SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 17, 1996 (August 2, 1996)
U.S. PAWN, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-18291 84-0819941
- ---------------------------- ------------ -----------------
(State or other jurisdiction (Commission (IRS Employer I.D.
of incorporation) File Number) Number)
7215 Lowell Boulevard
Westminster, Colorado 80030
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 657-3550
N/A
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On August 2, 1996, U.S. Pawn, Inc. (the "Registrant") 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 Pawn, Inc. ("Advantage"), an 80% owned subsidiary of
the Registrant.
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 by the
Registrant at closing, and consisting of $225,000 in cash from working capital
reserves and $550,000 in cash from a revolving credit facility.
The Registrant will continue to operate the pawn shop businesses of City
National.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
-----------------------------------------
1. Audited financial statements of City National Pawn, a division of City
National Pawn, Inc. and Bohlinger, Inc.
(b) Pro-Forma Financial Information.
--------------------------------
1. Pro-forma consolidated financial statements for U.S. Pawn, Inc. and
subsidiary.
2. Audited financial statements for U.S. Pawn, Inc.
(c) Exhibits.
---------
1.1 Asset Purchase Agreement dated August 2, 1996 between U.S. Pawn, Inc.
and City National Pawn, Inc., d/b/a City National Pawn.
2.1 Asset Purchase Agreement dated August 2, 1996 between Advantage Pawn,
Inc. and Bohlinger, Inc., d/b/a City National Pawn.
<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 hereunto duly authorized.
Dated: October 17, 1996
U.S. PAWN, INC.
by: /S/ MELVIN WEDGLE
--------------------------------
Melvin Wedgle
President
Chief Executive Officer
<PAGE>
INDEX TO FINANCIAL STATEMENTS
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Financial
Information Explanatory Headnote F-2
Financial Statements:
For the year ended December 31, 1995 (unaudited)
Unaudited pro forma consolidated balance sheet F-4
Unaudited pro forma consolidated statement of operations F-5
For the six months ended June 30, 1996 (unaudited)
Unaudited pro forma consolidated balance sheet F-6
Unaudited pro forma consolidated statement of operations F-7
Notes to Unaudited pro forma consolidated financial statements F-8
CITY NATIONAL PAWN, THE DIVISION
Independent Auditor's Report F-9
Financial Statements
Balance sheets F-10
Statements of operations F-11
Statements of changes in division equity F-12
Statements of cash flows F-13
Notes to financial statements F-14
U.S. PAWN, INC. AND SUBSIDIARY
Independent Auditor's Report F-19
Financial Statements
Consolidated Balance sheets F-20
Consolidated Statements of operations F-22
Consolidated Statements of changes in stockholders' equity F-23
Consolidated Statements of cash flows F-24
Notes to Consolidated financial statements F-25
F1
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
INTRODUCTION
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisitions by U.S. Pawn, Inc. (the Company or U.S. Pawn) of
the entities detailed below and are based on estimates and assumptions set forth
herein and in the notes to such statements. This pro forma information has been
prepared utilizing the historical financial statements and notes thereto, which
are incorporated by reference herein. The pro forma financial data does not
purport to be indicative of the results which actually would have been obtained
had the acquisitions been effected on the dates indicated or the results which
may be obtained in the future.
The pro forma consolidated balance sheets assume the acquisitions were
consummated at December 31, 1995 and June 30, 1996. The pro forma consolidated
statements of operations assume the acquisition was consummated at the beginning
of the periods presented and include the operating results of the Company and
acquirees for the year ended December 31, 1995 and for the six months ended June
30, 1996.
Advantage Pawn, Inc.
- --------------------
In January 1996 the Company acquired 80% of the outstanding stock of Advantage
Pawn, Inc. (Advantage) a Wyoming corporation for $187,500 as follows: $82,500 in
cash and 45,000 shares of common stock of the Company valued at $105,000. In
addition, the sellers were paid $22,500 for an agreement not to compete and
received employment agreements. U.S. Pawn has further agreed to guarantee
$105,000 of the debts of the acquiree. The acquisition has been accounted for
using the purchase method of accounting. The purchase price was allocated as
follows (in thousands):
Cash $ 37
Service charges receivable 22
Inventory 57
Pawn loans 90
Property and equipment 18
Other assets 2
Less liabilities (128)
Less minority interest (19)
Purchase price in excess of assets acquired 109
----------
Total purchase price $ 188
==========
Common stock issued 105
Cash paid from operations 83
----------
$ 188
==========
F-2
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
City National Pawn, the Division
- --------------------------------
In August 1996 City National Pawn, Inc. entered into an agreement with the
Company; and Bohlinger, Inc. entered into an agreement with Advantage to sell
substantially all of the furniture, inventory, pawn loans, and customer lists of
the Division. The Division includes only the assets, liabilities, equity and
operations of three pawnshops located in Colorado and Wyoming which were
purchased by the Company. In conjunction with the sale, non-compete agreements
for a term of five years were entered into with the seller. The acquisition was
recorded using the purchase method of accounting. The purchase price was
allocated as follows (in thousands):
Service charges receivable $ 65
Inventory 176
Pawn loans 234
Property and Equipment 43
Non Compete Agreement 10
Purchase price in excess of assets acquired 247
----------
Total purchase price $ 775
==========
Cash paid from advances on line of credit $ 550
Cash from operations 225
----------
$ 775
==========
A new lease was executed with the previous owner of the Division for two
locations and an Assignment of Lease was obtained for the third location.
