statements for the fiscal
year ended January 31, 1998 included in the Company's Form 10-KSB which
has been previously filed with the Securities and Exchange Commission.
(2) Completion of Initial Public Offering and Financial Restructuring
On March 20, 1998, the Company completed an initial public offering
of 1,200,000 shares of common stock at a price of $5.00 per share,
1,380,000 Series A redeemable common stock purchase warrants at a price
of $0.125 per warrant, and 1,380,000 Series B redeemable common stock
purchase warrants at a price of $0.0625 per warrant and, on April 17,
1998, the Company sold an additional 165,000 shares of common stock
pursuant to an over-allotment option resulting in total net proceeds to
the Company of approximately $5,583,000. Each Series A warrant and Series
B warrant entitles the holder to purchase one share of common stock at a
price of $6.00 per share and $8.00 per share, respectively, through March
2003 and March 2004.
In connection with the completion of the initial public offering,
$9,520,000 in aggregate principal amount of the Company's 14% convertible
subordinated debentures were automatically converted into 2,380,000
shares of common stock and 3,661,200 shares of preferred stock
automatically converted into an aggregate of 1,482,766 shares of common
stock. Through May 2, 1998, the Company had utilized $2,419,000 of the
net proceeds to repay certain notes payable.
(3) Net Loss Per Common Share
Net loss per common share is calculated as required by the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" (Statement No. 128). Statement No. 128
requires dual presentation of basic and diluted earnings per share and a
reconciliation between the two amounts. Basic earnings per share excludes
dilution, and diluted earnings per share reflects the potential dilution
that would occur if securities to issue common stock were exercised and
converted into common stock. In loss periods, dilutive common equivalent
shares are excluded as the effect would be anti-dilutive.
5
<PAGE> 6
PAWNMART, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Net Loss Per Common Share, Continued
The following table presents a reconciliation between basic and
diluted weighted average common shares outstanding at May 2, 1998 and
April 27, 1997. Since the effect of using the weighted average number of
shares on a diluted basis was antidilutive to the diluted loss per share
calculation for the thirteen weeks ended May 2, 1998 and April 27, 1997,
diluted loss per share was calculated using the same weighted average
number of common shares in the basic loss per share calculation.
<TABLE>
<CAPTION>
1998 1997
----------- ----------
(In thousands)
<S> <C> <C>
Weighted average shares - basic 3,215 1,835
Shares attributable to stock options, warrants
and convertible securities 3,281 3,094
----------- ----------
Weighted average shares - diluted 6,496 4,929
=========== ==========
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Statements appearing in the following discussion that are not historical
facts are forward-looking statements ("forward-looking statements") within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, which are intended
to be covered by the safe harbors created by those sections. Such
forward-looking statements are necessarily estimates reflecting the best
judgment of the Company's management based upon current information and involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company, or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors, include, but are not limited to, those set
forth and those appearing from time to time in filings made by the Company with
the Securities and Exchange Commission. These risks, uncertainties and other
factors should not be construed as exhaustive and the Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.
In addition, the following discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and notes
thereto and other financial data included in the Company's Form 10-KSB for the
fiscal year ended January 31, 1998.
GENERAL
PawnMart, Inc. (the "Company") is a financial services and specialty
retail enterprise principally engaged in establishing and operating stores which
advance money secured by the pledge of tangible personal property and sell
pre-owned merchandise to the value-conscious consumer. The Company generates
income in two ways: through collection of a monthly service charge from
advancing money to individuals based primarily upon the estimated resale value
of pledged personal property such as jewelry, consumer electronics, tools,
musical instruments, firearms, automobiles and other miscellaneous items and
through profit realized on the retail sale of the unredeemed or other purchased
pre-owned merchandise. As of June 1, 1998, the Company was one of five publicly
traded pawnshop operators in the United States, and it owned and operated twenty
(20) stores located in Texas, Georgia, Alabama, and North Carolina.
