PAWNMART INC, S-1/A, 1999-03-10

PAWNMART INC
S-1/A, 1999-03-10
MISCELLANEOUS SHOPPING GOODS STORES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1999

REGISTRATION NO. 333-70635
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 2 TO

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

PAWNMART, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 5940 75-2520896
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code)
</TABLE>

<TABLE>
<S> <C> <C>
301 COMMERCE STREET, SUITE 3600 CARSON R. THOMPSON
FORT WORTH, TEXAS 76102 301 COMMERCE STREET, SUITE 3600
(817) 335-7296 FORT WORTH, TEXAS 76102
(Address, including zip code, and (817) 335-7296
telephone number, including area (Address, including zip code, and
code, registrant's principal telephone number, including area
executive offices) code, of agent for service)
Copies to:
</TABLE>

<TABLE>
<S> <C> <C>
JAKES JORDAAN, ESQ. TOM HERBELIN
JORDAAN & PENNINGTON, PLLC 5925 FOREST LANE SUITE 410
300 CRESCENT COURT, SUITE 1605 DALLAS, TEXAS 75230
DALLAS, TEXAS 75201 (214) 219-1119
(214) 871-6550
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the date this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continual basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
12% Subordinated Notes Due 2004............. $10,000,000 100.0% $10,000,000 $2,780.00
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Series A Redeemable Common Stock Purchase
Warrants to Purchase Shares of Common
Stock, Par Value $.01 Per Share........... 600,000 (1) (1) (1)
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Common Stock Issuable Under Series A
Redeemable Common Stock Purchase
Warrants(2)............................... 600,000 $6.00 $3,600,000 $1,000.80
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Total....................................... $3,780.80
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- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Included in the Notes. No additional registration fee required.

(2) Represents the shares of Common Stock issuable upon exercise of the Series A
Redeemable Common Stock Purchase Warrants registered hereby together with
such indeterminate number of shares as may be issued upon exercise of such
Series A Redeemable Common Stock Purchase Warrants by reason of the
anti-dilution provisions contained herein.

(3) Previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2

PAWNMART, INC.

CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K

<TABLE>
<CAPTION>
FORM S-1 ITEM NO. LOCATION IN PROSPECTUS
- ----------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Facing Page of Registration Statement and
Outside Front Cover of Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus of Prospectus
3. Summary Information, Risk Factors and Prospectus Summary; Risk Factors; Selected
Ratio of Earnings to Fixed Charges Historical Consolidated Financial Data
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Plan of Distribution
9. Description of Securities to be Registered Prospectus Summary; Description of
Subordinated Notes Due 2004
10. Interests of Named Experts and Counsel Legal Matters; Experts
11. Information With Respect to the Registrant Prospectus Summary; Risk Factors; Use of
Proceeds; Capitalization; Selected
Historical Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Security
Ownership of Certain Beneficial Owners and
Management; Certain Relationships and
Related Transactions; Description of
Subordinated Notes Due 2004; Consolidated
Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED MARCH 10, 1999

$10,000,000

PAWNMART, INC. LOGO

12% SUBORDINATED NOTES DUE 2004

THE OFFERING

We are offering up to $10,000,000 in principal amount of 12% Subordinated
Notes Due 2004 (the "Notes"). The Notes are being offered on a "best efforts"
basis by licensed broker dealers who are members of the National Association of
Securities Dealers, Inc. Massie Capital, Ltd. is serving as the managing broker
dealer for the Offering. See "Plan of Distribution." Pending the sale of the
minimum offering, all proceeds will be deposited into an escrow account with
Norwest Bank Texas, N.A. (the "Escrow Agent"). In the event that the minimum
offering is not sold within the offering period or any extension thereof, the
offering will terminate and all funds will be returned promptly to subscribers
by the Escrow Agent without deduction for commissions or expenses. This Offering
will continue until all Notes are sold or until September 15, 2000, whichever is
earlier; however, we may extend the offering until all of the Notes offered
hereby are sold, as permitted under applicable securities laws and regulations.
We may reject a subscription for any reason or for no reason whatever and may
terminate the Offering at any time.

We will use the net proceeds from the sale of the Notes and additional
borrowings under our $10 million revolving credit facility for store expansion
and for general corporate purposes.

<TABLE>
<CAPTION>
TOTAL TOTAL
PER UNIT MINIMUM MAXIMUM
-------- -------- -----------
<S> <C> <C> <C>
Price to Investors.......................................... 100.0% $250,000 $10,000,000
Broker's Commissions(1)(2).................................. 8.0% $ 20,000 $ 800,000
Proceeds to Company......................................... 92.0% $230,000 $ 9,200,000
</TABLE>

- ---------------
(1) We will pay 6.0% to participating licensed broker dealers and 2.0% to Massie
Capital, Ltd., as managing broker dealer. See "Plan of Distribution."

(2) As additional compensation for the sale of the Notes in this Offering, we
will issue 60 Series A Redeemable Common Stock Purchase Warrants ("Series A
Warrants") to Massie Capital, Ltd. for each $1,000 in principal amount of
Notes sold. Massie Capital, Ltd. will distribute up to 40 of such Series A
Warrants to participating broker dealers as additional compensation under
the Offering. Each Series A Warrant will have an exercise price of $6.00 and
will expire on March 17, 2003. The Series A Warrants may be redeemed subject
to certain conditions. See "Description of Capital Stock -- Series A
Warrants."

TERMS OF THE SECURITIES

Maturity Date...............
Each Note will mature on December 31, 2004.

Interest Rate...............
Each Note will bear interest at 12% per annum,
payable monthly on the fifteenth day of each month
beginning with the second full calendar month
following issuance.

Optional Redemption.........
We may redeem each Note, in whole or in part, at the
specified redemption price, plus accrued interest to
the date of redemption.

Ranking.....................
The Notes are general unsecured obligations,
subordinated in right and payment to all existing and
future Senior Debt (as defined herein). At October
31, 1998, we had $1.6 million of Senior Debt which
would rank senior in right of payment to the Notes.

THE COMPANY

Our Common Stock, $.01 par value per share ("Common Stock"), Series A
Warrants and Series B Redeemable Common Stock Purchase Warrants ("Series B
Warrants") are traded on the Boston Stock Exchange under the symbols "PWT,"
"PWTA" and "PWTB," respectively, and on the NASDAQ SmallCap Market under the
symbols "PMRT," "PMRTW" and "PMRTZ," respectively. At February 22, 1999, the
closing market price of our Common Stock, Series A Warrants and Series B
Warrants as reported by NASDAQ was $2.38, $.53, and $.16, respectively.
---------------------

THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK, INCLUDING RISKS OF DEFAULT
ON THE NOTES. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------

MASSIE CAPITAL, LTD.

The date of this Prospectus is March , 1999.

<PAGE> 4

AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission (the "Commission"
or the "SEC") a registration statement on Form S-1 (the "Registration
Statement"), pursuant to the Securities Act of 1933, as amended (the "Securities
Act") covering the Notes offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. For more information about the Notes or the Company, you
should read the Registration Statement and related exhibits, annexes and
schedules. THE STATEMENTS CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY
CONTRACT OR OTHER DOCUMENT IDENTIFIED AS EXHIBITS IN THIS PROSPECTUS ARE NOT
NECESSARILY COMPLETE, AND IN EACH INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH
CONTRACT OR DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH
STATEMENT BEING QUALIFIED IN ANY AND ALL RESPECTS BY SUCH REFERENCE. You may
inspect and copy the Registration Statement and related exhibits, annexes and
schedules at the Commission's Public Reference Room at 450 Fifth Street, NW,
Washington, D.C. 20549. Information about the operation of the Public Reference
Room of the Commission may be obtained by calling the Commission at
1-800-SEC-0330. In addition, the Commission maintains a site on the World Wide
Web that contains reports, proxy and information statements and other
information regarding registrants, like us, that file electronically with the
Commission. The address of the Web site is: http://www.sec.gov.

REPORTS TO SECURITY HOLDERS

You may request a copy of our latest annual report containing audited
consolidated financial statements and other such reports filed with the
Commission, at no cost, by writing or telephoning us at the address under the
"Prospectus Summary -- The Company."

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Business," and elsewhere in this Prospectus are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). When we use the words "anticipate," "assume," "believe," "estimate,"
"expect," "intend," and other similar expressions in this Prospectus, they are
generally intended to identify forward-looking statements. In connection with
such forward-looking statements, you should consider that they involve known and
unknown risks, uncertainties and other factors which are, in some cases, beyond
our control and which could materially affect our actual results, performance or
achievements. Factors that could cause our actual results, performance or
achievements to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, the following:

- heightened competition, including specifically price competition, the
entry of new competitors or the introduction of new products by new and
existing competitors;

- adverse state and Federal legislation and regulation;

- the ability to attract and retain qualified personnel;

- fluctuations in operating results;

- changes in business strategy; and

- the inability to develop or acquire stores in selected markets.

We disclaim any obligation to update any such factors or to publicly
announce the result of any revisions to any of these forward-looking statements
contained herein to reflect subsequent events or developments.

i
<PAGE> 5

PROSPECTUS SUMMARY

The following is a summary of certain information contained herein. This
summary is qualified in its entirety by, and should be read in conjunction with,
the more detailed information and consolidated financial statements, including
the notes thereto, contained elsewhere in this Prospectus. Except as otherwise
set forth herein, references herein to "pro forma" financial data of the Company
are to the financial data of the Company which gives effect to the Offering of
the Notes.

THE COMPANY

BACKGROUND

PawnMart, Inc. ("we" or the "Company") was incorporated under the laws of
the State of Delaware on January 13, 1994 and began operations under the name
"Pawnco, Inc." On June 14, 1994, we changed our name to PCI Capital Corporation
and conducted business under the trade name "PAWNMART(SM)." On October 21, 1997,
we changed our name to "PawnMart, Inc."

On March 20, 1998, we completed an initial public offering of 1,365,000
shares of Common Stock, 1,380,000 Series A Warrants, and 1,380,000 Series B
Warrants resulting in total net proceeds of approximately $5,583,000. In
connection with the completion of the initial public offering, we automatically
converted $9,520,000 in 14% convertible subordinated debentures into 2,380,000
shares of Common Stock and 3,661,200 shares of preferred stock into 1,482,766
shares of Common Stock. Additionally, we were able to utilize $2,524,000 of the
net proceeds to repay certain notes payable.

At the completion of the initial public offering, we owned and operated 19
stores. Our fiscal 1998 expansion plans called for the addition of 12 to 15
stores. In order to fund this expansion, we utilized the remaining proceeds from
the initial public offering and secured a $10 million revolving line of credit
facility (the "Credit Facility") with Comerica Bank. The Credit Facility
includes a borrowing base limitation based on the amount of eligible pawn loans,
pawn service charges receivable, and inventories. With the above, we were able
to achieve a 68% growth rate in number of stores by adding 13 locations in nine
months. The completion of our initial public offering and the finalization of
the Credit Facility have enhanced our ability to implement our business
strategy.

FISCAL 1999 EXPANSION PLANS

Our store expansion plans for fiscal 1999 include adding between 20 and 40
stores. The offering of the Notes pursuant to this Prospectus, combined with the
resulting additional borrowing base availability under the Credit Facility, is
expected to provide us with the financial ability to execute the planned store
expansion for fiscal 1999. However, there can be no assurance that we will be
able to achieve such growth. See "Risk Factors."

OUR BUSINESS

We are 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. We generate 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 December 30, 1998, we were one of five publicly traded pawnshop
operators in the United States, and owned and operated 32 stores located in
Alabama, Georgia, North Carolina, South Carolina and Texas. Our principal office
is located at 301 Commerce Street, Suite 3600, Fort Worth, Texas 76102 and our
telephone number is (817) 335-7296.

1
<PAGE> 6

BUSINESS STRATEGY

The pawnshop industry is a multi-billion dollar, rapidly growing industry
and is highly fragmented. Of the approximately 13,000 pawnshops in the United
States, the industry's five public companies collectively own approximately
seven percent. With the completion of our initial public offering and financial
restructuring in March 1998, our strategic objective is to implement a rapid
roll-out of PAWNMART(SM) stores in order to capitalize upon growth opportunities
afforded by the highly fragmented pawnshop industry. To achieve our strategic
objectives, we have adopted the following strategy:

- Develop or acquire stores that meet site selection, store size and
configuration requirements in selected markets that allow us to be
positioned similar to national discount stores;

- Expand in metropolitan areas in states with favorable pawn regulations;

- Utilize information technology as a platform for collateral assessment
and management control;

- Capitalize on the operational expertise of our management team and board
of directors; and

- Utilize targeted database marketing segmentation system for promotions,
customer acquisition and retention, and store site selection.

EXPERIENCED SPECIALTY RETAIL MANAGEMENT TEAM AND BOARD OF DIRECTORS

Carson Thompson, our Chief Executive Officer and Chairman of the Board,
served as President and Chief Executive Officer for The Bombay Company, Inc.
during its roll-out phase. Also, Michael Record, our President, has more than
twenty years experience in the pawnshop industry, most recently serving as Vice
President of Operations at Cash America International, Inc. where he was
responsible for 118 stores.

Our Board of Directors includes Robert Camp who has 19 years of experience
with Pier 1 Imports, Inc., including five years as Chief Executive Officer or
Chief Operating Officer. Additional Directors include James Berk, who has served
as Vice Chairman and Chief Executive Officer of APC, Inc. and President and
Chief Executive Officer of Bizmart, Inc.; Monty Standifer, who served as Chief
Financial Officer of Bizmart, Inc. and is presently the Chief Financial Officer
of Gadzooks, Inc. (NASDAQ:GADZ); Mark Kane, who founded, and served as President
and Chief Executive Officer of CD Warehouse, Inc. (NASDAQ:CDWI); Robert
Bourland, Jr., who served previously as our President and Chief Operating
Officer and who worked for Tandy Corporation for twenty years serving as Senior
Vice President -- Managing Director, Tandy U.K. operations and other management
capacities; and Roger Williams, who is presently Chairman of the Board and Chief
Executive Officer of Roger Williams Automall. See "Management -- Directors and
Executive Officers." We intend to capitalize upon the specialty retail and pawn
experience and talents of these individuals to expand rapidly in a fragmented
industry.

THE OFFERING

Securities Offered......... $10,000,000 principal amount of 12% Subordinated
Notes Due December 31, 2004.

Use of Proceeds............ The net proceeds from the sale of the Notes, after
deduction of discounts and commissions and
estimated offering expenses, together with
additional borrowings under our Credit Facility,
will be used for store expansion and general
corporate purposes. See "Use of Proceeds."

Issuer..................... PawnMart, Inc.

Maturity Date of Notes..... December 31, 2004.

2
<PAGE> 7

Interest Payment Dates..... The Notes will bear interest at a rate of 12% per
annum, payable monthly on the fifteenth day of each
month beginning with the second full calendar month
following issuance. The record date for each
payment of interest on the Notes is the close of
business on the first day of the month.

Optional Redemption........ The Notes may be redeemed, in whole or in part, (i)
prior to March 31, 2000 at 103% of the principal
amount outstanding, (ii) from April 1, 2000 to
March 31, 2001 at 102% of the principal amount
outstanding, (iii) from April 1, 2001 to March 31,
2002 at 101% of the principal amount outstanding,
and (iv) subsequent to March 31, 2002 at 100% of
the principal amount outstanding. Payment for
redemption of the Notes will include amounts due
for accrued and unpaid interest, if any, to the
date of redemption.

Mandatory Redemption....... We are not required to make mandatory redemption or
sinking fund payments with respect to the Notes.

Ranking of Notes........... The Notes will be general unsecured obligations,
subordinated in right and payment to all existing
and future Senior Debt (as defined herein),
including borrowings under the Credit Facility. As
of October 31, 1998, we had $1.6 million of Senior
Debt which would rank senior in the right of
payment to the Notes. The indentures for the Notes
will permit us to incur additional Senior Debt,
subject to certain limitations. See "Description of
Subordinated Notes Due 2004 -- Subordination."

Listing.................... We do not intend to apply for listing of the Notes
on any securities exchange or authorization for
quotation on the NASDAQ system. We do not expect
that a trading market will develop for the Notes.

Certain Covenants.......... The indenture under which the Notes will be issued
contains certain covenants for your benefit which,
among other things, limit:

- the payment of cash dividends on capital stock
and the purchase, redemption or retirement of
capital stock;

- transactions with affiliates; and

- the sale of assets.

Trustee.................... Trust Management, Inc., Fort Worth, Texas.

Tax Status................. The Notes will be taxable obligations under the
Internal Revenue Code of 1986, as amended, and
interest paid or accrued will be taxable to
non-exempt holders of the Notes. A subsequent
purchaser of outstanding Notes may have to
recognize as ordinary income (rather than as
capital gain) any "market discount" on the Notes
upon its resale by the purchaser. Market discount
for Notes generally means the excess of its face
amount over the subsequent purchaser's tax basis in
such Notes. See "Certain U.S. Federal Income Tax
Considerations."

Denominations.............. The Notes will be issued in fully registered form
in denominations of $1,000 and integral multiples
thereof, subject to a minimum purchase by each
investor of $5,000 except for a $1,000 minimum
purchase for individual retirement accounts.

3
<PAGE> 8

Plan of Distribution....... The Notes will be sold on a "best efforts" basis by
licensed broker dealers who are members of the
National Association of Securities Dealers, Inc.
Massie Capital, Ltd. will serve as the managing
broker dealer for the Offering. Investor funds will
be held in a subscription escrow account until the
minimum of $250,000 in principal amount of Notes
are sold. If subscriptions for the minimum amount
of Notes are not received on or before June 30,
1999, the Offering will be terminated and the
escrowed funds, plus any accrued interest thereon,
will be promptly returned to the subscribing
investors by the Escrow Agent. Upon subscription of
the minimum amount of Notes, the escrowed funds
will be released to us. Interest will not accrue on
any Notes, nor will any Notes be issued, until
release of escrowed subscription funds to the
Company, which will not occur until the minimum of
$250,000 of the Notes is sold. Any proceeds from
Notes sold subsequent to release of escrow will be
immediately available for use by the Company, and
subsequent Notes will be dated and interest will
accrue as of the third business day after
subscription funds are deposited by the Company.
All subscriptions are subject to the right of the
Company to reject any subscription in whole or in
part. See "Plan of Distribution."

RISK FACTORS

Prospective investors should carefully consider the information set forth
under the caption "Risk Factors" and all other information set forth in this
Prospectus before making any investment in the Notes.

4
<PAGE> 9

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The summary consolidated financial data for the three fiscal years ended
January 31, 1998, January 26, 1997 and January 28, 1996 has been derived from
the audited Consolidated Financial Statements of the Company, together with the
notes thereto. The summary historical financial data of the Company for the
fiscal year ended January 29, 1995 has been derived from audited consolidated
financial statements of the Company which are not contained herein. The summary
financial information for the nine months ended October 31, 1998 and October 26,
1997 is unaudited, and in the opinion of the Company's management, reflects all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of such data. The summary information should be read in conjunction
with, and is qualified in its entirety by, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company included elsewhere in the Prospectus.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) NINE MONTHS ENDED
----------------------------------------------------- -------------------------
(UNAUDITED) (UNAUDITED)
JANUARY 29, JANUARY 28, JANUARY 26, JANUARY 31, OCTOBER 26, OCTOBER 31,
1995 1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Pawn Service Charges................ $ 363 $ 1,338 $ 2,291 $ 2,862 $ 2,106 $ 2,438
Merchandise Sales................... 941 3,052 5,523 7,215 4,972 5,525
Other Income........................ 2 34 89 101 67 92
---------- ---------- ----------- ----------- ----------- -----------
Total Revenues.............. 1,306 4,424 7,903 10,178 7,145 8,055
Cost of Sales....................... 553 1,942 3,739 5,192 3,392 3,754
---------- ---------- ----------- ----------- ----------- -----------
Gross Profit................ 753 2,482 4,164 4,986 3,753 4,301
Store Operating Expenses............ 1,000 2,626 3,652 4,040 2,866 3,544
Corporate Administrative Expenses... 1,118 1,589 1,713 2,117 1,510 2,308
Interest Expense.................... 62 720 1,360 3,761 1,356 866
Depreciation and Amortization....... 198 375 495 504 377 419
---------- ---------- ----------- ----------- ----------- -----------
Net Loss.................... (1,625) (2,828) (3,056) (5,436) (2,356) (2,836)
Preferred Stock Dividends........... -- -- -- 217 -- 692
---------- ---------- ----------- ----------- ----------- -----------
Net Loss to Common
Stockholders.............. $ (1,625) $ (2,828) $ (3,056) $ (5,653) $ (2,356) $ (3,528)
========== ========== =========== =========== =========== ===========
Basic and Diluted Loss Per
Common Share.............. $ (1.02) $ (1.68) $ (1.67) $ (3.01) $ (1.27) $ (0.56)
========== ========== =========== =========== =========== ===========
OTHER DATA:
Stores Owned at End of Period(2).... 7 17 19 19 19 24
Average Age of Stores -- End of
Period............................ .61 years .93 years 1.77 years 2.78 years 2.51 years 2.83 years
EBITDA(3)........................... $ (1,365) $ (1,733) $ (1,201) $ (1,171) $ (623) $ (1,551)
Comparable Store Contribution
Margin(4)......................... -- -- $ 512 $ 946 $ 887 $ 946
Ratio of Earnings to Fixed
Charges(5)........................ -- -- -- -- -- --
BALANCE SHEET DATA -- END OF PERIOD:
Loans............................... $ 571 $ 1,447 $ 2,227 $ 2,421 $ 2,426 $ 2,958
Inventories, Net.................... 560 1,490 1,971 1,944 2,228 2,610
Working Capital..................... 225 2,251 2,148 1,758 4,621 5,379
Total Assets........................ 2,445 5,249 6,474 6,677 7,036 8,407
Long-Term Notes Payable, Net of
Current Installments.............. 866 5,445 8,288 9,778 10,272 1,600
Stockholders' Equity (Deficit)...... 422 (1,274) (4,278) (6,222) (5,487) 5,784
</TABLE>

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

(1) Summary historical consolidated financial data has not been presented for
the period January 13, 1994 (date of inception) to January 30, 1994 as such
amounts are immaterial.

(2) At December 30, 1998, the Company owned and operated 32 stores.

(3) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service

5
<PAGE> 10

indebtedness. However, EBITDA should not be considered as an alternative to
income from continuing operations or cash flows from operating activities
(as determined in accordance with generally accepted accounting principles)
and should not be construed as an indication of a company's operating
performance or as a measure of liquidity.

(4) Comparable store contribution margin is defined as gross profit less store
operating expenses. Comparable stores include stores which have been open
for at least twelve months as of October 31, 1998 (19 stores).

(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes plus fixed charges. Fixed charges consist
of interest expense incurred (which includes amortization of deferred
financing costs) whether expensed or capitalized and a portion of rental
expense estimated to be attributable to interest. Earnings were insufficient
to cover fixed charges by $1,625,000, $2,828,000, $3,056,000 and $5,436,000
during the fiscal years ended January 29, 1995, January 28, 1996, January
26, 1997, and January 31, 1998, respectively, and $2,356,000 and $2,836,000
during the nine months ended October 26, 1997 and October 31, 1998,
respectively.

6
<PAGE> 11

RISK FACTORS

An investment in the Notes offered hereby is speculative and involves a
high degree of risk, including the risk factors described below. In addition to
the other information presented in this Prospectus, each prospective investor
should carefully consider the following risk factors inherent in and affecting
our business and this Offering before making an investment decision. This
Prospectus contains certain forward-looking statements regarding our business
and prospects that are based upon numerous assumptions about future conditions
which may ultimately prove to be inaccurate and actual events and results may
materially differ from anticipated results described in such statements. Our
ability to achieve such results is subject to certain risks and uncertainties,
such as those risks detailed in this section, and other risks detailed
throughout this Prospectus. These forward-looking statements represent
management's judgment as of the date of the filing of this Prospectus. We
disclaim, however, any intent or obligation to update these forward-looking
statements.

LACK OF PROFITABILITY, EXPECTED LOSSES DURING ROLL-OUT PHASE

From our inception on January 13, 1994 through October 31, 1998, we have
experienced aggregate losses of $15,810,000. Further, a key element of our
strategy consists of developing multiple PAWNMART(SM) stores meeting our
required store size, configuration, and site selection requirements in regional
and local markets. This strategy is likely to result in continued net losses
during our roll-out phase due to start-up losses associated with the anticipated
high number of developed new stores. Results of operations in the future will be
influenced by numerous factors including, among others, the number of new store
expansions, our ability to manage our growth and maintain the quality of our
personnel, and our ability to implement our strategic plan. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT

After giving pro forma effect to the Offering, we would have total
indebtedness at October 31, 1998 of approximately $1,850,000 assuming the
minimum offering amount is subscribed and $11,600,000 assuming the maximum
offering amount is subscribed. The degree to which we are leveraged could have
adverse consequences to holders of the Notes, including the following: (i)
substantial cash flow from our operations will be required for the payment of
principal and interest on our indebtedness and will not be available for other
purposes; (ii) our ability to obtain additional financing in the future, whether
for capital expenditures, further development, refinancings or otherwise, may be
impaired; (iii) we may be more leveraged than certain of our competitors, which
may place us at a competitive disadvantage; (iv) our high degree of leverage
makes us more vulnerable to changes in economic conditions and may limit our
ability to withstand competitive pressures and capitalize on significant
business opportunities.

We expect to repay the Notes with either (i) cash flows from operations,
(ii) proceeds from the exercise, if at all, of the Series A Warrants, (iii)
refinancing, (iv) the sale of certain assets, or (v) the proceeds from the
issuance of additional equity or debt securities. We will require substantial
cash flow to meet our interest payment obligations with respect to the Notes and
any other borrowings. Our cash flow is dependent on our future performance and
is subject to financial, economic and other factors, some of which are beyond
our control. Since the Credit Facility bears interest at a floating rate, to the
extent we have not hedged our interest rate exposure, we are sensitive to any
increase in prevailing interest rates. We believe that, based upon anticipated
levels of operations, we should be able to meet our debt service obligations,
including interest payments on the Notes and other indebtedness, when due. If we
are unable to generate such cash flow from operations to satisfy our interest
obligations on the Notes and other indebtedness, we may be required to refinance
all or a portion of such obligations, sell assets, or repay such indebtedness
with proceeds from other capital transactions, such as the issuance of
additional equity. There can be no assurance that such refinancing or extension
will be available on reasonable terms or at all, that additional equity will be
issued, or that a sale of assets will occur. The inability to repay such
indebtedness could have a material adverse effect on us.

7
<PAGE> 12

SUBORDINATION OF THE NOTES

The Notes will be unsecured subordinated obligations. The payment of
principal, premium (if any), and interest on the Notes will be subordinated in
right of payment to all our Senior Debt, including all indebtedness and
obligations under our existing $10 million Credit Facility with Comerica Bank.
Borrowings under the Credit Facility will constitute Senior Debt. The Notes will
permit us to incur additional Senior Debt. "Senior Debt" means the principal of
and interest on our indebtedness owed or hereinafter owing to commercial banks
(including, without limitation Comerica Bank) and other lenders, unaffiliated
note or debenture holders incurred (a) to provide working capital necessary for
the proper conduct of our business, (b) to develop additional PAWNMART(SM)
stores or (c) to acquire pawn stores or companies or entities involved in the
pawn industry provided that certain conditions are met. By reasons of the
subordination provisions of the Notes, in the event of insolvency, liquidation,
reorganization, dissolution or other winding-up, holders of Senior Debt will
have to be paid in full before we make payments in respect of the Notes. In
addition, no payment will be made to you if (i) any Senior Debt is not paid when
due or (ii) any other default on Senior Debt occurs and the maturity of such
Senior Debt is accelerated in accordance with its terms. Accordingly, there may
be insufficient assets remaining after such payments to pay amounts due on the
Notes.

INABILITY TO SELL MAXIMUM SUBSCRIPTION OF NOTES

Although we are registering up to $10,000,000 in Notes pursuant to this
Prospectus, we can make no assurances that the maximum offering amount will be
subscribed. In addition to factors noted under "Risk Factors -- Management of
Growth," our store expansion during fiscal 1999 will largely be dependent upon
the number of Notes sold pursuant to this Offering. In the event we are unable
to sell the maximum subscription or additional financing alternatives are not
obtained, our fiscal 1999 expansion schedule could be reduced or modified. If we
only sell the minimum subscription of Notes and are unable to obtain additional
financing, we could be required to cease expansion and significantly reduce
corporate administrative expenses.

ASSETS PLEDGED AS COLLATERAL UNDER THE COMERICA LINE OF CREDIT FACILITY

Obligations under the Credit Facility are secured by liens on substantially
all of our assets. If we become insolvent or are liquidated, or if payment under
the terms of Senior Debt is accelerated, the Senior Debt holders will be
entitled to exercise the remedies available to a secured lender.

LIQUIDITY

Although we have entered into the $10 million Credit Facility, we can make
no assurances that our cash and cash equivalents on hand and our cash
availability will be sufficient to meet our anticipated working capital needs
and capital expenditures in the future. To finance future expenditures, we may
need to issue additional securities or incur additional debt. We may not be able
to obtain additional required capital on satisfactory terms, if at all. The
failure to raise the funds necessary to finance future cash requirements could
materially and adversely affect our operating results and anticipated growth in
future periods. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

MANAGEMENT OF GROWTH

We plan to expand our business through a roll-out of PAWNMART(SM) stores.
To a significant extent, our future success will be dependent upon our ability
to engage in a successful expansion program and will be dependent, in part, upon
our ability to secure suitable sites for our new stores, obtain adequate
inventory for our new stores, maintain adequate financial controls and reporting
systems to manage a larger operation, and to obtain additional capital upon
favorable terms. There can be no assurance that we will be able to successfully
implement our planned expansion, finance our growth or manage the resulting
larger operation.

8
<PAGE> 13

AVAILABILITY OF QUALIFIED STORE MANAGEMENT PERSONNEL

Our ability to expand may also be limited by the availability of qualified
store management personnel. While we seek to train existing qualified personnel
for management positions and to create attractive compensation packages to
retain existing management personnel, there can be no assurance that sufficient
qualified personnel will be available to satisfy our needs with respect to our
planned expansion.

COMPETITION

We encounter significant competition in connection with the operation of
our business. In connection with lending operations, we compete with other
pawnshops (owned by individuals and by large operators) and certain financial
institutions, such as consumer finance companies, which generally lend on an
unsecured, as well as on a secured basis. Our competitors in connection with our
retail sales include numerous retail and discount stores. Many of our
competitors, including Cash America International, Inc., First Cash, Inc., and
EZCORP, Inc., have greater financial resources. These competitive conditions may
adversely affect our revenues, profitability and ability to expand.

GOVERNMENT REGULATION

Our lending operations are subject to extensive regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. These statutes prescribe, among other things, service charges a
pawnshop may charge for lending money and the rules of conduct that govern an
entity's ability to maintain a pawnshop license. With respect to firearm and
ammunition sales, a pawnshop must comply with the regulations promulgated by the
United States Department of the Treasury -- Bureau of Alcohol, Tobacco and
Firearms. Governmental regulators have broad discretionary authority to refuse
to grant a license or to suspend or revoke any or all existing licenses of
licensees under common control if it is determined that any such licensee has
violated any law or regulation or that the management of any such licensee is
not suitable to operate pawnshops. In addition, there can be no assurance that
additional state or federal statutes or regulations will not be enacted at some
future date which could inhibit our ability to expand, significantly decrease
the service charges we can charge for lending money, or prohibit or more
stringently regulate the sale of certain goods, such as firearms, any of which
could significantly adversely affect our prospects. Our ability to open new
stores in other states could be affected by the enactment of state or local
legislation, similar to current Texas legislation, which requires a finding of
public need and probable profitability by the Texas Consumer Credit Commissioner
as a condition to the issuance or activation of any new pawnshop license in
Texas counties having a population of more than 250,000. In addition, the
present statutory and regulatory environment of some states renders expansion
into those states impractical. For instance, certain states require public sale
of forfeited collateral or do not permit service charges sufficient to make
pawnshop operations profitable.

RISKS RELATED TO IMPROPER ASSESSMENT OF THE PLEDGED PROPERTY'S ESTIMATED RESALE
VALUE

We make pawn loans without the borrower's personal liability and do not
investigate the creditworthiness of the borrower, but rely on the pledged
personal property, and the possibility of its forfeiture, as a basis for our
lending decision. In this regard, the recovery of the amount advanced, as well
as realization of a profit on sale of merchandise, is dependent on our initial
assessment of the property's estimated resale value. Improper assessment of the
resale value of the collateral in the lending function can result in reduced
marketability of the property and resale of the merchandise for an amount less
than the amount advanced. Although, historically, we have experienced profits
from the sale of such merchandise, no assurances can be given that our
historical results will continue. For example, unexpected technological changes
could adversely impact the value of consumer electronic products and declines in
gold and silver prices could reduce the resale value of jewelry items acquired
in pawn transactions and could adversely affect our ability to recover the
amount advanced on the acquired collateral.