F-3
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
==============================================
(In Thousands)
<TABLE>
<CAPTION>
City National,
Advantage the Division Pro Forma
Pro Forma City National, Pro Forma Consolidated
U.S. Pawn Advantage Adjustments the Division Adjustments Balance Sheet
--------- --------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 282 $ 91 $ (83) (2) $ 123 $ (123) (4) $ -
(54) (4) (213) (2)
(23) (3)
Service charges
receivable 352 21 1 (2) 55 10 (2) 439
Pawn loans 2,704 73 17 (2) 199 35 (2) 3,028
Accounts
receivable, net 35 - - - - 35
Note receivable,
related parties 242 - - - - 242
Inventory 1,393 49 8 (2) 182 (6) (2) 1,626
Prepaid expenses
and other 96 1 1 (2) - - 98
------ ------ ----- ------ ------ ------
Total
Current Assets 5,104 235 (133) 559 (297) 5,468
PROPERTY AND
EQUIPMENT, net 1,249 18 - 67 (24) (2) 1,310
NOTES RECEIVABLE -
RELATED PARTIES 69 - - - - 69
INTANGIBLE
ASSETS, net 134 - 23 (3) - 10 (3) 523
109 (3) 247 (3)
OTHER ASSETS 20 - - - - 20
------ ------ ----- ------ ------ ------
$6,576 $ 253 $ (1) $ 626 $ (64) $7,390
====== ====== ===== ====== ====== ======
CURRENT LIABILITIES:
Bank overdraft $ - $ - $ - $ - $ 12 (2) $ 12
Accounts payable 32 - - 10 (10)(4) 32
Customer layaway
deposits 41 - - - - 41
Accrued expenses 149 11 - 9 (9)(4) 160
Income taxes payable 81 - - - - 81
Notes payable 887 - - - - 887
Notes payable
- related parties 419 - - - - 419
Current portion
of long term debt 21 15 - - - 36
------ ------ ----- ------ ------ ------
Total Current
Liabilities 1,630 26 - 19 (7) 1,668
LONG-TERM DEBT,
less current
portion 50 134 (32) (4) - 550 (2) 702
DEFERRED
INCOME TAXES 131 - - - - 131
------ ------ ----- ------ ------ ------
Total
Liabilities 1,811 160 (32) 19 543 2,501
------ ------ ----- ------ ------ ------
MINORITY INTEREST
IN SUBSIDIARY - - 19 (10) - 57 (10) 76
------ ------ ----- ------ ------ ------
STOCKHOLDERS' EQUITY:
Redeemable preferred
stock 378 - - - - 378
Common stock 3,241 44 105 (2) - - 3,346
(44)(4)
Division equity - - - 607 (607) (4) -
Additional paid-in
capital 821 - - - - 821
Retained earnings 325 49 (49) - (57) 268
------ ------ ----- ----- ------ ------
4,765 93 12 607 (664) 4,813
------ ------ ----- ----- ------ ------
$6,576 $ 253 $ (1) $ 626 $ (64) $7,390
====== ======= ===== ===== ====== ======
SEE ACCOMPANYING HEADNOTE AND FOOTNOTES
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
=========================================================
(In Thousands, Except for Per Share Data)
U.S. Pawn U.S. Pawn U.S. Pawn U.S. Pawn
Three Months Twelve Months Three Months Twelve Months Advantage
Ended Ended Ended Ended U.S. Pawn Year Ended Advantage
December 31, September 30, December 31, December 31, Pro Forma December 31, Pro Forma
1995 1995 1994 1995 Adjustments 1995 Adjustments
----------- ------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales $ 1,513 $ 5,302 $ 1,434 $ 5,381 $ -- $ 201 $ --
Pawn service charges 1,042 4,120 1,003 4,159 -- 74 --
Other 24 88 24 88 -- 1 --
------- ------- ------- ------- ------- ------- -----
Total Revenues 2,579 9,510 2,461 9,628 -- 276 --
------- ------- ------- ------- ------- ------- -----
COST OF SALES AND EXPENSES:
Cost of sales 1,160 4,201 1,109 4,252 -- 114 --
Operations 758 3,118 821 3,055 -- 79 --
Administration 266 938 237 967 -- 22 --
Interest 52 241 55 238 -- 9 --
Depreciation and amortization 57 214 49 222 -- 3 12 (5)
------- ------- ------- ------- ------- ------- -----
Total Cost of Sales
and Expenses 2,293 8,712 2,271 8,734 -- 227 12
------- ------- ------- ------- ------- ------- -----
INCOME FROM OPERATIONS 286 798 190 894 -- 49 (12)
PROVISION FOR INCOME TAXES 111 268 61 318 (48) (8) 7 6 (8)
------- ------- ------- ------- ------- ------- -----
INCOME BEFORE MINORITY
INTEREST 175 530 129 576 48 42 (18)
MINORITY INTEREST INCOME -- -- -- -- -- -- (5)(10)
------- ------- ------- ------- ------- ------- -----
NET INCOME 175 530 129 576 48 42 (23)
DIVIDENDS ON PREFERRED STOCK 9 36 9 36 -- -- --
------- ------- ------- ------- ------- ------- -----
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS $ 166 $ 494 $ 120 $ 540 $ 48 $ 42 $ (23)
======= ======= ======= ======= ======= ======= =====
EARNINGS PER COMMON SHARE
AND COMMON STOCK
EQUIVALENTS $ 0.05 $ 0.17
======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS
OUTSTANDING 3,103 3,103
======= =======
SEE ACCOMPANYING HEADNOTE AND FOOTNOTES
F-5 (Continued on following page)
</TABLE>
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands, Except for Per Share Data)
City National, Pro Forma
the Division City National Twelve Mos.
