FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
Commission file number: 0-18291
U.S. PAWN, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0819941
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7215 Lowell Boulevard
Westminster, CO 80030
(Address of principal executive offices)
(Zip Code)
(303) 657-3550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, No Par Value, 3,452,989 shares as of October 25, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. PAWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(amounts in thousands)
ASSETS
------
September December
30, 1996 31, 1995
-------- --------
CURRENT ASSETS:
Cash $ 545 $ 282
Service charges receivable 431 352
Pawn loans 2,966 2,704
Accounts receivable, net 59 35
Notes receivable-related parties 68 241
Inventory 1,953 1,394
Prepaid expenses and other 158 96
------ ------
Total current assets 6,180 5,104
PROPERTY AND EQUIPMENT, at cost, net 1,318 1,249
NOTES RECEIVABLE-RELATED PARTIES - 69
INTANGIBLE ASSETS, net 545 135
OTHER ASSETS 21 19
------ ------
$8,064 $6,576
====== ======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
U.S. PAWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(amounts in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
September December
30, 1996 31, 1995
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 35 $ 32
Customer layaway deposits 47 41
Accrued expenses 207 149
Income taxes payable 64 81
Notes payable 1,235 887
Notes payable-related parties 443 419
Current portion of long-term debt 53 21
------ -----
Total current liabilities 2,084 1,630
LONG-TERM DEBT, less current portion - 50
DEFERRED INCOME TAXES 84 131
------ ------
Total Liabilities 2,168 1,811
COMMITMENTS AND CONTINGENCIES:
MINORITY INTEREST IN SUBSIDIARY 38 -
STOCKHOLDERS' EQUITY:
Redeemable preferred stock, 9.5%,
$10 par value, 1,000,000 authorized:
37,500 shares issued and outstanding 378 378
Common stock, no par value, 30,000,000 shares
authorized; 3,425,989 and 3,087,322
shares issued and outstanding 3,806 3,241
Additional paid-in capital 776 822
Retained earnings 898 324
----- ------
Total Stockholders' Equity 5,858 4,765
------ ------
$8,064 $6,576
====== ======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
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<TABLE>
<CAPTION>
U.S. PAWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Sales $1,489 $1,320 $4,194 $3,868
Pawn service charges 1,166 1,059 3,337 3,118
Other income 19 18 64 63
------ ----- ------ ------
Total Revenues 2,674 2,397 7,595 7,049
COST OF SALES AND EXPENSES:
Cost of sales 1,084 1,040 3,131 3,092
Operations 849 767 2,421 2,297
Administration 248 240 740 701
Interest 58 66 160 186
Depreciation and amortization 68 49 187 165
------ ------ ------ ------
Total Cost of Sales
and Expenses 2,307 2,162 6,639 6,441
------ ------ ------ ------
INCOME FROM OPERATIONS BEFORE
INCOME TAXES 367 235 956 608
PROVISION FOR INCOME TAXES 130 82 337 207
------ ------ ------ ------
NET INCOME 237 153 619 401
DIVIDENDS ON PREFERRED STOCK (9) (9) (27) (27)
MINORITY INTEREST (9) - (19) -
------ ------ ------ ------
EARNINGS AVAILABLE FOR
COMMON STOCKHOLDERS $ 219 $ 144 $ 573 $ 374
====== ====== ====== ======
EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS $ 0.06 $ 0.04 $ 0.17 $ 0.12
------ ------ ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS OUTSTANDING 3,452 3,126 3,287 3,102
====== ====== ====== ======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine Months Ended Sept 30,
--------------------------
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 600 $ 401
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 187 165
Deferred income taxes (46) 46
Minority interest in subsidiary earnings 19 -
Changes in:
Service charges receivable (17) 10
Inventory, excluding forfeited loan collateral 2,131 2,300
Accounts receivable (24) 69
Prepaid expenses and other (62) (13)
Accounts payable 4 (30)
Accrued expenses 58 (3)
Income taxes payable (17) 162
Customer layaway deposits 5 11
------- ------
Net Cash Provided by Operating Activities 2,838 3,118
CASH FLOWS (TO) INVESTING ACTIVITIES:
Pawn loans made (7,391) (7,227)
Pawn loans repaid 4,939 4,593
Purchase of property and equipment (172) (522)
Proceeds from note receivable - 81
Payments on notes receivables-related parties 243 211
Decrease(increase) in other assets (68) 16
Acquisition of subsidiary companies (858) -
------- ------
Net cash (Used) by Investing Activities (3,307) (2,848)
CASH FLOWS FROM(TO) FINANCING ACTIVITIES:
Dividends paid (27) (27)
Issuance of notes payable and long-term debt 921 684
Payments on notes payable and long-term debt (665) (784)
Payments on capital lease obligations - (2)
Issuance of notes payable-related parties 19 44
Payments on notes payable-related parties (33) (3)
Purchase of redeemable common stock - (42)
Issuance of common stock, net of offering costs 517 72
------- -------
Net Cash Provided(Used)
by Financing Activities 732 (58)
------- -------
NET INCREASE (DECREASE) IN CASH 263 212
CASH, beginning of period 282 270
------- -------
Cash, end of period $ 545 $ 482
------- -------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 155 $ 182
======= =======
Income taxes $ 406 $ -
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of forfeited loan collateral to
inventory $ 2,514 $ 2,571
======= =======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
</TABLE>
<PAGE>
U.S. PAWN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements (the "financial
statements") include the accounts of U.S. Pawn, Inc. and its 80%-owned
subsidiary, Advantage Pawn (the "Company"), from the effective acquisition date
of February 1, 1996. All material inter-company transactions have been
eliminated upon consolidation. The financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions for Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the financial statements contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations, and cash flows of
the Company for the interim periods presented.
The results for the three and nine months ended September 30, 1996 are not
necessarily indicative of the results of operations for the full year. These
financial statements and related footnotes should be read in conjunction with
the financial statements and footnotes thereto included in the Company's Forms
10-KSB filed with the Securities and Exchange Commission for the year ended
September 30, 1995 and the three month transition period ended December 31,
1995.
Certain amounts in the prior year's financial statements have been reclassified
for comparative purposes to conform with the current year. These
reclassification had no effect on results of operations or retained earnings as
previously reported.
NOTE 2 - ACQUISITIONS
Effective February 1, 1996, the Company acquired 80% of the outstanding common
stock of Advantage Pawn, a Wyoming corporation ("Advantage"). Under the
agreement the sellers received $82,500 in cash, 45,000 shares of the Company's
common stock valued at $2.333 per share in exchange for 80% of the outstanding
Advantage common stock and $22,500 in cash in exchange for an agreement not to
compete. The Company also agreed to guarantee $105,000 in liabilities of
Advantage.
6
<PAGE>
U.S. PAWN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 2 - ACQUISITIONS (Continued)
On August 2, 1996, the Company acquired substantially all of the assets and
business of City National Pawn, Inc. and Bohlinger, Inc., two privately held
pawn shop companies with common ownership d/b/a City National Pawn, with
operations in Fort Collins, Colorado and Cheyenne, Wyoming ("City National").
The assets and business of Bohlinger, Inc. were acquired by Advantage. The
assets acquired from City National consist of furniture, store equipment,
merchandise inventory, pawn loans, pawn service charges receivable, and customer
lists. The total purchase price for City National was $775,000 paid in cash.
NOTE 3 - INCOME TAXES
The provision for income taxes has been recorded based upon the Company's
estimate of the expected annualized effective tax rate for each interim period
presented. Deferred income taxes have been recorded in accordance with generally
accepted accounting principles under SFAS 109.
NOTE 4 - EARNING PER COMMON SHARE
Earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of common stock and common stock
equivalents outstanding during each interim period presented. When common stock
equivalents have an anti-dilutive effect on earnings per share, they are
excluded from the calculation.
NOTE 5 - CONTINGENCIES
On February 26, 1996, a former officer and director of the Company, filed a
legal action alleging a breach of the terms of a certain stock registration
agreement between the former officer and director and the Company. The Company
and its legal counsel believe that the action has no merit. On July 8, 1996, the
Company reached a settlement of the action under which the former officer and
director agreed to a dismissal of the suit.