9
<PAGE> 14

DEPENDENCE ON KEY MANAGEMENT

We rely on the business and technical expertise of our executive officers
and certain other key employees, particularly our Chief Executive Officer,
Carson Thompson and our President, Michael Record. Except for an employment
agreement with Michael Record (see "Management -- Employment Agreements"), we do
not have an employment agreement with any member of our executive staff. The
loss of the services of any of these individuals could have a material adverse
effect on our operating results. No assurance can be given that their services
will be available in the future. Our success will also be dependent on our
ability to attract and retain additional qualified management personnel.

RISKS RELATED TO FIREARM SALES

We have not, and, at present, do not intend to engage in the sale of
handguns or assault rifles to the public. We do wholesale handguns and assault
rifles to licensed firearm dealers. We also engage in the sale of sporting
rifles to the public leaving us open to the risk of lawsuits from persons who
may claim injury as a result of an improper sale. No such claims have been
asserted against us as of the date of this Prospectus. We maintain insurance
covering potential risks related to the sale of firearms.

RISKS RELATED TO AUTOMOBILE TITLE LOANS

Alabama and Georgia pawn regulations allow us to advance funds secured by
automobile titles. Approximately eight percent of our total revenues for the
nine months ended October 31, 1998 were related to pawn service charges
generated from such advances. The adoption of additional or the revision of
existing laws and regulations impacting our ability to advance funds against
automobile titles could have a material adverse effect on our business. In
addition, we could be subject to consumer claims and litigation seeking damages
based upon wrongful repossession of automobiles.

NO TRADEMARK PROTECTION

We have not been issued any registered trademark for our "PAWNMART(SM)" or
"PAWNLINK(TM)" trade names. No assurance can be given that we will be successful
in obtaining any trademarks, or that the trademarks, if obtained, will afford us
any competitive advantages.

UTILIZATION OF OFFERING PROCEEDS

We expect to receive approximately $8.6 million in net proceeds from the
Offering assuming a maximum subscription. Although we intend to primarily
utilize the net proceeds from the Offering for store expansion, we will have
broad discretion to utilize such funds for acquisitions, interest payments,
working capital and other general corporate purposes. The use of funds for
purposes other than for store expansion could prevent us from meeting our fiscal
1999 store expansion goals. See "Use of Proceeds."

ABSENCE OF PUBLIC MARKET FOR THE NOTES

We do not intend to apply for listing or quotation of the Notes on any
securities exchange or stock market. The managing broker dealer has advised us
that they intend to make a market in the Notes, subject to any limits imposed by
the Securities Act and the Exchange Act and subject to any limits imposed during
the pendency of any registration statement or shelf registration statement filed
under the Securities Act; however, the managing broker dealer is not obligated
to do so, and may discontinue such market-making at any time without notice.
Therefore, we can give no assurance as to the liquidity of any trading market
for the Notes or that an active market for the Notes will develop. Future
trading prices of the Notes will depend on many factors, including, among other
things, prevailing interest rates, our operating results and the market for
similar securities.

Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. We can give no assurance that the market for

10
<PAGE> 15

the Notes will not be subject to similar disruptions. Any such disruptions could
have an adverse effect on the Notes.

NECESSITY TO MAINTAIN CURRENT PROSPECTUS AND REGISTRATION STATEMENT

We must maintain an effective registration statement on file with the
Commission before any of the Series A Warrants and Series B Warrants
(collectively, the "Warrants") may be redeemed or exercised. It is possible that
we may be unable to cause a registration statement covering the Common Stock
underlying the Warrants to be effective. It is also possible that the Warrants
could be acquired by persons residing in states where we are unable to qualify
the Common Stock underlying the Warrants for sale. In either event, the Warrants
may expire, unexercised, which would result in the holders losing all the value
of the Warrants.

STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS

Holders of the Warrants have the right to exercise the Warrants only if the
underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the various
holders of the Warrants reside. We cannot issue shares of Common Stock to
holders of the Warrants in states where such shares are not qualified,
registered or exempt. We have, however, qualified the Series A Warrants and
Series B Warrants for listing on the Boston Stock Exchange which provides for
blue sky registration in 13 states. See "Description of Capital Stock -- Series
A Warrants and Series B Warrants."

REDEEMABLE WARRANTS AND IMPACT ON INVESTORS

We may redeem the Warrants in certain circumstances. Our exercise of this
right would force a holder of the Warrants to exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for the holder to do so,
to sell the Warrants at the then current market price when the holder might
otherwise wish to hold the Warrants for possible additional appreciation, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants in the event of a call for redemption. Holders who
do not exercise their Warrants prior to redemption will forfeit their right to
purchase the shares of Common Stock underlying the Warrants. The foregoing
notwithstanding, we may not redeem the Warrants at any time that a current
registration statement under the Act is not then in effect. See "Description of
Capital Stock -- Series A Warrants and Series B Warrants."

WARRANTS TO BROKERS

In connection with the Offering, we will issue up to 600,000 Series A
Warrants to participating broker dealers. To the extent that the Series A
Warrants are exercised, they would have a dilutive effect on the percentage of
outstanding shares of Common Stock. The exercise of the Series A Warrants is
likely to occur at a time when we could probably obtain additional equity
capital on terms more favorable than those provided by the Series A Warrants.
See "Description of Capital Stock -- Series A Warrants" and "Plan of
Distribution."

NO FIRM COMMITMENT TO PURCHASE NOTES

The Notes are being offered on a "best efforts" basis whereby the managing
broker dealer has no obligation, either express or implied, to purchase the
Notes offered hereby. Consequently, there can be no assurance that the minimum
offering will be sold. If the minimum offering is not completed, potential
investors who have deposited funds with the Escrow Agent will receive a full
refund of such funds without deduction for commissions or expenses. Any interest
earned on funds deposited with the Escrow Agent will be paid pro rata to
investors based on the time their payment was held in escrow. See "Plan of
Distribution."

11
<PAGE> 16

NEW MANAGING BROKER DEALER; MARKET MAKING ACTIVITIES

Massie Capital, Ltd., the managing broker dealer, was registered as a
broker dealer in 1996 and has not acted as the sole or managing broker dealer of
any previous offerings. Massie Capital, Ltd. may be deemed to be inexperienced
in the management and distribution of public offerings and this lack of
experience may adversely affect the ability to complete this Offering.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Notes offered by the
Company are estimated to range from approximately $0 under a minimum
subscription to $8,600,000 under a maximum subscription after deducting
estimated discounts to broker dealers and fees and expenses of the Offering. The
net proceeds from the issuance of the Notes, together with the resulting
increase in borrowing base availability under the Company's Credit Facility,
will be used for store expansion and other working capital and general corporate
purposes. At October 31, 1998, $1,600,000 was outstanding under the Credit
Facility and an additional $2,100,000 was available to the Company pursuant to
the available borrowing base. The Credit Facility matures on October 13, 2001
and all outstanding borrowings at October 31, 1998 bear interest at the prime
rate plus three-quarters of one percent (9.0% at October 31, 1998).

The approximate sources and uses of funds in connection with the Offering
are presented in the table below, assuming the Offering occurred as of October
31, 1998:

<TABLE>
<CAPTION>
TOTAL TOTAL
MINIMUM MAXIMUM
-------- -----------
<S> <C> <C>
Sources of Funds:
Proceeds from Notes offered hereby........................ $250,000 $10,000,000
Additional borrowing base availability under the Credit
Facility............................................... 125,000 8,400,000
-------- -----------
Total sources..................................... $375,000 $18,400,000
======== ===========
Uses of Funds:
Capital expenditures for store expansion.................. $ -- $14,500,000
Payment of interest on the Notes.......................... -- 1,000,000
Working capital and other general corporate purposes...... 75,000 1,500,000
Fees and expenses of the Offering......................... 300,000 1,400,000
-------- -----------
Total uses........................................ $375,000 $18,400,000
======== ===========
</TABLE>

The Company anticipates utilizing the net proceeds to open up to 30 stores
under a maximum subscription. The exact allocation of the proceeds for such
purposes and the timing of such expenditures may vary significantly depending
upon numerous factors, including the number of stores to be developed by the
Company. Pending the application of such proceeds, the Company intends to invest
the net proceeds of this Offering in short-term, investment-grade securities.
The Company estimates that such proceeds will be sufficient to fund such
expenditures and other cash requirements for the next 12 months. Over the longer
term, it is likely that the Company will require additional capital to fund its
anticipated growth. The Company has no present plans, proposals, arrangements,
commitments, agreements or understandings with respect to any acquisitions.
However, the Company may use a portion of the net proceeds to acquire additional
stores or other pawnshop companies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

12
<PAGE> 17

CAPITALIZATION

The following table sets forth (i) the consolidated capitalization of the
Company at October 31, 1998 and (ii) such consolidated capitalization as
adjusted to give effect to the Offering. The following table should be read in
conjunction with the respective Consolidated Financial Statements and notes
thereto of the Company included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
OCTOBER 31, 1998
------------------------------
PRO FORMA
-------------------
ACTUAL MINIMUM MAXIMUM
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term notes payable, net of current installments(2)..... $ 1,600 $ 1,850 $ 11,600
-------- -------- --------
Stockholders' equity:
Common stock, $.01 par value; authorized 20,000,000
shares; 7,230,877 issued(1)............................ 72 72 72
Series A redeemable common stock purchase warrants, $0.125
par value; 1,380,000 warrants issued and outstanding
(actual), 1,395,000 warrants issued and outstanding
(pro forma minimum), and 1,980,000 warrants issued and
outstanding (pro forma maximum)(1)..................... 173 173 173
Series B redeemable common stock purchase warrants,
$0.0625 par value; 1,380,000 warrants issued and
outstanding(1)......................................... 86 86 86
Additional paid-in capital................................ 22,242 22,242 22,242
Accumulated deficit....................................... (16,719) (16,719) (16,719)
Less treasury stock, at cost; 21,432 common shares........ (70) (70) (70)
-------- -------- --------
Total stockholders' equity........................ 5,784 5,784 5,784
-------- -------- --------
Total capitalization.............................. $ 7,384 $ 7,634 $ 17,384
======== ======== ========
</TABLE>

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

(1) Does not include: (i) 219,347 shares of Common Stock which may be issued
upon exercise of currently outstanding Common Stock purchase warrants issued
to broker/dealers in connection with the private placements of the Company's
securities, (ii) 858,423 shares of Common Stock which may be issued upon
exercise of currently outstanding Common Stock options issued under the 1997
PawnMart, Inc. Employee Stock Option Plan, (iii) 125,000 shares of Common
Stock which may be issued upon exercise of currently outstanding Common
Stock options issued under the 1997 Stock Option Plan for Directors, (iv)
120,000 shares of Common Stock, 120,000 Series A Warrants and 120,000 Series
B Warrants issuable upon exercise of warrants issued in connection with the
Company's initial public offering during March 1998, (v) 2,760,000 shares of
Common Stock issuable upon exercise of the Series A Warrants and Series B
Warrants issued in connection with the Company's initial public offering
during March 1998, and (vi) from 15,000 shares of Common Stock under a
minimum subscription of the Notes to 600,000 shares of Common Stock under a
maximum subscription issuable upon exercise of the Series A Warrants issued
to participating broker dealers in connection with this Offering.

(2) Includes $250,000 in Notes issued under a minimum subscription and
$10,000,000 in Notes issued under a maximum subscription.

13
<PAGE> 18

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth, for the periods and at the dates indicated,
selected historical financial data of the Company. The selected consolidated
historical financial data has been derived from the audited and unaudited
historical consolidated financial statements of the Company and should be read
in conjunction with such financial statements and the notes thereto included
elsewhere in this Prospectus. The unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the financial position and results of operations for the periods presented.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) NINE MONTHS ENDED
-------------------------------------------------------- --------------------------
(UNAUDITED) (UNAUDITED)
JANUARY 29, JANUARY 28, JANUARY 26, JANUARY 31, OCTOBER 26, OCTOBER 31,
1995 1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Pawn Service Charges............ $ 363 $ 1,338 $ 2,291 $ 2,862 $ 2,106 $ 2,438
Merchandise Sales............... 941 3,052 5,523 7,215 4,972 5,525
Other Income.................... 2 34 89 101 67 92
---------- ---------- ----------- ----------- ----------- -----------
Total Revenues.......... 1,306 4,424 7,903 10,178 7,145 8,055
Cost of Sales................... 553 1,942 3,739 5,192 3,392 3,754
---------- ---------- ----------- ----------- ----------- -----------
Gross Profit............ 753 2,482 4,164 4,986 3,753 4,301
Store Operating Expenses........ 1,000 2,626 3,652 4,040 2,866 3,544
Corporate Administrative
Expenses...................... 1,118 1,589 1,713 2,117 1,510 2,308
Interest Expense................ 62 720 1,360 3,761 1,356 866
Depreciation and Amortization... 198 375 495 504 377 419
---------- ---------- ----------- ----------- ----------- -----------
Net Loss................ (1,625) (2,828) (3,056) (5,436) (2,356) (2,836)
Preferred Stock Dividends....... -- -- -- 217 -- 692
---------- ---------- ----------- ----------- ----------- -----------
Net Loss to Common
Stockholders.......... $ (1,625) $ (2,828) $ (3,056) $ (5,653) $ (2,356) $ (3,528)
========== ========== =========== =========== =========== ===========
Basic and Diluted Loss
Per Common Share...... $ (1.02) $ (1.68) $ (1.67) $ (3.01) $ (1.27) $ (0.56)
========== ========== =========== =========== =========== ===========
OTHER DATA:
Stores Owned at End of
Period(2)..................... 7 17 19 19 19 24
Average Age of Stores -- End of
Period........................ .61 years .93 years 1.77 years 2.78 years 2.51 years 2.83 years
EBITDA(3)....................... $ (1,365) $ (1,733) $ (1,201) $ (1,171) $ (623) $ (1,551)
Comparable Store Contribution
Margin(4)..................... -- -- $ 512 $ 946 $ 887 $ 946
Ratio of Earnings to Fixed
Charges(5).................... -- -- -- -- -- --
BALANCE SHEET DATA -- END OF
PERIOD:
Loans........................... $ 571 $ 1,447 $ 2,227 $ 2,421 $ 2,426 $ 2,958
Inventories, Net................ 560 1,490 1,971 1,944 2,228 2,610
Working Capital................. 225 2,251 2,148 1,758 4,621 5,379
Total Assets.................... 2,445 5,249 6,474 6,677 7,036 8,407
Long-Term Notes Payable, Net of
Current Installments.......... 866 5,445 8,288 9,778 10,272 1,600
Stockholders' Equity
(Deficit)..................... 422 (1,274) (4,278) (6,222) (5,487) 5,784
</TABLE>

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

(1) Summary historical consolidated financial data has not been presented for
the period January 13, 1994 (date of inception) to January 30, 1994 as such
amounts are immaterial.

(2) At December 30, 1998, the Company owned and operated 32 stores.

(3) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA
should not be considered as an alternative to income from

14
<PAGE> 19

continuing operations or cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) and should not
be construed as an indication of a company's operating performance or as a
measure of liquidity.

15
<PAGE> 20

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

Our store growth through January 31, 1998 has been funded primarily through
a series of straight debt offerings, convertible debt offerings, and convertible
preferred stock offerings. With the net proceeds from such offerings, we opened
seven, ten and two stores during the fiscal years ended January 29, 1995,
January 28, 1996 and January 26, 1997, respectively. During the fiscal year
ended January 31, 1998, our management devoted substantially all its resources
to restructuring the balance sheet and capital structure and completing the
initial public offering of our common stock (see "Business -- General"). The
completion of our initial public offering during March 1998 resulted in a
significant financial restructuring of the capital structure which dramatically
improved our consolidated balance sheet and our interest and dividend
requirements.

Since our inception in January 1994, profitability has been significantly
impacted by two factors: interest expense associated with straight debt and
convertible debt and development of the infrastructure necessary to support
rapid growth. We converted or repaid substantially all outstanding indebtedness
as a result of our initial public offering in March 1998. Corporate
administrative expenses have been impacted by costs incurred in the development
of management and financial controls, development of our proprietary software
system, and attracting an experienced management team capable of implementing a
rapid roll-out of PAWNMART(SM) stores. This growth strategy and the investment
in management and financial controls substantially increased interest expense
and general and administrative expenses as a percentage of total revenues.

During the nine months ended October 31, 1998, we added five stores
bringing us to a total of 24 stores. Additionally, we added two stores in
November 1998 and six stores in December 1998 bringing us to a total of 32
stores. Our results of operations and cash flows are significantly impacted by
(i) expansion through development of new stores or acquisitions of existing
stores in locations that meet site selection, store size and configuration
requirements in selected markets and (ii) the maturation cycle of stores. We
believe that material fluctuations in the results of operations from lending
activities and product sales due to seasonality will not occur.

Initial Capital Expenditures and Costs Associated with Expansion

Our strategy is to develop or acquire PAWNMART(SM) stores in selected
regional and local markets meeting required store size, configuration, and site
selection requirements. We believe that such anticipated expansion will continue
to provide economies of scale in supervision, purchasing supplies and inventory,
administration and marketing by decreasing the overall average cost of such
functions per unit owned. After a suitable market has been selected, management
determines whether expansion through development of new stores or through
acquisitions would result in the most favorable impact on profitability and
capital requirements.

After a suitable location has been found and a lease and license are
obtained, a new store can be ready for business within six to eight weeks, with
completion of counters, vaults and security system and transfer of merchandise
from existing stores, and external purchases of pre-owned merchandise. We
project the initial capital expenditures and costs associated with opening a new
PAWNMART(SM) store to total approximately $250,000 with additional capital
expenditures during the 12 months after opening of approximately $150,000 to
fund loan growth and planned start-up losses. Because of these start-up losses
and expenditures necessary to support anticipated growth, we may incur losses
during a high-growth phase. There can be no assurance that future initial
capital expenditures and costs and start-up losses with new store operations
will not vary from historical amounts. We do not capitalize start-up losses and
do not recognize pawn service charges on defaulted loans.

We will generally acquire stores in locations meeting our site selection
criteria if (i) the total capital expenditures required to acquire the existing
store are less than or equal to the total costs to develop a new
16
<PAGE> 21

store, (ii) the acquisition does not result in significant goodwill balances,
and (iii) demographic data and due diligence procedures indicate an acceptable
growth potential. Because acquired stores mature more quickly than new stores
and generally result in lower initial capital expenditures, our profitability
and capital requirements are impacted by the number of stores added through
acquisition versus the number of new stores added.

Maturation of Newly Established Stores and Acquired Stores

The revenues and profitability of a new store are primarily impacted by our
ability to increase pawn loans during the first 12 months of operations. A new
store is generally unprofitable during its first six to eight months of
operations due to the lack of pawn service charges associated with pawn loans
during that period. Our new stores experience substantially higher levels of
revenues and profitability after reaching two years of age. At October 31, 1998,
five of our 24 stores were under two years of age. These stores are expected to
have a favorable impact on profitability if they achieve the substantially
increased lending and retail volumes experienced in our other stores.

An acquired store will generally mature faster than a new store due to an
established base of customers and our ability to accelerate the maturation of
the store's pawn loan balances. Our profitability during rapid expansion will be
significantly impacted by our ability to acquire existing stores meeting our
acquisition criteria. There can be no assurance that future store revenues and
store profitability will not vary from historical amounts.

Selected elements of our consolidated financial statements are shown below
for the fiscal years ended January 28, 1996, January 26, 1997, and January 31,
1998 and for the nine months ended October 26, 1997 and October 31, 1998.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
--------------------------------------- -------------------------
JANUARY 28, JANUARY 26, JANUARY 31, OCTOBER 26, OCTOBER 31,
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Merchandise sales..................... 69.0% 69.9% 70.9% 69.6% 68.6%
Pawn service charges.................. 30.2 29.0 28.1 29.5 30.3
Other................................. 0.8 1.1 1.0 0.9 1.1
----- ----- ----- ----- -----
Total revenues.............. 100.0 100.0 100.0 100.0 100.0
Cost of sales......................... 43.9 47.3 51.0 47.5 46.6
----- ----- ----- ----- -----
Gross profit................ 56.1 52.7 49.0 52.5 53.4
----- ----- ----- ----- -----
Store operating expenses.............. 59.3 46.2 39.7 40.1 44.0
----- ----- ----- ----- -----
Store contribution.......... (3.2) 6.5 9.3 12.4 9.4
Interest expense...................... 16.3 17.2 36.9 19.0 10.8
Depreciation and amortization......... 8.5 6.3 5.0 5.3 5.2
Corporate administrative expenses..... 35.9 21.7 20.8 21.1 28.6
----- ----- ----- ----- -----
Net loss.................... (63.9)% (38.7)% (53.4)% (33.0)% (35.2)%
===== ===== ===== ===== =====
</TABLE>

RESULTS OF OPERATIONS

Nine Months Ended October 31, 1998 Compared to Nine Months Ended October 26,
1997

Total revenues increased 12.7% to $8,055,000 for the nine months ended
October 31, 1998 (the "Nine Month 1998 Period") as compared to $7,145,000 for
the nine months ended October 26, 1997 (the "Nine Month 1997 Period"). The
overall increase is attributable to a 8.5% increase in comparable store revenues
at stores opened 12 months or more as of October 31, 1998 ("Comparative Stores")
and revenues from five stores added during the Nine Month 1998 Period.

17
<PAGE> 22

Merchandise sales increased 11.1% to $5,525,000 during the Nine Month 1998
Period from $4,972,000 during the Nine Month 1997 Period due to a 6.6% increase
in merchandise sales from Comparative Stores and merchandise sales from five
stores added during the Nine Month 1998 Period.

Pawn service charges increased 15.8% to $2,438,000 during the Nine Month
1998 Period from $2,106,000 during the Nine Month 1997 Period primarily due to a
13.7% increase in pawn service charges from Comparative Stores and pawn service
charges from five stores added during the Nine Month 1998 Period.

Gross profit as a percentage of total revenues increased 0.9% from 52.5%
during the Nine Month 1997 Period to 53.4% during the Nine Month 1998 Period
primarily due to improvements in shrinkage and an uninsured theft at one of our
stores during February 1997 which were offset by lower gross margins on
merchandise sales at five stores added during the Nine Month 1998 Period. On a
Comparative Store basis, gross profit as a percentage of total revenues
increased 1.2% from 52.5% during the Nine Month 1997 Period to 53.7% during the
Nine Month 1998 Period. Excluding the uninsured theft at one of the our stores
during February 1997, our annualized inventory turnover rate was 2.2 times
during the Nine Month 1998 Period compared to 2.1 times during the Nine Month
1997 Period. We currently maintain theft insurance at all stores.

Store operating expenses increased 23.7% to $3,544,000 during the Nine
Month 1998 Period from $2,866,000 during the Nine Month 1997 Period primarily
due to increased labor at Comparative Stores to support increased store
activity, increased advertising expenses associated with our marketing programs
and expenses attributable to five stores added during the Nine Month 1998
Period. On a Comparative Store basis, store operating expenses comprised 41.5%
of total revenues during the Nine Month 1998 Period compared to 40.1% of total
revenues during the Nine Month 1997 Period.

Store contribution margin decreased 14.7% to $757,000 during the Nine Month
1998 Period compared to $887,000 during the Nine Month 1997 Period primarily due
to the effects of planned start-up losses at five stores added during the Nine
Month 1998 Period and pre-opening expenses incurred at additional stores
scheduled for opening during the fourth quarter of the fiscal year ending
January 30, 1999 ("Fiscal 1998"). Excluding the effects of planned start-up
losses and pre-opening expenses, store contribution margin increased 6.7% to
$946,000 during the Nine Month 1998 Period compared to $887,000 during the Nine
Month 1997 Period.

Corporate administrative expenses increased 52.8% to $2,308,000 during the
Nine Month 1998 Period from $1,510,000 during the Nine Month 1997 Period
primarily due to (i) the issuance of 44,445 shares of unregistered common stock
in exchange for $200,000 in non-recurring professional fees associated with
marketing and store site selection ("Non-Recurring Professional Fees"), (ii)
increased labor costs associated with the hiring of manager trainees to support
store openings, (iii) increased labor costs associated with the hiring of
additional executive management to support planned growth, and (iv) increased
professional fees associated with human resource development and regulatory
matters. Since we added five stores during the Nine Month 1998 Period and plan
to add eight additional stores during the fourth quarter of Fiscal 1998, we
anticipate corporate administrative expenses to decrease as a percentage of
total revenues.

Interest expense decreased 36.1% to $866,000 during the Nine Month 1998
Period from $1,356,000 during the Nine Month 1997 Period. The Nine Month 1998
Period includes $495,000 in non-cash non-recurring interest expense resulting
from the accounting treatment relating to the beneficial conversion feature
associated with our convertible subordinated debentures ("Non-Cash Non-Recurring
Interest Expense") and $313,000 in interest expense which was incurred by us
related to debt that was either converted or repaid upon completion of our
initial public offering ("Non-Recurring Interest Expense"). See note 6 to the
consolidated financial statements for the year ended January 31, 1998 included
elsewhere in this Prospectus for a discussion of the accounting treatment
relating to the beneficial conversion feature associated with our convertible
subordinated debentures. The Nine Month 1997 Period included $1,337,000 in
Non-Recurring Interest Expense.

18
<PAGE> 23

During the Nine Month 1998 Period, we recognized $674,000 in noncash
non-recurring preferred stock dividends resulting from the accounting treatment
relating to the beneficial conversion feature associated with our convertible
preferred stock and $18,000 in non-recurring preferred stock dividends
associated with our 12% Series Convertible Exchangeable Preferred stock
(collectively, the "Non-Recurring Preferred Dividends"). See note 9 to the
consolidated financial statements for the year ended January 31, 1998 included
elsewhere in this Prospectus for a discussion of the accounting treatment
relating to the beneficial conversion feature associated with our convertible
preferred stock.

Net loss to common stockholders during the Nine Month 1998 Period was
$3,528,000, or $0.56 per basic and diluted share, compared to $2,356,000, or
$1.27 per basic and diluted share, during the Nine Month 1997 Period. Excluding
the Non-Recurring Professional Fees, Non-Cash Non-Recurring Interest Expense,
Non-Recurring Interest Expense, and Non-Recurring Preferred Dividends, net loss
to common stockholders during the Nine Month 1998 Period would have been
$1,828,000, or $0.29 per basic and diluted share, compared to $1,019,000, or
$0.55 per basic and diluted share, during the Nine Month 1997 Period.

Year Ended January 31, 1998 Compared to Year Ended January 26, 1997

Total revenues increased 28.8% to $10,178,000 for the fiscal year ended
January 31, 1998 ("Fiscal 1997") as compared to $7,903,000 for the fiscal year
ended January 26, 1997 ("Fiscal 1996"). $1,812,000 of this increase was due to a
24.1% increase in Comparative Store revenue and $463,000 from two stores opened
during Fiscal 1996. Comparative Store revenue gains were primarily attributable
to store maturation, increased store traffic and marketing programs. The overall
increase is primarily attributable to a 30.6% increase in product sales and a
24.9% increase in pawn service charges.

Merchandise sales increased 30.6% to $7,215,000 during Fiscal 1997 from
$5,523,000 during Fiscal 1996. $1,369,000 of this increase was due to a 26.1%
increase in sales gains for Comparative Stores and $323,000 from two stores
opened during Fiscal 1996.

Pawn service charges increased 24.9% to $2,862,000 during Fiscal 1997 from
$2,291,000 during Fiscal 1996 primarily due to pawn loans increasing 8.7% from
$2,227,000 at January 26, 1997 to $2,421,000 at January 31, 1998. $433,000 of
this increase was due to a 19.7% increase in pawn service charge gains for
Comparative Stores and $138,000 from two stores opened during Fiscal 1996. We
expect 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 declined 3.7% from 52.7%
during Fiscal 1996 to 49.0% during Fiscal 1997 primarily due to a conscious
effort to turn older inventory, an uninsured theft at one of our stores during
February 1997 and allowances provided for shrinkage and valuation based on
management's evaluation of inventories on hand. Our annualized inventory
turnover rate was 2.6 times during Fiscal 1997 compared to 2.2 times during
Fiscal 1996 primarily due to increased store traffic, marketing programs and a
conscious effort to turn older inventory.

Operating expenses increased 10.6% to $4,040,000 during Fiscal 1997 from
$3,652,000 during Fiscal 1996 primarily due to increased labor at Comparative
Stores to support increased store activity and the addition of two new stores
during Fiscal 1996. Operating expenses as a percent of total revenues decreased
to 39.7% during Fiscal 1997 from 46.2% during Fiscal 1996 primarily resulting
from significant increases in Comparative Store sales and pawn service charges
discussed above.

Store contribution margin increased 84.8% to $946,000 during Fiscal 1997
compared to $512,000 during Fiscal 1996 primarily due to increases in same store
product sales and pawn service charges which were not offset by corresponding
increases in operating expenses.

Interest expense increased 176.4% to $3,761,000 during Fiscal 1997 from
$1,360,000 during Fiscal 1996 primarily due to $1,885,000 in additional non-cash
interest expense recognized in the fourth quarter of Fiscal 1997 resulting from
the accounting treatment relating to the beneficial conversion feature
19
<PAGE> 24

associated with our convertible subordinated debentures and increases in the
aggregate outstanding principal amount of convertible subordinated debentures.
See note 6 to the consolidated financial statements for the year ended January
31, 1998 included elsewhere in this Prospectus for a discussion of the
accounting treatment relating to the beneficial conversion feature associated
with our convertible subordinated debentures.

Administrative expenses increased 23.6% to $2,117,000 during Fiscal 1997
from $1,713,000 during Fiscal 1996 primarily due to (i) increased salaries
associated with the hiring of additional executive management, (ii) increased
expenses associated with development of marketing programs, (iii) increased
expenses associated with our comprehensive insurance package, (iv) and increased
professional fees associated with human resource development, the preparation of
our franchise offering circular and fees associated with the preparation of tax
returns. However, administrative expenses decreased to 20.8% of total revenues
during Fiscal 1997 compared to 21.7% during Fiscal 1996 primarily resulting from
significant increases in comparable store sales and pawn service charges
discussed above.

At January 31, 1998, our accumulated net operating loss carryforwards for
tax purposes were approximately $9,724,000. Such amounts are available to offset
future federal taxable income, if any, through 2013.

Year Ended January 26, 1997 Compared to Year Ended January 28, 1996

Total revenues increased 78.6% to $7,903,000 during Fiscal 1996 as compared
to $4,424,000 during the fiscal year ended January 28, 1996 ("Fiscal 1995").
$744,000 of this increase was due to a 23% increase in Comparative Store revenue
for comparative stores and $2,735,000 from 12 stores opened after the fiscal
year ended January 29, 1995 ("Fiscal 1994"). Comparative Store revenue gains
were primarily attributable to store maturation, increased store traffic and
special promotions. The overall increase is primarily attributable to a 81.0%
increase in product sales and a 71.2% increase in pawn service charges.

Merchandise sales increased 81.0% to $5,523,000 during Fiscal 1996 from
$3,052,000 during Fiscal 1995. $511,000 of this increase was due to a 24.2%
increase in sales gains for Comparative Stores and $1,960,000 from 12 stores
opened after Fiscal 1994.

Pawn service charges increased 71.2% to $2,291,000 during Fiscal 1996 from
$1,338,000 during Fiscal 1995 primarily due to pawn loans increasing 53.9% from
$1,447,000 at January 28, 1996 to $2,227,000 at January 26, 1997. $207,000 of
this increase was due to a 19.0% increase in Comparative Store pawn service
charges and $746,000 from 12 stores opened after Fiscal 1994. We expect 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.

Operating expenses increased 39.1% to $3,652,000 during Fiscal 1996 from
$2,626,000 during Fiscal 1995 primarily due to the addition of ten new stores
during Fiscal 1995 and two new stores during Fiscal 1996. Operating expenses as
a percent of total revenues decreased to 46.2% during Fiscal 1996 from 59.3%
during Fiscal 1995 primarily resulting from the large increases in Comparable
Store sales and pawn service charges discussed above.

Store contribution margin increased to $512,000 during Fiscal 1996 compared
to a deficit of $144,000 during Fiscal 1995 primarily due to improvement in
store contribution from the maturation of stores opened prior to January 28,
1996 (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview") and only two stores being opened during
Fiscal 1996 lowering the amount of start-up losses.

Interest expense increased 88.9% to $1,360,000 during Fiscal 1996 from
$720,000 during Fiscal 1995 primarily due to increases in the aggregate
outstanding principal amount of convertible subordinated debentures.

20
<PAGE> 25

Administrative expenses increased 7.8% to $1,713,000 during Fiscal 1996
from $1,589,000 during Fiscal 1995 primarily due to increased costs associated
with stock issuances, increased salaries, and other miscellaneous items.
However, administrative expenses decreased to 21.7% of total revenues during
Fiscal 1996 compared to 35.9% during Fiscal 1995 primarily resulting from the
large increases in Comparable Store sales and pawn service charges discussed
above.