Year Ended the Division Ended
December 31, Pro Forma December 31,
1995 Adjustments 1995
------------ ------------- ------------
REVENUES:
Sales $ 738 $ -- $ 6,320
Pawn service charges 351 -- 4,584
Other -- -- 89
------- ------- -------
Total Revenues 1,089 -- 10,993
------- ------- -------
COST OF SALES AND EXPENSES:
Cost of sales 418 -- 4,784
Operations 366 8 (7) 3,508
Administration 83 -- 1,072
Interest -- 60 (9) 307
Depreciation and amortization 65 27 (5) 283
46 (6)
Total Cost of Sales ------- ------- -------
and Expenses 932 49 9,954
------- ------- -------
INCOME FROM OPERATIONS 157 (49) 1,039
PROVISION FOR INCOME TAXES -- 40 (8) 323
------- ------- -------
INCOME BEFORE MINORITY
INTEREST 157 (89) 716
MINORITY INTEREST INCOME -- (7)(10) (12)
------- ------- -------
NET INCOME 157 (96) 704
DIVIDENDS ON PREFERRED STOCK -- -- 36
------- ------- -------
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS
$ 157 $ (96) $ 668
======= ======= =======
EARNINGS PER COMMON SHARE
AND COMMON STOCK
EQUIVALENTS $ 0.21
=======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS
OUTSTANDING 3,148
=======
F-5 (Continued from previous page)
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
==============================================
(In Thousands)
City National,
the Division Pro Forma
City National, Pro Forma Consolidated
U.S. Pawn the Division Adjustments Balance Sheet
---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 382 $ 111 $ (225)(2) $ 157
(111)(4)
Service charges receivable 368 65 - 433
Pawn loans 2,643 234 - 2,877
Accounts receivable, net 13 - - 13
Note receivable, related parties 242 - - 242
Inventory 1,631 209 (33)(2) 1,807
Prepaid expenses and other 122 - - 122
---------------- --------------- -------------- -------------
Total Current Assets 5,401 619 (369) 5,651
PROPERTY AND EQUIPMENT, net 1,239 60 (17)(2) 1,282
NOTES RECEIVABLE -
RELATED PARTIES 65 - - 65
INTANGIBLE ASSETS, net 277 - 10 (3) 534
247 (3)
OTHER ASSETS 35 1 (1)(4) 35
---------------- --------------- -------------- ------------
$ 7,017 $ 680 $ (130) $ 7,567
================ =============== ============== ============
CURRENT LIABILITIES:
Accounts payable $ 26 $ 13 $ (13)(4) $ 26
Customer layaway deposits 39 - - 39
Accrued expenses 117 3 (3)(4) 117
Income taxes payable 112 - - 112
Notes payable 831 - - 831
Notes payable - related parties 433 - - 433
Current portion of long term debt 58 - - 58
---------------- --------------- --------------- -------------
Total Current Liabilities 1,616 16 (16) 1,616
LONG-TERM DEBT, less current portion - - 550 (2) 550
DEFERRED INCOME TAXES 93 - - 93
---------------- --------------- -------------- --------------
Total Liabilities 1,709 16 534 2,259
---------------- --------------- -------------- --------------
MINORITY INTEREST
IN SUBSIDIARY 29 - 57 86
---------------- --------------- -------------- --------------
STOCKHOLDERS' EQUITY:
Redeemable preferred stock 378 - - 378
Common stock 3,429 - - 3,429
Division equity - 664 (664) -
Additional paid-in capital 792 - - 792
Retained earnings 680 - (57) 623
---------------- --------------- -------------- --------------
5,279 664 (721) 5,222
---------------- --------------- -------------- --------------
$ 7,017 $ 680 $ (130) $ 7,567
================ =============== ============== ==============
SEE ACCOMPANYING HEADNOTE AND FOOTNOTES
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
========================================================
(In Thousands, Except for Per Share Data)
City National,
U.S. Pawn Advantage the Division Pro Forma
Six Months One Month Six Months City National, Twelve Months
Ended U.S. Pawn Ended Advantage Ended the Division Ended
June 30, Pro Forma January 31, Pro Forma June 30, Pro Forma June 30,
1996 Adjustments 1996 Adjustments 1996 Adjustments 1996