In addition, the Company is party to a number lawsuits arising in the normal
course of business. In the opinion of management, the resolution of these
matters will not have a material effect on the Company's financial position.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
U.S. Pawn, Inc. (the "Company") is one of four publicly traded pawnshop
operators in the United States. The Company operates pawnshops that lend money
on the security of pledged tangible personal property (a transaction commonly
referred to as a "pawn loan"), for which the Company receives a pawn service
charge to compensate it for the pawn loan. The pawn service charge is calculated
as a percentage of the pawn loan amount, in a manner similar to which interest
is charged on a loan, and has generally ranged from 120% to 240% annually. The
pledged property is held through the term of the pawn loan, which generally is
30 to 90 days, unless otherwise earlier paid or renewed. Generally, the customer
repays the pawn loan and accrued service charge in full, redeeming the pledged
property, or pays the accrued service charge and renews the pawn loan. In the
event the customer does not redeem the pledged property or renew the pawn loan,
the unredeemed collateral is forfeited to the Company and becomes inventory
available for sale in the pawnshop. As of the date of this report, the Company
owns and operates sixteen (16) pawnshops, of which twelve (12) are located in
Colorado and four (4) are located in Wyoming.
Except for the historical information contained herein, the matters set forth in
this report are forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially. These risks are detailed from time to
time in the Company's periodic reports filed with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-KSB, Quarterly
Reports on Form 10-QSB and other periodic filings. These forward- looking
statements speak only as of the date hereof. The Company disclaims any intent or
obligation to update these forward-looking statements.
Expansion of Operations
As an integral part of its business strategy, the Company intends to continue
concentrating multiple pawnshops in single markets in order to improve market
penetration, enhance name recognition and reinforce market programs. Consistent
with this philosophy, the Company added 4, 2, 2 and 3 stores to its operations
during Fiscal 1996, 1994, 1993 and 1992, respectively. On January 26, 1996, the
Company agreed to acquire 80% of the outstanding common stock of Advantage Pawn,
a Wyoming corporation, for total consideration of $187,500, payable $82,500 in
cash and $105,000 of common stock in the Company valued at the closing date. In
addition, the Company agreed to pay $22,500 in cash in exchange for a
non-compete agreement with the Advantage shareholders.
8
<PAGE>
Expansion of Operations (Continued)
The transaction closed on March 16, 1996, at which time $82,500 in cash and
45,000 shares of the Company's common stock valued at $2.333 per share were
transferred to the Advantage shareholders in exchange for 80% of the outstanding
voting common shares of Advantage Pawn. The Company also agreed to guarantee
$105,000 in liabilities of Advantage Pawn. On June, 1, 1996, the Company closed
its under- performing Colorado Springs, Colorado store. On August 2, 1996, the
Company acquired substantially all of the assets and business of City National
Pawn, Inc. and Bohlinger, Inc., two privately held pawn shop companies with
common ownership d/b/a City National Pawn, with operations in Fort Collins,
Colorado and Cheyenne, Wyoming ("City National"). The assets and business of
Bohlinger, Inc. were acquired by Advantage. The assets acquired from City
National consist of furniture, store equipment, merchandise inventory, pawn
loans, pawn service charges receivable, and customer lists. The total purchase
price for City National was $775,000 paid in cash.
Profitability vs. Liquidity
The profitability and liquidity of the Company is affected by the amount of the
Company's outstanding pawn loans, which in turn is affected in part by the
Company's pawn loan decisions. The Company is generally able to influence the
frequency of pawn loan redemptions and forfeitures of pawn loan collateral by
increasing or decreasing the amount loaned in relation to the estimated resale
value of the pledged property. A more conservative loan policy, i.e. smaller
loans in relation to the pledged property's estimated resale value, generally
results in fewer and smaller transactions being entered into, a decrease in the
Company's aggregate loan balance and a decrease in pawn service charge income.