LIQUIDITY AND CAPITAL RESOURCES

Prior to the completion the initial public offering in March 1998, our
operations were financed from funds generated from private debt and equity
offerings and funds generated from operations. We received net proceeds of
approximately $5,583,000 from the completion of the initial public offering. See
"Business -- General". In connection with the completion of the initial public
offering, $9,520,000 in aggregate principal amount of our 14% convertible
subordinated debentures were automatically converted into 2,380,000 shares of
Common Stock and all classes of our preferred stock were automatically converted
into an aggregate of 1,482,766 shares of Common Stock. Additionally, we utilized
$2,524,000 of the net proceeds to repay $2,142,000 in 15% notes payable,
$157,000 in notes payable to stockholders and $225,000 in notes payable to our
Chief Executive Officer. The completion of the initial public offering and the
resulting financial restructuring have positioned us with a capital structure
that will allow us to implement our planned roll-out of PAWNMART(SM) stores.

At October 31, 1998, our primary sources of liquidity were $178,000 in cash
and cash equivalents, $299,000 in pawn service charges receivable, $2,958,000 in
loans, and $2,610,000 in inventories. We had a current ratio of approximately
6.3 to 1.0 and 1.6 to 1.0 at October 31, 1998 and January 31, 1998,
respectively. Net cash used in operating activities was $2,478,000 during the
Nine Month 1998 Period and $2,934,000 during the Nine Month 1997 Period.
Additionally, we had approximately $2,100,000 available under our Credit
Facility at October 31, 1998.

Our profitability and liquidity are affected by the amount of loans
outstanding, which is controlled in part by our loaning decisions. We are 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 our
aggregate loan balance and, consequently, decrease pawn service charges.
Additionally, small loans in relation to the pledged property's estimated sale
value tend to slightly increase loan redemptions and improve our liquidity.
Conversely, providing larger loans in relation to the estimated sale value of
the pledged property can result in an increase in our pawn service charge
income. Larger average loan balances can also result in a slight increase in
loan forfeitures, which increases the quantity of goods on hand and, unless we
increase inventory turnover, reduces our liquidity. In addition to these
factors, liquidity is also affected by product sales and the pace of store
expansions.

The addition of Michael D. Record as President in September 1998 has
resulted in a renewed focus on our lending operations. During the three months
ended October 31, 1998, pawn loans increased $538,000 or 22.2% due to a $410,000
or 17.2% increase in Comparative Store pawn loans and a $128,000 increase in
pawn loans at stores opened during Fiscal 1998. We expect pawn loan balances to
continue to increase during the fourth quarter of Fiscal 1998 and plan to fund
such growth with cash flows from operations and borrowings under the Credit
Facility.

On October 13, 1998, we entered into the $10 million Credit Facility with
Comerica Bank. The Credit Facility bears interest at either (i) the prevailing
prime rate plus .75%, which was 9.00% at October 31, 1998, or (ii) the
prevailing LIBOR rate plus 3.35%, and matures on October 13, 2001. Amounts
available under the Credit Facility are limited to certain percentages of pawn
loans, inventories, and pawn service charges receivable. The Credit Facility is
collateralized by substantially all of our unencumbered assets. Under the Credit
Facility, we are required to maintain certain financial ratios and comply with
certain technical covenants. We were in compliance with these requirements and
covenants as of October 31, 1998. At October 31, 1998, $1,600,000 was
outstanding under the Credit Facility and an additional $2,100,000 was available
pursuant to the available borrowing base.

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<PAGE> 26

We believe that our planned roll-out of PAWNMART(SM) stores will be funded
by borrowings under the Credit Facility, cash flows generated from our
established stores, and future debt or equity offerings. Although we are
registering up to $10,000,000 Notes pursuant to this Prospectus, we can make no
assurances that the maximum offering amount will be subscribed. In addition to
factors noted under "Risk Factors -- Management of Growth," our store expansion
during fiscal 1999 will largely be dependent upon the number of Notes sold
pursuant to this Offering. In the event we are unable to sell the maximum
subscription or additional financing alternatives are not obtained, our fiscal
1999 expansion schedule could be reduced or modified. If we only sell the
minimum subscription of Notes and are unable to obtain additional financing, we
could be required to cease expansion and significantly reduce corporate
administrative expenses. No assurance can be made that we will be able to sell
the maximum subscription of Notes or obtain additional financing.

YEAR 2000 COMPLIANCE

The Year 2000 problem concerns the inability of information systems to
properly recognize date-sensitive information beyond January 1, 2000.

We have begun a project to bring software and systems into Year 2000
compliance in time to minimize any significant or detrimental effects on our
operations. The project covers information systems, operating systems, other
non-financial systems equipment and significant third-party vendors. We have
adopted a five level process toward Year 2000 compliance: (1) awareness; (2)
assessment (identification of where failures may occur, solutions, workarounds,
and plans to repair or replace); (3) renovation (repair, replace or retire
systems that cannot properly process Year 2000 dates); (4) validation; and (5)
implementation. At October 31, 1998, the first three levels have been
substantially completed, except for third parties as discussed below. We expect
to complete the remaining levels by June 30, 1999.

We are applying the five level process to both our information technology
("IT") systems and non-IT systems. Computer equipment and software commonly
thought of as IT systems include point-of-sale, accounting, data processing,
telephone and other miscellaneous systems. Non-IT systems include alarm systems,
security observation equipment, HVAC units, fax machines, and other
miscellaneous systems. We believe that we have identified the internal business
systems that are susceptible to system failures or processing errors as a result
of the Year 2000 problem.

Our proprietary operating software system represents our only critical
internal business system. The proprietary operating software system has been
upgraded for Year 2000 compliance and is being tested. The vendors which supply
us with our accounting applications, payroll, and other financial software
systems have represented that their products are Year 2000 compliant. We have
upgraded substantially all of our hardware to mitigate Year 2000 problems from
affecting our operations and anticipate incurring approximately $30,000 to bring
existing hardware into compliance.

We are reviewing the critical third parties which provide services or goods
which are essential to our operations in order to determine the extent to which
we are subject to any failure by such third parties to adequately address and
resolve their respective Year 2000 problems. These third parties include
financial institutions, utility suppliers, and providers of communication
services and equipment. In the event that we are unable to obtain satisfactory
assurance that a critical third party provider has achieved Year 2000
compliance, and we are unable to replace the provider with an alternative
provider, our operations could be adversely impacted.

Based on the current status of the five level Year 2000 process, we do not
foresee significant risks associated with the Year 2000 problem. However,
management believes that it is not possible to determine with complete certainty
that all Year 2000 problems have been identified or will be corrected. In the
event of a Year 2000 problem, we could likely suffer a number of operational
inconveniences and inefficiencies for both us and our customers that could
divert management's time and attention and financial and human resources from
its ordinary business activities.

22
<PAGE> 27

BUSINESS

GENERAL

Background

At the completion of the initial public offering, we owned and operated 19
stores. Our fiscal 1998 expansion plans called for the addition of 12 to 15
stores. In order to fund this expansion, we utilized the remaining proceeds from
the initial public offering and secured a $10 million revolving line of Credit
Facility with Comerica Bank. The Credit Facility includes a borrowing base
limitation based upon balances of eligible pawn loans, pawn service charges
receivable, and inventories. With the above, we were able to achieve a 68%
growth rate by adding 13 locations in nine months. The completion of our initial
public offering and the finalization of the Credit Facility have enhanced our
ability to implement our business strategy.

Fiscal 1999 Expansion Plans

Our Business

INDUSTRY

The pawnshop industry is a multi-billion dollar, rapidly growing industry
with an increasing number of states adopting favorable pawnshop regulations.
States with favorable pawn regulations include, but are not limited to, Alabama,
Florida, Georgia, Illinois, Indiana, Kentucky, Mississippi, Missouri, North
Carolina, Oklahoma, South Carolina, Tennessee, and Texas. The industry is highly
fragmented, with approximately 93% of the approximately 13,000 stores in the
United States owned by "mom and pop" operators and

23
<PAGE> 28

approximately 7% owned by five public companies. The Company believes that
pawnshops generally perform well during recessions and all other economic cycles
due to (i) the need for loans, by non-banking individuals, remaining stable
during such economic cycles and (ii) pawnshops serving as a value-priced
retailer regardless of economic conditions.

Pawnshops provide short-term secured loans. Most pawn loans are for less
than $500. Industry sources believe that banks could not recover the
administrative costs of these small loans without substantial increases in rates
and charges. In addition, many pawn loans are to people who would not qualify as
"credit worthy" at a bank. An estimated 20-40 million people occasionally have
short-term needs, such as for utility bills and medical expenses. For these
people, pawnshops supply cash conveniently and quickly.

BUSINESS STRATEGY

The Company has developed extensive demographical information that
identifies both its borrowing and retail customers. Based on its research, the
Company has observed somewhat different demographics for its customers from
those generally published for the pawnshop industry in general. This data
indicates that the Company's customers have a slightly higher median household
income and that females comprise a higher percentage of its customer base. In
this regard, the Company's strategic market positioning targets these customer
groups for both pawn and retail transactions with specialty retail concepts such
as "PAWNMART(SM) -- An Estate Sale Everyday(SM)." To attract these customers,
all PAWNMART(SM) stores are attractive, clean, well-lit and often located close
to national discount stores, with merchandise displayed in an organized and
easy-to-shop manner similar to national discount stores.

With the completion of the Company's initial public offering and financial
restructuring in March 1998, the Company's strategic objective is to implement a
rapid roll-out of 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:

- Developing or Acquiring Stores That Meet Site Selection, Store Size and
Configuration Requirements in Selected Markets. 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, therefore, believes that by opening new
stores or by acquiring existing 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. By
opening new stores or acquiring existing stores only in accordance with
its specifications, the Company can ensure that each PAWNMART(SM) has a
similar "look and feel."

- 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.

- 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 be utilized for customer acquisition, retention and promotions,
store site selection, and for developing in store promotions.

- 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.

24
<PAGE> 29

- 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
95/98(TM) 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.

- 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 management team and board of
directors, employ specialty retailers and pawnbrokers as store management
personnel, utilize extensive training programs for employees and maintain
effective extensive operating controls.

LENDING OPERATIONS

The Company is a financial services and specialty retail enterprise
principally engaged in developing 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 pledged tangible personal
property is intended to provide security to the Company for the repayment of the
amount advanced plus accrued pawn service charges. Pawn loans are made without
personal liability to the borrower. Because the loan is made without the
borrower's personal liability, the Company does not investigate the
creditworthiness of the borrower, but relies on the pledged personal property,
and the possibility of its forfeiture, as a basis for its lending decision.
PAWNLINK(TM) interfaces with the Company's centralized database, and assists in
determining the maximum amount of funds to advance on any particular pawn item.
The Company contracts for a pawn service charge as compensation for the use of
the funds advanced to cover such costs as storage, insurance, title
investigation and other transaction costs. Pawn service charges contributed to
28.1% and 29.0% of the Company's total revenues during the fiscal years ended
January 31, 1998 and January 26, 1997, respectively.

The pledged property is held through the term of the transaction, which
generally is one month with an automatic sixty-day redemption period, except for
automobile title loans, where a shorter redemption period applies under state
regulations. The term of the transaction may continue if the loan is extended
prior to the end of the redemption period. Extensions are for one month with an
additional redemption period. In the event the borrower does not repay or extend
the loan by the end of the redemption period, the unredeemed collateral is
forfeited to the Company and becomes merchandise available for sale.

The recovery of the amount advanced, as well as realization of a profit on
the sale of merchandise, is dependent on the Company's initial assessment of the
property's estimated resale value. Improper assessment of the resale value of
the collateral in the lending function can result in reduced marketability of
the property and resale of the merchandise for an amount less than the amount
advanced. For example, unexpected technological changes could adversely impact
the value of consumer electronic products and declines in gold and silver prices
could reduce the resale value of jewelry items acquired in pawn transactions and
could adversely affect the Company's ability to recover the carrying cost of the
acquired collateral. However, historically, the Company has experienced profits
from the sale of such merchandise.

RETAIL SALES OPERATIONS

The Company retails pre-owned products acquired either when a loan is not
repaid or from individual customers or other sources. Merchandise sales
contributed to 70.9% and 69.9% of the Company's total revenues during the fiscal
years ended January 31, 1998 and January 26, 1997, respectively. During the
fiscal year ended January 31, 1998, $5,165,000 of products were added to
inventory, of which $4,565,000 was from loans not repaid and $600,000 was
otherwise purchased.

The Company provides its customers with a 30-day guarantee on pre-owned
products, providing the customer with an exchange or cash refund. The Company
believes that most pawnshops do not offer this
25
<PAGE> 30

type of guarantee. Additionally, the Company provides a layaway plan, with a
maximum holding period of 90 days, whereby the customer agrees to purchase an
item by making an initial cash deposit representing at least 20% of the sales
price and making additional, non-interest bearing payments of the balance of the
sales price in accordance with a specified schedule. The Company holds the item
until the sales price is paid in full. Should the customer fail to make a
required payment, the item becomes inventory available for sale and previous
payments are forfeited to the Company.

The Company provides an allowance for inventory valuation on its
merchandise held for resale based upon management's evaluation of the
marketability of the merchandise. Management's evaluation takes into
consideration the age of slow moving merchandise on hand and markdowns necessary
to liquidate slow moving merchandise. At October 31, 1998 and January 31, 1998,
total merchandise held for resale was $2,610,000 and $1,944,000, respectively,
after reduction for a valuation allowance of $136,000 and $160,000,
respectively.

OPERATIONS

Retail Store Management. Each location has a store manager who typically
supervises its personnel and assures that it is managed in accordance with
Company guidelines and established policies and procedures. Each store manager
reports to a District Manager who will typically supervise up to seven stores.
At December 30, 1998, the Company has established five operating districts, each
of which is managed by a District Manager.

Trade Name. The Company operates its stores under the trade name
"PAWNMART(SM)." The Company has filed applications to register the
"PAWNMART(SM)" marks and descriptive logos and phrases with the United States
Patent and Trademark Office. However, such trademark protection has not been
granted as of the date of this filing.

Personnel. As of December 30, 1998, the Company has a total of 181
employees (of which 18 were in executive, administrative, clerical and
accounting functions), 60 of whom were salaried and 103 of whom were hourly
employees. The Company has an established training program that provides a
combination of classroom instruction and on-the-job loan and specialty retail
training. None of the Company's employees are represented by a union.
Furthermore, no work stoppages have occurred at any of the Company's stores.

COMPETITION

The Company encounters significant competition in connection with the
operation of its business. In connection with lending operations, the Company
competes with other pawnshops (owned by individuals and by large operators) and
certain financial institutions, such as consumer finance companies, which
generally lend on an unsecured as well as on a secured basis. The Company's
competitors in connection with its retail sales include numerous retail and
discount stores. Many competitors have greater financial resources than the
Company, including Cash America International, Inc., First Cash, Inc., and
EZCORP, Inc. These competitive conditions may adversely affect the Company's
revenues, profitability and ability to expand.

The Company's stores are positioned similarly to national discount stores.
They are attractive, clean, well-lit and conveniently located. Merchandise is
displayed in an organized, easy-to-shop manner and the Company's stores do not
retail handguns or assault rifles. The Company believes that this positioning
provides a more comfortable and desirable shopping experience with better
customer demographics.

OPERATING CONTROLS

The Company has an organizational structure that management believes can
support a larger operating base. The store locations are monitored on a daily
basis from corporate headquarters through an online, real time computer network
system. The Company has an internal audit staff that performs physical counts of
merchandise inventory and pawn loan collateral at each of the Company's
locations

26
<PAGE> 31

every 45 to 60 days. Additionally, the internal audit staff assists the
corporate headquarters in verifying that the Company's policies and procedures
are consistently followed. Management believes that the current operating and
financial controls and computer systems are adequate for its current operating
base and for anticipated expansion in the near term.

REGULATION

The Company's store operations are subject to extensive regulation,
supervision and licensing under various federal, state and local statutes,
ordinances and regulations in the five states in which it operates. Set forth
below is a summary of the state pawnshop regulations in those states of the
Company's present operating locations.

Georgia Pawnshop Regulations. Georgia state law requires pawnbrokers to
maintain detailed permanent records concerning pawn transactions and to keep
them available for inspection by duly authorized law enforcement authorities.
The Georgia statute prohibits pawnbrokers from failing to make entries of
material matters in their permanent records; making false entries in their
records; falsifying, obliterating, destroying, or removing permanent records
from their places of business; refusing to allow duly authorized law enforcement
officers to inspect their records; failing to maintain records of each pawn
transaction for at least four years; accepting a pledge or purchase from a
person under the age of eighteen or who the pawnbroker knows is not the true
owner of the property; making any agreement requiring the personal liability of
the pledgor or seller or waiving any of the provisions of the Georgia statute;
or failing to return or replace pledged goods upon payment of the full amount
due (unless the pledged goods have been taken into custody by a court or a law
enforcement officer). In the event pledged goods are lost or damaged while in
the possession of the pawnbroker, the pawnbroker must replace the lost or
damaged goods with like kinds of merchandise. Under Georgia law, total interest
and service charges may not, during each thirty-day period of the loan, exceed
25% of the principal amount advanced in the pawn transaction (except that after
ninety days from the original date of the loan, the maximum rate declines to
12.5% for each subsequent thirty-day period). The statute provides that
municipal authorities may license pawnbrokers, define their powers and
privileges by ordinance, impose taxes upon them, revoke their licenses, and
exercise such general supervision as will ensure fair dealing between the
pawnbroker and his customers.

Alabama Pawnshop Regulations. The Alabama Pawnshop Act regulates the
licensing, operation and reporting requirements of pawnshops in that state. The
general fitness of pawnshop applicants is investigated by the Supervisor of the
Bureau of Loans of the State Department of Banking (the "Supervisor"). The
Supervisor also issues pawnshop licenses. The Alabama Pawnshop Act requires that
certain bookkeeping records be maintained and made available to the Supervisor
and to local law enforcement authorities and that motor vehicles are retained on
the premises for at least 21 days prior to sale by the pawnshop. The Alabama
Pawnshop Act establishes a maximum allowable pawn service charge of 300%
annually.

North Carolina Pawnshop Regulations. In North Carolina, the Pawnbrokers
Modernization Act of 1989 regulates the licensing, reporting and financial
responsibility of pawnbrokers. Appropriate city and county governments must be
petitioned in order to acquire a license. Once licensed, a pawnbroker must keep
consecutively numbered records of each and every pawn transaction. No pawnbroker
may receive an effective rate of interest in excess of 2% per month, except that
the pawnbroker may charge additional fees up to 20% per month for services such
as title investigation, insurance, reporting fees, etc., so long as certain
total dollar limits are not exceeded. Mobile homes, recreational vehicles, or
motor vehicles other than a motorcycle may not be pledged.

South Carolina Pawnshop Regulations. In South Carolina, the Department of
Consumer Affairs regulates the licensing, reporting and financial responsibility
of pawnbrokers. Pawnbrokers may not make loans in excess of $2,000 and are
required to mail written notices of impending forfeitures to pledgors at least
ten days prior to the forfeiture date for loans greater than $50. The Department
of Consumer Affairs has prescribed stratified loan amounts and the maximum
allowable rates of service charges that

27
<PAGE> 32

pawnbrokers in South Carolina may charge for the lending of money within each
stratified range of loan amounts ranging from 8.4% to 25% per month.

Texas Pawnshop Regulations. Pursuant to the terms of the Texas Pawnshop
Act, the Texas Consumer Credit Commissioner has primary responsibility for the
regulation of pawnshops and enforcement of laws relating to pawnshops in Texas.
The Company is required to furnish the Texas Consumer Credit Commissioner with
copies of information, documents and reports which are required to be filed by
it with the Securities and Exchange Commission.

The Texas Pawnshop Act prescribes the stratified loan amounts and the
maximum allowable rates of service charges that pawnbrokers in Texas may charge
for the lending of money within each stratified range of loan amounts ranging
from one percent per month to 20% per month.

As part of the license application process, any existing pawnshop licensee
who would be affected by the granting of the proposed application may request a
public hearing at which to appear and present evidence for or against the
application. For an application for a new license in a county with a population
of 250,000 or more, the Consumer Credit Commissioner must find not only that the
applicant meets the other requirements for a license, but also that (i) there is
a public need for the proposed pawnshop and (ii) the volume of business in the
community in which the pawnshop will conduct business indicates a profitable
operation is probable.

Other Regulatory Matters, Etc. With respect to firearm sales, each of the
stores must comply with the Brady Handgun Violence Prevention Act (the "Brady
Act"), which took effect on February 28, 1994. The Brady Act imposes a waiting
period/background check in connection with the disposition of handguns by
federally licensed firearms dealers. In addition, the Company must continue to
comply with the longstanding regulations promulgated by the Department of the
Treasury, Bureau of Alcohol, Tobacco and Firearms, which require each store
dealing in guns to maintain a permanent written record of all receipts and
dispositions of firearms.

In addition to the state statutes and regulations described above, many of
the Company's stores are subject to municipal ordinances, which may require, for
example, local licenses or permits and specified record-keeping procedures,
among other things. Each of the Company's stores, voluntarily or pursuant to
municipal ordinance, provides to the police department having jurisdiction
copies of all daily transactions involving pawn loans and over-the-counter
purchases. These daily transaction reports are designed to provide the local
police with a detailed description of the goods involved including serial
numbers, if any, and the name and address of the owner obtained from a valid
identification card.

A copy of the transaction ticket is provided to local law enforcement
agencies for processing by the National Crime Investigative Computer to
determine rightful ownership. Goods which are either purchased or held to secure
pawn loans and which are determined to belong to an owner other than the
borrower or seller are subject to recovery by the rightful owner. However, the
Company historically has not experienced a material number of claims of this
sort, and the claims experienced have not had a material adverse effect on the
Company's consolidated results of operations.

Casualty insurance, including burglary coverage, is maintained for each of
the Company's stores, and fidelity bond coverage is maintained on each of the
Company's employees.

Management of the Company believes its operations are conducted in material
compliance with all federal, state and local laws and ordinances applicable to
its business.

PROPERTY

The Company's corporate offices are leased under a five year lease expiring
in May 1999. At December 30, 1998, the Company operated 32 leased store
locations with monthly rental payments ranging from $2,000 to $6,600 per
location and having initial lease terms expiring from January 1999 through
August 2005. All of the Company's leased locations, other than one, include
renewal options. The size of the leased store locations range from approximately
2,700 to 13,000 square feet. With the exception of the

28
<PAGE> 33

location in Weatherford, Texas, the Company leases all of these properties from
unaffiliated third parties. See "Certain Relationships and Related
Transactions." The following table sets forth the geographic markets served by
the Company and the number of stores in each market as of December 30, 1998.

<TABLE>
<CAPTION>
NUMBER OF STORES
----------------
<S> <C>
Georgia:
Atlanta Metropolitan Area................................. 18
Dalton.................................................... 1
Rome...................................................... 1
Calhoun................................................... 1
--
Total Georgia..................................... 21
--
Alabama:
Mobile.................................................... 4
Dothan.................................................... 1
--
Total Alabama..................................... 5
--
North Carolina:
Charlotte................................................. 2
--
Total North Carolina.............................. 2
--
South Carolina:
Greenville Metropolitan Area.............................. 2
--
Total South Carolina.............................. 2
--
Texas:
Burleson.................................................. 1
Weatherford............................................... 1
--
Total Texas....................................... 2
--
Total............................................. 32
==
</TABLE>

The Company considers its equipment, furniture and fixtures and leased
buildings to be in good condition. The Company's leases typically require the
Company to pay all maintenance costs, insurance costs and property taxes.

LEGAL PROCEEDINGS

The Company is a defendant in certain lawsuits encountered in the ordinary
course of its business. Certain of these matters are covered to an extent by
insurance. In the opinion of management, the resolution of these matters will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The Company furnishes its shareholders with
annual reports containing audited financial statements and such other reports as
deemed appropriate or as may be required by law. Requests for information may be
directed to Carson R. Thompson, Chairman of the Board, PawnMart, Inc., 301
Commerce Street, Suite 3600, Fort Worth, Texas 76102, telephone number (817)
335-7296.

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<PAGE> 34

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information as of the date of this
Prospectus with respect to the directors and executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Carson R. Thompson(3)(6)........ 60 Chief Executive Officer and Chairman of the Board
Michael D. Record............... 45 President
Thomas W. White................. 29 Senior Vice President and Chief Financial Officer
Randall L. Haden................ 38 Vice President -- Information Services
James E. Berk(1)(4)............. 53 Director
Robert D. Bourland, Jr.(1)(6)... 57 Director
Robert E. Camp(3)(5)(6)......... 55 Director
Mark E. Kane(2)(5).............. 44 Director
Monty R. Standifer(2)(4)........ 59 Director
J. Roger Williams(3)............ 49 Director
</TABLE>

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

(1) Class I Director whose term expires in 1999.

(2) Class II Director whose term expires in 2000.

(3) Class III Director whose term expires in 2001.

(4) Member of Audit Committee.

(5) Member of Compensation Committee.

(6) Member of Nominating Committee.

The business experience, principal occupations and employment of each of
the directors and executive officers of the Company during at least the past
five years, together with their periods of service as directors and executive
officers of the Company are set forth below.

Carson R. Thompson joined the Company in August 1996 as a Director. In
March 1997, he was named Chairman of the Board and Chief Executive Officer of
the Company. Prior to this, Mr. Thompson had served as President, Chief
Executive Officer and Chairman of The Bombay Company, Inc., a specialty retailer
of home furnishing products. Mr. Thompson joined Tandy Corporation, Fort Worth,
Texas in 1957, and held various management positions before becoming President
in 1981 of Tandy Brands, Inc., a spin-off of Tandy Corporation and a
manufacturer and specialty retailer of various products. From 1982 to 1991, Mr.
Thompson was Chairman and Chief Executive Officer, from 1991 to 1996, he was
Chairman, and from 1996 to 1997, he was President and Chief Executive Officer of
The Bombay Company. Mr. Thompson serves as a director of the University of North
Texas Health Science Center at Fort Worth, and the Osteopathic Health
Foundation, Inc., and is a member of the Board of Advisors of the College of
Business Administration at the University of Oklahoma.

Michael D. Record joined the Company on September 8, 1998 as President. Mr.
Record was previously employed for six years with Cash America International,
Inc., most recently as Vice President of Operations, where he was responsible
for 118 stores. Mr. Record has been employed in the pawnshop industry for
approximately twenty years.

Thomas W. White joined the Company on October 15, 1997 as Vice
President -- Finance and Chief Accounting Officer. On January 7, 1999, he was
named Senior Vice President and Chief Financial Officer. Mr. White was
previously employed for six years with the accounting firm of KPMG LLP, most
recently as an assurance manager serving numerous clients within the financial
services, manufacturing and retailing industries.

30
<PAGE> 35

Randall L. Haden joined the Company in February 1994 as Vice
President -- Information Services. Since November 1991 until joining the
Company, he was employed by Search Capital Group, Inc., a publicly held consumer
finance company, most recently as Vice President -- Information Services.

James E. Berk joined the Company in 1997 as a Director. From 1997 to 1998,
Mr. Berk was Vice Chairman and Chief Executive Officer of APC, Inc., a specialty
retailer and wholesaler of auto parts. Mr. Berk founded and, from 1993 to 1997,
served as the President, Chief Executive Officer and Chairman of the Board for
Teach & Play Smart, Inc., a privately held specialty retail chain of children's
educational products. Prior to that time, he served as President and Chief
Executive Officer of Bizmart, Inc., a chain of office products superstores, and
President and Chief Operating Officer of The Wholesale Club, a chain of discount
retail stores, and served in various other companies in management capacities.

Robert D. Bourland, Jr. joined the Company in July 1994 as a Director. From
July 1994 to September 1998, he served the Company as President and Chief
Operating Officer. From September 1998 to December 1998, he served the Company
as President -- Franchising. In December 1998, Mr. Bourland resigned as
President -- Franchising and currently serves only as a director. From 1985
until joining the Company, he served as President of Cook's Nook, Inc., a
specialty retailer of gourmet cookware. From 1964 until that time, he served in
various retail management positions with the Radio Shack division of Tandy
Corporation, including serving as Senior Vice President -- Managing Director,
Tandy U.K. and as Tandy's Divisional Vice President responsible for 1,200 Radio
Shack stores. Radio Shack is a specialty retailer of consumer electronic
products.

Robert E. Camp joined the Company in July 1995 as a Director. He founded
and, from 1993 until the present, served as President of Hero's Welcome, Inc., a
privately held retail/mail order business. From 1982 until 1992, Mr. Camp was
the founder and Chief Executive Officer of Simpson & Fisher Companies, Inc., a
specialty retailer of apparel and home furnishing products. Mr. Camp is the
former Chief Executive Officer of Fort Worth based Pier 1 Imports, Inc., a
specialty retailer of home furnishing products, having been with that company
for 18 years.

Mark E. Kane joined the Company in September 1997 as Director. Presently,
he is President and Chief Executive Officer of Compact Discs International, LLC,
an international affiliate of CD Warehouse Inc. that owns the worldwide
development rights for the CD Warehouse Inc. franchise concept. Mr. Kane founded
and, from 1992 to 1997, served as President and Chief Executive Officer of CD
Warehouse Inc., a publicly traded national franchising firm specializing in the
sale of new and pre-owned compact discs.

Monty R. Standifer joined the Company in August 1997 as a Director. Mr.
Standifer has served as Senior Vice President, Chief Financial Officer,
Treasurer and Secretary of Gadzooks, Inc., a specialty retailer of apparel
products, since July 1995. From June 1992 until July 1995, Mr. Standifer served
as Vice President -- Treasurer and Chief Financial Officer of Gadzooks, Inc.
From July 1991 to June 1992, Mr. Standifer served as Senior Vice President and
Chief Financial Officer of AmeriServ Food Company, a food service systems
distributor. Prior to that time, Mr. Standifer was a co-founder of Bizmart,
Inc., a chain of office products superstores, serving as Vice
President -- Finance, Treasurer and Secretary from its founding in October 1987
until July 1991, shortly after the company was sold. Mr. Standifer was
previously employed by Tandy Corporation for 14 years in various financial
management positions.

J. Roger Williams joined the Company in April 1998 as a Director. From 1974
to 1995, he served as President and Chief Executive Officer of Jack Williams
Automall, the multi-line dealership founded by his father, Jack Williams, in
1958. Currently, he serves as Chairman of the Board and Chief Executive Officer
of Roger Williams Automall in Weatherford, Texas, and Chairman of the Board of
Vestry Corporation of Fort Worth, Texas. He also owns and operates Roger
Williams Ranches in Weatherford, Texas.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established three committees: an Audit
Committee, a Compensation Committee and a Nominating Committee. Each of these
committees has one or more members who serve at the discretion of the Board of
Directors. The Audit Committee, currently comprised of

31
<PAGE> 36

Messrs. Standifer and Berk, is responsible for reviewing the Company's financial
statements, audit reports, internal financial controls and the services
performed by the Company's independent public accountants, and for making
recommendations with respect to those matters to the Board of Directors. The
Compensation Committee, currently comprised of Messrs. Kane and Camp, is
responsible for reviewing and making recommendations to the Board of Directors
with respect to compensation of executive officers, other compensation matters
and awards under the Company's stock option plan. The Nominating Committee,
currently comprised of Messrs. Thompson, Bourland and Camp, is responsible for
developing a strategy and criteria for new board members and making
recommendations to the Board of Directors that the selection of future board
members should be based thereon.

COMPENSATION OF DIRECTORS

Cash Compensation. No cash compensation has been paid by the Company to its
directors prior to this Offering. Directors are reimbursed for their ordinary
and necessary expenses incurred in attending meetings of the Board of Directors
or a committee thereof.

1997 Stock Option Plan for Directors. Effective as of October 16, 1997, the
1997 PawnMart, Inc. Director Stock Option Plan (the "Directors' Option Plan")
was approved by the Company's Board of Directors and the holders of a majority
of the outstanding shares of the Company's Common Stock.

Stock options will be granted under the Directors' Option Plan to any
director who is not an employee of the Company and is not a holder of more than
5% of the outstanding shares of the Company's Common Stock or a person who is in
control of such holder ("Eligible Directors").

A maximum of 263,788 shares of Common Stock (subject to certain
anti-dilution adjustments) may be issued to Eligible Directors upon the exercise
of options granted under the Directors' Option Plan. As of the date of this
Prospectus, options for 125,000 shares of Common Stock had been granted and are
outstanding under the Directors' Option Plan. All options have exercise prices
ranging from $4.25 to $4.4375 per share of Common Stock.

Newly appointed Eligible Directors will automatically receive an initial
grant of options to purchase 25,000 shares of Common Stock upon their
appointment to the Board of Directors. All Eligible Directors will receive
annual grants of options to purchase the lesser of 20,000 shares of Common Stock
or $200,000 in market value of underlying Common Stock as of the date following
each annual meeting of the Company's stockholders. The exercise price of options
granted under the Directors' Option Plan will be the closing sales price of the
Common Stock on the date of grant. Options granted pursuant to the Directors'
Option Plan are immediately exercisable. The expiration date is six years from
the date of grant. Payment for shares purchased upon exercising an option is
made in cash or by certified check, bank draft or money order, or by delivery of
previously owned shares of Common Stock held for at least six months (at their
fair market value), or partly in cash and partly in such Common Stock.