----------- ----------- --------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales $ 2,706 $ -- $ 28 $ -- $ 345 $ -- $ 3,079
Pawn service charges 2,171 -- 11 -- 202 -- 2,384
Other 45 -- -- -- 31 -- 76
---------- -------- -------- -------- -------- -------- --------
Total Revenues 4,922 -- 39 -- 578 -- 5,539
---------- -------- -------- -------- -------- -------- --------
COST OF SALES AND EXPENSES:
Cost of sales 2,047 -- 8 -- 188 -- 2,243
Operations 1,572 -- 15 -- 202 4 (7) 1,793
Administration 492 -- -- -- 85 -- 577
Interest 102 -- -- -- -- 30 (2) 132
Depreciation and amortization 119 -- -- -- 10 13 (5) 139
-- -- (3)(6)
---------- -------- -------- -------- -------- -------- --------
Total Cost of Sales and Expenses 4,332 -- 23 -- 485 44 4,884
---------- -------- -------- -------- -------- -------- --------
INCOME FROM OPERATIONS 590 -- 16 -- 93 (44) 655
PROVISION FOR INCOME TAXES 208 -- 2 3 -- 17 230
----------- -------- -------- -------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST 382 -- 14 (3) 93 (61) 425
MINORITY INTEREST (9) -- -- (1) -- (3) (13)
----------- -------- -------- -------- -------- -------- --------
NET INCOME 373 -- 14 (4) 93 (64) 412
DIVIDENDS ON PREFERRED STOCK 18 -- -- -- -- -- 18
----------- -------- -------- -------- -------- -------- --------
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDER $ 355 $ -- $ 14 $ (4) $ 93 $ (64) $ 394
=========== ======== ======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE AND
COMMON STOCK EQUIVALENTS $ 0.11 $ 0.12
=========== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS
OUTSTANDING 3,310 3,318
=========== ========
SEE ACCOMPANYING HEADNOTE AND FOOTNOTES
F-7
</TABLE>
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARY NOTES
TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRO FORMA ADJUSTMENTS
The adjustments relating to the pro forma consolidated statements of
operations are computed assuming the acquisitions were consummated at the
beginning of the applicable periods presented. The adjustments relating to
the pro forma consolidated balance sheets are computed assuming the
acquisitions were consummated at December 31, 1995 and June 30, 1996.
NOTE 2 - ACQUISITION OF ASSETS
Reflects the acquisition of service charges receivable, inventory, pawn
loans and equipment for cash, issuance of the Company's common stock and
increases to notes payable. The acquisitions are recorded using the
purchase method.
NOTE 3 - NON-COMPETE AGREEMENT AND GOODWILL
Reflects recognition of non-compete agreement and goodwill resulting from
excess purchase price over book value of assets acquired.
NOTE 4 - UNACQUIRED ASSETS AND LIABILITIES
Reflects assets and liabilities that were not acquired or assumed by the
Company.
NOTE 5 - AMORTIZATION OF NON-COMPETE AGREEMENT AND GOODWILL
Reflects amortization of non-compete agreement over the term of the
agreement of 5 years and goodwill using the straight line method over 10
years.
NOTE 6 - REDUCED DEPRECIATION EXPENSE
Reflects reduction in depreciation expense due to leasehold improvements
not acquired.
NOTE 7 - RENT EXPENSE
Reflects adjustments for rent expense as set forth in new lease agreements
signed at time of acquisition.
NOTE 8 - PROVISION FOR INCOME TAXES
Reflects additional provision for income taxes for the acquired operations
and a reduction in the provision for income taxes of the Company due to
annualization of taxable income for the transition period ended December
31, 1995.
NOTE 9 - INTEREST EXPENSE
Reflects interest expense on increase to notes payable at 11% per annum.
NOTE 10 - MINORITY INTEREST
Reflects minority interest for the minority stockholders.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
City National Pawn, Inc. and Bohlinger, Inc.