The completion of the Company's initial public offering on March 20, 1998
(see "Item 1. Consolidated Financial Statements") resulted in a significant
financial restructuring of the Company's capital structure which dramatically
improved the Company's consolidated balance sheet and virtually eliminated the
Company's existing interest and dividend requirements.
Expansion of Operations
With the completion of the Company's initial public offering and
financial restructuring in March 1998, the Company strategic objective is to
implement a rapid roll-out of new PAWNMART(sm) stores in order to capitalize
upon growth opportunities afforded by the highly fragmented pawnshop industry.
To achieve its strategic objectives, the Company has adopted the following
strategy:
7
<PAGE> 8
o Develop New - Rather Than Acquire - Stores That Meet Site Selection, Store
Size and Configuration Requirements in Selected Markets. The Company
believes that by opening new stores - rather than acquiring smaller "mom
and pop" stores - it will enjoy substantial long-term strategic benefits.
First, the Company believes that ideal site selection is one of the most
critical factors in creating a successful PAWNMART(sm) store. In this
regard, the Company has developed extensive customer demographics that
identify both its borrowing and retail customers. The Company believes
that most existing pawnshops are situated in less than ideal locations.
The Company, therefore, believes that by opening new stores only in
locations meeting its demographic and site selection requirements, it will
be well situated to compete effectively in the highly fragmented pawnshop
industry. Second, the Company believes that the "look and feel" of its
stores is an important factor in establishing a successful specialty
retail store and that most existing pawnshops do not meet, and cannot
cost-effectively be modified to meet, the Company's store size and
configuration requirements. By opening new stores only in accordance with
its specifications, the Company can ensure that each PAWNMART(sm) has a
similar "look and feel." During the fiscal year ending January 30, 1999
("Fiscal 1998"), the Company anticipates opening between 12 and 15 stores.
o Market Positioning Strategy. The Company's strategy is to operate
attractive stores that are clean, well-lit and conveniently located, with
merchandise displayed in an organized and easy-to-shop manner, similar to
national discount stores. The Company's store design and layout
specifically target both its borrowing and retail customers.
o Utilize Targeted Database Marketing. The Company has developed a targeted
database marketing segmentation system that identifies the customers for
both pawn and product sales from proprietary data collected at the store
level. Given this customer information, the Company has developed a
marketing strategy that seeks to leverage its understanding of customer
demographics, motivations and purchasing behavior. This demographic data
will include utilizing direct marketing for customer acquisition, retention
and promotions, and for store site selection.
o Expand in Metropolitan Areas in States With Favorable Pawn Regulations. The
Company's roll-out strategy is to generate operating efficiencies by first
expanding in the metropolitan areas of Atlanta, Georgia, Mobile, Alabama
and Charlotte, North Carolina, and thereafter, in metropolitan areas in
states with favorable pawn regulations.
o Franchise Operations in Smaller Markets. The Company intends to sell
PAWNMART(sm) franchises in secondary markets. The Company's franchise
strategy is designed to allow future franchisees to benefit from the
Company's targeted database marketing segmentation system, PAWNLINK(tm)
computer software and information system, as well as the Company's
standardized operating procedures.
o Utilize Information Technology. The Company has developed PAWNLINK(tm), a
proprietary software system, which is connected to a "wide area network"
that allows for real-time point of sale connectivity. PAWNLINK(tm) is a
user friendly, menu driven software package that operates in a Windows
95TM environment. PAWNLINK(tm) interfaces with the Company's centralized
database, assists in determining the maximum amount of funds to advance on
any particular pawn item, and provides in-store assistance with
operational and sales management, inventory control and accounting.
o Operational Excellence. The Company believes that its success will be
substantially dependent on its ability to achieve excellence in operating
its stores. In this regard, the Company intends to capitalize upon the
operational expertise of its experienced specialty retail management team
and board of directors, employ specialty retailers as store management
personnel, utilize extensive training programs for employees and maintain
effective extensive operating controls.