32
<PAGE> 37

EXECUTIVE COMPENSATION

The following table sets forth the cash and noncash compensation earned by
the Chief Executive Officer of the Company and each executive officer of the
Company whose total annual salary and bonus exceeds $100,000 during the fiscal
years ended January 28, 1996 ("Fiscal 1995"), January 26, 1997 ("Fiscal 1996")
and January 31, 1998 ("Fiscal 1997") (collectively, the "Named Executive
Officers"). As of the date of this Prospectus, the Company has not granted any
stock appreciation rights.

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
SECURITIES
NAME AND PRINCIPAL FISCAL UNDERLYING ALL OTHER
POSITION DURING FISCAL 1997 YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- --------------------------- ------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Carson R. Thompson....................... 1997 80,769 6,000 164,867 --
Chairman of the Board and 1996 -- -- -- --
Chief Executive Officer(1)(2) 1995 -- -- -- --
Robert D. Bourland, Jr................... 1997 90,000 5,400 98,920 --
President, Chief Operating 1996 90,000 17,500 -- --
Officer and Director(1)(3) 1995 90,000 -- -- --
</TABLE>

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

(1) Mr. Thompson and Mr. Bourland received personal benefits in addition to
salary and bonuses. The aggregate amount of such personal benefits, however,
did not exceed the lesser of $50,000 or 10% of the total of their annual
salary and bonus.

(2) Mr. Thompson joined the Company in March 1997 at an annual salary of
$100,000.

(3) In December 1998, Mr. Bourland resigned his position with the Company and
currently serves as a Director.

The following table summarizes grants of options to purchase shares of
Common Stock under the PawnMart, Inc. 1997 Employee Stock Option Plan made
during Fiscal 1997 to Named Executive Officers.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION BLACK-SCHOLES GRANT
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE DATE PRESENT VALUE(3)
- ---- ------------- ------------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
Carson R. Thompson........ 164,867 53.8% $3.79 10/15/07 $131,291
Chairman of the Board
and Chief Executive
Officer(1)
Robert D. Bourland, Jr.... 98,920 32.3% $3.79 10/15/07 $ 89,247
President, Chief
Operating Officer and
Director(2)
</TABLE>

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

(1) The options to purchase shares of Common Stock were granted under the 1997
PawnMart, Inc. Employee Stock Option Plan and vest over a four year period.

(2) The options to purchase shares of Common Stock were granted under the 1997
PawnMart, Inc. Employee Stock Option Plan and vest over a five year period.

(3) The grant date present value has been determined using the Black-Scholes
option pricing model with assumptions for the expected term of 3.29 years,
the risk-free interest rate of 5.61% and no expected dividend yield.

33
<PAGE> 38

There were no exercises of stock options by any of the named executive
officers during the Fiscal 1997. The table below lists the number of shares of
Common Stock underlying each option held by the Named Executive Officers as of
January 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END($)(1)
NAME (#) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------------------------------------- ---------------------------------
<S> <C> <C>
Carson R. Thompson........ 32,973/131,894 $39,897/$159,592(1)
Robert D. Bourland, Jr.... 0/98,920 $0/$119,693(1)
</TABLE>

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

(1) The "In-The-Money" value is based on the initial public offering price of
the Company's Common Stock in March 1998 of $5.00 per share less the
exercise price payable for such shares.

EMPLOYMENT AGREEMENTS

On September 7, 1998, the Company entered into an employment agreement with
Mr. Record providing for a minimum beginning annual salary of $120,000 and a
$30,000 signing bonus. The employment agreement, which expires on December 31,
2000, provides Mr. Record with annual salary reviews at the beginning of each
fiscal year and provides for his participation in any Company bonus plans. In
connection with the employment agreement, Mr. Record was granted 125,000 stock
options under the Plan (as defined below) at an exercise price of $3.00. In the
event Mr. Record is terminated "without cause" or as a result of a "change of
control" prior to expiration date of the agreement, Mr. Record is entitled to
one-half of his annual base salary. The employment agreement also includes other
provisions relating to benefits customary in agreements of this nature.

EMPLOYEE STOCK OPTION PLAN

The Board of Directors and the stockholders of the Company have approved
the adoption of the 1997 PawnMart, Inc. Employee Stock Option Plan (the "Plan").
Stock options granted pursuant to the Plan may be either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), or non-qualified stock options. The
number of shares of Common Stock reserved for issuance pursuant to the Plan is
1,000,000 shares. As of the date of this Prospectus, options for 858,423 shares
of Common Stock had been granted and are outstanding under the Plan. All options
have exercise prices ranging from $3.00 to $4.25 per share of Common Stock.

The Plan is administered by the Compensation and Human Resources Committee
(the "Committee") of the Board of Directors. Subject to the provisions of the
Plan, the Committee has the exclusive power to grant options, to interpret the
Plan, to grant waivers of restrictions thereunder and to adopt such rules and
regulations as it may deem necessary or appropriate in keeping with the
objectives of the Plan.

Options granted pursuant to the Plan become exercisable on such date or
dates as may be established by the Committee. The exercise price of options
granted under the Plan may not be an amount less than the market value of Common
Stock at the time of grant. The exercise price must be paid in full in cash at
the time an option is exercised or, if permitted by the Committee, by means of
tendering previously owned shares of Common Stock held for at least six months
(at their fair market value), or partly in cash and partly in Common Stock.

In the event of a stock split, stock dividend, combination or
reclassification or certain other corporate transactions, the Committee is
authorized to make appropriate adjustments to the exercise price and number of
shares subject to options granted under the Plan. Subject to certain
limitations, the Board of Directors is authorized to amend, modify or terminate
the Plan to meet any changes in legal requirements or for any other purpose
permitted by law.

34
<PAGE> 39

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 30, 1998, certain
information with respect to voting securities, the Common Stock shares,
beneficially owned by (i) each person who is known by the Company to
beneficially own more than five percent of the Company's outstanding shares of
Common Stock, (ii) the directors and certain executive officers of the Company,
individually; and (iii) the directors and all executive officers of the Company
as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)(2)
----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ---------------- --------- ----------
<S> <C> <C>
Directors and Executive Officers:
Carson R. Thompson(3)(9).................................. 443,252 5.5%
Michael D. Record(3)(12).................................. 26,000 *
Thomas W. White(3)(13).................................... 9,892 *
Randall L. Haden(3)(10)................................... 52,722 *
Robert E. Camp(4)(14)..................................... 36,487 *
Robert D. Bourland, Jr.(3)(15)............................ 94,094 1.2%
James E. Berk(5)(14)...................................... 28,243 *
Monty R. Standifer(6)(14)................................. 53,243 *
Mark E. Kane(7)(14)....................................... 28,243 *
J. Roger Williams(8)(11).................................. 53,500 *
All directors and executive officers as a group (10
persons).................................................. 825,676 10.3%
</TABLE>

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

* Less than 1% of the outstanding shares of Common Stock.

(1) Unless otherwise noted, the Company believes that each person named in the
table has sole voting and investment power with respect to all shares
beneficially owned by such persons.

(2) The number of shares of Common Stock deemed outstanding includes shares
issuable pursuant to stock options that may be exercised within sixty (60)
days after December 30, 1998.

(3) His address is 301 Commerce Street, Suite 3600, Fort Worth, Texas 76102.

(4) The address for Mr. Camp is Rural Route 1, Box 202, North Hero, Vermont
05474.

(5) The address for Mr. Berk is 5825 Obelin, Suite 100, San Diego, California
92121.

(6) The address for Mr. Standifer is 4121 International Parkway, Carrollton,
Texas 75007.

(7) The address for Mr. Kane is 1017 N. Central Expressway, Suite 200, Plano,
Texas 75075.

(8) The address for Mr. Williams is 1015 Fort Worth Street, Weatherford, Texas
76086.

(9) Includes options exercisable into 65,946 shares of Common Stock.

(10) Includes options and warrants exercisable into 16,649 shares of Common
Stock.

(11) Includes options and warrants exercisable into 49,000 shares of Common
Stock.

(12) Includes options exercisable into 25,000 shares of Common Stock.

(13) Includes options exercisable into 1,649 shares of Common Stock.

(14) Includes options exercisable into 20,000 shares of Common Stock.

(15) Includes options exercisable into 19,784 shares of Common Stock.

35
<PAGE> 40

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In July of 1997, Mr. Thompson acquired an aggregate of 375,000 shares of
12% Series D Convertible Exchangeable Preferred Stock ("Series D Preferred
Stock") for $750,000 in connection with Mr. Thompson's becoming a Chief
Executive Officer of the Corporation. In connection with the completion of the
Company's initial public offering on March 20, 1998, the 375,000 shares of
Series D Preferred Stock were automatically converted into 187,500 shares of
Common Stock at a conversion price of $4.00. In March of 1996, Mr. Thompson
purchased a principal amount of $228,000 of 14% unsecured Convertible
Subordinated Debentures due June 30, 1999 which converted into 57,000 shares of
Common Stock in connection with the completion of the Company's initial public
offering on March 20, 1998. In October 1997, Mr. Standifer acquired an aggregate
of 50,000 shares of Series D Preferred Stock for $100,000 in connection with Mr.
Standifer's becoming a Director of the Company. In connection with the
completion of the Company's initial public offering on March 20, 1998, the
50,000 shares of Series D Preferred Stock were automatically converted into
25,000 shares of Common Stock at a conversion price of $4.00.

In consideration for serving as a Director of the Company, in September
1997, Mr. Berk received 8,243 shares of Common Stock; in April 1996 and August
1997, Mr. Camp received an aggregate amount of 16,487 shares of Common Stock; in
September 1997, Mr. Kane received 8,243 shares of Common Stock; in September
1997, Mr. Standifer received 8,243 shares of Common Stock and in April 1996 and
August 1997, Mr. Thompson received 8,243 and 4,946 shares of Common Stock,
respectively. In connection with his employment with the Company, in August
1997, Mr. Bourland received 16,487 shares of Common Stock. In connection with
joining the Company in October 1997, Mr. White received 8,243 shares of Common
Stock.

During January and February 1998, the Company entered into an aggregate of
$225,000 in unsecured notes payable to its Chief Executive Officer. The notes,
which accrued interest at 12 percent, were paid in full by the Company on March
20, 1998. The Company believes that said arrangement was no less favorable to
the Company than would be available from unrelated third parties.

The Company's Weatherford, Texas store is leased under a five year lease
agreement with a joint venture owned by certain stockholders. The terms of the
lease agreement include monthly rental payments of $4,000 and an initial lease
term which expires on March 31, 1999. The Company believes that said arrangement
is no less favorable to the Company than would be available from unrelated third
parties.

All future transactions between the Company and its officers, directors and
5% stockholders will be on terms no less favorable than could be obtained from
independent, third parties and will be approved by a majority of the
independent, disinterested directors of the Company. Furthermore, any
forgiveness of loans must be approved by a majority of the Company's independent
directors who do not have an interest in the transactions and who have access,
at the Company's expense, to the Company's counsel or independent counsel.

All ongoing transactions were ratified by a majority of the Company's
independent directors who do not have an interest in the transactions and who
had access, at the Company's expense, to the Company's counsel or independent
counsel. All past transactions which are now closed had at least two
disinterested directors at the time of the transactions.

36
<PAGE> 41

DESCRIPTION OF SUBORDINATED NOTES DUE 2004

The 12% Subordinated Notes mature on December 31, 2004, and are limited to
an aggregate principal amount of $10,000,000 issued pursuant to the Notes
Indenture (the "Note Indenture"). The Notes bear interest at the rate of 12% per
annum payable monthly on the fifteenth of each month beginning with the second
full calendar month following issuance, to the person in whose name the Notes
(or any predecessor Notes) are registered at the close of business on the 1st of
each month.

Principal of, and premium, if any, and interest on, the Notes are payable,
and the Notes are exchangeable and transferable, at an office or agency of the
Trustee for the Notes or such other office or agency permitted under the Note
Indenture. The Notes are issued only in fully registered form, without coupons,
in denominations of $1,000 or any integral multiple thereof. The Company may
require the holder of a Note to reimburse the Company for any out-of-pocket
costs incurred by the Company with respect to a transfer or exchange of a Note.
The Trustee for the Notes will be Trust Management, Inc., Fort Worth, Texas.

The following is a summary of the Notes. Capitalized terms used but not
otherwise defined in this summary have the meanings assigned thereto in the Note
Indenture.

Subordination. Payment of principal and interest and all other amounts on
the Notes is unsecured and subordinated; subject to the prior payment in full of
all Senior Debt. Upon (i) the maturity of any Senior Debt, whether by lapse of
time, upon redemption or by acceleration or otherwise, or (ii) any default in
the payment of any amount due in respect of principal or interest in respect of
any Senior Debt or (iii) any distribution or payment of assets or securities of
the Company upon any dissolution, winding up, liquidation or reorganization of
the Company, the holders of Senior Debt will be entitled to receive payment in
full of the principal thereof and interest due thereon before the holders of the
Notes are entitled to receive any payment. During the continuance of any default
or event of default under any agreement governing Senior Debt permitting
acceleration of the maturity thereof (other than a default or event of default
relating to payment of principal or interest, either at maturity, upon
redemption, by declaration or otherwise) and upon giving notice thereof, no
payment may be made on the Notes for a period of 179 days after the notice is
given, but payments may thereafter be resumed unless such payments are then
prohibited by the Note Indenture. Only one notice may be given effect within any
period of 360 consecutive days, and no more than one notice may be given with
respect to any continuing default or event of default. If, in any of the
situations referred to above, a payment is made to the Trustee for the Notes or
to any holder thereof before all Senior Debt has been paid in full or provision
has been made for such payment to such trustee or such holder, such payment must
be paid over to the holders of Senior Debt or their respective representatives.
The failure to make payment on account of principal of or other interest on the
Notes by reason of such subordination will not prevent the occurrence of any
event of default under the Note Indenture.

Optional Redemption. The Notes may be redeemed at the option of the
Company, in whole or from time to time in part, at any time, on not more than 60
days notice, at the following redemption prices (expressed as percentages of the
principal amounts thereof), together with accrued and unpaid interest (if any)
to the date of redemption (subject to the rights of the holders of Notes to
receive interest due on the related interest payment date): (i) Prior to March
31, 2000 -- 103%; (ii) From April 1, 2000 to March 31, 2001 -- 102%; (iii) From
April 1, 2001 to March 31, 2002 -- 101%; and (iv) Subsequent to March 31,
2002 -- 100%.

Restrictive Covenants. Certain of the covenants in the Note Indenture are
restrictive on the operations and activities of the Company. The covenants
described are subject to a number of important qualifications and limitations.

Limitation on Restricted Payments. The Note Indenture provides that,
subject to certain exceptions, the Company is not permitted to, directly or
indirectly, make certain restricted payments if, at the time of such restricted
payments or after giving effect thereto: (i) a default or an event of default
will have occurred and be continuing under the terms of the Note Indenture, or
(ii) the aggregate amount of all

37
<PAGE> 42

restricted payments subsequent to the Notes Issuance Date (the "Notes Issue
Date") would exceed (A) the aggregate net cash proceeds received by the Company
from an issue or sale of certain of its qualified capital stock, subsequent to
the Notes Issue Date (other than capital stock issued or sold to (x) an employee
stock ownership plan or other trust established by the Company or (y) management
employees); and (B) the amount by which indebtedness of the Company, as
applicable, is reduced on the Company's balance sheet upon the conversion or
exchange of such indebtedness subsequent to the Notes Issue Date for qualified
capital stock of the Company (less the amount of any cash or other property
distributed by the Company upon such conversion or exchange).

Limitation on Sales of Assets. The Note Indenture provides that the Company
is not permitted to, make any asset disposition except in limited circumstances
unless (i) consideration is received by the Company at the time of such asset
disposition at least equal to the fair market value of the shares, property and
assets subject to such asset disposition, (ii) except in certain limited
circumstances, at least 75% of such consideration consists of cash, temporary
cash investments or the assumption of Senior Debt of the Company and the release
thereof from all liability relating thereto, (iii) 100% of the net cash proceeds
from such asset disposition are applied as follows: (A) within the 365 day
period after receipt of any net cash proceeds, or as permitted by the terms of
the Note Indenture (the last day of such period, an "Application Date"), the
Company may apply all or a portion of such net cash proceeds to reinvestment
(whether by acquisition of an existing business or expansion, including, without
limitation, capital expenditures) in one or more certain permitted lines of
business, or any combination thereof, and (B) to the extent such net cash
proceeds are not applied as set forth above in clause (A), the Company will
apply all remaining net cash proceeds of such asset disposition to an offer to
purchase (an "Asset Disposition Purchase Offer") Notes, on the first Business
Day occurring 60 Business Days after the Application Date (the "Asset
Disposition Purchase Date") for cash at a purchase price equal to 100% of the
principal amount of the Notes so purchased plus accrued and unpaid interest
thereon to the Asset Disposition Purchase Date, in accordance with the
procedures set forth in the Note Indenture. Any net cash proceeds which remain
after the acquisition by the Company of Notes in accordance with the procedures
set forth in the Note Indenture will cease to be net cash proceeds.
Notwithstanding the foregoing, the Company will not be required to make an Asset
Disposition Purchase Offer until such time as the aggregate amount of net cash
proceeds from asset dispositions required to be so applied to the purchase of
Notes exceeds $2,000,000, and then the total amount of such net cash proceeds
will be applied to an Asset Disposition Offer. The Company will comply, to the
extent applicable, with the requirements of Section 14(e) of the Exchange Act
and any other securities laws or regulations in connection with the repurchase
of Notes pursuant to any Asset Disposition Purchase Offer. To the extent that
the provisions of any securities laws or regulations conflict with provisions
relating to the Asset Disposition Purchase Offer, the Company will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations described above by virtue thereof.

Limitations on Transactions with Affiliates. The Note Indenture provides
that the Company is not permitted to, directly or indirectly, conduct any
business, enter into or permit to exist any transaction (including, without
limitation, the sale, conveyance, disposition, purchase, exchange or lease of
any property, the lending, borrowing or advancing of any money or the rendering
of any services) with, or for the benefit of, any affiliate of the Company
unless such affiliate transaction (i) is in the best interest of the Company,
(ii) is on terms as favorable to the Company as those that could be obtained at
the time of such transaction for a similar transaction in arm's-length dealings
with a Person who is not such an affiliate and (iii) with respect to each such
transaction involving aggregate payments or value in excess of $750,000, the
transaction is approved by a disinterested majority of the board of directors of
the Company; provided, however, that the foregoing will not prohibit (A) any
restricted payment permitted to be paid under "Limitation on Restricted
Payments", (B) any issuance of securities or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the board of
directors of the Company, (C) loans or advances permitted under the Note
Indenture to employees in the ordinary course of business in accordance with
past practices of the Company, (D) the payment of reasonable fees to independent
directors of the Company or (E) reasonable and customary indemnification
arrangements between the
38
<PAGE> 43

Company and their respective directors and officers (to the extent that such
indemnification arrangements are permitted under applicable law).

Trustee and Escrow Agent. The trustee for the Notes is Trust Management,
Inc., a Texas trust company. The escrow agent for the Notes is Norwest Bank
Texas, N.A.

DESCRIPTION OF CREDIT FACILITY

On October 13, 1998, the Company entered into a $10 million revolving
credit facility with Comerica Bank (the "Credit Facility" or "Senior Debt"). The
following description of the Credit Facility is qualified in its entirety by
reference to the original agreement, copies of which have been previously filed
with the Securities and Exchange Commission. The following is a description of
the general terms of the Credit Facility.

SECURITY

Indebtedness of the Company under the Credit Facility is secured by a first
priority security interest in substantially all of the personal property
(including, without limitation, accounts receivable, inventory, equipment and
fixtures, and general intangibles) of the Company, whether now owned or
hereafter acquired.

INTEREST

Indebtedness under the Credit Facility bears interest at a floating rate
equal to, at the Company's option, the Eurodollar Rate (as defined in the credit
agreement) plus 3.35% or Comerica Bank's Prime Rate plus .75%. The Company is
required to pay interest on a monthly basis under the terms of the terms of the
Credit Facility.

BORROWING BASE

Advances under the Credit Facility are limited to 70% of eligible pawn
loans, 70% of eligible pawn service charges receivable, and from 40% to 70% of
eligible inventories.

MATURITY

Loans made pursuant to the Credit Facility may be borrowed, repaid and
reborrowed from time to time until the October 13, 2001, subject to the
satisfaction of certain conditions on the date of any such borrowing.

FEES

The Company is required to pay Comerica Bank a commitment fee equal to .50%
per annum, payable monthly, on the committed undrawn amount of the Credit
Facility. In addition, the Company was required to pay a non-refundable closing
fee in an amount equal to 1% of the total commitment amount of the Credit
Facility.

CONDITIONS TO EXTENSIONS OF CREDIT

The obligation of Comerica Bank to make advances under the Credit Facility
are subject to the satisfaction of certain customary conditions including, but
not limited to, the absence of a default or event of default under the Credit
Facility, all representations and warranties under the Credit Facility being
true and correct in all material respects and the absence of a material adverse
change.

COVENANTS

The Credit Facility contains customary covenants of the Company, including,
without limitation, restrictions on (i) the incurrence of debt, (ii) the sale of
assets, (iii) mergers, acquisitions and other
39
<PAGE> 44

business combinations, (iv) investments, as well as prohibitions on the payment
of dividends to, or the repurchase or redemption of stock from shareholders and
(v) various financial covenants, including covenants requiring the maintenance
of a minimum store contribution percentage for stores open twelve months or more
and a minimum net worth requirement.

EVENTS OF DEFAULT

The Credit Facility contains certain customary events of default, including
without limitation, (i) the non-payment of principal or interest when due,
subject to the applicable grace periods in certain circumstances, (ii)
non-fulfillment of the covenants described above, (iii) certain changes in
control of the ownership of the Company, (iv) certain events of bankruptcy or
insolvency, (v) ERISA funding requirement deficiencies and (vi) material
judgments. If any event of default occurs, Comerica Bank will be entitled to
take all actions permitted to be taken by a secured creditor under the Uniform
Commercial Code and to accelerate the amounts due under the Credit Facility and
may require all such amounts outstanding thereunder to be immediately paid in
full.

DESCRIPTION OF CAPITAL STOCK

The following description of the Company's capital stock and selected
provisions of its Restated Certificate of Incorporation and By-laws, is a
summary and is qualified in its entirety by the Company's Restated Certificate
of Incorporation and By-laws, as amended, copies of which have been previously
filed with the Securities and Exchange Commission.

GENERAL

The total amount of authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, par value $.01 per share and 10,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"). The
Company had 7,230,877 shares of Common Stock and no shares of Preferred Stock
issued at October 31, 1998. The Company has approximately 1,000 holders of
record of the Company's Common Stock. The following summary of certain
provisions of the Company's capital stock describes all material provisions of,
but does not purport to be complete and is subject to, and qualified in its
entirety by, the Restated Certificate of Incorporation and the By-laws of the
Company which have been previously filed with the Securities and Exchange
Commission and by the provisions of applicable law.

The Restated Certificate of Incorporation and By-laws contains certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and which may have the
effect of delaying, deferring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved by
the Board of Directors.

COMMON STOCK

The issued and outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of any
Preferred Stock, the holders of outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefor at such time and
in such amounts as the Board of Directors may from time to time determine. The
shares of Common Stock are not convertible and the holders thereof have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata the assets of the Company which
are legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Each outstanding share of Common Stock is entitled to one vote
on all matters submitted to a vote of stockholders. There is no cumulative
voting. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Except as otherwise required by law or the Restated
Certificate of

40
<PAGE> 45

Incorporation, the Common Stock will vote on all matters submitted to a vote of
the stockholders, including the election of directors.

PREFERRED STOCK

The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. Upon the affirmative vote of a majority
of the total number of directors then in office, the Board of Directors, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect the holders of shares of Common
Stock. The Company has no present intention to issue any shares of Preferred
Stock.

SERIES A WARRANTS

Presently, the Company has outstanding Series A Warrants to purchase an
aggregate of 1,380,000 shares of Common Stock at an exercise price of $6.00 per
share. In connection with this Offering, the Company has agreed to issue up to
600,000 Series A Warrants to purchase an aggregate of 600,000 shares of Common
Stock (assuming a maximum subscription) at an exercise price of $6.00 per share.
See "Plan of Distribution." The Series A Warrants are registered in a form
pursuant to an agreement dated March 20, 1998 (the "Warrant Agreement"), between
the Company and Continental Stock Transfer & Trust Company, a New York
corporation, as the Warrant Agent (the "Warrant Agent"). The 600,000 Series A
Warrants issued in connection with this Offering will be issued pursuant to a
supplemental warrant agreement between the Company and the Warrant Agent. The
following discussion of certain terms and provisions of the Series A Warrants is
qualified in its entirety by reference to the Warrant Agreement.

Each of the Series A Warrants entitles the registered holder to purchase
one share of Common Stock. The Series A Warrants are exercisable at a price
equal to $6.00 subject to certain adjustments. The Series A Warrants are
entitled to the benefit of adjustments in their exercise prices and in the
number of shares of Common Stock or other securities deliverable upon the
exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.

The Series A Warrants may be exercised at any time and continuing
thereafter until March 17, 2003, unless such period is extended by the Company.
After the expiration date, Series A Warrant holders shall have no further
rights. Series A Warrants may be exercised by surrendering the certificate
evidencing such Series A Warrant, with the form of election to purchase on the
reverse side of such certificate properly completed and executed, together with
payment of the exercise price and any transfer tax, to the Warrant Agent. If
less than all of the Series A Warrants evidenced by a warrant certificate are
exercised, a new certificate will be issued for the remaining number of Series A
Warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.

Series A Warrant holders do not have any voting or any other rights as
shareholders of the Company. The Company has the right at any time to redeem the
Series A Warrants, at a price of $.05 per Series A Warrant, by written notice to
the registered holders thereof, mailed not less than 30 nor more than 60 days
prior to the Redemption Date. The Company may exercise this right only if the
closing bid price for the Common Stock for seven trading days during a 10
consecutive trading day period ending no more than 15 days prior to the date
that the notice of redemption is given, equals or exceeds $9.00 per share,
subject to adjustment. If the Company exercises its right to call Series A
Warrants for redemption, such Series A

41
<PAGE> 46

Warrants may still be exercised until the close of business on the day
immediately preceding the Redemption Date. If any Series A Warrant called for
redemption is not exercised by such time, it will cease to be exercisable, and
the holder thereof will be entitled only to the repurchase price. Notice of
redemption will be mailed to all holders of Series A Warrants of record at least
30 days, but not more than 60 days, before the Redemption Date. The foregoing
notwithstanding, the Company may not call the Series A Warrants at any time that
a current registration statement under the Act is not then in effect. Any
redemption of the Series A Warrants prior to March 17, 1999 shall require the
written consent of First London Securities Corporation, the Company's
underwriter during it initial public offering of Common Stock.

The Warrant Agreement permits the Company and the Warrant Agent without the
consent of Series A Warrant holders, to supplement or amend the Warrant
Agreement in order to cure any ambiguity, manifest error or other mistake, or to
address other matters or questions arising thereafter that the Company and the
Warrant Agent deem necessary or desirable and that do not adversely affect the
interest of any Series A Warrant holder. The Company and the Warrant Agent may
also supplement or amend the Warrant Agreement in any other respect with the
written consent of holders of not less than a majority in the number of the
Series A Warrants then outstanding; however, no such supplement or amendment may
(i) make any modification of the terms upon which the Series A Warrants are
exercisable or may be redeemed; or (ii) reduce the percentage interest of the
holders of the Series A Warrants without the consent of each Series A Warrant
holder affected thereby.

In order for the holder to exercise a Series A Warrant, there must be an
effective registration statement, with a current prospectus on file with the
Commission covering the shares of Common Stock underlying the Series A Warrants,
and the issuance of such shares to the holder must be registered, qualified or
exempt under the laws of the state in which the holder resides. If required, the
Company will file a new registration statement with the Commission with respect
to the securities underlying the Series A Warrants prior to the exercise of such
Series A Warrants and will deliver a prospectus with respect to such securities
to all holders thereof as required by Section 10(a)(3) of the Act. See "Risk
Factors -- Necessity to Maintain Current Prospectus and Registration Statement"
and "State Blue Sky Registration Required to Exercise Warrants."

SERIES B WARRANTS

Presently, the Company has outstanding Series B Warrants to purchase an
aggregate of 1,380,000 shares of Common Stock at an exercise price of $8.00 per
share. The Series B Warrants are registered in a form pursuant to the Warrant
Agreement between the Company and Warrant Agent. The following discussion of
certain terms and provisions of the Series B Warrants is qualified in its
entirety by reference to the Warrant Agreement.

Each of the Series B Warrants entitles the registered holder to purchase
one share of Common Stock. The Series B Warrants are exercisable at a price
equal to $8.00 subject to certain adjustments. The Series B Warrants are
entitled to the benefit of adjustments in their exercise prices and in the
number of shares of Common Stock or other securities deliverable upon the
exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.

The Series B Warrants may be exercised at any time and continuing
thereafter until March 17, 2004, unless such period is extended by the Company.
After the expiration date, Series B Warrant holders shall have no further
rights. Series B Warrants may be exercised by surrendering the certificate
evidencing such Series B Warrant, with the form of election to purchase on the
reverse side of such certificate properly completed and executed, together with
payment of the exercise price and any transfer tax, to the Warrant Agent. If
less than all of the Series B Warrants evidenced by a warrant certificate are
exercised, a new certificate will be issued for the remaining number of Series B
Warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.

Series B Warrant holders do not have any voting or any other rights as
shareholders of the Company. The Company has the right at any time to redeem the
Series B Warrants, at a price of $.05 per Series B
42
<PAGE> 47

Warrant, by written notice to the registered holders thereof, mailed not less
than 30 nor more than 60 days prior to the Redemption Date. The Company may
exercise this right only if the closing bid price for the Common Stock for seven
trading days during a 10 consecutive trading day period ending no more than 15
days prior to the date that the notice of redemption is given, equals or exceeds
$9.00 per share, subject to adjustment. If the Company exercises its right to
call Series B Warrants for redemption, such Series B Warrants may still be
exercised until the close of business on the day immediately preceding the
Redemption Date. If any Series B Warrant called for redemption is not exercised
by such time, it will cease to be exercisable, and the holder thereof will be
entitled only to the repurchase price. Notice of redemption will be mailed to
all holders of Series B Warrants of record at least 30 days, but not more than
60 days, before the Redemption Date. The foregoing notwithstanding, the Company
may not call the Series B Warrants at any time that a current registration
statement under the Act is not then in effect. Any redemption of the Series B
Warrants prior to March 17, 1999 shall require the written consent of First
London Securities Corporation, the Company's underwriter during it initial
public offering of Common Stock.

The Warrant Agreement permits the Company and the Warrant Agent without the
consent of Series B Warrant holders, to supplement or amend the Warrant
Agreement in order to cure any ambiguity, manifest error or other mistake, or to
address other matters or questions arising thereafter that the Company and the
Warrant Agent deem necessary or desirable and that do not adversely affect the
interest of any Series B Warrant holder. The Company and the Warrant Agent may
also supplement or amend the Warrant Agreement in any other respect with the
written consent of holders of not less than a majority in the number of the
Series B Warrants then outstanding; however, no such supplement or amendment may
(i) make any modification of the terms upon which the Series B Warrants are
exercisable or may be redeemed; or (ii) reduce the percentage interest of the
holders of the Series B Warrants without the consent of each Series B Warrant
holder affected thereby.

In order for the holder to exercise a Series B Warrant, there must be an
effective registration statement, with a current prospectus on file with the
Commission covering the shares of Common Stock underlying the Series B Warrants,
and the issuance of such shares to the holder must be registered, qualified or
exempt under the laws of the state in which the holder resides. If required, the
Company will file a new registration statement with the Commission with respect
to the securities underlying the Series B Warrants prior to the exercise of such
Series B Warrants and will deliver a prospectus with respect to such securities
to all holders thereof as required by Section 10(a)(3) of the Act. See "Risk
Factors -- Necessity to Maintain Current Prospectus and Registration Statement"
and "State Blue Sky Registration Required to Exercise Warrants."

REPRESENTATIVE WARRANTS

Presently, the Company has outstanding Representative's Warrants to
purchase up to 120,000 shares, 120,000 Series A Warrants and 120,000 Series B
Warrants. The Representatives' Warrants are exercisable for a four-year period
commencing March 17, 1999 at an exercise price of $8.70 per share of Common
Stock, $.15 per warrant for the Series A Warrants, and $.075 per warrant for the
Series B Warrants. In addition, the Company has granted certain registration
rights with respect to registration of the shares of Common Stock and Warrants
underlying the Representative's Warrants (the "Underlying Warrants") and the
shares of Common Stock issuable upon exercise of the Underlying Warrants. The
Company has agreed to pay the Representative upon the exercise or redemption of
the Series A Warrants and Series B Warrants a fee equal to 5% of the gross
proceeds received by the Company from the exercise of the Series A Warrants and
Series B Warrants and 5% of the aggregate redemption price for Series A Warrants
and Series B Warrants redeemed. Such fee will be paid to the Representative or
its designee no sooner March 17, 1999. The Company has agreed to indemnify the
First London Securities Corporation, the Company's underwriter in its initial
public offering, against certain liabilities arising under the Securities Act of
1933.