Cheyenne, Wyoming
We have audited the accompanying balance sheets of City National Pawn, a
division of City National Pawn, Inc. and Bohlinger, Inc. (the Division) as of
December 31, 1995 and 1994 and the related statements of operations, changes in
division equity and cash flows for the years then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 financial statements referred to above present fairly, in
all material respects, the financial position of City National Pawn, a division
of City National Pawn, Inc. and Bohlinger, Inc. as of December 31, 1995 and 1994
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
October 2, 1996
F-9
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
BALANCE SHEETS
================================
(In Thousands)
ASSETS
------
<TABLE>
<CAPTION>
December 31,
--------------------------- June 30,
1995 1994 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 123 $ 75 $ 111
Service charges receivable 55 49 65
Pawn loans 199 194 234
Inventory 182 105 209
------------ ------------ ------------
Total Current Assets 559 423 619
PROPERTY AND EQUIPMENT, at cost, net 67 83 61
OTHER ASSETS - 2 -
------------ ------------ ------------
$ 626 $ 508 $ 680
============ ============ ============
LIABILITIES AND DIVISION EQUITY
-------------------------------
CURRENT LIABILITIES:
Accounts payable $ 10 $ 22 $ 12
Accrued expenses 9 11 4
------------ ------------ ------------
Total Current Liabilities 19 33 16
COMMITMENTS AND CONTINGENCIES:
DIVISION EQUITY 607 475 664
------------ ------------ ------------
$ 626 $ 508 $ 680
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-10
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
STATEMENTS OF OPERATIONS
================================
(In Thousands)
For the Years Ended For the Six
December 31, Months Ended
-------------------- June 30,
1995 1994 1996
------- ------- -------
(Unaudited)
REVENUES:
Sales $ 738 $ 624 $ 345
Pawn service charges 351 313 202
Other -- -- 31
------ ------ ------
Total Revenue 1,089 937 578
------ ------ ------
COST OF SALES AND EXPENSES:
Cost of sales 418 342 188
Operations 317 315 173
Rent expense, related party 49 30 29
Administration 83 32 85
Depreciation and amortization 65 56 10
------ ------ ------
Total Cost of Sales and Expenses 932 775 485
------ ------ ------
NET INCOME $ 157 $ 162 $ 93
====== ====== ======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-11
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
STATEMENT OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
==================================================
(In Thousands)
Balance, December 31, 1993 $ 404
Net income 162
Distributions to related parties, net (91)
----------
Balance, December 31, 1994 475
Net income 157
Distributions to related parties, net (25)
----------
Balance, December 31, 1995 607
Net income (unaudited) 93
Distributions to related parties, net (unaudited) (36)
----------
Balance, June 30, 1996 (unaudited) $ 664
==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-12
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
STATEMENTS OF CASH FLOWS
================================
(In Thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------- June 30,
1995 1994 1996
---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income $ 157 $ 162 $ 93
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 65 56 10
Changes in:
Service charges receivable (6) (16) (10)
Inventory, excluding forfeited loan collateral 164 138 116
Accounts payable (9) 8 2
Accrued salaries and expenses (2) 5 (5)
---------- ---------- ----------
Net Cash Provided by Operating Activities 369 353 206
---------- ---------- ----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Pawn loans made (822) (653) (510)
Pawn loans repaid 576 446 330
Purchase of property and equipment (50) (16) (2)
----------- ---------- ----------
Net Cash (Used) by Investing Activities (296) (223) (182)
----------- ---------- ----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Distributions to related parties (164) (276) (66)
Contribution from related parties 139 185 30
---------- ---------- ----------
Net Cash (Used) by Financing Activities (25) (91) (36)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 48 39 (12)
CASH, beginning of period 75 36 123
---------- ---------- ----------
CASH, end of period $ 123 $ 75 $ 111
========== ========== ==========
Supplemental disclosures of cash flow information: see Note 5.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-13
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
=================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- --------------------
The accompanying financial statements of the Division include only the assets,
liabilities, equity and operations of three pawnshops located in Ft. Collins,
Colorado, and in Cheyenne, Wyoming that were acquired in the acquisitions by
U.S. Pawn, Inc. (U.S. Pawn) and Advantage Pawn, Inc. (Advantage) from City
National Pawn, Inc. and Bohlinger, Inc., respectively.
Activity
- --------
The Division began operations in December 1988. The operations of the Division
include pawnshops which lend money on the security of pledged tangible personal
property to residents in Colorado and Wyoming. In addition, the Company offers
for resale the personal property from forfeited loans, as well as, merchandise
purchased directly from customers and vendors. As of December 31, 1994, the
Company operated one pawnshop in Ft. Collins, Colorado and one pawnshop in
Cheyenne, Wyoming. A second location in Wyoming was opened during 1995.
Agreement to sell assets
- ------------------------
In August, 1996 City National Pawn, Inc. entered into an agreement with U.S.
Pawn and Bohlinger, Inc. entered into an agreement with Advantage (an 80% owned
subsidiary of U.S. Pawn) to sell substantially all of the furniture, inventory,
pawn loans, and customer lists of the Division. No liabilities were assumed. In
conjunction with the sale, non-compete agreements for term of five years were
entered into by the seller and U.S. Pawn and the seller. The acquisition has
been accounted for using the purchase method of accounting. The purchase price
was allocated as follows (in thousands):
Service charges $ 65
Inventory 176
Pawn loans 234
Property and equipment 43
Non Compete Agreement 10
Purchase price in excess of assets acquired 247
-------------
Total Purchase Price $ 775
=============
A new lease was executed with the previous owner of the Division for two
locations and an Assignment of Lease was obtained for the third location (see
Note 4).