8
<PAGE> 9
Selected Financial Information
Selected elements of the Company's unaudited consolidated financial
statements are shown below for the thirteen weeks ended May 2, 1998 and April
27, 1997 as a percentage of total revenues and as a percentage change from
period to period.
<TABLE>
<CAPTION>
% OF TOTAL REVENUES
THIRTEEN WEEKS ENDED
-----------------------
MAY 2, APRIL 27, % INCREASE
1998 1997 (DECREASE)
-------- -------- ----------
<S> <C> <C> <C>
Merchandise Sales ........................... 69.5 70.3 14.1
Pawn Service Charges ........................ 29.2 % 29.4 % 15.0 %
Other Income ................................ 1.3 0.3 312.5
-------- -------- --------
Total Revenues .............................. 100.0 100.0 15.4
Cost of Sales ............................... 46.3 51.0 4.9
-------- -------- --------
Gross Profit ................................ 53.7 49.0 26.4
Store Operating Expenses .................... 39.7 39.1 17.3
-------- -------- --------
Store Contribution .......................... 14.0 9.9 62.3
Corporate Administrative Expenses ........... 28.6 17.4 89.8
Interest Expense ............................ 30.5 18.2 93.1
Depreciation and Amortization ............... 4.7 5.7 (7.7)
-------- -------- --------
Net Loss .................................... (49.8)% (31.4)% 82.7 %
======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
Thirteen Weeks Ended May 2, 1998 Compared to Thirteen Weeks Ended April 27, 1997
Total revenues increased 15.4% to $2,650,000 for the thirteen weeks ended
May 2, 1998 (the "Three Month 1998 Period") as compared to $2,296,000 for the
thirteen weeks ended April 27, 1997 (the "Three Month 1997 Period"). The overall
increase is attributable to a 14.1% increase in comparable store merchandise
sales and a 15.0% increase in comparable store pawn service charges at stores
opened 12 months or more as of May 2, 1998 ("Comparative Stores").
Merchandise sales increased 14.1% to $1,842,000 during the Three Month
1998 Period from $1,614,000 during the Three Month 1997 Period due to gains at
Comparable Stores attributable to store maturation, increased store traffic and
marketing programs.
Pawn service charges increased 15.0% to $775,000 during the Three Month
1998 Period from $674,000 during the Three Month 1997 Period primarily due to
pawn loans at Comparable Stores increasing 8.2% from $1,989,000 at April 27,
1997 to $2,153,000 at May 2, 1998. The Company expects that, during the first
four years of operation, a store should experience significant increases in loan
activity resulting in a higher percentage of loans being renewed, causing pawn
service charges to increase as a percentage of loans outstanding.
Gross profit as a percentage of total revenues increased 4.7% from 49.0%
during the Three Month 1997 Period to 53.7% during the Three Month 1998 Period
primarily due to improvements in shrinkage at the Company's locations and an
uninsured theft at one of the Company's locations during February 1997.
Excluding the uninsured theft at one of the Company's locations during February
1997, the Company's annualized inventory turnover rate was 2.4 times during the
Three Month 1998 Period compared to 2.2 times during the Three Month 1997 Period
primarily due to increased store traffic, marketing programs and a conscious
effort by the Company to turn older inventory. Management expects to continue a
positive trend in inventory turns as the Company continues to implement its
specialty retail strategies. The Company currently maintains theft insurance at
all locations.
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<PAGE> 10
Store operating expenses increased 17.3% to $1,053,000 during the Three
Month 1998 Period from $898,000 during the Three Month 1997 Period primarily due
to increased labor at Comparative Stores to support increased store activity and
increased advertising expenses associated with the Company's marketing programs.
Store contribution margin increased 62.3% to $370,000 during the Three
Month 1998 Period compared to $228,000 during the Three Month 1997 Period
primarily due to increases in Comparative Stores merchandise sales and pawn
service charges which were not offset by corresponding increases in cost of
sales and store operating expenses.