43
<PAGE> 48

OTHER WARRANTS

Presently, the Company has outstanding warrants to purchase an aggregate of
219,347 shares of Common Stock at an exercise price of $5.50 per share. The
Company has granted holders of these warrants certain piggy-back registration
rights. These warrants expire January 2, 2002.

CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS

The Restated Certificate of Incorporation provides for the Board to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of the Board will be elected each year.
See "Management." Under the Delaware General Corporation Law, directors serving
on a classified board can only be removed for cause. The provision for a
classified board could prevent a party who acquires control of a majority of the
outstanding voting stock from obtaining control of the Board until the second
annual stockholders meeting following the date the acquiror obtains the
controlling stock interest. The classified board provision could have the effect
of discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company and could increase the likelihood
that incumbent directors will retain their positions.

The Restated Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting. The Restated Certificate of
Incorporation and the By-laws provide that, except as otherwise required by law,
special meetings of the stockholders can only be called pursuant to a resolution
adopted by a majority of the Board of Directors or by the Chief Executive
Officer of the Company. Stockholders will not be permitted to call a special
meeting or to require the Board to call a special meeting.

The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company, including
proposed nominations of persons for election to the Board.

Stockholders at an annual meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the Board or by a stockholder who was a stockholder of
record on the record date for the meeting, who is entitled to vote at the
meeting and who has given to the Company's Secretary timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. Although the By-laws do not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the By-laws may have
the effect of precluding the conduct of certain business at a meeting if the
proper procedures are not followed or may discourage or deter a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.

The Restated Certificate of Incorporation and By-laws provide that the
affirmative vote of holders of at least 66 2/3% of the total votes eligible to
be cast in the election of directors is required to amend, alter, change or
repeal certain of their provisions. This requirement of a super-majority vote to
approve amendments to the Restated Certificate of Incorporation and By-laws
could enable a minority of the Company's stockholders to exercise veto power
over any such amendments.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company will be subject to the "Business Combination" provisions of the
Delaware General Corporation Law. In general, such provisions prohibit a
publicly held Delaware corporation from engaging in various "business
combination" transactions with any "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless: (i) the transaction is approved by the Board
of Directors prior to the date the "interested stockholder" obtained such
status; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder,"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of

44
<PAGE> 49

determining the number of shares outstanding those shares owned by (a) persons
who are directors and also officers and (b) employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." A "business
combination" is defined to include mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of a corporation's voting stock. The
statute could prohibit or delay mergers or other takeover or change in control
attempts with respect to the Company and, accordingly, may discourage attempts
to acquire the Company.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Restated Certificate of Incorporation limits the liability of directors
to the fullest extent permitted by the Delaware General Corporation Law. In
addition, the Restated Certificate of Incorporation will provide that the
Company shall indemnify directors and officers of the Company to the fullest
extent permitted by such law. The Company has entered into separate
indemnification agreements with its current directors and executive officers
which provides such persons indemnification protection in the event the Restated
Certificate of Incorporation is subsequently amended.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock and the Warrants is
Continental Stock Transfer & Trust Company, a New York corporation.

PLAN OF DISTRIBUTION

The Company is offering up to $10,000,000 in aggregate principal amount of
the Notes. The Notes are being offered by participating soliciting broker
dealers who are members of the National Association of Securities Dealers, Inc.
("NASD"). Such broker dealers shall enter into selling agreements with the
Company to use their best efforts to solicit subscriptions for the Notes but
will make no legal commitment to sell to investors, or to buy as dealers, any
specific amount of the Notes. The Company shall agree to pay each soliciting
broker dealer, in consideration for its services, a sales commission of 6.0% of
the principal amount Notes sold to investors which such broker dealer
identified. Of that amount, a portion may constitute an unallocated due
diligence and marketing fee. The Company has agreed to indemnify the broker
dealers against certain liabilities, including liabilities under applicable
securities laws.

Massie Capital, Ltd., a duly licensed member of the NASD, is serving as
managing broker dealer for the Offering. Massie Capital, Ltd. has agreed to
solicit the participation in the Offering of broker dealers acceptable to the
Company, and to assist participating broker dealers in the distribution of this
Prospectus. For their services as managing broker dealer, Massie Capital, Ltd.
will receive a commission of 2.0% of the principal amount of Notes sold in this
Offering. Massie Capital, Ltd. will also serve as a selling broker dealer, and
in such case, will be entitled to a sales commission of 6.0% of the principal
amount of the Notes sold to investors identified by them. In addition, the
Company has agreed to pay Massie Capital, Ltd. a non-accountable expense
allowance of three percent (3%) of the gross proceeds of this Offering, of which
$38,000 has been paid to date. Massie Capital, Ltd.'s expenses in excess of the
non-accountable expense allowance will be paid by Massie Capital, Ltd. To the
extent that the expenses of Massie Capital, Ltd. are less that the amount of the
non-accountable expense allowance received, such excess shall be deemed to be
additional compensation to Massie Capital, Ltd.

The Company has agreed to issue 60 Series A Warrants to Massie Capital,
Ltd. for each $1,000 in principal amount of Notes sold. Massie Capital, Ltd.
will distribute up to 40 of such Series A Warrants to participating broker
dealers as additional compensation under the Offering. Each Series A Warrant
will

45
<PAGE> 50

have an exercise price of $6.00 and will mature on March 17, 2003. See
"Description of Capital Stock -- Series A Warrants."

Investor funds will be held in a subscription escrow account with Norwest
Bank Texas, N.A., as escrow agent, until a minimum of $250,000 in principal
amount of the Notes are sold. In the event that the minimum amount of the Notes
is not subscribed by June 30, 1999 (or any earlier termination of the Offering),
the Offering will be terminated and the escrowed funds, plus any interest
thereon, will be promptly returned to the subscribing investors by the escrow
agent. Upon the subscription of the minimum amount of Notes, the escrowed funds
(including interest earned thereon) will be released to the Company. Any
subsequent sales proceeds from the sale of additional Notes will be immediately
available for use by the Company. All subscriptions are subject to the right of
the Company to reject any subscription in whole or in part.

The Offering will terminate on September 30, 2000, unless sooner terminated
by the Company upon failure to achieve the minimum subscription amount, upon the
sale of all of the Notes or if the Company believes that additional selling
efforts will be unsuccessful. Early termination of the Offering may result in
the Company selling less than $10 million in aggregate principal amount of the
Notes and may expose prior purchasers of Notes to certain risks. See "Risk
Factors -- Inability to Sell Maximum Subscription of Notes."

The Company has agreed to indemnify participating broker dealers against
any costs or liabilities incurred by the broker dealer by reasons of
misstatements or omissions to state material facts in connection with the
statements made in the Registration Statement and the Prospectus. The broker
dealers have agreed in turn to indemnify the Company against any liabilities by
reason of misstatements or omissions to state material facts in connection with
the statements made in the Prospectus, based on information relating to the
broker dealer and furnished in writing by the broker dealer. To the extent that
this section may purport to provide exculpation from possible liabilities
arising from the federal securities laws, in the opinion of the Commission, such
indemnification is contrary to public policy and therefore unenforceable.

The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of such agreements which are filed as exhibits to the Registration Statement.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulation promulgated thereunder, judicial authority and current administrative
rulings and practice, all of which are subject to change, possibly with
retroactive effect. This discussion does not purport to deal with all aspects of
U.S. Federal income taxation that might be relevant to particular holders in
light of their personal investment circumstances or status, nor does it discuss
the U.S. Federal income tax consequences to certain types of holders subject to
special treatment under the U.S. Federal income tax laws (for example, financial
institutions, insurance companies, dealers in securities, tax-exempt
organizations, or taxpayers holding the Notes as part of a "straddle," "hedge"
or "conversion transaction"). Moreover, the effect of any applicable state,
local, foreign, gift, estate or other tax laws generally is not discussed.

Except as otherwise indicated below, this discussion assumes that the Notes
are held as capital assets (as defined in Section 1221 of the Code) by holders
thereof. Additionally, the discussion assumes that the holder of the Note is (i)
an individual who is a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized under the laws of
the United States, or any political subdivision thereof, (iii) an estate the
income of which is subject to U.S. Federal income taxation regardless of its
source, (iv) a trust with respect to which a court within the United States is
able to exercise primary supervision of the administration of such trust and one
or more United States fiduciaries have the authority to control all substantial
decisions of such trust or (v) a person whose worldwide

46
<PAGE> 51

income or gain is otherwise subject to U.S. Federal income taxation on a net
basis. Potential Federal income tax consequences to persons who are not listed
above are not addressed. Prospective holders are urged to consult their own tax
advisors regarding the Federal, state, local, foreign and other tax consequences
and other tax considerations of the acquisition, ownership and disposition of
the Notes. This discussion is limited to the material U.S. Federal income tax
consequences to initial holders of the Notes.

Stated Interest on Notes. The stated interest on the Notes generally will
be includable in the income of the holder as ordinary income at the time such
interest is received or accrued, in accordance with such holder's method of
accounting for U.S. Federal income tax purposes.

Market Discount on Resale of Notes. A holder of a Note should be aware that
the purchase or resale of a Note may be affected by the "market discount"
provisions of the Code. The market discount rules generally provide that if a
holder of a Note purchases the Note at a market discount (i.e. a discount other
than at original issue), any gain recognized upon the disposition of the Notes
by the holder will be taxable as ordinary interest income, rather than as
capital gain, to the extent such gain does not exceed the accrued market
discount on such Note at the time of disposition. "Market discount" generally
means the excess, if any, of a Note's stated redemption price at maturity over
the price paid by the holder thereof, unless a de minimis exception applies. A
holder who acquires a Note at a market discount also may be required to defer
the deduction of a portion of the amount of interest that the holder paid or
accrued during the taxable year on indebtedness incurred or maintained to
purchase or carry such Note, if any.

Any principal payments on a Note acquired by a holder at a market discount
will be included in gross income as ordinary income (generally, as interest
income) to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of the accrued market discount for purposes of
determining the tax treatment of subsequent payments on, or dispositions of, a
Note is reduced by the amounts so treated as ordinary income.

A holder of a Note acquired at a market discount may elect to include
market discount in gross income, for Federal income tax purposes, as such market
discount accrues, either on a straight-line basis or on a constant interest rate
basis. This current inclusion election, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the IRS. If a holder of a Note makes such an election, the foregoing rules
regarding the recognition of ordinary interest income on sales and other
dispositions and the receipt of principal payments with respect to such Note,
and regarding the deferral of interest deductions on indebtedness incurred or
maintained to purchase or carry such Note, will not apply.

Amortizable Bond Premium. A subsequent holder that purchases a Note for an
amount in excess of the sum of all amounts payable on the Note after the
purchase date, other than stated interest, will be considered to have purchased
the Note at a "premium." A holder generally may elect to amortize the premium
over the remaining term of the Note on a constant yield method. The amount
amortized in any year will be treated as a reduction of the holder's interest
income from the Note. Bond premium on a Note held by a holder that does not make
such an election will decrease the gain or otherwise increase the loss otherwise
recognized on the disposition of the Note. The election to amortize premium on a
constant yield method once made applies to all debt obligations held or
subsequently acquired by the electing holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS.

Sale, Exchange or Retirement of the Notes. In general, subject to the
market discount provisions and amortizable bond premium provisions discussed
above, upon the sale, exchange or redemption of a Note, a holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest income not previously included in income which is taxable as
ordinary income) and (ii) such holders' adjusted tax basis in the Note. A
holder's adjusted tax basis in a Note generally will equal the cost of the Note
to such holder. Such capital gain or loss will be long-term capital gain or loss
if the holder's holding period in the Note is more than one year at the time of
sale, exchange or redemption.
47
<PAGE> 52

Backup Withholding. A holder of a Note may be subject to backup withholding
at the rate of 31% with respect to interest paid on the Notes and the proceeds
from the sale, exchange, redemption or retirement of the Note, unless the holder
is (i) a corporation or comes within other exempt categories and, when required,
demonstrates that fact or (ii) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
A holder of a note who does not provide the Company with his correct taxpayer
identification number may be subject to penalties imposed by the IRS.

A holder of a Note who is not a U.S. person will generally be exempt from
backup withholding and information reporting requirements, but may be required
to comply with certification and identification procedures in order to obtain an
exemption from backup withholding and information reporting.

Any amount paid as backup withholding will be creditable against the
holder's U.S. Federal income tax liability.

LEGAL MATTERS

The validity of the Securities offered hereby will be passed upon for the
Company by Jordaan & Pennington, P.L.L.C., Dallas, Texas. Certain legal matters
in connection with the sale of the Securities offered hereby will be passed on
for the managing broker dealer by Tom Herbelin, Dallas, Texas. Members of
Jordaan & Pennington, P.L.L.C. own beneficially an aggregate of 74,933 shares of
Common Stock, 5,486 Series A Warrants, and 5,486 Series B Warrants.

EXPERTS

The consolidated financial statements of PawnMart, Inc. and subsidiaries as
of January 31, 1998 and January 26, 1997, and for each of the years in the
three-year period ended January 31, 1998, have been included herein in reliance
upon the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

48
<PAGE> 53

CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 54

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
PawnMart, Inc.:

We have audited the accompanying consolidated balance sheets of PawnMart,
Inc. and subsidiaries as of January 31, 1998 and January 26, 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended January 31,
1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PawnMart,
Inc. and subsidiaries as of January 31, 1998 and January 26, 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 31, 1998, in conformity with generally accepted
accounting principles.

KPMG LLP

Fort Worth, Texas
April 20, 1998

F-2
<PAGE> 55

PAWNMART, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
JANUARY 26, JANUARY 31, OCTOBER 31,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (Note 13)
Current assets:
Cash and cash equivalents................................. $ 143 $ 151 $ 178
Accounts receivable....................................... 23 32 129
Pawn service charges receivable........................... 230 233 299
Loans (note 6)............................................ 2,227 2,421 2,958
Inventories, net (note 6)................................. 1,971 1,944 2,610
Prepaid expenses and other current assets................. 18 98 228
------- -------- --------
Total current assets................................ 4,612 4,879 6,402
------- -------- --------
Property and equipment, net (notes 4 and 6)................. 1,049 802 1,720
Goodwill and other intangible assets, net (note 5).......... 123 63 40
Debt issuance costs, net of accumulated amortization of
$330, $601 and $37 at January 26, 1997, January 31, 1998
and October 31, 1998, respectively (note 6)............... 555 545 106
Other assets................................................ 135 388 139
------- -------- --------
$ 6,474 $ 6,677 $ 8,407
======= ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable, including $80 to a company owned by a
stockholder at January 26, 1997......................... $ 331 $ 404 $ 544
Bank overdraft............................................ 110 -- --
Accrued interest payable.................................. 103 142 6
Accrued payroll and payroll taxes......................... 385 114 81
Deferred rent............................................. 115 105 117
Accrued bonuses........................................... 79 33 34
Other accrued expenses.................................... 284 253 132
Current installments of notes payable, including $50 and
$347 payable to stockholders at January 26, 1997 and
January 31, 1998, respectively (notes 2 and 6).......... 1,057 2,070 109
------- -------- --------
Total current liabilities........................... 2,464 3,121 1,023
------- -------- --------
Long-term notes payable, net of current installments (notes
2 and 6).................................................. 8,288 9,778 1,600
------- -------- --------
Total liabilities................................... 10,752 12,899 2,623
------- -------- --------
Stockholder's equity (deficit) (notes 2, 6, 8, 9, 10 and 11)
Preferred stock, $.01 par value; authorized 10,000,000
shares:
$.50 Series A Convertible Preferred stock; 2,000,000
shares issued and outstanding at January 26, 1997 and
January 31, 1998 (liquidation preference of $.50 per
share)................................................. 20 20 --
Series B Convertible Preferred stock; 1,089,020 and
1,091,858 shares issued at January 26, 1997 and January
31, 1998, respectively (liquidation preference of $2.00
per share)............................................. 11 11 --
Series C Convertible Preferred stock; 26,842 shares
issued and outstanding at January 31, 1998 (liquidation
preference of $2.50 per share)......................... -- -- --
12% Series D Convertible Exchangeable Preferred stock;
542,500 shares issued and outstanding at January 31,
1998 (liquidation preference of $2.00 per share)....... -- 6 --
Common stock, $.01 par value; authorized 20,000,000
shares; 1,844,998, 1,950,424, and 7,230,877 shares
issued at January 26, 1997, January 31, 1998 and October
31, 1998, respectively.................................. 18 19 72
Series A redeemable common stock purchase warrants, $.125
par value; 1,380,000 warrants issued and outstanding at
October 31, 1998........................................ -- -- 173
Series B redeemable common stock purchase warrants, $.125
par value; 1,380,000 warrants issued and outstanding at
October 31, 1998........................................ -- -- 86
Additional paid-in capital................................ 3,276 7,657 22,242
Preferred stock discount.................................. -- (674) --
Accumulated deficit....................................... (7,538) (13,191) (16,719)
------- -------- --------
(4,213) (6,152) 5,854
------- -------- --------
Less treasury stock, at cost: 9,892 common shares and
25,000 Series B Convertible Preferred shares at January
26, 1997, 13,189 common shares and 25,000 Series B
Convertible Preferred shares at January 31, 1998, and
21,432 common shares at October 31, 1998................ (65) (70) (70)
------- -------- --------
Total stockholders' equity (deficit)................ (4,278) (6,222) 5,784
Commitments, contingencies and subsequent events (notes 2,
12 and 13)
------- -------- --------
$ 6,474 $ 6,677 $ 8,407
======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 56

PAWNMART, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 57

PAWNMART, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JANUARY 28, 1996, JANUARY 26, 1997 AND JANUARY 31, 1998 AND NINE
MONTHS ENDED OCTOBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES B
REDEEMABLE REDEEMABLE
COMMON STOCK COMMON STOCK
PREFERRED STOCK COMMON STOCK PURCHASE WARRANTS PURCHASE WARRANTS ADDITIONAL
------------------- ------------------ ------------------ ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------ --------- ------ --------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 29, 1995...... 2,448,139 $ 25 1,604,766 $16 -- $ -- -- $-- $ 2,036
Issuance of common stock (note
8)........................... -- -- 154,305 1 -- -- -- -- 3
Issuance of preferred stock,
net of $96 issue costs (note
8)........................... 626,487 6 -- -- -- -- -- -- 1,151
Acquisition of 25,000 shares of
Series B Convertible
Preferred stock (note 8)..... -- -- -- -- -- -- -- -- --
Capital contribution for
services (note 8)............ -- -- -- -- -- -- -- -- 20
Net loss....................... -- -- -- -- -- -- -- -- --
---------- ---- --------- --- --------- ---- --------- --- -------
Balance at January 28, 1996...... 3,074,626 31 1,759,071 17 -- -- -- -- 3,210
Issuance of common stock (note
8)........................... -- -- 85,927 1 -- -- -- -- 30
Issuance of preferred stock
(note 8)..................... 14,394 -- -- -- -- -- -- -- 36
Acquisition of 9,892 shares of
common stock (note 8)........ -- -- -- -- -- -- -- -- --
Net loss....................... -- -- -- -- -- -- -- -- --
---------- ---- --------- --- --------- ---- --------- --- -------
Balance at January 26, 1997...... 3,089,020 31 1,844,998 18 -- -- -- -- 3,276
Issuance of common stock (note
8)........................... -- -- 105,426 1 -- -- -- -- 30
Acquisition of 3,297 shares of
common stock (note 8)........ -- -- -- -- -- -- -- -- --
Issuance of preferred stock
(notes 8 and 11)............. 572,180 6 -- -- -- -- -- -- 1,147
Recognition of Convertible
Subordinated Debenture
beneficial conversion feature
(note 6)..................... -- -- -- -- -- -- -- -- 2,380
Recognition of preferred stock
beneficial conversion feature
(note 9)..................... -- -- -- -- -- -- -- -- 824
Amortization of preferred stock
beneficial conversion feature
(note 9)..................... -- -- -- -- -- -- -- -- --
Preferred stock dividends
paid......................... -- -- -- -- -- -- -- -- --
Net loss....................... -- -- -- -- -- -- -- -- --
---------- ---- --------- --- --------- ---- --------- --- -------
Balance at January 31, 1998...... 3,661,200 37 1,950,424 19 -- -- -- -- 7,657
Issuance of common stock and
warrants (note 2)
(Unaudited).................. -- -- 1,365,000 14 1,380,000 173 1,380,000 86 5,310
Issuance of unregistered common
stock in exchange for
services (Unaudited)......... -- -- 44,445 -- -- -- -- -- 200
Conversion of Convertible
Subordinated Debentures (note
2) (Unaudited)............... -- -- 2,380,000 24 -- -- -- -- 9,053
Conversion of preferred stock
(note 2) (Unaudited)......... (3,652,958) (37) 1,482,766 15 -- -- -- -- 22
Conversion of preferred
treasury stock (Unaudited)... (8,242) -- 8,242 -- -- -- -- -- --
Amortization of preferred stock
beneficial conversion feature
(note 9) (Unaudited)......... -- -- -- -- -- -- -- -- --
Preferred stock dividends paid
(Unaudited).................. -- -- -- -- -- -- -- -- --
Net loss (Unaudited)........... -- -- -- -- -- -- -- -- --
---------- ---- --------- --- --------- ---- --------- --- -------
Balance at October 31, 1998
(Unaudited).................... -- $ -- 7,230,877 $72 1,380,000 $173 1,380,000 $86 $22,242
========== ==== ========= === ========= ==== ========= === =======

TOTAL
PREFERRED STOCKHOLDERS'
STOCK ACCUMULATED TREASURY EQUITY
DISCOUNT DEFICIT STOCK (DEFICIT)
--------- ----------- -------- -------------
<S> <C> <C> <C> <C>
Balance at January 29, 1995...... $ -- $ (1,654) $ -- $ 423
Issuance of common stock (note
8)........................... -- -- -- 4
Issuance of preferred stock,
net of $96 issue costs (note
8)........................... -- -- -- 1,157
Acquisition of 25,000 shares of
Series B Convertible
Preferred stock (note 8)..... -- -- (50) (50)
Capital contribution for
services (note 8)............ -- -- -- 20
Net loss....................... -- (2,828) -- (2,828)
----- -------- ---- -------
Balance at January 28, 1996...... -- (4,482) (50) (1,274)
Issuance of common stock (note
8)........................... -- -- -- 31
Issuance of preferred stock
(note 8)..................... -- -- -- 36
Acquisition of 9,892 shares of
common stock (note 8)........ -- -- (15) (15)
Net loss....................... -- (3,056) -- (3,056)
----- -------- ---- -------
Balance at January 26, 1997...... -- (7,538) (65) (4,278)
Issuance of common stock (note
8)........................... -- -- -- 31
Acquisition of 3,297 shares of
common stock (note 8)........ -- -- (5) (5)
Issuance of preferred stock
(notes 8 and 11)............. -- -- -- 1,153
Recognition of Convertible
Subordinated Debenture
beneficial conversion feature
(note 6)..................... -- -- -- 2,380
Recognition of preferred stock
beneficial conversion feature
(note 9)..................... (824) -- -- --
Amortization of preferred stock
beneficial conversion feature
(note 9)..................... 150 (150) -- --
Preferred stock dividends
paid......................... -- (67) -- (67)
Net loss....................... -- (5,436) -- (5,436)
----- -------- ---- -------
Balance at January 31, 1998...... (674) (13,191) (70) (6,222)
Issuance of common stock and
warrants (note 2)
(Unaudited).................. -- -- -- 5,583
Issuance of unregistered common
stock in exchange for
services (Unaudited)......... -- -- -- 200
Conversion of Convertible
Subordinated Debentures (note
2) (Unaudited)............... -- -- -- 9,077
Conversion of preferred stock
(note 2) (Unaudited)......... -- -- -- --
Conversion of preferred
treasury stock (Unaudited)... -- -- -- --
Amortization of preferred stock
beneficial conversion feature
(note 9) (Unaudited)......... 674 (674) -- --
Preferred stock dividends paid
(Unaudited).................. -- (18) -- (18)
Net loss (Unaudited)........... -- (2,836) -- (2,836)
----- -------- ---- -------
Balance at October 31, 1998
(Unaudited).................... $ -- $(16,719) $(70) $ 5,784
===== ======== ==== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 58

PAWNMART, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
JANUARY 28, JANUARY 26, JANUARY 31, OCTOBER 26, OCTOBER 31,
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(2,828) $(3,056) $(5,436) $(2,356) $(2,836)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 375 495 504 377 419
Amortization of debt issuance costs......... 93 228 271 195 114
Amortization of debt discount............... -- -- 1,885 -- 495
Capital contribution for services........... 20 -- -- -- --
Common and preferred stock issued for
services.................................. 4 31 34 29 200
Changes in operating assets and liabilities:
Accounts receivable....................... 18 (13) (9) (15) (97)
Pawn service charges receivable........... (132) (22) (4) (21) (66)
Inventories............................... (930) (481) 27 (257) (666)
Prepaids and other current assets......... (21) 29 (80) (159) (130)
Other assets.............................. (63) (10) (254) (15) 226
Accounts payable.......................... (124) 32 73 (167) 140
Accrued liabilities....................... 233 410 (319) (545) (277)
------- ------- ------- ------- -------
Net cash used in operating
activities........................... (3,355) (2,357) (3,308) (2,934) (2,478)
------- ------- ------- ------- -------
Cash flows from investing activities:
Net increase in pawn loans..................... (875) (781) (193) (198) (537)
Purchases of property and equipment............ (822) (279) (197) (162) (1,291)
------- ------- ------- ------- -------
Net cash used in investing
activities........................... (1,697) (1,060) (390) (360) (1,828)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of notes payable........ 4,559 4,269 3,172 2,589 2,166
Principal payments on notes payable............ (227) (563) (174) (107) (3,280)
Proceeds from issuance of common stock and
warrants.................................... 1 -- 3 3 5,583
Purchase of treasury stock..................... -- (15) (5) (5) --
Payment of debt issuance costs................. (439) (375) (261) (252) (118)
Net proceeds from issuance of preferred
stock....................................... 1,156 36 1,148 1,153 --
Preferred stock dividends paid................. -- -- (67) (33) (18)
Increase (decrease) in bank overdraft.......... 9 81 (110) -- --
------- ------- ------- ------- -------
Net cash provided by financing
activities........................... 5,059 3,433 3,706 3,348 4,333
------- ------- ------- ------- -------
Net increase in cash and cash equivalents........ 7 16 8 54 27
Cash and cash equivalents at beginning of
period......................................... 120 127 143 143 151
------- ------- ------- ------- -------
Cash and cash equivalents at end of period....... $ 127 $ 143 $ 151 $ 197 $ 178
======= ======= ======= ======= =======
Supplemental disclosures of cash flow
information --
Cash paid for interest......................... $ 653 $ 1,341 $ 1,565 $ 1,132 $ 393
======= ======= ======= ======= =======
</TABLE>

See Consolidated Statement of Stockholders' Equity (Deficit) and notes 2, 6, 8
and 9 for noncash financing activities.

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 59

PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND BUSINESS

PawnMart, Inc. (the "Company"), was incorporated in Delaware on January 13,
1994. 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. As of January 31, 1998, the Company
owned and operated 19 stores located in Texas, Georgia, North Carolina, and
Alabama.

(2) COMPLETION OF INITIAL PUBLIC OFFERING

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, 1,380,000 Series A
redeemable common stock purchase warrants at a price of $0.125, and 1,380,000
Series B redeemable common stock purchase warrants at a price of $0.0625
(collectively, the "Securities") 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, net of unamortized debt issuance costs of $443,000,
were automatically converted into 2,380,000 shares of common stock (the
"Debenture Conversion") and the Company's $.50 Series A Convertible Preferred
stock, Series B Convertible Preferred stock, Series C Convertible Preferred
stock, and 12% Series D Convertible Exchangeable Preferred stock were
automatically converted into an aggregate of 1,482,766 shares of common stock
(the "Preferred Conversion") (notes 6 and 9). Additionally, the Company utilized
$2,489,000 of the net proceeds to repay $2,142,000 in 15% notes payable,
$157,000 in notes payable to stockholders and $190,000 in notes payable to the
Company's Chief Executive Officer (note 6).

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation and Fiscal Years

The consolidated financial statements include the financial statements of
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. (Note 6). All significant intercompany balances and
transactions have been eliminated in consolidation.

Effective January 2, 1998, the Company changed its year end to a fiscal
year which ends on the Saturday nearest to January 31. Accordingly, the fiscal
year ended January 31, 1998 consists of 53 weeks and the fiscal years ended
January 26, 1997 and January 28, 1996 consist of 52 weeks.

(b) Cash and Cash Equivalents

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

Pawn loans (loans) are generally made on the pledge of tangible personal
property for a one month period, with an automatic sixty day extension period.
Pawn service charges on loans are recognized on an accrual basis during the
initial thirty day loan period and applicable sixty day extension period, net of
an allowance for pawn service charges deemed uncollectible, based on the
Company's historical loan

F-7
<PAGE> 60
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

redemption rate. If a loan is not repaid, the principal amount advanced on the
loan, exclusive of any uncollected pawn service charges, becomes the carrying
value of the forfeited collateral (inventory), which is recovered through sale.

(d) Inventories

Inventories are recorded at cost and represent merchandise acquired from
forfeited loans, merchandise purchased directly from the public and merchandise
purchased from vendors. Inventories from forfeited loans are recorded at the
principal amount advanced on the related collateral, exclusive of any
uncollected pawn service charges. The cost of inventories is determined on the
specific identification method. Inventories are stated at the lower of cost or
market. Interim payments from customers on layaway sales are credited to
deferred revenue and subsequently recorded as income during the period in which
final payment is received. Deferred revenues related to layaway sales totaled
$62,904 and $47,754 at January 31, 1998 and January 26, 1997, respectively, and
are included in other accrued expenses in the accompanying consolidated balance
sheets.

The Company provides an allowance for shrinkage and valuation based on
management's evaluation of the merchandise. The allowance deducted from the
carrying value of inventory totaled $159,815 and $83,767 at January 31, 1998 and
January 26, 1997, respectively.

(e) Property and Equipment

Property and equipment are recorded at cost. Depreciation is determined on
the straight-line method based on estimated useful lives of three to five years
for equipment. The costs of improvements on leased stores are capitalized as
leasehold improvements and are amortized on the straight-line method over the
shorter of the lease term or their estimated useful lives.

The cost of property retired or sold and the related accumulated
depreciation is removed from the accounts and any resulting gain or loss is
recorded in the results of operations in the period retired.

(f) Goodwill

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally five years. The Company assesses the
recoverability of goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.

(g) Intangible Assets

Intangible assets consisting of an amount applicable to a noncompete
agreement with a founding stockholder and the cost of acquiring a trade name are
being amortized over an estimated useful life of five years.

(h) Income Taxes

The Company and its subsidiaries file a consolidated Federal income tax
return. 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
basis and operating loss and tax credit carryforwards.
F-8
<PAGE> 61
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the fiscal 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.

(i) Advertising Costs

Advertising costs are expensed the first time advertising takes place.
Advertising expense was approximately $163,000, $104,000 and $161,000 for the
fiscal years ended January 31, 1998, January 26, 1997 and January 28, 1996,
respectively.

(j) Use of Estimates

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

(k) Fair Values of Financial Instruments

Pawn loans are outstanding for a relatively short period of time, generally
90 days or less, depending on local regulations. The rate of finance and service
charge is determined by regulatory guidelines and bears no valuation
relationship to interest rate market movements. For these reasons, management
believes that the fair value of pawn loans approximates their carrying value.
The fair value of the Company's long-term debt is estimated based on market
values for debt issues with similar characteristics or rates currently available
for debt with similar maturities and risks. Management believes that the fair
value of long-term debt approximates the carrying value. The carrying amount of
all other financial instruments included in the Company's consolidated balance
sheets approximate fair value due to the short maturity of these investments.

(l) Stock Based Compensation

Effective January 29, 1996, the Company adopted the Financial Accounting
Standards Board's (FASB) Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (Statement No. 123), which establishes
financial accounting and reporting standards for stock-based employee
compensation plans. Statement No. 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages the adoption of that method of accounting for all employee stock
option compensation plans. Statement No. 123 allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting as prescribed by the Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees." The Company elected to remain
with the accounting method prescribed by APB No. 25 and has made the pro forma
disclosures of net loss and net loss per common share for the fiscal year ended
January 31, 1998 as if the fair value based method of accounting had been
applied. Pro forma disclosures of net loss and net loss per common share for the
fiscal years ended January 26, 1997 and January 28, 1996 as if the fair value
based method of accounting had been applied have not been presented in the
consolidated financial statements as the effect of such adoption would not have
been material.

(m) Net Loss Per Common Share

Net loss per common share is calculated as required by FASB Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (Statement No. 128).
Statement No. 128 requires dual
F-9
<PAGE> 62
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 antidilutive.

The following table presents a reconciliation between basic and diluted
weighted average common shares outstanding for the years ended January 28, 1996,
January 26, 1997 and January 31, 1998, and for the nine months ended October 26,
1997 and October 31, 1998. 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 years ended January 28, 1996, January 26, 1997 and January
31, 1998, and for the nine months ended October 26, 1997 and October 31, 1998,
diluted loss per share was calculated using the same weighted average number of
common shares in the basic loss per share calculation.