F-14
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
=================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the unaudited interim financial statements for the
six month period ended June 30, 1996 are presented on a basis consistent with
the audited annual financial statements and reflect all adjustments, consisting
only of normal recurring accruals, necessary for fair presentation of the
results of the period. The results of operations for the interim period ended
June 30, 1996 are not necessarily indicative of the results to be expected for
the year ended December 31, 1996.
Pawn Loans and Income Recognition
- ---------------------------------
Pawn loans (loans) are generally made for a period of one month with an
automatic 30-day extension period (loan term) on the pledge of tangible personal
property. The pawn service charge is calculated as a percentage of the loan
amount based on the size and duration of the loan. Pawn service charges on loans
are recognized on a constant yield basis over the loan term.
If the loan is not repaid, the principal amount loaned plus accrued pawn service
charges become the carrying value (cost) of the forfeited collateral (inventory)
which is recoverable through sales to customers. Accordingly, the Division does
not record loan losses or charge-offs on defaulted loans.
Fair Values of Financial Instruments
- ------------------------------------
Pawn loans are outstanding for a relatively short period, generally 60 days or
less. The rate of pawn service charge bears no relationship to interest rate
market movements. Pawn loans may not be resold to anyone but a licensed
pawnbroker. For these reasons, management believes that the fair value of pawn
loans approximates their carrying value.
Customer Layaways
- -----------------
Interim payments from customers on layaway sales are classified as customer
deposits and subsequently recorded as sales during the period in which final
payment is received or when the deposit is forfeited.
Inventory
- ---------
Inventory represents merchandise acquired from forfeited loans, merchandise
purchased directly from the public and new merchandise purchased from vendors.
Inventory is stated at the lower of cost (specific identification) or market.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Depreciation and amortization
expense is generally provided on a straight-line basis using estimated useful
lives of 5-7 years for equipment and 2-5 years for leasehold improvements (the
term of the lease). Depreciation and amortization expense of property and
equipment was $65,000, $56,000, and $10,000 (unaudited) for the years ended
December 31, 1995, 1994, and the six months ended June 30, 1996, respectively.
F-15
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
=================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
- ------------
The Division is not a taxable entity as defined by the Internal Revenue Code,
and therefore, no provision or liability for federal income taxes has been
included in these financial statements. Bohlinger, Inc. and its stockholders
elected, under the Internal Revenue Code, to be an S-corporation for tax
purposes. In lieu of corporate income taxes, the stockholders of an
S-corporation are taxed on their proportionate share of taxable income. City
National Pawn, Inc. is a C-corporation subject to federal and state income
taxes.
FAS 109 is not applicable to the Division because it is not a taxable entity.
The difference between taxable income and net income from the operations
included in the financial statements arises from the depreciation of leasehold
improvements. This would have resulted in a deferred tax asset of approximately
$35,000, $17,000 and $32,000 (unaudited) at December 31, 1995 and 1994 and June
30, 1996. A valuation allowance equal to the asset would have been recorded due
to the fact the assets of the store were sold and the benefit of the deferred
tax asset will not be realized.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1995 1994 1996
------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Equipment $ 39 $ 25 $ 42
Leasehold improvements 139 120 139
Vehicles 32 20 32
------------- -------------- --------------
210 165 213
Less accumulated depreciation
and amortization 143 82 152
------------- -------------- --------------
$ 67 $ 83 $ 61
============= ============== ==============
</TABLE>
F-16
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
==================================
NOTE 3 - ACCRUED EXPENSES
Accrued expenses consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------- June 30,
1995 1994 1996
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Accrued salaries and payroll taxes $ - $ 3 $ 1
Property taxes 3 4 -
Sales tax payable 5 4 2
Other 1 - 1
------- --------- --------
$ 9 $ 11 $ 4
======= ========= ========
</TABLE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Operating Leases
- ----------------
The Division leases two pawnshop facilities from a related party of the Division
and one pawnshop facility from an unrelated party. These leases have expiration
dates in various years through 1999. Utilities, insurance and property taxes are
the responsibility of the Division for all locations. The leases provide for an
option to renew for various lengths of time.
Future minimum lease payments under noncancelable leases are as follows for each
of the years ending December 31 (in thousands):
Related Non-Related
Party Parties Total
---------------- --------------- ----------------
1996 $ 29 $ 26 $ 55
1997 29 27 56
1998 12 27 39
1999 - 10 10
---------------- --------------- ----------------
$ 70 $ 90 $ 160
================ =============== ================
Rent expense was $76,000, $69,000 and $43,000 (unaudited) for the years ended
December 31, 1995 and 1994 and the six months ended June 30, 1996, respectively.