Corporate administrative expenses increased 89.8% to $759,000 during the
Three Month 1998 Period from $400,000 during the Three Month 1997 Period
primarily due to (i) the Company issuing 44,445 shares of unregistered common
stock in exchange for $200,000 in non-recurring professional fees associated
with marketing and new store site selection, (ii) increased salaries associated
with the hiring of additional executive management to support planned growth,
(ii) increased expenses associated with development of marketing programs and
human resource development and (iii) the timing of the accrual of the Company's
annual audit fees. As a result of the above, management anticipates that
corporate administrative expenses as a percentage of total revenues will
decrease the remainder of Fiscal 1998.
Interest expense increased 93.1% to $809,000 during the Three Month 1998
Period from $419,000 during the Three Month 1997 Period primarily due to
$495,000 in noncash non-recurring interest expense recognized during the Three
Month 1998 Period resulting from the accounting treatment relating to the
beneficial conversion feature associated with the Company's convertible
subordinated debentures which was offset by reduced interest expense during the
Three Month 1998 Period attributable to the conversion and repayment of
indebtedness upon completion of the Company's initial public offering. See note
6 to the consolidated financial statements included in the Company's Form 10-KSB
for the year ended January 31, 1998 for a discussion of the accounting treatment
relating to the beneficial conversion feature associated with the Company's
convertible subordinated debentures. The Three Month 1998 Period also included
$313,000 in interest expense which was incurred by the Company related to debt
that was either converted or repaid upon completion of the Company's initial
public offering. The Three Month 1997 Period included $398,000 in similar
interest expense.
During the Three Month 1998 Period, the Company recognized $674,000 in
noncash non-recurring preferred stock dividends resulting from the accounting
treatment relating to the beneficial conversion feature associated with the
Company's convertible preferred stock and $18,000 in non-recurring preferred
stock dividends associated with the Company's 12% Series Convertible
Exchangeable Preferred stock. See note 9 to the consolidated financial
statements included in the Company's Form 10-KSB for the year ended January 31,
1998 for a discussion of the accounting treatment relating to the beneficial
conversion feature associated with the Company's convertible preferred stock.
Net loss to common stockholders during the Three Month 1998 Period was
$2,011,000, or $0.63 per basic and diluted share, compared to $722,000, or $0.39
per basic and diluted share, during the Three Month 1997 Period. Excluding the
non-recurring corporate administrative expenses, non-recurring interest expense,
interest expense related to debt that was either converted or repaid upon
completion of the Company's initial public offering and non-recurring preferred
stock dividends, net loss to common stockholders during the Three Month 1998
Period would have been $311,000, or $0.10 per basic and diluted share, compared
to $324,000, or $0.18 per basic and diluted share, during the Three Month 1997
Period.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The profitability and liquidity of the Company are affected by the amount
of loans outstanding, which is controlled in part by the Company's loan
decisions. The Company is able to influence the frequency of forfeiture of
collateral by increasing or decreasing the amount loaned in relation to the sale
value of the pledged property. Tighter credit decisions generally result in
smaller loans in relation to the estimated sale value to the pledged property
and can thereby decrease the Company's aggregate loan balance and, consequently,
decrease pawn service charges. Additionally, small loans in relation to the
pledged property's estimated sale value tend to increase loan redemptions and
improve the Company's liquidity. Conversely, providing larger loans in relation
to the estimated sale value of the pledged property can result in an increase in
the Company's pawn service charge income. Also larger average loan balances can
result in an increase in loan forfeitures, which increases the quantity of goods
on hand and, unless the Company increases inventory turnover, reduces the
Company's liquidity. In addition to these factors, liquidity is also affected by
product sales and the pace of store expansions.
At May 2, 1998 and January 31, 1998, the Company operated 19 stores.