<TABLE>
<CAPTION>
NINE NINE
YEAR YEAR YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED
JANUARY 28, JANUARY 26, JANUARY 31, OCTOBER 26, OCTOBER 31,
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares -- basic.... 1,688 1,825 1,878 1,856 6,272
Shares attributable to stock
options, warrants and convertible
securities........................ 1,296 2,522 3,628 3,508 679
----- ----- ----- ----- -----
Weighted average shares --diluted... 2,984 4,347 5,506 5,364 6,951
===== ===== ===== ===== =====
</TABLE>

(n) Interim Financial Data (Unaudited)

The accompanying consolidated balance sheet as of October 31, 1998, the
accompanying consolidated statements of operations and cash flows for the nine
months ended October 31, 1998 and October 26, 1997, and the accompanying
statement of stockholders' equity (deficit) for the nine months ended October
31, 1998, have been prepared by the Company without an audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation for such periods have been made.
Results for interim periods should not be considered as indicative of results
for a full year.

Footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted herein with respect to the interim financial data.

(o) Reclassifications

Certain amounts in 1996 and 1997 have been reclassified to conform with the
1998 presentation.

(4) PROPERTY AND EQUIPMENT

Property and equipment consists of the following at January 31, 1998 and
January 26, 1997:

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Automobiles................................................. $ 64,038 $ 64,038
Furniture and equipment..................................... 1,369,328 1,183,742
Leasehold improvements...................................... 699,222 687,409
----------- ----------
2,132,588 1,935,189
Less accumulated depreciation and amortization.............. (1,330,150) (885,908)
----------- ----------
$ 802,438 $1,049,281
=========== ==========
</TABLE>

F-10
<PAGE> 63
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consist of the following at
January 31, 1998 and January 26, 1997:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Goodwill.................................................... $ 189,057 $ 189,057
Noncompete agreement........................................ 60,000 60,000
Corporate trademark......................................... 50,000 50,000
--------- ---------
299,057 299,057
Less accumulated amortization............................... (236,263) (176,270)
--------- ---------
$ 62,794 $ 122,787
========= =========
</TABLE>

(6) NOTES PAYABLE

Notes payable consist of the following at January 31, 1998 and January 26,
1997:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Unsecured convertible subordinated debentures to various
individuals, bearing interest at 14% payable monthly, to
mature on June 30, 1999................................... $ 4,865,000 $ 4,865,000
Unsecured convertible subordinated debentures to various
individuals, bearing interest at 14% payable monthly, to
mature on June 30, 2000................................... 2,000,000 2,000,000
Unsecured convertible subordinated debentures to various
individuals, bearing interest at 14% payable monthly, to
mature on January 31, 2001................................ 2,655,000 461,000
Notes payable issued by PCI Finance 1995-I, Inc. to various
individuals, bearing interest at 15% payable monthly, to
mature on March 31, 1998, secured by pawn loans and
associated collateral..................................... 1,390,000 1,390,000
Notes payable issued by PCI Finance 1996-2, Inc. to various
individuals, bearing interest at 15% payable monthly, to
mature on December 31, 2000, secured by pawn loans and
associated collateral..................................... 474,000 220,000
Notes payable issued by PCI Finance 1996-1, Inc. to various
individuals, bearing interest at 15% payable monthly, to
mature on March 31, 2000, secured by pawn loans and
associated collateral..................................... 278,000 278,000
Note payable to a bank, principal and interest due on
January 31, 1997, with interest at 8.75%, guaranteed by an
officer of the Company and secured by collateral of a
stockholder............................................... -- 80,000
Notes payable to a trust, bearing interest at 12% payable
monthly, to mature on January 9, 1999, secured by pawn
loans and merchandise inventory........................... 250,000 --
Note payable to a stockholder of the Company pursuant to a
$50,000 revolving line of credit, due on demand, bearing
interest at 15%, secured by certain property and
equipment................................................. 50,000 50,000
Note payable to a stockholder of the Company pursuant to a
$200,000 revolving line of credit, bearing interest at
12%, due on demand, unsecured............................. 107,000 --
</TABLE>

F-11
<PAGE> 64
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Note payable to the Chief Executive Officer of the Company,
bearing interest at 12%, principal and interest due on
March 31, 1998, unsecured................................. 190,000 --
Other unsecured notes payable............................... 83,000 --
----------- -----------
12,342,000 9,344,000
Less: Unamortized debt discount........................... (494,545) --
Current portion.................................... (2,070,000) (1,056,667)
----------- -----------
$ 9,777,455 $ 8,287,333
=========== ===========
</TABLE>

On June 13, 1995, the Company began marketing a private placement offering
for up to $6,000,000 in principal amount of 14% unsecured Convertible
Subordinated Debentures due June 30, 1999 (1999 Debentures). Interest on the
1999 Debentures is payable monthly commencing on August 15, 1995. At the option
of the holder, each 1999 Debenture is convertible at any time into shares of
common stock at a conversion price of $9.10, subject to adjustments should the
Company issue common stock dividends, initiate stock splits, or issue common
stock rights or warrants for the purchase of common stock at below market
prices. In the event that the Company consummates a publicly registered offering
of at least $5,000,000, the 1999 Debentures will be automatically converted into
common stock at a conversion price equal to the lower of $9.10 in principal
amount per share or 80 percent of the initial public offering price (note 2).
The 1999 Debentures may be redeemed at the option of the Company, subject to
certain notification requirements, prior to the maturity date at a stipulated
redemption price.

On June 21, 1996, the Company began marketing a private placement offering
for up to $2,000,000 in principal amount of 14% unsecured Convertible
Subordinated Debentures due June 30, 2000 (2000 Debentures). Interest on the
2000 Debentures is payable monthly commencing on August 15, 1996. At the option
of the holder, each 2000 Debenture is convertible at any time into shares of
common stock at a conversion price of $9.10, subject to adjustments should the
Company issue common stock dividends, initiate stock splits, or issue common
stock rights or warrants for the purchase of common stock at below market
prices. In the event that the Company consummates a publicly registered offering
of at least $5,000,000, the 2000 Debentures will be automatically converted into
common stock at a conversion price equal to the lower of $9.10 in principal
amount per share or 80 percent of the initial public offering price (note 2).
The 2000 Debentures may be redeemed, subject to certain notification
requirements, prior to the maturity date at a stipulated redemption price.

On December 13, 1996, the Company began marketing a private placement
offering for up to $2,655,000 in principal amount of 14% unsecured Convertible
Subordinated Debentures due January 31, 2001 (2001 Debentures). Interest on the
2001 Debentures is payable monthly commencing on February 15, 1997. At the
option of the holder, each 2001 Debenture is convertible at any time into shares
of common stock at a conversion price of $9.10, subject to adjustments should
the Company issue common stock dividends, initiate stock splits, or issue common
stock rights or warrants for the purchase of common stock at below market
prices. In the event that the Company consummates a publicly registered offering
of at least $5,000,000 at an offering price of $5.00 per share, the 2001
Debentures will be automatically converted into common stock at a conversion
price equal to the lower of $9.10 in principal amount per share or 80 percent of
the initial public offering price (note 2). The 2001 Debentures may be redeemed,
subject to certain notification requirements, prior to the maturity date at a
stipulated redemption price.

On October 30, 1997, the holders of the 1999 Debentures, 2000 Debentures,
and 2001 Debentures amended the conversion price related to the automatic
conversion of the convertible subordinated debentures in the event of an initial
public offering to be the lower of $9.10 principal amount per share or

F-12
<PAGE> 65
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

80 percent of the initial public offering stock price (note 2). The value of the
resulting beneficial conversion feature has been recognized by the Company as
additional financing costs by recording $2,380,000 in debt discount and
additional paid-in-capital. Such amount is required to be amortized into
interest expense over the period from October 30, 1997 until the date of the
initial public offering (note 2). Amortization expense related to the beneficial
conversion feature totaled $1,885,455 for the fiscal year ended January 31,
1998, and is included in interest expense in the accompanying consolidated
statements of operations.

In connection with the sale of the 1999 Debentures, the Company issued
warrants to purchase 97,279 shares of the Company's common stock to
participating National Association of Securities Dealers, Inc. broker-dealers
(NASD Broker-Dealers). The warrants have an exercise price of $5.50 per share
and are exercisable through January 2, 2002.

In connection with the sale of the 2000 Debentures, the Company issued
warrants to purchase 41,442 shares of the Company's common stock to
participating NASD Broker-Dealers. The warrants have an exercise price of $5.50
per share and are exercisable through January 2, 2002.

In connection with the sale of the 2001 Debentures, the Company issued
warrants to purchase 53,967 shares of the Company's common stock to
participating NASD Broker-Dealers. The warrants have an exercise price of $5.50
per share and are exercisable through January 2, 2002.

At January 31, 1998, debt issuance costs totaling $1,145,900 have been paid
in connection with the sale of the 1999 Debentures, 2000 Debentures, 2001
Debentures, and other notes payable. Such amounts are being amortized on a
straight-line basis through the respective maturity date of each debenture or
notes payable. Amortization expense related to debt issuance costs was $270,979,
$228,358 and $92,696 for the fiscal years ended January 31, 1998, January 26,
1997 and January 28, 1996, respectively, and is included in interest expense in
the accompanying consolidated statements of operations.

During the year ended January 26, 1997, the Company repaid $411,000 in
notes payable issued by PCI Finance 1994-I, Inc. Additionally, $220,000,
$249,000 and $100,000 in notes payable issued by PCI Finance 1994-I, Inc. were
converted to PCI Finance 1996-2, Inc. notes payable, 2001 Debentures and 2000
Debentures, respectively.

On March 20, 1998, the Company completed an initial public offering which
allowed for the repayment of $2,489,000 of notes payable and the conversion of
$9,520,000 in unsecured convertible subordinated debentures (note 2).

On October 13, 1998, the Company entered into a $10 million revolving
credit facility with Comerica Bank (unaudited -- see note 13).

F-13
<PAGE> 66
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) INCOME TAXES

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January 31,
1998 and January 26, 1997 are presented below:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 3,595,000 $ 2,431,152
Property and equipment................................... 163,956 125,949
Inventories.............................................. 59,084 30,969
Intangible assets........................................ 58,355 43,546
----------- -----------
Total gross deferred tax assets.................. 3,876,395 2,631,616
Less valuation allowance......................... (3,876,395) (2,631,616)
----------- -----------
Net deferred tax assets.......................... -- --
----------- -----------
Total deferred tax liabilities................... -- --
----------- -----------
Net deferred tax assets.......................... $ -- $ --
=========== ===========
</TABLE>

At January 31, 1998, the Company has net operating loss carryforwards for
tax purposes of approximately $9,724,000 which are available to offset future
federal taxable income, if any, through 2013. Deferred tax valuation allowances
of $3,876,395 and $2,631,616 offset deferred tax assets at January 31, 1998 and
January 26, 1997, respectively, based on management's determination that it is
more likely than not that such amounts may not be subsequently realized.

(8) EQUITY TRANSACTIONS

During the fiscal years ended January 31, 1998, January 26, 1997 and
January 26, 1996, the Company issued 338, 14,394 shares and 24,237,
respectively, of Series B Convertible Preferred stock in connection with the
Company's employee stock purchase plan (note 11).

During the fiscal year ended January 28, 1996, the Company acquired 25,000
shares of Series B Convertible Preferred stock in exchange for the issuance of
$50,000 in 14% unsecured Convertible Subordinated Debentures due June 30, 1999.

During the fiscal year ended January 28, 1996, three stockholders performed
services for the Company without receiving compensation. The Company has
recorded $20,000 in administrative expenses during the fiscal year ended January
28, 1996, which represents the estimated value of the services contributed by
the stockholders with a corresponding increase to additional paid-in capital.

In January 1994, the Board of Directors authorized the issuance of a
warrant to purchase 32,973 shares of the Company's common stock at an exercise
price of $.03 per share to a former director. On December 29, 1995, the former
director exercised the warrant to purchase 16,487 shares of the Company's common
stock. The remaining warrants expired on January 20, 1996.

During fiscal 1995, the Company granted nonqualified stock options to
purchase an aggregate of 21,433 shares of the Company's common stock, at a price
of $.76 per share, to two former directors and non qualified stock options to
purchase an aggregate of 8,243 shares of the Company's common stock, at a price
of $6.07 per share, to a former director. The options were exercisable over a
period commencing with the date of the agreement and ended April 19, 1997, at
which time all such options expired unexercised.

F-14
<PAGE> 67
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the fiscal years ended January 31, 1998 and January 26, 1997, the
Company acquired 3,297 and 9,892 shares of common stock, respectively, from a
former officer of the Company at a price of $1.52 per share.

During the fiscal years ended January 31, 1998, January 26, 1997 and
January 28, 1996, the Company issued 104,602, 85,927 and 137,818 shares,
respectively, of the Company's common stock to certain officers, employees and
other individuals in exchange for various services rendered on behalf of the
Company. In connection with such issuances, the Company has recorded
administrative expenses totaling $28,550, $31,272 and $4,180 during the fiscal
years ended January 31, 1998, January 26, 1997 and January 28, 1996,
respectively.

During the fiscal year ended January 31, 1998, the Company issued 2,500
shares of Series B Convertible Preferred stock to an employee in exchange for
various services rendered on behalf of the Company. In connection with such
issuance, the Company has recorded administrative expenses totaling $5,000
during the fiscal year ended January 31, 1998.

During the fiscal year ended January 31, 1998, the Company issued 26,842
shares of Series C Convertible Preferred stock in connection with the Company's
employee stock purchase plan (note 11). Additionally, the Company issued 542,500
shares of 12% Series D Convertible Exchangeable Preferred stock (note 9).

During the fiscal year ended January 31, 1998, the Company granted 306,389
nonqualified stock options to various officers and employees for the purchase of
shares of common stock at a price of $3.79 (note 10).

During the fiscal year ended January 31, 1998, the Company adopted (i) a
reverse stock split of its issued and outstanding shares of common stock on a
basis of one new share for each two shares currently outstanding and (ii) an
additional reverse stock split of its issued and outstanding shares of common
stock on a basis of one new share for each 1.5163715 shares currently
outstanding. The effect of the reverse stock splits have been accounted for
retroactively to January 29, 1995 in the accompanying consolidated financial
statements and, accordingly, all applicable share and per share amounts have
been restated to reflect these reverse stock splits.

(9) PREFERRED STOCK

Each share of $.50 Series A Convertible Preferred stock (Series A) has a
liquidation preference of $.50 per share. Holders of Series A are not entitled
to receive any cash dividends. The Company is restricted from the declaration of
dividends to holders of common stock or any other class of stock of the Company
ranking junior to Series A as long as Series A is outstanding. At the option of
the holder, each share of Series A is convertible at any time into 0.33 shares
of common stock, subject to adjustment should the Company pay common stock
dividends or initiate stock splits or similar changes to its common stock.
Shares of Series A are automatically convertible into 0.33 shares of common
stock immediately upon the earlier of (i) the date specified by the vote or
written consent or agreement of holders of at least a majority of Series A or
(ii) the closing of the sale of the Company's securities in an underwritten
public offering, the aggregate proceeds of which equal or exceed $5,000,000
(note 2). At the option of the Company, shares of Series A can be redeemed at
$1.00 per share. Holders have the option of converting such shares into common
stock in lieu of redemption, pursuant to certain requirements.

Each share of the Series B Convertible Preferred stock (Series B) has a
liquidation preference of $2.00 per share after considering the liquidation
preference for Series A. At the option of the holder, each share of Series B is
convertible at any time into 0.33 shares of common stock, subject to adjustments
should the Company pay common stock dividends or initiate stock splits or
similar changes to its common stock. Each share of Series B shall automatically
be converted into shares of common stock immediately
F-15
<PAGE> 68
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

upon the earlier of (i) the date specified by agreement of the holders of a
majority of the shares of such series or (ii) the closing of the sale of the
Company's common stock in a public offering where the aggregate proceeds exceed
$5,000,000 at a conversion price equal to the lower of $6.07 or 80 percent of
the initial public offering price (note 2). At the option of the Company,
subject to certain notice requirements, shares of Series B can be redeemed at
$4.00 per share. Holders have the option of converting such shares into common
stock in lieu of redemption, pursuant to certain requirements.

In connection with the Series B offering, the Company has issued Series B
stock purchase warrants to participating NASD Broker-Dealers to purchase 80,850
Series B shares. The warrants have an exercise price of $2.40 per share and are
exercisable for four years commencing July 22, 1995. Upon completion of the
closing of a sale of the Company's common stock in a public offering where the
aggregate proceeds exceed $5,000,000, the Series B stock purchase warrants will
convert to 26,659 common stock purchase warrants with an exercise price of $5.50
per share exercisable through January 2, 2002 (note 2).

On June 20, 1997, the Company's Board of Directors authorized the issuance
of 500,000 shares of Series C Convertible Preferred stock (Series C) with a par
value of $.01 per share. Holders of Series C are not entitled to receive any
cash dividends. Each share of Series C has a liquidation preference of $2.50 per
share and has the same ranking as Series A and Series B. At the option of the
holder, each share of Series C is convertible at any time into 0.33 shares of
common stock, subject to adjustments should the Company pay common stock
dividends or initiate stock splits or similar changes to its common stock. Each
share of Series C shall automatically be converted into shares of common stock
immediately upon the earlier of (i) the date specified by agreement of the
holders of a majority of the shares of such series or (ii) the closing of the
sale of the Company's common stock in a public offering where the aggregate
proceeds exceed $5,000,000 at a conversion price equal to the lower of $7.58 or
80 percent of the initial public offering price (note 2). At the option of the
Company, subject to certain notice requirements, shares of Series C can be
redeemed at $4.00 per share. Holders have the option of converting such shares
into common stock in lieu of redemption, pursuant to certain requirements. As of
January 31, 1998, 26,842 Series C shares had been issued in connection with the
Company's employee stock purchase plan (note 11).

On July 10, 1997, the Company's Board of Directors authorized the issuance
of 1,000,000 shares of 12% Series D Convertible Exchangeable Preferred stock
(Series D) with a par value of $.01 per share. Dividends on Series D are payable
in arrears in monthly installments when, and if, declared by the Board of
Directors. Each share of Series D has a liquidation preference of $2.00 per
share and has the same ranking as Series A, Series B, and Series C. At the
option of the holder, each share of Series D is convertible at any time into
0.33 shares of common stock, subject to adjustments should the Company pay
common stock dividends or initiate stock splits or similar changes to its common
stock. Each share of Series D shall automatically be converted into shares of
common stock immediately upon the earlier of (i) the date specified by agreement
of the holders of a majority of the shares of such series or (ii) the closing of
the sale of the Company's common stock in a public offering where the aggregate
proceeds exceed $5,000,000 at a conversion price equal to the lower of $6.07 or
80 percent of the initial public offering price (note 2). At the option of the
Company, subject to certain notice requirements, shares of Series D can be
redeemed at $5.00 per share. Holders have the option of converting such shares
into common stock in lieu of redemption, pursuant to certain requirements. As of
January 31, 1998, 542,500 shares had been issued with net proceeds received by
the Company totaling $1,085,000.

On January 23, 1998, the Company's common and preferred stockholders
approved an amendment to the Company's certificate of incorporation changing the
Series A, Series B, Series C, and Series D conversion price related to the
automatic conversion of preferred stock in the event of an initial public
offering to be equal to the lower of the conversion price in effect at the time
of an initial public offering or 80 percent of the initial public offering
price. The value of the resulting beneficial conversion feature is

F-16
<PAGE> 69
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

required to be recognized as a return to the preferred shareholders by recording
$823,297 in preferred stock discounts and additional paid-in capital. Such
amounts are required to be amortized as a return to the preferred shareholders
using the effective interest method over the period from January 23, 1998 until
the date of the initial public offering. During the fiscal year ended January
31, 1998, the Company recorded $149,690 in preferred stock dividends resulting
from the amortization of the preferred stock beneficial conversion feature.

On March 20, 1998, the Company completed an initial public offering which
allowed for the Preferred Conversion (note 2).

(10) STOCK OPTIONS

During the year ended January 31, 1998, the Board of Directors and
stockholders adopted the 1997 PawnMart, Inc. Employee Stock Option Plan
(Employee Option Plan) and the 1997 PawnMart, Inc. Director Stock Option Plan
(Directors' Option Plan). The number of shares reserved for issuance under the
Employee Option Plan and Directors' Option Plan is 494,602 and 263,788 shares,
respectively.

Options granted pursuant to the Employee Option Plan may be either
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or nonqualified stock options. All options
granted are exercisable on such dates as specified by the Compensation and Human
Resources Committee of the Board of Directors. Options granted under the
Employee Option Plan are required to have an exercise price equal to the closing
price of common stock on the date of grant. In October 1997, the Company granted
306,389 nonqualified stock options to various officers and employees for the
purchase of shares of common stock at a price of $3.79. The stock options
granted have contractual terms of ten years and generally vest ratably over a
four year period beginning on the first anniversary of the date of grant. At
January 31, 1998, all options granted under the Employee Option Plan remain
unexercised and 32,973 options are exercisable.

Under the Directors' Option Plan, stock options will be granted to any
director who is not an employee of the Company and is not a holder of more than
5% of the outstanding shares of common stock. Newly appointed eligible directors
will automatically receive an initial grant of options to purchase 25,000 shares
of common stock. All eligible directors will receive annual grants of options to
purchase the lessor of 20,000 shares of common stock or $200,000 in market value
of underlying common stock. Options granted under the Directors' Option Plan are
required to have an exercise price equal to the closing price of common stock on
the date of grant. The options will be immediately exercisable and will have a
contractual term of six years from the date of grant. At January 31, 1998, no
options had been granted under the Directors' Option Plan.

The Company applies the intrinsic value method of accounting for its stock
option issuances. Accordingly, no compensation expense has been recognized for
its stock option and warrant grants. If the Company had adopted the fair value
based method prescribed by Statement No. 123 and determined compensation cost
based on the fair value at the grant dates of such options and warrants, the
Company's net loss would have been increased by $51,918 during the fiscal year
ended January 31, 1998. Basic loss per common share and diluted loss per common
share would have been increased by $0.03 and $0.03 per share during the fiscal
year ended January 31, 1998.

The weighted average grant-date fair value of options issued during the
year ended January 31, 1998 was $0.85 which was calculated in accordance with
the Black-Scholes option pricing model using the following weighted average
assumptions:

<TABLE>
<S> <C>
Expected term (years)....................................... 3.29
Risk-free interest rate..................................... 5.61%
Expected dividend yield..................................... 0.00%
</TABLE>

F-17
<PAGE> 70
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) EMPLOYEE STOCK PURCHASE PLAN

Effective October 1, 1994, the Company established an employee stock
purchase plan (Plan) covering substantially all employees. The Plan allowed
participating employees to purchase, through payroll deductions and Company
matches approved by the Board of Directors, shares of the Company's Series B
Convertible Preferred stock and Series C Convertible Preferred stock at a price
of $2.50 per share. The Company has issued 43,358 shares of its Series B
Convertible Preferred stock and 26,842 shares of its Series C Convertible
Preferred stock under the Plan as of January 31, 1998. The Company has recorded
$19,416, $10,282 and $13,871 in compensation expense during the fiscal years
ended January 31, 1998, January 26, 1997 and January 28, 1996, respectively,
which represents the value of Company matches approved by the Board of
Directors.

(12) COMMITMENTS AND CONTINGENCIES

The Company is obligated under various long-term operating lease agreements
for store locations and office space. Total rent expense for all operating
leases, including leases with a related party, was approximately $1,112,000,
$1,055,000 and $744,000 for the fiscal years ended January 31, 1998, January 26,
1997 and January 28, 1996, respectively.

Future minimum lease payments under noncancelable operating leases as of
January 31, 1998 are:

<TABLE>
<CAPTION>
RELATED
FISCAL YEARS ENDING JANUARY PARTY OTHER TOTAL
- --------------------------- ------- ---------- ----------
<S> <C> <C> <C>
1999............................................... $48,000 $1,110,613 $1,158,613
2000............................................... 8,000 759,527 767,527
2001............................................... -- 433,215 433,215
2002............................................... -- 109,005 109,005
2003............................................... -- 17,521 17,521
------- ---------- ----------
Total minimum lease payments............. $56,000 $2,429,881 $2,485,881
======= ========== ==========
</TABLE>

The Company leases its Weatherford, Texas pawnshop from a joint venture
owned by certain stockholders of the Company. Rent expense related to this lease
totaled $48,000 during each of the fiscal years ended January 31, 1998, January
26, 1997 and January 28, 1996.

The Company is involved in various claims and lawsuits arising in the
ordinary course of business. In the opinion of management, the resolution of
these matters will not have a material adverse effect on the Company's
consolidated financial statements.

(13) UNAUDITED EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT

Stock Options --

On June 12, 1998, the stockholders approved an amendment to the PawnMart,
Inc. 1997 Employee Stock Option Plan to increase the number of shares of common
stock authorized for issuance from 494,602 shares to 1,000,000 shares. At
December 30, 1998, the Company had granted a total of 858,423 stock options to
various officers and employees for the purchase of shares of common stock with
exercise prices ranging from $3.00 per share to $4.25 per share.

F-18
<PAGE> 71
PAWNMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In June 1998, the Company issued 125,000 stock options to various directors
in connection with the Directors' Option Plan at prices ranging from $4.25 per
share to $4.4375 per share.

Revolving Credit Facility --

On October 13, 1998, the Company entered into a $10 million revolving
credit facility with Comerica Bank (the "Credit Facility"). The Credit Facility
bears interest at either (i) the prevailing prime rate plus .75%, which was
9.00% at October 31, 1998, or (ii) the prevailing LIBOR rate plus 3.35%, and
matures on October 13, 2001. Amounts available under the Credit Facility are
limited to certain percentages of pawn loans, inventories, and pawn service
charges receivable. The Credit Facility is collateralized by substantially all
of the unencumbered assets of the Company. Under the Credit Facility, the
Company is required to maintain certain financial ratios and comply with certain
technical covenants. The Company was in compliance with these requirements and
covenants as of October 31, 1998. At October 31, 1998, $1,600,000 was
outstanding under the Credit Facility.

F-19
<PAGE> 72

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

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN DULY AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE MANAGING BROKER DEALER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER THE
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
Use of Proceeds....................... 12
Capitalization........................ 13
Selected Historical Consolidated
Financial Data...................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 30
Security Ownership of Certain
Beneficial Owners and Management.... 35
Certain Relationships and Related
Transactions........................ 36
Description of Subordinated Notes Due
2004................................ 37
Description of Credit Facility........ 39
Description of Capital Stock.......... 40
Plan of Distribution.................. 45
Certain U.S. Federal Income Tax
Considerations...................... 46
Legal Matters......................... 48
Experts............................... 48
Consolidated Financial Statements..... F-1
</TABLE>

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

$10,000,000

12% SUBORDINATED NOTES DUE 2004

[PAWNMART, INC. LOGO]

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

PROSPECTUS
---------------------

MASSIE CAPITAL, LTD.

March , 1999

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses to be incurred in connection
with this Registration Statement (assuming a maximum subscription), all of which
will be borne by the Company. All of such expenses are estimates, other than the
filing fees payable to the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 3,780.80*
NASD Filing Fee............................................. 1,860.00
Accounting Fees and Expenses................................ 50,000.00*
Legal Fees and Expenses (Other Than Blue Sky)............... 100,000.00*
Managing Broker-Dealer Non-accountable Expense Allowance.... 300,000.00*
Printing and Engraving...................................... 50,000.00*
Transfer Agent and Registrar Fees........................... 5,000.00*
Blue Sky Taxes, Fees and Expenses........................... 40,000.00*
Miscellaneous Expenses...................................... 49,359.20*
-----------
Total Expenses.................................... $600,000.00*
===========
</TABLE>

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

* Estimated amount.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law ("DGCL") permits a
corporation to indemnify a person who was or is a director, officer, employee,
or agent of a corporation or who serves at the corporation's request as a
director, officer, partner, proprietor, trustee, employee, or agent of another
corporation, partnership, trust, joint venture, or other enterprise (an "outside
enterprise"), who was, is, or is threatened to be named a defendant in a legal
proceeding by virtue of such person's position in the corporation or in an
outside enterprise, but only if the person acted in good faith and reasonably
believed, in the case of conduct in the person's official capacity, that the
conduct was in or, in the case of all other conduct, that the conduct was not
opposed to the corporation's best interest, and, in the case of a criminal
proceeding, the person had no reasonable cause to believe the conduct was
unlawful. A person may be indemnified within the above limitations against
judgments, fines, settlements, and reasonable expenses actually incurred.
Generally, an officer, director, agent, or employee of a corporation or a person
who serves at the corporation's request as an officer, director, agent, or
employee of an outside enterprise may not be indemnified, however, against
judgments, fines, and settlements incurred in a proceeding in which the person
is found liable to the corporation or is found to have improperly received a
personal benefit and may not be indemnified for expenses unless, and only to the
extent that, in view of all the circumstances, the person is fairly and
reasonably entitled to indemnification for such expenses. A corporation must
indemnify a director, officer, employee, or agent against reasonable expenses
incurred in connection with a proceeding in which the person is a party because
of the person's corporate position, if the person was successful, on the merits
or otherwise, in the defense of the proceeding. Under certain circumstances, a
corporation may also advance expenses to such person.

Section 145 of the DGCL also permits a corporation to purchase and maintain
insurance or to make other arrangements on behalf of any of the above persons
against any liability asserted against and incurred by the person in such
capacity, or arising out of the person's status as such a person, whether or not
the corporation would have the powers to indemnify the person against the
liability under applicable law.

The Company's Restated Certificate of Incorporation provides that the
Company's directors will have no personal liability to the Company or its
stockholders for monetary damages for breach of, or an alleged breach of, a
director's fiduciary duty of care. This provision has no effect on director
liability for (i) a

II-1
<PAGE> 74

breach of the directors' duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith that constitute a breach of duty of a
director or involving intentional misconduct or knowing violations of law, (iii)
approval of any transaction from which a director derives an improper personal
benefit, or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute. In addition, the Company's Restated
Certificate of Incorporation provides that any additional liabilities permitted
to be eliminated by subsequent legislation will automatically be eliminated
without further stockholder vote, unless additional stockholder approval is
required by such legislation. The Company is generally required to indemnify its
directors, officers, employees, and agents against all judgments, fines,
settlements, legal fees, and other expenses incurred in connection with pending
or threatened legal proceedings because of the person's position with the
Company or another entity that the person serves at the Company's request,
subject to certain conditions, and to advance funds to enable them to defend
against such proceedings. Article X of the Company's Restated Certificate of
Incorporation permits the Company to enter into agreements with its directors,
officers, employees and agents to provide such indemnification as deemed
appropriate. Article X also provides that the Company may extend to its
directors and executive officers such indemnification and additional
indemnification.

The Company has entered into an indemnification agreement with certain of
its directors and officers. The form of indemnity agreement provides that each
such person will be indemnified to the full extent permitted by applicable law
against all expenses (including attorneys' fees), judgments, fines, penalties
and amounts paid in settlement of any threatened, pending or completed action,
suit or proceeding, on account of his services as a director and officer of the
Company or any other company or enterprise in which he is serving at the request
of the Company, or as a guarantor of any debt of the Company. To the extent the
indemnification provided under the agreement exceeds that permitted by
applicable law, indemnification may be unenforceable or may be limited to the
extent it is found by a court of competent jurisdiction to be contrary to public
policy.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three fiscal years, the Company has sold the securities
listed below pursuant to exemptions under the Securities Act.

1. On July 22, 1994, the Company's Board of Directors authorized
1,925,000 shares of Series B Convertible Preferred Stock ("Series B") to be
issued through a private placement offering to accredited investors. During
the fiscal years ended January 29, 1995 and January 28, 1996, the Company
issued 1,046,000 Series B at a price of $2.00 per share. In connection with
Series B issuances, the Company paid $342,958 in underwriting commissions
and has issued 26,659 Common Stock purchase warrants to participating
National Association of Securities Dealers, Inc. broker-dealers ("NASD
Broker-Dealers"). The warrants have an exercise price of $5.50 per share
and are exercisable through January 2, 2002. The sale of securities were
made in reliance upon Section 4(2) of the Securities Act, and Rule 506
pursuant to Regulation D, promulgated thereunder, as an offering only to
accredited investors.

2. From June 1995 through April 1996, the Company made a private
placement offering to accredited investors for up to $6,000,000 in
principal amount of 14% unsecured Convertible Subordinated Debentures due
June 30, 1999 ("1999 Debentures"). The total underwriting commissions
associated with the 1999 Debentures were $437,600. As of January 31, 1998,
the Company has sold $4,865,000 in 1999 Debentures. In connection with the
1999 Debentures, the Company has issued 97,279 Common Stock purchase
warrants to participating NASD Broker-Dealers. The warrants have an
exercise price of $5.50 per share and are exercisable through January 2,
2002. The sale of securities were made in reliance upon Section 4(2) of the
Securities Act, and Rule 506 pursuant to Regulation D, promulgated
thereunder, as an offering only to accredited investors.