Included in rent expense were amounts paid to a related party of $49,000,
$30,000 and $29,000 (unaudited) for the years ended December 31, 1995 and 1994
and the six months ended June 30, 1996, respectively.
F-17
<PAGE>
CITY NATIONAL PAWN, THE DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
==================================
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Insurance
- ---------
For the most part, the Company does not maintain theft insurance for personal
property losses as management believes that the risk of loss does not justify
the premium cost of coverage. Insurance is provided to insure against casualty
loss and against general business liability claims. Costs resulting from
uninsured property losses will be charged against income upon occurrence. No
material amounts for
uninsured property losses were charged to operations for any of the years in the
two year period ended December 31, 1995.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
The total of forfeited collateral into inventory was $241,000, $169,000, and
$144,000 (unaudited) for the years ended December 31, 1995 and 1994 and the six
months ended June 30, 1996.
.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
U.S. Pawn, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of U.S. Pawn, Inc. as of December
31, 1995 and the related statements of operations, changes in stockholders'
equity and cash flows for the three months ended December 31, 1995 and the two
years ended September 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 financial statements referred to above present fairly, in
all material respects, the financial position of U.S. Pawn, Inc. as of December
31, 1995 and the results of its operations and its cash flows for the three
months ended December 31, 1995 and the two years ended September 30, 1995 and
1994, in conformity with generally accepted accounting principles.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
March 18, 1996
F-19
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
===============================
(In Thousands)
ASSETS
------
December 31, June 30,
1995 1996
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 282 $ 382
Service charges receivable 352 368
Pawn loans 2,704 2,643
Accounts receivable, net 35 13
Notes receivable - related parties 241 242
Inventory 1,394 1,631
Prepaid expenses and other 96 122
----------- ------------
Total Current Assets 5,104 5,401
PROPERTY AND EQUIPMENT, at cost, net 1,249 1,239
NOTES RECEIVABLE-RELATED PARTIES 69 65
INTANGIBLE ASSETS, net of accumulated
amortization of $56,000 and $51,000 135 277
OTHER ASSETS 19 35
------------ ------------
$ 6,576 $ 7,017
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-20
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
======================================
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31, June 30,
1995 1996
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 31 $ 26
Customer layaway deposits 41 39
Accrued expenses 149 117
Income taxes payable 81 112
Notes payable 887 831
Notes payable-related parties 419 433
Current portion of long-term debt 21 58
------------ ------------
Total Current Liabilities 1,629 1,616
LONG-TERM DEBT, less current portion 50 -
DEFERRED INCOME TAXES 131 93
------------ ------------
Total Liabilities 1,810 1,709
------------ ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY - 29
------------ ------------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Redeemable preferred stock, 9.5%, $10 par value, 1,000,000
shares authorized; 37,800 shares issued and outstanding 378 378
Common stock, no par value, 30,000,000 shares authorized;
3,087,322 and 3,213,989 shares issued and outstanding 3,241 3,429
Additional paid-in capital 822 792
Retained earnings 325 680
------------ ------------
Total Stockholders' Equity 4,766 5,279
------------ ------------
$ 6,576 $ 7,017
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-21
</TABLE>
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
=======================================
(In Thousands, Except for Per Share Data)
<TABLE>
<CAPTION>
For the Years Ended For the Six
For the Three September 30, Months Ended
Months Ended -------------------------------- June 30,
December 31, 1995 1995 1994 1996
----------------- ------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 1,513 $ 5,302 $ 5,226 $ 2,706
Pawn service charges 1,042 4,120 3,715 2,171
Other 24 87 109 45
------------ ------------- ------------ -----------
Total Revenues 2,579 9,509 9,050 4,922
------------ ------------- ------------ -----------
COST OF SALES AND EXPENSES:
Cost of sales 1,160 4,201 4,623 2,047
Operations 758 3,118 2,677 1,572
Administration 266 938 1,279 492
Interest 53 241 218 102
Depreciation and amortization 56 214 190 119
Other - - 13 -
------------ ------------- ----------- -----------
Total Cost of Sales and Expenses 2,293 8,712 9,000 4,332
------------ ------------- ------------ ------------
INCOME FROM OPERATIONS 286 797 50 590
RESTRUCTURING COSTS - - 179 -
------------ ------------ ------------ -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 286 797 (129) 590
PROVISION (BENEFIT)
FOR INCOME TAXES 111 267 (32) 208
------------ ------------ ------------ -----------