However, smaller loans also tend to increase loan redemptions and improve the
Company's liquidity. A conservative loan policy also tends to decrease the cost
of merchandise inventory, thereby improving the margins possible through resale
of forfeited loan collateral. Conversely, a more aggressive loan policy which
provides for larger loans in relation to the estimated resale value of the
pledged property generally results in increased pawn service charge income, but
also tends to increase loan forfeitures, thereby increasing the quantity and
cost of inventory on hand and, unless the Company is able to increase inventory
turns, reducing the Company's liquidity.
9
<PAGE>
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1996 ("1996 Periods") Compared to
Three and Nine Months Ended September 30, 1995 ("1995 Periods")
Revenues
Total revenues for the 1996 Periods increased by 11.5% and 7.7% to $2,674,000
and $7,595,000 from $2,397,000 and $7,049,000 for the 1995 Periods,
respectively. During the 1996 Periods, same store operations (eleven and twelve
stores, respectively) generated revenues of $2,255,000 and $6,869,000 and stores
acquired during the 1996 Periods (five stores) contributed revenues of $419,000
and $726,000. The increase in revenues reflects an improvement of 12.8% and 8.4%
in merchandise sales to $1,489,000 and $4,194,000 from $1,320,000 and
$3,868,000, an improvement of 10.1% and 7.0% in pawn service charges to
$1,166,000 and $3,337,000 from $1,059,000 and $3,118,000. Other income remained
relatively unchanged. As a percentage of total revenues, merchandise sales and
pawn service charges remained constant at 55% and 45%, respectively during the
1996 Periods as compared to the 1995 Periods. This revenue mix is consistent
with the Company's renewed emphasis on better merchandising of for-sale
inventory at annualized inventory turns of 3.0 to 4.0 times per year. The
Company expects that merchandise sales will continue to comprise the majority of
its total revenues for the reasonably foreseeable future.
Merchandise Sales
During the 1996 Periods, same store operations generated merchandise sales of
$1,214,000 and $3,733,000 and stores acquired during the 1996 Periods posted
merchandise sales of $275,000 and $461,000. For the 1996 Periods, the Company's
annualized inventory turnover rate was 2.7 and 2.8 times with a gross profit
margin on sales of 27.2% and 25.3% as compared to 3.1 and 3.2 times at 21.2% and
20.1% for the 1995 Periods. The increase in gross profit margin on sales is due
primarily to the Company's renewed emphasis on better merchandising of for-sale
inventory and compensation incentives for store managers and customer service
personnel to reach and/or exceed profitability goals set by management. As a
result, inventories have been more evenly maintained at desired levels which has
allowed the Company to eliminate the practice of discounting merchandise
inventory to generate working capital during the first and second calendar
quarters.
Historically, the Company's sales of merchandise increase during the third and
fourth quarters. The Company expects its annualized inventory turnover rate to
approximate 3.5 times and to produce gross margins on sales in excess of 20% for
the twelve months ending December 31, 1996 (Fiscal 1996).
10
<PAGE>
Pawn Service Charges
During the 1996 Periods, same store operations generated pawn service charges of
$1,021,000 and $3,081,000 and stores acquired during the 1996 Periods
contributed pawn service charges of $145,000 and $256,000. The Company's pawn
loan balance outstanding increased by $262,000 or 9.7% to $2,966,000 from
$2,704,000 at December 31, 1995. The increase in the pawn loan balance is
comprised of a $100,000 decrease in same store operations due to the closure of
the under-performing Colorado Springs store in June 1996, a $324,000 increase
from the five stores acquired during the 1996 Periods, and a $38,000 increase in
the stores acquired during the 1996 Periods from the date of the acquisitions.
Demand for new pawn loans during the 1996 Periods increased by 2.3% as compared
to the 1995 Periods. The increase in new pawn loans written was the result of an
increase in the average number of stores in operation to 14 during the 1996
Periods as compared to 12 during the 1995 Periods. The Company expects the
demand for pawn loans to remain strong for the remainder of Fiscal 1996.