3. From June 1996 through January 1997, the Company made a private
placement offering to accredited investors for up to $2,000,000 in
principal amount of 14% unsecured Convertible

II-2
<PAGE> 75

Subordinated Debentures due June 30, 2000 ("2000 Debentures"). The total
underwriting commissions associated with the 2000 Debentures were $161,600.
As of January 31, 1998, the Company has sold $2,000,000 in 2000 Debentures.
In connection with the 2000 Debentures, the Company has issued 41,442
Common Stock purchase warrants to participating NASD Broker-Dealers. The
warrants have an exercise price of $5.50 per share and are exercisable
through January 2, 2002. The sale of securities were made in reliance upon
Section 4(2) of the Securities Act, and Rule 506 pursuant to Regulation D,
promulgated thereunder, as an offering only to accredited investors.

4. From December 1996 through June 1997, the Company made a private
placement offering to accredited investors for up to $2,655,000 in
principal amount of 14% unsecured Convertible Subordinated Debentures due
January 31, 2001 ("2001 Debentures"). The total underwriting commissions
associated with the 2001 Debentures were $231,600. As of January 31, 1998,
the Company has sold $2,655,000 in 2001 Debentures. In connection with the
2001 Debentures, the Company has issued 53,967 Common Stock purchase
warrants to participating NASD Broker-Dealers. The warrants have an
exercise price of $5.50 per share and are exercisable through January 2,
2002. The sale of securities were made in reliance upon Section 4(2) of the
Securities Act, and Rule 506 pursuant to Regulation D, promulgated
thereunder, as an offering only to accredited investors.

5. In June 1997, the Company's Board of Directors authorized the
issuance of up to 500,000 shares of Series C Convertible Preferred Stock
("Series C") with a par value of $.01 per share to be issued to employees
in connection with the Company's employee stock purchase plan. The employee
stock purchase plan allows employees to purchase, through payroll
deductions and Company matches approved by the Board of Directors, shares
of Series C at a price of $2.50 per share. At June 23, 1997, the Company
issued 26,592 Series C shares and, on September 10, 1997, the Company
issued 250 Series C shares with total proceeds received by the Company from
both issuances of $47,932. The sale of securities were made in reliance
upon Rule 701 which provides for an exemption for offers and sales of
securities pursuant to compensatory benefit plans and contracts relating to
compensation.

6. In July 1997, the Company's Board of Directors authorized the
issuance of up to 1,000,000 shares of 12% Series D Convertible Exchangeable
Preferred Stock ("Series D") with a par value of $.01 per share to be
issued to accredited investors. From July 10, 1997 to October 26, 1997, the
Company issued 542,500 Series D shares with total proceeds received by the
Company of $1,085,000. The sale of securities were made in reliance upon
Section 4(2) of the Securities Act, and Rule 506 pursuant to Regulation D,
promulgated thereunder, as an offering only to accredited investors.

7. From January 13, 1994 through January 26, 1997, the Company issued
427,139 shares of Common Stock of which 44,514 shares were issued to
certain directors in exchange for Board of Director services, 232,597
shares were issued to certain employees in exchange for employment
services, pay reductions and performance awards, and 150,208 shares were
issued to certain attorneys and consultants in exchange for legal and
consulting services. From January 26, 1997 to October 26, 1997, the Company
issued 104,602 shares of Common Stock of which 54,408 shares were issued to
certain directors in exchange for Board of Director services, 36,181 shares
were issued to certain employees in exchange for employment services, pay
reductions and performance awards, 10,716 shares were issued to certain
attorneys and consultants in exchange for legal and consulting services,
and 3,297 shares were issued to National Audio Electronics, Inc. in
exchange for merchandise. On May 8, 1997, the Company issued 824 shares of
Common Stock to an employee for $3.03 per share. The sale of securities
were made in reliance upon Rule 701 which provides for an exemption for
offers and sales of securities pursuant to compensatory benefit plans and
contracts relating to compensation.

II-3
<PAGE> 76

8. On December 29, 1995, a former director exercised a warrant to
purchase 16,487 shares of the Company's Common Stock at $.03 per share. The
sale of securities were made in reliance upon Rule 701 which provides for
an exemption for offers and sales of securities pursuant to compensatory
benefit plans and contracts relating to compensation and Section 4(2) of
the Securities Act, and Rule 506 pursuant to Regulation D, promulgated
thereunder, as an offering only to accredited investors.

9. From October 1994 to March 1995, the Company issued $980,000 in 15%
notes payable, to mature on December 31, 1997, to 14 non-accredited
investors and a class of accredited investors. From February 1995 to May
1995, the Company issued $1,390,000 in 15% notes payable, to mature on
March 31, 1998, to 20 non-accredited investors and a class of accredited
investors. From April 1996 to August 1996, the Company issued $278,000 in
15% notes payable, to mature on March 31, 2000 to 5 non-accredited
investors and a class of accredited investors. From January 1997 to July
1997, the Company issued $474,000 in 15% notes payable, to mature on
December 31, 2000 to 11 non-accredited investors and a class of accredited
investors. The sale of securities were made in reliance upon Section 4(2)
of the Securities Act which provides an exemption for transactions not
involving any public offering to investors believed by the Company to be
sophisticated business-persons and investors.

11. From January 1995 through November 1996, the Company issued 43,358
Series B shares in connection with its employee stock purchase plan. The
employee stock purchase plan in effect during that time allowed employees
to purchase, through payroll deductions and Company matches approved by the
Board of Directors, shares of Series B at a price of $2.00 per share. The
sale of securities were made in reliance upon Rule 701 which provides for
an exemption for offers and sales of securities pursuant to compensatory
benefit plans and contracts relating to compensation.

12. On May 1, 1998, the Company issued 44,445 unregistered shares of
the Company's common stock to the Buxton Company in exchange for $200,000
in professional services associated with marketing and new store site
selection analysis. The sales of securities were made in reliance upon Rule
701 which provides for an exemption for offers and sales of securities
pursuant to contracts relating to compensation.

The sale of securities above were made in reliance upon Rule 701 which
provides for exemption for offers and sales of securities pursuant to
compensatory benefit plans and contracts relating to compensation and Section
4(2) of the Securities Act, which provides exemptions for transactions not
involving a public offering to investors believed by the Company to be
sophisticated business-persons and investors, and Regulation D, promulgated
thereunder, as an offering only to accredited investors. The purchasers of
securities described above acquired them for their own account and not with a
view to any distribution thereof to the public. The certificates evidencing the
securities bear legends stating that the shares are not to be offered, sold or
transferred other than pursuant to an effective registration statement under the
Securities Act, or an exemption from such registration requirements.

The Company's Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock, 12% Series D Convertible Exchangeable Preferred Stock, 14%
Convertible Subordinated Debentures Due June 30, 1999, 14% Convertible
Subordinated Debentures Due June 30, 2000, and 14% Convertible Subordinated
Debentures Due January 31, 2001 converted into Common Stock upon completion of
the Company's initial public offering in March 1998. See the notes to the
consolidated financial statements included elsewhere in this Registration
Statement for further information relating to the respective conversion
features.

II-4
<PAGE> 77

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.3 -- Form of Underwriting Agreement Between PawnMart, Inc. and
Massie Capital, Ltd.(7)
3.1 -- PawnMart, Inc.'s Restated and Amended Certificate of
Incorporation(1)
3.2 -- PawnMart, Inc.'s Second Amended and Restated Bylaws(1)
4.1 -- Specimen Common Stock Certificate(2)
4.2 -- Specimen Series A Warrant Certificate(2)
4.3 -- Specimen Series B Warrant Certificate(2)
4.4 -- Form of Warrant Agreement, dated as of March 20, 1998
between PawnMart, Inc. and Continental Stock Transfer &
Trust Company(2)
4.5 -- Form of National Association of Securities Dealers, Inc.
broker-dealer warrants(3)
4.6 -- Form of Amendment to Warrant Agreement, Dated as of March
20, 1998 Between PawnMart, Inc. and Continental Stock
Transfer & Trust Company(6)
4.7 -- Indenture, Dated as of , 1999 Between
PawnMart, Inc. and Trust Management, Inc., as Trustee,
Relating to PawnMart, Inc.'s 12% Subordinated Notes Due
2004(6)
4.8 -- Form of 12% Subordinated Note Due 2004 (included as part
of Exhibit 4.7 hereto)
4.9 -- Form of Broker-Dealer Selling Agreement(6)
4.10 -- Form of Subscription Escrow Agreement dated as of
February , 1999 Between PawnMart, Inc., Massie Capital,
Ltd. and Norwest Bank Texas, N.A.(7)
5.1 -- Opinion of Jordaan & Pennington, PLLC(6)
10.1 -- Form of Indemnity Agreement with Officers and Directors
of PawnMart, Inc.(2)
10.2 -- 1997 PawnMart, Inc. Employee Stock Option Plan(1)
10.3 -- 1997 PawnMart, Inc. Director Stock Option Plan(2)
10.4 -- Revolving Credit Agreement Dated October 13, 1998 Between
PawnMart, Inc. and Comerica Bank(4)
10.5 -- Employment Agreement, Dated as of September 8, 1998,
Between PawnMart, Inc. and Michael D. Record(5)
12.1 -- Computation of Ratio of Earnings to Fixed Charges(5)
23.1 -- Consent of Jordaan & Pennington, PLLC (included as part
of Exhibit 5.1 hereto)
23.2 -- Consent of KPMG LLP, Independent Auditors(7)
24.1 -- Reference is made to the Signatures section of the
Registration Statement on Form S-1 filed on January 15,
1999.
25.1 -- Form T-1 -- Statement of Eligibility Under the Trust
Indenture Act of 1939 of the Trustee(5)
27.1 -- Financial Data Schedule as of October 31, 1998 (Filed in
EDGAR version only)(4)
</TABLE>

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

(1) Filed as an Exhibit to the registrant's Registration Statement on Form SB-2,
filed on October 23, 1997 (File No. 333-38597).

(2) Filed as an Exhibit to the registrant's Registration Statement on Amendment
No. 2 to Form SB-2, filed on February 9, 1998 (File No. 333-38597).

(3) Filed as an Exhibit to the registrant's Registration Statement on Amendment
No. 3 to Form SB-2, filed on March 11, 1998 (File No. 333-38597).

II-5
<PAGE> 78

(4) Filed as an Exhibit to the registrant's Form 10-QSB for the quarter ended
October 31, 1998, filed on December 14, 1998 (File No. 1-13919).

(5) Filed as an Exhibit to the registrant's Registration Statement on Form S-1,
filed on January 15, 1999 (File No. 333-70635).

(6) Filed as an Exhibit to the registrant's Registration Statement on Amendment
No. 1 to Form S-1, filed on February 24, 1999 (File No. 333-70635).

(7) Filed herewith.

(a) FINANCIAL STATEMENT SCHEDULES

None.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of a prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and

(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;

(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and

(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising from the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-6
<PAGE> 79

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Worth, State of
Texas, on March 10, 1999.

PAWNMART, INC.

By: /s/ CARSON R. THOMPSON
----------------------------------
Carson R. Thompson
Chief Executive Officer, Director
and Chairman of the Board
(Principal Executive Officer)

By: /s/ THOMAS W. WHITE
----------------------------------
Thomas W. White
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ CARSON R. THOMPSON Chief Executive Officer, March 10, 1999
- ----------------------------------------------------- Director and Chairman of the
Carson R. Thompson Board

/s/ MICHAEL D. RECORD President March 10, 1999
- -----------------------------------------------------
Michael D. Record

/s/ THOMAS W. WHITE Senior Vice President and March 10, 1999
- ----------------------------------------------------- Chief Financial Officer
Thomas W. White

/s/ RANDALL L. HADEN Vice President -- Information March 10, 1999
- ----------------------------------------------------- Services
Randall L. Haden

* Director March 10, 1999
- -----------------------------------------------------
Robert E. Camp

* Director March 10, 1999
- -----------------------------------------------------
James E. Berk

* Director March 10, 1999
- -----------------------------------------------------
Monty R. Standifer

* Director March 10, 1999
- -----------------------------------------------------
Mark E. Kane
</TABLE>

II-7
<PAGE> 80

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

* Director March 10, 1999
- -----------------------------------------------------
Robert D. Bourland, Jr.

* Director March 10, 1999
- -----------------------------------------------------
J. Roger Williams

*By: /s/ CARSON R. THOMPSON
-------------------------------------------------
Carson R. Thompson
Attorney-in-Fact
</TABLE>

II-8
<PAGE> 81

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.3 -- Form of Underwriting Agreement Between PawnMart, Inc. and
Massie Capital, Ltd.(7)
3.1 -- PawnMart, Inc.'s Restated and Amended Certificate of
Incorporation(1)
3.2 -- PawnMart, Inc.'s Second Amended and Restated Bylaws(1)
4.1 -- Specimen Common Stock Certificate(2)
4.2 -- Specimen Series A Warrant Certificate(2)
4.3 -- Specimen Series B Warrant Certificate(2)
4.4 -- Form of Warrant Agreement, dated as of March 20, 1998
between PawnMart, Inc. and Continental Stock Transfer &
Trust Company(2)
4.5 -- Form of National Association of Securities Dealers, Inc.
broker-dealer warrants(3)
4.6 -- Form of Amendment to Warrant Agreement, Dated as of March
20, 1998 Between PawnMart, Inc. and Continental Stock
Transfer & Trust Company(6)
4.7 -- Indenture, Dated as of , 1999 Between
PawnMart, Inc. and Trust Management, Inc., as Trustee,
Relating to PawnMart, Inc.'s 12% Subordinated Notes Due
2004(6)
4.8 -- Form of 12% Subordinated Note Due 2004 (included as part
of Exhibit 4.7 hereto)
4.9 -- Form of Broker-Dealer Selling Agreement(6)
4.10 -- Form of Subscription Escrow Agreement dated as of
February , 1999 Between PawnMart, Inc., Massie Capital,
Ltd., and Norwest Bank Texas, N.A.(7)
5.1 -- Opinion of Jordaan & Pennington, PLLC(6)
10.1 -- Form of Indemnity Agreement with Officers and Directors
of PawnMart, Inc.(2)
10.2 -- 1997 PawnMart, Inc. Employee Stock Option Plan(1)
10.3 -- 1997 PawnMart, Inc. Director Stock Option Plan(2)
10.4 -- Revolving Credit Agreement Dated October 13, 1998 Between
PawnMart, Inc. and Comerica Bank(4)
10.5 -- Employment Agreement, Dated as of September 8, 1998,
Between PawnMart, Inc. and Michael D. Record(5)
12.1 -- Computation of Ratio of Earnings to Fixed Charges(5)
23.1 -- Consent of Jordaan & Pennington, PLLC (included as part
of Exhibit 5.1 hereto)
23.2 -- Consent of KPMG LLP, Independent Auditors(7)
24.1 -- Reference is made to the Signatures section of the
Registration Statement on Form S-1 filed on January 15,
1999
25.1 -- Form T-1 -- Statement of Eligibility Under the Trust
Indenture Act of 1939 of the Trustee(5)
27.1 -- Financial Data Schedule as of October 31, 1998 (Filed in
EDGAR version only)(4)
</TABLE>

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

(1) Filed as an Exhibit to the registrant's Registration Statement on Form SB-2,
filed on October 23, 1997 (File No. 333-38597).

(2) Filed as an Exhibit to the registrant's Registration Statement on Amendment
No. 2 to Form SB-2, filed on February 9, 1998 (File No. 333-38597).

(3) Filed as an Exhibit to the registrant's Registration Statement on Amendment
No. 3 to Form SB-2, filed on March 11, 1998 (File No. 333-38597).

(4) Filed as an Exhibit to the registrant's Form 10-QSB for the quarter ended
October 31, 1998, filed on December 14, 1998 (File No. 1-13919).

(5) Filed as an Exhibit to the registrant's Registration Statement on Form S-1,
filed on January 15, 1999 (File No. 333-70635).

(6) Filed as an Exhibit to the registrant's Registration Statement on Amendment
No. 1 to Form S-1, filed on February 24, 1999 (File No. 333-70635).

(7) Filed herewith.

<PAGE> 1
Exhibit 1.3

BEST EFFORTS UNDERWRITING AGREEMENT
PAWNMART, INC.

This UNDERWRITING AGREEMENT made and entered into this _____ day of
_____________, 1999, by and between PawnMart, Inc., a Delaware corporation,
whose address is 301 Commerce Street, Suite 3600, Fort Worth, Texas 76102, (the
"Company") and Massie Capital, Ltd., a Texas Limited Partnership, whose address
is 4100 International Plaza, Suite 2-115, Fort Worth, Texas 76109 (the
"Underwriter").

Recitals

1. The Company desires to offer and sell up to $10,000,000 in 12%
Subordinated Notes due December 31, 2004 to the public through the Underwriter
and participating broker-dealers.

2. The offering and sale will be made pursuant to a registration
statement and prospectus hereinafter referred to.

3. The Underwriter is willing to assist the Company in connection with
the proposed issuance and sale of these securities on a best efforts basis on
the terms and conditions herein contained.

Agreement

NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants, agreements, undertakings, representations, and warranties herein
contained, the Company and the Underwriter agree as follows:

I. Representations and Warranties

The Company represents and warrants to, and agrees with the Underwriter that:

1. The Company is a corporation duly organized and validly existing as
a corporation in good standing under the laws of the State of Delaware.

2. The Company shall issue consistent with the terms and conditions of
the Registration Statement (defined below) up to $10,000,000.00 in 12%
Subordinated Notes due December 31, 2004 ("the Notes") and up to 600,000 Series
A Redeemable Common Stock Purchase Warrants. The Notes shall:

(a) Bear interest at the rate of 12% per annum;

(b) Pay interest monthly on the fifteenth of each month beginning with
the second full calendar month after issuance; and

<PAGE> 2

3. The Notes will be issued pursuant to the terms and conditions of a
Trust Indenture entered into between the Company and Trust Management, Inc., a
Texas trust company ("Trustee"), as Indenture Trustee.

4. There will be delivered to the counsel to the Underwriter, upon
request at any time prior to the Delivery Date (defined below), certified copies
of the Certificate of Incorporation and the bylaws of the Company, together with
all amendments, if any, certified copies of whatever resolutions the counsel may
request, and copies of all material contracts to which the Company is a party.
There will also be made available to the counsel for inspection minutes of all
meetings of incorporators, directors and stockholders of the Company from the
date of incorporation of the Company to the Delivery Date.

5. A Registration Statement on the appropriate form as prescribed by
the Securities and Exchange Commission (the "Commission"), together with a
related Prospectus with respect to the Notes, has been filed with the Commission
under the Securities Act of 1933, as amended, (the "Act"). The Company will use
its best efforts to cause the Registration Statement and the Prospectus to
become effective as soon as possible after the filing. As used in this
Agreement, the term "Registration Statement" refers to and means the
Registration Statement and any and all amendments to the Registration Statement,
including exhibits and financial statements, when the Registration Statement
becomes effective and, in the event of any amendments after the effective date
of the Registration Statement, the Registration Statement as so amended; and the
term "Prospectus" refers to and means the related Prospectus in final form, and
in the event of any amendment or supplement to the Prospectus after the
effective date of the Registration Statement, also refers to and means the
Prospectus as so amended or supplemented.

6. The Notes shall also be registered or qualified for sale with the
state regulatory agencies of any and all states where the Securities shall be
offered.

7. All expenses of registration and qualification shall be paid by the
Company.

8. Notwithstanding the above, to the extent possible, the Effective
Date of the offering shall be at a date mutually agreed to by the Company and
the Underwriter, subject to the requirements of applicable law.

9. The purchase price of the Notes shall be in minimum denominations of
$1,000.00 and integral multiples thereof with a minimum purchase amount of
$5,000.00 (or $1,000.00 for Individual Retirement Accounts).

10. When the Registration Statement becomes effective, it and the
accompanying Prospectus will comply in all material respects with the
requirements of the Act and with the rules and regulations of the Commission
promulgated under the Act; provided, however, the Company makes

BEST EFFORTS UNDERWRITING AGREEMENT - Page 2

<PAGE> 3

no representations or warranties as to information contained or omitted from the
Registration Statement or the Prospectus in reliance upon written information
furnished to the Company by the Underwriter specifically for inclusion in the
Registration Statement or the Prospectus.

11. The Company has the requisite corporate power and authority to
enter into this Underwriting Agreement.

12. The consolidated financial statements to be filed with the
Registration Statement will reflect all material liabilities of the Company on a
consolidated basis, contingent or otherwise, and will include adequate reserves
for all federal and state tax liabilities incurred to their respective dates.

13. All of the Notes to be sold under and pursuant to this Agreement,
when issued and delivered, will be validly issued and enforceable in accordance
with their terms and conditions and free and clear of all claims and
encumbrances, except as described in the Indenture.

14. The certified public accountants who will certify to the financial
statements to be filed with the Commission as a part of the Registration
Statement and to the financial statements incorporated in the Prospectus, and
who, as experts, may certify or review other information of a financial or
accounting nature contained in the Registration Statement and the Prospectus,
will be independent certified public accountants as required by the Act and the
rules and regulations promulgated under the Act.

15. The Company will deliver to the Underwriter audited consolidated
financial statements as of January 31, 1998 and unaudited consolidated financial
statements as of October 31, 1998. The Company represents that such financial
statements will fairly present in all material respects the financial condition
of the Company, computed in accordance with generally accepted accounting
principles applied on a consistent basis and the rules and regulations of the
Commission relating to financial statements.

16. The Company will furnish the Underwriter, at least one day before
the filing of the Registration Statement, with the consolidated financial
statements included in the Registration Statement and prepared in accordance
with the rules and regulations of the Commission. Such consolidated financial
statements will fairly present the position of the Company in all material
respects on the dates shown and will reflect all material liabilities of the
Company, contingent or otherwise.

17. The certificate or certificates that the Company is required to
furnish to the Underwriter pursuant to the provisions of paragraphs 8, 9 and 10
of Article VIII of this Agreement will be true and correct.

18. All of the foregoing representations, warranties and agreements
shall survive delivery of, and payment for, all of the securities covered by
this Agreement.

BEST EFFORTS UNDERWRITING AGREEMENT - Page 3

<PAGE> 4

II. Retention of the Underwriter

Based upon the foregoing representations, warranties and agreements,
and subject to the terms and conditions herein contained:

1. The Company hereby retains the Underwriter as its agent to sell for
its account the Notes. The Underwriter shall use their best efforts as agent,
promptly following the receipt of written notice of the effective date of the
Registration Statement, to sell the Notes subject to the terms, provisions and
conditions set forth below. There is no assurance that any or all of the Notes
to be offered by the Company will be sold, and the Underwriter is under no
obligation to purchase or take down any of the Notes on its own behalf or on
behalf of others.

2. Underwriter acknowledges that the Company may limit its acceptance
of subscriptions in any manner it deems prudent in order to provide for the
timely use of subscriber funds and may reject any subscriptions for any reason,
and Underwriter agrees that any such rejection of a subscription obtained by the
Underwriter or by the Underwriting Group (as hereinafter defined) shall be
deemed not to be a sale made by the Underwriter or by the Underwriting Group.
Underwriter further acknowledges that (i) all subscription funds will be held in
escrow and if the minimum amount of Notes is not subscribed on or before June
30, 1999 (as defined in the Prospectus), the offering will be terminated and the
escrowed funds, plus any interest earned thereon, will be promptly returned to
the investors by the escrow agent; (ii) upon the subscription of the minimum
amount of the Notes, the escrowed funds will be released to the Company; (iii)
any subsequent subscription funds with respect to the sale of additional Notes
will continue to be deposited in the escrow account and be immediately available
for use by the Company upon the Company's request; (iv) all Subscriber's checks
shall be made payable to the Company's escrow agent, Norwest Bank Texas, N.A.;
and (v) shall be deposited with the escrow agent in accordance with applicable
NASD regulations. Subscriber's funds will be held in escrow and invested in
compliance with SEC Rule 15c2-4. All subscriber's checks will be transmitted
directly to the escrow agent by noon of the next business day after receipt by
Underwriter.

3. As its compensation, the Underwriter shall receive a commission of
eleven percent (11%) of the full amount of all Notes sold by the Underwriter
(including the Underwriting Group) and for which payment is made to the Company.
Such amount is comprised of a 6% sales commission, a 3% non-accountable expense
allowance and a 2% due diligence fee.

4. The Underwriter may associate with themselves whatever other
underwriters they may desire. The Underwriter may offer the Notes through
registered securities dealers selected by them and to pay such dealers out of
the commissions received by the Underwriter whatever compensation the
Underwriter may determine. The Underwriter, such other underwriters and such
securities dealers shall be collectively referred to herein as the "Underwriting
Group".

5. In addition to the compensation set forth above, the Underwriter
shall also receive, for each $1,000.00 in principal amount of Notes sold to the
public, 60 warrants ("Underwriter's

BEST EFFORTS UNDERWRITING AGREEMENT - Page 4

<PAGE> 5

Warrants") to purchase 60 Series A Redeemable Common Stock Purchase Warrants
(the "Underlying Warrants") exercisable to purchase one share of Common Stock
(the "Underlying Warrant Share"). The Underwriter will distribute up to 40 of
such Underwriter's Warrants to other members of the Underwriting Group as
additional compensation.

6. The Company may terminate this Agreement in the event that the
Underwriting Group is unable to sell at least:

Days After Effective Date Cumulative Gross Proceeds
------------------------- -------------------------
<S> <C>

30 $ 250,000
60 $ 500,000
90 $ 800,000
120 $1,150,000
150 $1,550,000
180 $2,000,000
210 $2,500,000
240 $3,100,000
270 $3,600,000
300 $4,100,000
330 $4,600,000
360 $5,000,000
</TABLE>

7. Underwriter represents that it is appropriately registered as a
broker-dealer with the Commission and in all states in which it conducts or will
conduct business in connection with this offering and is a member in good
standing of the National Association of Securities Dealers, Inc. Underwriter
also agrees not to solicit subscriptions for the Notes that will result in a
violation of the securities laws of the United States, or of any state, or any
rule or regulation thereunder, or of any rules of the NASD or any securities
exchange.

8. Underwriter represents that there is not now pending or threatened
against the Underwriter any action or proceeding of which Underwriter has been
advised, either in any court of competent jurisdiction, before the Commission or
any state securities commission concerning activities as a broker or dealer, nor
has the Underwriter been named as a "cause" in any such action or proceeding.

BEST EFFORTS UNDERWRITING AGREEMENT - Page 5

<PAGE> 6

9. In the event any action or proceeding of the type referred to in
paragraph 8 above shall be instituted or threatened against the Underwriter at
any time, or in the event there shall be filed by or against the Underwriter in
any court pursuant to any federal, state, local or municipal statute a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of assets, or the Underwriter makes an assignment for the
benefit of creditors, the Company shall have the right to terminate this
Agreement.

10. Upon request, the Company will inform the Underwriter as to the
states in which the Company has been advised by counsel that the Notes have been
qualified for sale under the respective state securities laws, but the Company
does not assume any responsibility or obligation as to the Underwriter's right
to sell the Notes in any state. Underwriter understands and agrees that under no
circumstances will Underwriter engage in any activities hereunder in any
jurisdiction (a) in which the company has not informed the Underwriter that the
Notes are qualified for sale under the applicable securities laws, or (b) in
which the Underwriter may not lawfully so engage.

11. Underwriter confirms that its commitment to use its best efforts to
solicit subscriptions for the Notes will not result in a violation of the
securities laws of the United States, including but not limited to the Act or
any rule or regulation thereunder, or the securities laws of any state in which
the Underwriter will conduct business and the rules and regulations thereunder,
or of any rules of any securities exchange to which the Underwriter is subject
or of any restriction imposed upon the Underwriter by the NASD or any such
exchange or governmental authority and agrees to indemnify the Company, its
shareholders, directors, officers, employees or agents for any and all damages,
liabilities and costs (including reasonable attorneys' fees and expenses)
resulting from the same.

12. Underwriter represents that in connection with the offering:

A. Underwriter will comply in all respect with the provisions of this
Agreement.

B. Underwriter shall use its best efforts to obtain the approval of the
NASD pursuant to Article III, Section 44 of the Rules of Fair Practice
of the NASD with respect to the compensation arrangements set forth
herein.

C. Underwriter will comply with any applicable limitations on the
manner of offering as required by the Act, applicable state securities
laws, and the NASD;

D. Prior to making any sale, Underwriter will have reasonable grounds
to believe, after making reasonable inquiry, that each subscriber meets
the requirements of the Act, the NASD and applicable state securities
laws as to the suitability of the investment for such subscriber.

E. Except as otherwise disclosed to the Company, no owner, partner,
director or officer of Underwriter has within the last five years been
subject to any of the following administrative or judicial actions (by
the commission or any state securities commission):

BEST EFFORTS UNDERWRITING AGREEMENT - Page 6

<PAGE> 7

1. Registration Stop Order (Issuance of Securities);

2. Securities related felony conviction;

3. Securities related administrative order;

4. Any administrative order involving fraud or deceit;

5. Securities related injunction;

F. Underwriter has no current effective administrative order revoking a
securities exemption; and

G. Underwriter has not been suspended, censured or expelled by the
NASD.

Underwriter agrees to indemnify and hold the Company, its shareholders,
officers, directors, employees, and agent harmless from any liabilities and
costs (including reasonable attorneys' fees and expenses) associated with claims
arising or alleged to arise out of a breach of the foregoing representations.

13. Underwriter and any members of the Underwriting Group do hereby
undertake to comply with Sections 8, 24, 25 and 36 of Article III of the NASD
Rules of Fair Practice. Furthermore, any and all Selling Group Agreement or
Selected Dealer Agreement shall provide that any member of the Underwriting
Group shall agree to comply with said sections of Article III of the NASD Rules
of Fair Practice.

III. Further Agreements of the Company

The Company agrees, at its expense and without expense to the
Underwriter, as follows:

1. To give and to continue to give and supply whatever consolidated
financial statements and other information that may be required by the
Commission or the proper public bodies in the states in which the Notes may be
qualified.

2. As soon as the Company is informed, to advise the Underwriter and to
confirm the advice in writing:

(a) When the Registration Statement becomes effective;

(b) When any amendment to the Registration Statement filed subsequent
to the effective date of the Registration Statement becomes effective;

BEST EFFORTS UNDERWRITING AGREEMENT - Page 7

<PAGE> 8

(c) Of any request of the Commission for amendments to the Registration
Statement or the related Prospectus, or for additional information;

(d) Of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the initiation of any
proceeding for that purpose;

(e) Of any material adverse change in its financial position or
operating condition and of any development materially affecting the
Company or rendering untrue or misleading any material statement in the
Registration Statement or the Prospectus.

3. To make every reasonable effort to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement, and, if a stop
order is entered at any time, to use its best efforts to obtain withdrawal of
the order at the earliest possible moment.

4. To deliver to the Underwriter, without charge, (a) prior to the
effective date of the Registration Statement, copies of each preliminary
prospectus filed with the Commission bearing in red ink the statement required
by the rules of the Commission, (b) on and from time to time after the effective
date of the Registration Statement, copies of the Prospectus and of any amended
or supplemented Prospectus, and (c) as soon as they are available and from time
to time after they are available, copies of each Prospectus prepared for the
purpose of permitting compliance with Section 10 of the Act and of any amended
or supplemented Prospectus. The number of copies to be delivered in each case
shall be the number the Underwriter may reasonably request.

5. To furnish, without cost, to the Underwriter one executed copy of
the Registration Statement, including all exhibits and amendments, and a
reasonable number of copies of the Registration Statement and amendments.

6. For the period after the effective date of the Registration
Statement during which the Prospectus is required by law to be used, but not
after the Delivery Date, except in accordance with Article XII hereof, if any
change occurs so that the Prospectus includes an untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
in the Prospectus, in the light of the circumstances under which they are made,
not misleading, forthwith to prepare and furnish to the Underwriter, without
cost, supplements to the Prospectus or an amended Prospectus correcting the
untrue statement or supplying the omission.

7. If revision of the Prospectus pursuant to the provisions of Section
10 of the Act becomes necessary, to review the Prospectus, to file copies of the
Prospectus with the Commission, and to furnish copies of the revised Prospectus
to the Underwriter in whatever reasonable quantity they request.

8. To use its best efforts to cause the Notes to be qualified for sale
on terms consistent with those stated in the effective Registration Statement
under the Blue Sky laws in whatever states may be agreed upon.

BEST EFFORTS UNDERWRITING AGREEMENT - Page 8

<PAGE> 9

9. Until the Delivery Date hereunder or the earlier termination hereof,
except with the approval of the Underwriter, not to:

(a) Undertake or authorize any change in its capital structure or
authorize or issue or permit any public offering of any shares of
capital stock or additional Notes, except as provided in this
Agreement;

(b) Authorize, create, issue, or sell any funded obligations, notes or
other evidences of indebtedness greater than $1,000,000, except in the
ordinary course of business and maturing not more than one year from
the date of this Agreement and except as provided in this Agreement; or

(c) Consolidate or merge with or into any other corporation or create
any mortgage or lien upon any of its properties or assets except in the
ordinary course of its business and except as provided in this
Agreement.

10. To provide to Underwriter any reasonable additional information or
documentation deemed by the Underwriter to be necessary in the performance of
the Underwriter's due diligence.