Prior to the completion of the Company's initial public offering on March 20,
1998, the Company's operations were financed from funds generated from private
debt and equity offerings and funds generated from operations. On March 20,
1998, the Company completed an initial public offering resulting in net proceeds
to the Company of approximately $5,583,000. See "Item 1. Consolidated Financial
Statements." In connection with the completion of the initial public offering,
$9,520,000 in aggregate principal amount of the Company's 14% convertible
subordinated debentures were automatically converted into 2,380,000 shares of
common stock and all classes of the Company's preferred stock were automatically
converted into an aggregate of 1,482,766 shares of common stock. Additionally,
the Company utilized $2,419,000 of the net proceeds to repay $2,037,000 in 15%
notes payable, $157,000 in notes payable to stockholders and $225,000 in notes
payable to the Company's Chief Executive Officer. Furthermore, the Company
intends to utilize an additional $105,000 of the net proceeds to repay all
remaining 15% notes payable.
In connection with the completion of the initial public offering and
resulting financial restructuring, the Company's annual cash interest
requirements have been decreased by approximately $1,697,000 and the Company's
annual cash dividend requirements have been decreased by approximately $130,000.
Management believes the completion of the initial public offering and the
resulting financial restructuring have positioned the Company with a capital
structure that will allow its planned retail store expansion.
At May 2, 1998, the Company's primary sources of liquidity were
$2,642,000 in cash and cash equivalents, $207,000 in pawn service charges
receivable, $2,153,000 in loans, and $2,074,000 in inventories. The Company had
a current ratio of approximately 7.3 to 1.0 and 1.6 to 1.0 at May 2, 1998 and
January 31, 1998, respectively. Net cash used in operating activities was
$903,000 during the Three Month 1998 Period and $799,000 during the Three Month
1997 Period.
The Company believes that its planned retail store expansion program will
be funded by cash flows from operations from its established stores, the net
proceeds from the initial public offering, a commercial credit facility and
other forms of financing. The Company has had discussions with several
commercial banks with regard to a credit facility which would be provided to the
Company on terms similar to credit facilities provided to other public companies
in the pawnshop industry. No assurance can be made that the Company will obtain
long or short-term financing to realize certain business opportunities. In the
event the Company does not obtain the credit facility, the Company will modify
or reduce its expansion schedule. While management does not expect that the
failure to obtain the credit facility would adversely affect the Company's cash
flows, there can be no assurance that cash flow would not be affected.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 1, 1998, the Company issued 44,445 shares of unregistered common
stock, par value $.01 per share, to The Buxton Company in exchange for
professional services associated with marketing and new store site selection
analysis. In connection with such issuance, the Company has recorded $200,000 in
corporate administrative expenses which represents the fair value of the common
stock issued on the date of issuance.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K: None
12
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C>
PAWNMART, INC.
By: /s/ Carson R. Thompson June 11, 1998 By: /s/ Thomas W. White June 11, 1998
----------------------- ------------- ------------------- -------------
Carson R. Thompson Date Thomas W. White Date
Chief Executive Officer, Director Vice President - Finance
and Chairman of the Board and Chief Accounting Officer
</TABLE>
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PAWNMART, INC. AND SUBSIDIARIES
AS OF AND FOR THE THIRTEEN WEEKS ENDED MAY 2, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> MAY-02-1998
<CASH> 2,642,000
<SECURITIES> 0
<RECEIVABLES> 2,411,000
<ALLOWANCES> 0
<INVENTORY> 2,074,000
<CURRENT-ASSETS> 7,271,000
<PP&E> 2,251,000
<DEPRECIATION> (1,436,000)
<TOTAL-ASSETS> 8,300,000
<CURRENT-LIABILITIES> 999,000
<BONDS> 0
0
0
<COMMON> 72,000
<OTHER-SE> 7,229,000
<TOTAL-LIABILITY-AND-EQUITY> 8,300,000
<SALES> 1,842,000
<TOTAL-REVENUES> 2,650,000
<CGS> 1,227,000
<TOTAL-COSTS> 2,280,000
<OTHER-EXPENSES> 880,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 809,000
<INCOME-PRETAX> (1,319,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,319,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,319,000)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