The forfeiture rate for pawn loans (calculated as total current period new loans
plus previous period ending loan balance minus current period ending loan
balance in relationship to total forfeited amount during the period) decreased
to 33.7% for the 1996 Periods from 35.9% as compared to the 1995 Periods. The
Company's forfeiture rate is slightly higher than industry comparisons primarily
due to the Company's aggressive loan policy which provides for slightly higher
loan to value ratios than competing pawn shops in an effort to attract more pawn
customers. The Company plans to continue this loan strategy for the reasonably
foreseeable future and expects the forfeiture rate to approximate 35% for Fiscal
1996.
Total Cost of Sales and Expenses
Total cost of sales and expenses for the 1996 Periods increased by 6.7% and 3.1%
to $2,307,000 and $6,639,000 as compared to $2,162,000 and $6,441,000 for the
1995 Periods. As a percentage of total revenues, total cost of sales and
expenses for the 1996 Periods decreased to 86% and 87% from 90% and 91% as
compared to the 1995 Periods. The decrease in total cost of sales and expenses
as a percentage of total revenues is comprised primarily of a 3% decrease in
cost of sales and a 1% decrease in all other expenses as a group. The Company
will continue its efforts, whenever possible, to reduce cost of sales and
expenses as a percentage of total revenues.
Operating Expenses
Operating expenses increased during the 1996 Periods by $82,000 and $123,000 or
10.7% and 5.4% to $849,000 and $2,420,000 from $767,000 and $2,297,000 as
compared to the 1995 Periods. The increase in operating expenses is due
primarily to expenses related to the five stores acquired during the 1996
Periods. However, as a percentage of total revenues, operating expenses remained
at 32% for the 1996 Periods as compared to the 1995 Periods. The number of
employees increased to 100 from 84 due to the acquisitions completed during the
1996 Periods.
11
<PAGE>
Administration
Administrative overhead increased during the 1996 Periods by $8,000 and $39,000
or 3% and 6% to $248,000 and $740,000 from $241,000 and $701,000 as compared to
the 1995 Periods. As a percentage of total revenues, administrative overhead
remained constant at 10%.
Other
Interest expense decreased for the 1996 Periods due to the Company's ability to
reduce outstanding principal due on debt. Depreciation expense increased due to
new equipment purchased to replace fully used older equipment and amortization
of goodwill related to the acquisitions.
Operating Results
While total revenues increased by 11.5% and 7.7% for the 1996 Periods as
compared to the 1995 Periods, gross profit margin on sales increased to 27.2%
and 25.3% from 21.2% and 20.1% and total cost of sales and expenses increased
6.7% and 3.1%. As a result, income from operations before income taxes for the
1996 Periods increased by 56% and 57% to $367,000 and $956,000 from $235,000 and
$608,000 as compared to the 1995 Periods. As a percentage of total revenues,
income from operations for the 1996 Periods increased to 13.7% and 12.6% from
9.8% and 8.6% as compared to the 1995 Periods. After accounting for the effects
of income taxes, net income for the 1996 Periods increased 55% and 54% to
$237,000 and $619,000 from $152,000 and $401,000 as compared to the 1995
Periods. As a percentage of total revenues, net income for the 1996 Periods
increased to 8.9% and 8.1% from 6.4% and 5.6% as compared to the 1995 Periods.
Earnings Per Share
Earnings per share for the 1996 Periods equaled $0.06 and $0.17 as compared to
$0.04 and $0.12 for the 1995 Periods. The weighted average number of shares and
common share equivalents outstanding increased by 10.4% and 6.0% in the 1996
Periods to 3,452,000 and 3,287,000 from 3,126,000 and 3,102,000 for the 1995
Periods. The increase in the number of weighted average shares and common share
equivalents outstanding is primarily due to the issuance of common shares in
connection with the acquisition, the exercise of stock purchase options and
additional common share equivalents due to the increase in the average market
price for the Company's stock during the 1996 Periods.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital increased by 18% to $4,096,000 at September 30, 1996 from
$3,474,000 at December 31, 1995. Total assets increased during the 1996 Period
by $1,488,000 mainly due to increases in cash, pawn loans outstanding, inventory
and intangibles associated with the acquisitions completed during the 1996
Periods. Total shareholders' equity increased during the 1996 Periods by
$1,093,000 as a result of profits, net of income taxes, preferred dividends and
minority interest, of $573,000 and net common stock transactions of $520,000.