11. To provide Underwriter:

(i) at least twenty-four (24) hours prior to dissemination to
Noteholders, a facsimile of any letter, notice or other similar
communication, provided that the foregoing in no way obligates the
Company to await Underwriter approval of such letter, notice or similar
communication prior to dissemination, and

(ii) from time to time, access to review operations and such other
public information concerning the Company as Underwriter may reasonably
request.

IV. Indemnity Provisions

1. The Company shall indemnify, defend and hold the Underwriter
(including any underwriter, dealer or securities dealer associated with the
Underwriter), and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act, free and harmless from and against any and all
losses, claims, demands, liabilities, and expenses (including reasonable legal
or other expense incurred by each Underwriter and controlling person in
connection with defending any claims or liabilities, whether or not resulting in
any liability to the Underwriter (or to any controlling person), which the
Underwriter or controlling person may incur under the Act or at common law or
otherwise, but only to the extent that the losses, claims, demands, liabilities,
and expenses arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
in the Prospectus, or in any amendment or amendments to the Registration
Statement or the Prospectus, or in any application or other papers executed by
any underwriter or dealer with the written approval of the Company for filing in
any

BEST EFFORTS UNDERWRITING AGREEMENT - Page 9

<PAGE> 10

state or states in order to qualify the securities covered by this Agreement
under the securities laws of those state (the "Blue Sky Application"), or arise
out of or are based upon any omission or alleged omission to state in these
documents a material fact required to be stated in them or necessary to make the
statements in them not misleading, provided, however, that this indemnity
agreement shall not apply to any losses, claims, demands, liabilities, or
expenses arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus or in any amendment or amendments to them or in any Blue Sky
Application, or arising out of or based upon the omission or alleged omission to
state in these documents a material fact required to be stated in them or
necessary to make the statements in them not misleading, which statement or
omission was made in reliance upon information furnished to the Company by the
Underwriter in writing expressly for use in the Registration Statement or the
Prospectus or in any amendment or amendments to them, or was made by the
Underwriter in a Blue Sky Application not in reliance upon information furnished
by the Company.

2. The foregoing indemnity of the Company in favor of the Underwriter
shall not be deemed to protect the Underwriter against any liability to the
Company or its Noteholders to which the Underwriter would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties, or by reason of their reckless disregard of their
obligations and duties under this Agreement.

3. The Underwriter shall give the Company an opportunity to participate
in the defense or preparation of the defense of any action brought against the
Underwriter or controlling person of the Underwriter to enforce any claim or
liability, and the Company may so participate. The Company's agreement under the
foregoing indemnity is expressly conditioned upon notice of any action being
sent by the Underwriter or controlling person, as the case may be, to the
Company, by letter or facsimile (addressed as provided herein), promptly after
the commencement of the action against the Underwriter or controlling person.
Such notice must either be accompanied by copies of papers served or filed in
connection with the action or by a statement of the nature of the action to the
extent known to the Underwriter. Failure to notify the Company within a
reasonable time of an action shall relieve the Company of its respective
liabilities under the foregoing indemnity, but failure to notify the Company
shall not relieve the Company from any liability that the Company may have to
the Underwriter or controlling person other than on account of the indemnity
agreement contained in this Article IV.

4. The Underwriter likewise shall indemnify, defend and hold harmless
the Company against any and all losses, claims, expenses, and liabilities to
which it may become subject arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus, or in any amendment or amendments to the
Registration Statement or the Prospectus, or in any Blue Sky Application, or
arising out of or based upon the omission or alleged omission to state in these
documents a material fact required to be stated in them or necessary to make the
statements in them not misleading, resulting from the use of written information
furnished to the Company by the Underwriter expressly for use in the

BEST EFFORTS UNDERWRITING AGREEMENT - Page 10

<PAGE> 11

preparation of the Registration Statement or the Prospectus, or in any amendment
or amendments to the Registration Statement or the Prospectus, or in any Blue
Sky Application.

5. The Company shall give the Underwriter an opportunity to participate
in the defense or preparation of the defense of any action brought against the
Company to enforce any claim or liability, and the Underwriter shall have the
right so to participate. The agreement of the Underwriter under the foregoing
indemnity is expressly conditioned upon notice of any action being sent by the
Company to the Underwriter, by letter or by facsimile (addressed as provided in
this Agreement), promptly after the commencement of the action against the
Company. The notice must either be accompanied by copies of papers served or
filed in connection with the action or by a statement of the nature of the
action to the extent known to the Company. Failure to notify the Underwriter of
any action shall relieve the Underwriter of its liability under the foregoing
indemnity, but failure to notify the Underwriter shall not relieve the
Underwriter from any liability which the Underwriter may have to the Company or
its stockholders otherwise than on account of the indemnity agreement contained
in this Article IV.

6. The provisions of this Article IV shall not in any way prejudice any
right or rights that the Underwriter may have against the Company, or that the
Company may have against the Underwriter, under any statute other than the Act,
at common law or otherwise.

7. The indemnity agreements contained in this Article IV shall survive
the Delivery Date and shall inure to the benefit of successors of the Company
and successors of the Underwriter, and shall be valid irrespective of any
investigation made by or on behalf of the Underwriter or the Company.

V. Payment of Expenses

The Company shall, at its own expense and without expense to the
Underwriter, pay all costs and expenses incident to this Agreement (except for
the Underwriter's legal fees), including, but without limitation, all expenses
in connection with the preparation, printing and filing of the Registration
Statement and the Prospectus as well as all amendments to them together with all
exhibits; pay all filing fees and costs, original issue taxes, trustee's fees,
charges, or disbursements connected with the issue and delivery of the Notes;
and pay all reasonable expenses incurred in connection with the qualification of
the Notes under the securities or blue sky laws of the states previously
referred to.

VI. Public Offering

1. The Underwriter shall make a public offering on a best efforts basis
of the Notes covered hereby as soon after the effective date of the Registration
Statement as is advisable in accordance with and as set forth in the
Registration Statement. The public offering may be made either in the

BEST EFFORTS UNDERWRITING AGREEMENT - Page 11

<PAGE> 12

open market or through securities dealers (acting as principals) selected by the
Underwriter, or partly in each manner, as determined by the Underwriter in their
sole discretion. The Underwriter may pay these dealers out of the commissions
received by the Underwriter for the Notes sold by the dealers whatever
compensation the Underwriter and such dealers may determine.

VII. Payments on Default

If any of the conditions, representations or warranties set forth in
Article VIII of this Agreement are not fulfilled in any material respect, or if
for any reason the Company fails to comply with the terms of this Agreement in
any material respect (other than in connection with a breach of the Agreement by
the Underwriter), and if the Underwriter elects to terminate this Agreement
pursuant to Article XI hereto, then, in addition to paying the Company's own
expenses as provided in Article V hereof, the Company shall reimburse the
Underwriter for its actual accountable out-of-pocket expenses.

VIII. Conditions Precedent to Underwriter's Obligations

The obligations hereunder of the Underwriter are conditioned upon:

1. The approval of counsel for the Underwriter of the form and content
of the Registration Statement and the Prospectus, of the organization and
present legal status of the Company, and of the legality and validity of the
Notes to be offered hereunder, which approval shall not be unreasonably
withheld.

2. The Company's performance in all material respects of all the
obligations required by it to be performed hereunder and the truth, completeness
and accuracy of all statements and representations in all material respects
contained herein or of any consolidated financial statements furnished
hereunder.

3. From the date hereof until the Delivery Date, and during the term
hereof, no material adverse change occurring in the properties and assets of the
Company, other than changes occurring in the ordinary course of business.

4. No claim being made or legal action being instituted against the
Company, which if adversely determined would have a material adverse effect on
the financial condition of the Company, taken as a whole, and no reasonable
basis for a claim or an action of this nature being discovered.

5. The Registration Statement becoming effective no later than June 30,
1999, or whatever later date that may be agreed upon, and no amendment to the
Registration Statement being filed to which the Underwriter reasonably have
objected after having received reasonable notice; and no stop order suspending
the effectiveness of the Registration Statement being issued and no proceedings
for that purpose being threatened or instituted.

BEST EFFORTS UNDERWRITING AGREEMENT - Page 12

<PAGE> 13

6. Prior to the Delivery Date, the Company not sustaining any loss on
account of fire, flood, accident, or calamity of a character that materially
adversely affects its business or property, regardless of whether the loss is
insured; no litigation being instituted or threatened against the Company of a
character required to be disclosed in the Registration Statement that is not
disclosed and that shall materially adversely affect the Company, its business
or its property; and no substantial adverse change occurring in the operations
or financial condition or credit of the Company or in any conditions affecting
the prospects of the business of the Company.

7. The Company having furnished to the Underwriter on the Delivery Date
an opinion or opinions of Jordaan & Pennington, PLLC, counsel to the Company,
dated the Delivery Date and stating in effect that:

(a) The Company has been duly incorporated and, on the Delivery Date,
is validly existing corporation in good standing under the laws of the
State of Delaware with an authorized and issued capital stock as set
forth in the Registration Statement, and the shares of the Company
shown in the Registration Statement to be issued and outstanding have
been duly and validly issued and are outstanding;

(b) The Company is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires
such registration and qualification, except where the failure so to
register and qualify does not have material adverse effect on the
financial condition of the Company.

(c) The Notes conform in all material respects to the description of
the Notes contained in the Registration Statement and the Prospectus,
subject to the qualifications set forth in those documents, and the
holders of the Notes shall be entitled to the rights and preferences
set forth in the certificates for the Notes;

(d) The Company has the requisite corporate power and authority to
enter into and perform their respective obligations under the
Agreement. The Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the
Company and is enforceable against the Company in accordance with its
terms, subject to the Underwriter obtaining the approval of the
National Association of Securities Dealers, Inc. to the compensation
and other arrangements set forth therein, except to the extent that the
rights to indemnification thereunder may be limited by federal or state
securities laws and policies embodied therein, or to the extent that
such obligations are subject to or affected or limited by (i)
applicable liquidation, conservatorship, bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws
affecting creditors' rights or in the collection of debtors obligations
generally from time to time in effect or (ii) general principles of
equity (whether enforceability is considered in a proceeding in equity
or at law), including the qualification that the availability of the
remedy of specific performance or injunctive relief or other equitable
remedies is subject to the discretion of the court before which any
such preceding therefor may be brought and including standards of good
faith, fair

BEST EFFORTS UNDERWRITING AGREEMENT - Page 13

<PAGE> 14

dealing and reasonableness that may be applied by a court to the
exercise or certain rights and remedies;

(e) The Registration Statement and the Prospectus comply as to form in
all material respects with the requirements of the Act and the rules
and regulations of the Commission under the Act (except that no opinion
need be expressed as to financial statements and financial data); and

(f) That counsel has no knowledge or information concerning pending or
threatened litigation or any unasserted claims or assessments by any
third party, or parties, against the Company that is not disclosed in
the Registration Statement that are required to be disclosed in the
Registration Statement.

8. The Company having furnished to the Underwriter on the Delivery Date
a certificate or certificates verified by the President or a Vice President and
by the Treasurer of the Company, certifying that:

(a) The respective signers of the certificate or certificates have
examined the answers to each item of the Registration Statement and the
information contained in the Prospectus, and, to the best of their
knowledge, information and belief, those answers and that information,
as of the effective date of the Registration Statement, were true and
correct and did not omit to state any material fact required to be
stated or necessary in order to make the statements not misleading; and
since the effective date of the Registration Statement no event has
occurred that should have been set forth in an amendment to the
Registration Statement or in a supplement or amendment to the
Prospectus that has not been so set forth in an amendment or
supplement;

(b) The respective signers of the certificate or certificates do not
know of any litigation or proceeding instituted or threatened against
the Company of a character required to be disclosed in the Registration
Statement that is not disclosed in the Registration Statement;

(c) The respective signers of the certificate or certificates do not
know of any contract or arrangement that is required to be summarized
or disclosed in the Registration Statement or filed as an exhibit to
the Registration Statement that has not been summarized or disclosed or
filed;

(d) To the best of their knowledge, information and belief, the
respective signers know of no substantial adverse change in the general
affairs of the Company, or in the financial position of the Company
during the period from the date of the latest financial statements
contained in the Registration Statement to the Delivery Date, except
for the changes disclosed or indicated in the Registration Statement;
and

BEST EFFORTS UNDERWRITING AGREEMENT - Page 14

<PAGE> 15

(e) To the best of their knowledge, information and belief (i) the
representations and warranties contained in Article I of this Agreement
are true and correct at the Delivery Date; (ii) no stop order
suspending the effectiveness of the Registration Statement has been
issued prior to the Delivery Date and no proceedings for that purpose,
prior to that date, has been initiated or threatened by the Commission;
(iii) every reasonable request by the Commission for additional
information to be included in the Registration Statement or the
Prospectus or otherwise has or will be complied with; (iv) prior to the
Delivery Date, the Company has not sustained a loss on account of fire,
flood, accident, or calamity of a character that materially adversely
affects its property or business.

9. The Company having furnished to the Underwriter copies of the
Certificate of Incorporation and of each amendment to the Certificate of
Incorporation, if any, of the Company, which are officially certified by a
proper state official; one copy of the bylaws of the Company certified by the
Secretary or an Assistant Secretary of the Company as being currently in effect;
and a certificate of good standing issued by the proper state official or
officials of each state in which the Company transacts business.

10. The Company having furnished to the Underwriter whatever
certificates, in addition to those specifically mentioned in this Agreement,
that the Underwriter may request as to the accuracy, on the Date of Delivery, of
the representations and warranties of the Company in this Agreement, as to the
performance by the Company of its obligations under this Agreement, and as to
the other concurrent or precedent conditions to the obligations of the
Underwriter under this Agreement.

All of the opinions, letters, evidence, and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in full compliance
with the provisions hereof only if they are in form satisfactory to counsel to
the Underwriter.

In the event of the failure of any of the above conditions in any
material respect, the Underwriter may be relieved of any and all obligations
hereunder or may waive this right and demand full performance hereunder.

IX. Delivery Date

The Delivery Date, as referred to in this Agreement, shall be a date
agreed upon by the Company and the Underwriter and failing agreement, then the
Delivery Date shall be the Effective Date of the offering of the Notes.

1. The representations and warranties in this Agreement shall survive
the Delivery Date and shall continue in full force and effect regardless of any
investigation made by the party relying upon any representation or warranty.

2. This Agreement shall inure to the benefit of, and be binding upon,
the Company and the Underwriter (including specifically any dealer that the
Underwriter associates with pursuant hereto),

BEST EFFORTS UNDERWRITING AGREEMENT - Page 15

<PAGE> 16

and their successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person other than the persons
mentioned in the preceding sentence any legal or equitable right, remedy or
claim under or with respect hereto, or any provisions contained herein. This
agreement and all of its conditions and provisions are for the sole and
exclusive benefit of the foregoing persons and for the benefit of no other
person, except that the warranties, indemnities and agreements of the Company
contained herein also shall be for the benefit of any persons, if any, who
control the Underwriter within the meaning of Section 15 of the Act, and except
that the indemnification by the Underwriter shall be for the benefit of the
directors of the Company and the officers of the Company who have signed the
Registration Statement.

3. This Agreement sets forth the entire agreement between the parties
hereto, and no representation, warranty, understanding, or agreement not
specifically set forth herein shall be implied from this Agreement.

4. The proceeds received by the Underwriter from the sale of the Notes
shall be remitted to the Trustee(s) not later than noon of the following
business day, less the selling commission payable by the Company to the
Underwriter.

5. The Underwriter shall comply with all of the rules and regulations
of the Commission and the state regulatory agencies where the Notes shall be
offered. If at any time during the term of this Agreement, the Underwriter
should, for any reason, be disqualified or precluded from offering to the public
these Notes, then the Company shall have the option to terminate this Agreement
upon three (3) days written notice to the Underwriter, in which event this
Agreement shall be void and of no further force and effect, except that the
Underwriter shall be entitled to the commissions earned and to their accountable
out-of-pocket expenses.

Notwithstanding anything to the contrary contained in this agreement,
in the event the offering is terminated prior to its effective date or prior to
the satisfaction of all conditions for the release of funds under the terms of
the Escrow Agreement, the Underwriter shall receive no commissions hereunder and
will be reimbursed only for its actual accountable out-of-pocket expenses as
required under Rule 2710(c)(6)(b)(iv) of the NASD Rules of Fair Practice.

6. This Agreement, unless sooner terminated as herein provided, shall
continue until all Notes registered under the Registration Statement are either
sold or withdrawn by the Company from registration, whichever event first
occurs.

X. Underwriter's Right to Terminate

Notwithstanding any of the terms and provisions hereof, this Agreement
may be terminated by the Underwriter based on a material breach of this
Agreement by the Company. Underwriter shall give fifteen (15) days prior written
notice to the Company of such breach, and the Company shall have the opportunity
to cure such breach. In the event of such termination, the Underwriter shall be
entitled to any commissions to which it was entitled as of the date of
termination as well as any and all accountable out-of-pocket expenses. In the
event that the Underwriter reasonably determines that the Notes are not
marketable, notwithstanding its best efforts to sell the Notes, the Underwriter
may terminate this Agreement with thirty (30) days prior written notice.

BEST EFFORTS UNDERWRITING AGREEMENT - Page 16

<PAGE> 17

XI. Post-Effective Amendments

1. The Company shall prepare and file under the Act any required
post-effective amendments to the Registration Statement and related Prospectus
or new Registration Statements and new related Prospectuses.

2. If any post-effective amendments or new Registration Statements
become effective, the Company shall furnish to the Underwriter opinions by the
same counsel and to the same effect as those required by Article VIII of this
Agreement, except that such opinions shall relate to the post-effective
amendments and new Prospectuses or to the new Registration Statements and new
Prospectuses and to the Notes that are being offered. The Company further agrees
with respect to these post-effective amendments and new Prospectuses and with
respect to these new Registration Statements and new Prospectuses to observe all
of the terms and conditions of this Agreement as set forth in Article III,
subdivisions 1, 2, 3, 4, 5, 6, and 7 and Article IV.

XII. Notice

Any notice required or permitted to be given under or pursuant to this
Agreement may be given in writing by depositing the notice in the United States
mail, postage prepaid, by hand-delivery or by courier, or by facsimile,
addressed as follows:

To the Underwriter:

Massie Capital, Ltd.
4100 International Plaza, Suite 2-115
Fort Worth, Texas 76109
FAX - (817) 731-3598

To the Company:

PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
FAX - (817) 335-6430
Attention: Carson R. Thompson, Chief Executive Officer

Copy to:

Jordaan & Pennington, PLLC
300 Crescent Court, Suite 1605
Dallas, Texas 75201
Attn: Jakes Jordaan
FAX - (214) 871-6560

BEST EFFORTS UNDERWRITING AGREEMENT - Page 17

<PAGE> 18

Notice shall be deemed given to a party hereunder when actually
received by such party.

XIII. Miscellaneous

1. This Agreement may be modified only by writing signed by the parties
hereto.

2. This Agreement shall be governed and construed in accordance with
the laws of the state of Texas.

3. This Agreement may be signed in various counterparts, which together
shall constitute one and the same instrument.

4. For purposes of any lawsuit or other proceeding in respect to this
Agreement, the undersigned hereby submits and consents to the jurisdiction of
any court of competent jurisdiction sitting in the State of Texas, Dallas
County.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day, month and year first written above.

PawnMart, Inc.

---------------------------------------
Carson R. Thompson
Chief Executive Officer

Massie Capital, Ltd.

---------------------------------------
Name:
---------------------------------
Title:
---------------------------------

BEST EFFORTS UNDERWRITING AGREEMENT - Page 18

<PAGE> 1
Exhibit 4.10

SUBSCRIPTION ESCROW AGREEMENT

THIS AGREEMENT made effective on March __, 1999 by and between PawnMart, Inc.,
("Issuer"), Massie Capital, Ltd., ("Dealer"), and Norwest Bank Texas, N.A.,
("Agent").

WHEREAS, the Issuer is offering for subscription, up to $10,000,000 in principal
amount of its 12% Subordinated Notes Due 2004 (the "Notes") on the terms and
conditions set forth in the Prospectus (the "Prospectus") filed with the
Securities and Exchange Commission in connection with the Issuer's Form S-1
Registration Statement, File No. 333-70635; and

WHEREAS, the Issuer appoints the Agent to perform the services of depository and
escrow agent pursuant to the terms and conditions of this Agreement with respect
to subscriptions to the Issuer made by prospective purchasers of the Notes (the
"Investors");

NOW, THEREFORE, the parties hereto agree as follows:

1. Investor checks shall be delivered and made payable to Agent until the
earlier of (i) the date that Agent receives Investor checks aggregating
at least $250,000 (the "Minimum Subscription"), or (ii) June 30, 1999,
(the "Subscription Cut-off Date"). Dealer shall transmit Investor
checks and subscription agreements to the Agent by noon of the next
business day following receipt by the Dealer, and Agent shall deposit
all subscription checks and other payments for the Notes by Investors
which it receives into an escrow account maintained by Agent (the
"Escrow Fund"). The Escrow Agent will credit the proceeds to an escrow
cash account (the "Escrow Account") to be held and invested by it under
the terms of this Agreement subject to Rule 15c2-4 under the Securities
Exchange Act of 1934.

2. The Issuer reserves the right to reject any subscription. The Issuer
shall promptly refund the subscription amount which has been rejected
to the Investor unless the subscription amount is on deposit with
Agent, in which case Agent, upon written direction of the Issuer, shall
make such refund with interest, if any, as soon as Agent has collected
funds on such Investor's check.

3. Prior to the close of business on the Subscription Cut-Off Date, Agent
shall verify with the Issuer whether or not subscriptions for the
Minimum Subscription have been received.

4. If the Minimum Subscription has been received by Agent prior to the
close of business on the Subscription Cut-Off Date, the Issuer shall
advise Agent in writing that the subscription was successful. Agent
shall then and thereafter remit collected funds (including interest
earned thereon) to the Issuer at the Issuer's request and in the
Issuer's sole discretion. Amounts received by Agent in forms other than
cash shall be available for transfer to the Issuer or to the Investor,
as the case may be, once Agent has collected funds.

Page 1 of 7
<PAGE> 2

5. If Agent has not received (i) Investor checks or other payments
evidencing the subscription of at least the Minimum Subscription prior
to the close of business on the Subscription Cut-Off Date, AND (ii)
within a reasonable time after the Subscription Cut-Off Date, written
advice from the Issuer as required by Paragraph 4 above concerning the
success of the subscription, all subscriptions and amounts paid in
respect thereto shall be promptly returned to the Investors together
with any interest which has been earned thereon.

6. Agent shall have no authority or obligation to exercise discretion as
to the investment of the Escrow Fund, but will invest and reinvest the
Escrow Fund in short term debt obligations issued or guaranteed by, and
bearing the full faith and credit as to the repayment of full principal
and interest of, the United States of America, shares in money market
mutual funds that invest in such assets, or will deposit the Escrow
Fund in any time or savings deposit of the Agent, not to exceed
$100,000 at any one institution, of any federally insured bank
chartered and supervised by the United States of America and holding
FDIC (or its successor) insurance. The subscription payments will be
invested within three business days after receipt of good funds to the
Agent. The escrow funds shall be in all respects invested in funds
according to Rule 15c2-4 of the Securities Exchange Act of 1934.

7. Agent shall be under no duty or responsibility to enforce collection of
any checks delivered to Agent hereunder. Agent shall promptly notify
and return to the Issuer any check or instrument received from the
Issuer or Investor upon which payment is refused, together with the
related documents which were delivered to Agent. If any check or
instrument delivered to Agent under this Agreement is uncollectible,
Agent shall notify the Issuer and shall deliver the returned check or
instrument to the Issuer.

8. Agent shall provide all administrative and reporting services
contemplated by this Agreement to effect the purpose stated herein.

9. Agent is not a party to, nor is it bound by, any agreement out of which
this Agreement may arise including, but not limited to, the Prospectus.
Agent is not charged with notice of the existence of any agreement out
of which this Agreement may arise other than the Prospectus.

10. The Agent may resign, for any reason, upon ten (10) days written notice
to the parties to this Agreement. Upon expiration of such ten (10) days
notice period (or as soon as practicable with respect to funds that are
not collected funds at the expiration of such period), the Agent shall
deliver all cash or property in its possession under this Agreement to
any successor Agent appointed by the Issuer, or if no successor Agent
has been appointed, to any court of competent jurisdiction in Tarrant
County, Texas. Upon either such delivery, Agent shall be released from
any and all liability under this Agreement.

Page 2 of 7
<PAGE> 3

11. Agent may act upon any notice, request, certificate, approval, consent
or other paper believed by it to be genuine and to be signed by the
proper party or parties. Agent shall not be required to take any action
(or refrain from taking any action) if, in the reasonable opinion of
Agent, such action (or inaction) could expose Agent to a risk of
incurring costs, expenses or liabilities against which Agent has not,
in its reasonable opinion, received adequate indemnity and security.

12. The Agent shall be entitled to compensation from the Issuer for acting
hereunder in accordance with the fee schedule attached as EXHIBIT A
hereto. Agent fees will be paid by the Issuer to the Agent in
accordance with the attached fee schedule. The Agent shall also be
entitled to reimbursement of out-of-pocket expenses incurred in
connection with the performance of its services as Agent, including
reasonable fees and disbursements of legal counsel.

13. Agent and its affiliates shall not be liable, responsible, or
accountable for damages or otherwise to the Issuer or any Broker/Dealer
for any act or omission under the provisions of this Agreement, unless
such act or omission constitutes gross negligence, willful misconduct,
or fraud on behalf of the Agent.

14. The Agent, its affiliates, and each of its officers, directors,
employees, agents and attorneys (collectively, the "Indemnified
Parties") shall be indemnified against and be held harmless by the
Issuer from any and all losses, costs, damages, expenses, claims and
attorney's fees suffered or incurred by the Indemnified Parties as a
result of, in connection with or arising from, or out of, but not
limited to, the acts or omissions of any Indemnified Party in
performance of or pursuant to this Agreement, except such acts or
omissions as may result from such Indemnified Party's willful
misconduct, gross negligence or fraud.

15. The Agent shall not be responsible for the sufficiency or accuracy, or
the form, execution, validity or genuineness, of documents or
securities now or hereafter deposited or received hereunder, or of any
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein, nor shall it be responsible or liable in any
respect on account of the identity, authority or rights of any person
executing, depositing or delivering or purporting to execute, deposit
or deliver any such document, security or endorsement or this
Agreement, or on account of or by reason of forgeries, false
representations, or the exercise of its discretion in any particular
manner, nor shall the Agent be liable for any mistake of fact or of law
or any error of judgment, or for any act or omission, except as a
result of its gross negligence or willful malfeasance. The Agent's
liability for any grossly negligent performance or non-performance
shall not exceed its fees and charges in connection with the services
provided hereunder. Under no circumstances shall Agent be liable for
any general or consequential damages or damages caused, in whole or in
part, by the action or inaction of the Issuer or any of its agents or
employees. Agent shall not be liable for any damage, loss, liability or
delay caused by accidents, strikes, fire, flood, war, riot, equipment
breakdown, electrical or mechanical failure, acts of God or any cause
which is reasonably unavailable or beyond its reasonable control.

Page 3 of 7
<PAGE> 4

16. In the event of any disagreement involving a party to this Agreement
resulting in adverse claims or demands being made in connection with
the subject matter of this Agreement, or in the event that the Agent is
in doubt as to what action it should take hereunder, the Agent may, at
its option, refuse to comply with any claims or demands on it, or
refuse to take any other action hereunder so long as such disagreement
continues or such doubt exists, and in any such event, the Agent shall
not be or become liable in any way or to any person for its failure or
refusal to act, and the Agent shall be entitled to continue to refrain
from acting until (i) the rights of all parties have been fully and
finally adjudicated by a court of competent jurisdiction or (ii) all
differences shall have been adjudged and all doubt resolved by
agreement among all of the interested persons, and the Agent shall have
been notified thereof in writing signed by all such persons. In
addition to the foregoing remedies, the Agent is hereby authorized in
the event of any doubt as to the course of action it should take under
this Agreement, to petition the District Court of Tarrant County,
Texas, for instructions or to interplead the funds or assets so held
into such court. The parties agree to the jurisdiction of said court
over their persons as well as all amounts on deposit in the Escrow
Fund. In the event of any dispute and/or any litigation concerning the
subject matter of the Agreement (including any litigation incident to
the resignation of Agent), Agent shall be entitled to retain counsel of
its choice and Issuer shall indemnify, defend and hold harmless Agent
of and from any and all costs, loss, damage and exposure associated
with such dispute and/or litigation, including all reasonable and
necessary attorney's fees of Agent incurred in connection with such
dispute and/or litigation. Parties hereto agree that Agent shall be
entitled to recover such cost, loss, damages or expense (including
attorney fees) directly from the funds on deposit with Agent or
interplead with a court (as permitted under this Agreement) without
prejudice to Agent's further right of recovery against any party hereto
in the event such funds shall be insufficient to fully reimburse Agent.
This provision shall survive the resignation of Agent.

17. Each party to this Agreement shall be deemed conclusively to have given
and delivered any notice, request or instruction required to be given
or delivered hereunder if the same is in writing, signed by such party
and mailed by first class mail, postage prepaid, addressed to the other
party hereto, at the address set forth below; provided, however, that
the verification required of Agent by Paragraph 3 above, shall be given
orally (by telephone or in person) by contacting the officer of the
Issuer executing this Agreement on behalf of the Issuer at (817)
335-7296, and then confirmed in writing if the Issuer so requests. Any
written notices required by this Agreement shall be addressed as
follows:

If to Agent:

George Bruns
Norwest Bank Texas, N.A.
777 West Rosedale, Suite 150
Fort Worth, Texas 76113

Page 4 of 7

<PAGE> 5

If to Issuer:

Thomas W. White
PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
Telecopy No. (817) 335-6430

If to Dealer:
William Massie
Massie Capital, Ltd.
4100 International Plaza, Suite 2-115
Fort Worth, Texas 76109
Telecopy - (817) 377-4755

18. This Agreement expressly and exclusively sets forth the duties of Agent
with respect to any and all matters pertinent hereto and no implied
duties or obligations shall be read into this Agreement against Agent.

19. Unless and until the Escrow Fund is delivered to the Issuer under
Paragraph 4, it is specifically recognized and agreed that the Issuer
shall not have any right, title or interest in such funds; it being the
intention of the parties hereto that the Escrow Fund shall not be
subject to claims against the Issuer or any of its affiliates unless
and until the Minimum Subscriptions of ____ are achieved and delivery
of the funds thereof is made, as aforesaid, and the escrow account
hereunder is ended.

20. THIS ESCROW AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT THAT THE PORTIONS OF THE
TEXAS TRUST CODE, SECTION 111.001, ET SEQ. OF THE PROPERTY CODE,
V.A.T.S. CONCERNING FIDUCIARY DUTIES AND LIABILITIES OF TRUSTEE SHALL
NOT APPLY TO THIS AGREEMENT. THE PARTIES EXPRESSLY WAIVE SUCH DUTIES
AND LIABILITIES, IT BEING THEIR INTENT TO CREATE SOLELY AN AGENCY
RELATIONSHIP AND HOLD AGENT LIABLE ONLY IN THE EVENT OF ITS GROSS
NEGLIGENCE, WILLFUL MISCONDUCT OR IN ORDER TO OBTAIN THE LOWER FEE
SCHEDULE RATES AS SPECIFICALLY NEGOTIATED WITH AGENT. ANY LITIGATION
CONCERNING THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE EXCLUSIVELY
PROSECUTED IN THE COURTS OF TARRANT COUNTY, TEXAS, AND ALL PARTIES
CONSENT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THOSE COURTS.

This Agreement shall inure to and be binding upon the parties hereto,
their successors and assigns. The terms of this Agreement shall
commence with the date hereof and shall

Page 5 of 7
<PAGE> 6

continue until the offering of the Minimum Subscriptions is achieved or
fails to be achieved by the Subscription Cut-Off Date, and the Escrow
Fund is disposed of under Paragraphs 4 or 5. All protections and
indemnities benefitting Agent (and any other Indemnified Party) are
cumulative of any other rights it (or they) may have by law or
otherwise, and shall survive the termination of this Agreement or the
resignation or removal of the Agent.

21. Except as otherwise required by law, neither Agent nor any successor
Agent shall be required to obtain or post a bond or any other security
in connection with the performance of its services hereunder.

22. No amendment to this Agreement shall be binding unless such amendment
is in writing and signed by the Agent or any successor Agent and the
Issuer.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by duly authorized representatives as of the date first
above written.

ISSUER:

PAWNMART, INC.

By:
------------------------------------
Thomas W. White, Senior Vice President and Chief Financial Officer

DEALER:

MASSIE CAPITAL, LTD.

By:
------------------------------------
William Massie, President

AGENT:

NORWEST BANK TEXAS, N.A.

By:
------------------------------------
George Bruns, Senior Vice President and Lead Trust Manager

Page 6 of 7
<PAGE> 7

EXHIBIT A

ESCROW FEE SCHEDULE

Page 7 of 7

<PAGE> 1
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
PawnMart, Inc.:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

KPMG LLP

Fort Worth, Texas
March 10, 1999