The Company's operations have been financed from funds generated from
operations, bank borrowing, private borrowing, and public offerings. During the
1996 Periods, the Company raised sufficient capital to satisfy all capital
requirements.
During the 1996 Periods, the Company maintained a bank line of credit totaling
$650,000. As of September 30, 1996, the Company had borrowed $423,000 under this
credit facility. The line of credit agreement is renewable on an annual basis
and the agreement expires on April 1, 1997.
The private borrowing which comprises $1,235,000 of the total liabilities are
due in 1997 and there is no indication that these notes will not be renewed.
The Company plans to continue expanding its operating base with acquisitions of
existing pawn companies, but will review potential start-up locations that may
become available. The Company expects to fund this expansion and meet its
on-going working capital needs with internally generated funds, debt or equity
offerings if needed and additional lines of credit. There can be no assurance
however, that such debt or equity offerings and lines of credit will be
available to the Company.
The Company has experienced that new start-up stores generally result in
operating losses during the first three to twelve months of operations.
Leasehold improvements and equipment costs for new stores have ranged from
approximately $75,000 to $100,000 per store. Acquisition of existing pawn
companies generally result in immediate increases in operating income. However,
acquisitions also generally result in an increase in intangibles due to purchase
prices which may be in excess of the value of assets acquired. Such intangibles
are then amortized to expense over their estimated useful lives.
Inflation
The Company does not believe that inflation has had a material effect on the
loans made or unredeemed goods sold by the Company or on its results of
operations.
13
<PAGE>
Seasonality
The Company's loan demand and sales follow slight seasonal trends, with loan
demand decreasing during the first calendar quarter and sales increasing during
the fourth calendar quarter.
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings
On February 26, 1996, a former officer and director of the Company filed a legal
action alleging a breach of the terms of a certain stock registration agreement
between the former officer and director and the Company. The Company and its
legal counsel believe that the action has no merit. On July 8, 1996, the Company
reached a settlement of the action under which the former officer and director
agreed to a dismissal of the suit.
ITEM 2. Changes in securities
None.
ITEM 3. Defaults upon senior securities
None.
ITEM 4. Submission of matters to a vote of security holders
On June 22, 1996, the Company held its Annual Meeting of Shareholders ("Annual
Meeting"). At the Annual Meeting, the shareholders of the Company, by an
affirmative vote of a majority of the Company's shares issued and outstanding,
re-elected Gary A. Agron and Daniel B. Rudden as directors of the Company and
approved the Company's 1995 Directors' Stock Option Plan.
ITEM 5. Other information
None.
ITEM 6. Exhibits and reports on Form 8-K
Exhibits: Exhibit #27 - Financial Data Schedule.
Reports on Form 8-K: During the three months covered by this report, the Company
filed one report on Form 8-K and one amendment to the Form 8-K reporting the
acquisition of City National Pawn, which is more fully described elsewhere
herein.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Date: October 30, 1996 U.S. PAWN, INC.
---- ---------------
(Registrant)
/S/ MELVIN WEDGLE
--------------------------------------
Melvin Wedgle
Chief Executive Officer
/S/ CHARLES C. VAN GUNDY
--------------------------------------
Charles C. Van Gundy
Chief Financial Officer
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 545
<SECURITIES> 0
<RECEIVABLES> 3,456
<ALLOWANCES> (20)
<INVENTORY> 1,953
<CURRENT-ASSETS> 6,180
<PP&E> 2,376
<DEPRECIATION> (1,058)
<TOTAL-ASSETS> 8,064
<CURRENT-LIABILITIES> 2,084
<BONDS> 0
0
378
<COMMON> 3,806
<OTHER-SE> 1,674
<TOTAL-LIABILITY-AND-EQUITY> 8,064
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</TABLE>