INCOME (LOSS) BEFORE
MINORITY INTEREST 175 530 (97) 382
MINORITY INTEREST - - - (9)
------------ ------------- ------------ -----------
NET INCOME (LOSS) 175 530 (97) 373
DIVIDENDS ON PREFERRED STOCK (9) (36) (36) (18)
------------ ------------- ------------ -----------
NET INCOME (LOSS) AVAILABLE
FOR COMMON STOCKHOLDERS $ 166 $ 494 $ (133) $ 355
============ ============= ============ ===========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS $ .05 $ .16 $ (.04) $ .11
============ ============= ============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS OUTSTANDING 3,103 3,094 3,074 3,310
============ ============= ============ ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
AND THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
==========================================================
(In Thousands)
Preferred Stock Common Stock Additional Retained Treasury Stock
--------------- ---------------- Paid-In Earnings --------------
Shares Amount Shares Amount Capital (Deficit) Shares Amount Total
------ ------ ------ ------ ------- --------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 38 $378 2,995 $ 3,190 $ 831 $ (198) 52 $ (84) $ 4,117
Exercise of common stock options -- -- 15 14 -- -- -- -- 14
Redemption of redeemable common
stock to treasury -- -- 17 24 -- -- 17 (24) --
Dividends on preferred stock -- -- -- -- -- (36) -- -- (36)
Net (loss) -- -- -- -- -- (97) -- -- (97)
---- ---- ------ ------ ----- ------ --- ----- ------
Balance at September 30, 1994 38 378 3,027 3,228 831 (331) 69 (108) 3,998
Exercise of common stock options -- -- 16 8 -- -- -- -- 8
Redemption of redeemable common
stock to treasury -- -- 26 51 -- -- 26 (51) --
Reissuance of treasury stock -- -- -- -- -- (4) (40) 67 63
Conversion of redeemable
common stock -- -- 11 11 -- -- -- -- 11
Dividends on preferred stock -- -- -- -- -- (36) -- -- (36)
Net income -- -- -- -- -- 530 -- -- 530
---- ---- ------ ------ ----- ------ --- ----- ------
Balance at September 30, 1995 38 378 3,080 3,298 831 159 55 (92) 4,574
Cancellation of treasury stock -- -- (55) (92) -- -- (55) 92 --
Exercise of common stock options -- -- 62 35 -- -- -- -- 35
Dividends on preferred stock -- -- -- -- -- (9) -- -- (9)
Option offering costs -- -- -- -- (9) -- -- -- (9)
Net income -- -- -- -- -- 175 -- -- 175
---- ---- ------ ------ ----- ------ --- ----- ------
Balance at December 31, 1995 38 378 3,087 3,241 822 325 -- -- 4,766
Exercise of common stock
options (unaudited) -- -- 82 83 -- -- -- -- 83
Common stock issued for
acquisition (unaudited) -- -- 45 105 -- -- -- -- 105
Dividends on preferred
stock (unaudited) -- -- -- -- -- (18) -- -- (18)
Option offering costs (unaudited) -- -- -- -- (30) -- -- -- (30)
Net income (unaudited) -- -- -- -- -- 373 -- -- 373
---- ---- ------ ------ ----- ------ --- ----- ------
Balance at June 30, 1996
(unaudited) 38 $378 3,214 $3,429 $ 792 $ 680 -- $ -- $5,279
==== ==== ====== ====== ===== ====== === ===== ======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
=====================================
(In Thousands)
For the Three
Months Ended For the Years Ended For the Six
December 31, September 30, Ended
------------ ---------------------------------- June 30,
1995 1995 1994 1996
------------ ------------- -------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss) $ 175 $ 530 $ (97) $ 373
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 56 214 190 119
Interest receivable added to note
receivable-related parties - - (25) -
Rent payments applied to note
receivable-related parties - 27 57 -
Write-off of design fees - - 23 -
Loss on sale of equipment - - 13 -
Deferred income taxes (17) 106 (32) (38)
Minority interest in subsidiary income - - - 9
Changes in:
Service charges receivable (1) 17 (9) (16)
Inventory, excluding forfeited
loan collateral 873 3,132 2,770 1,405
Accounts receivable (9) 84 (29) 23
Prepaid expenses and other 9 27 161 (26)
Accounts payable 9 (27) 30 (6)
Accrued expenses (11) (57) 148 (32)
Income taxes payable (81) 162 - 30
Customer layaway deposits 4 9 (15) (2)
----------- ------------- -------------- ------------
Net Cash Provided by
Operating Activities 1,007 4,224 3,185 1,839
----------- ------------- -------------- ------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Pawn loans made (2,423) (9,688) (8,856) (4,811)
Pawn loans repaid 1,481 6,122 5,847 3,319
Proceeds from sale of equipment - 11 68 -
Purchase of property and
equipment (32) (249) (120) (80)
Proceeds from notes receivable 30 90 - -
Advances on notes
receivable-related parties - (99) (282) -
Payments on note receivable - related parties - - - 4
Proceeds to notes
receivable-related parties 1 5 176 -
Proceeds from sale of AutoPawn - 37 - -
Decrease (Increase) in other assets - - - (91)
Acquisition of subsidiary company - - - (83)
----------- ------------- -------------- ------------
Net Cash Used by Investing
Activities (943) (3,771) (3,167) (1,742)
----------- ------------- -------------- ------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Dividends paid (9) (36) (36) (18)
Issuance of notes payable and long-term debt 190 689 780 351
Payments on notes payable and long-term debt (493) (805) (703) (497)
Payments on capital lease obligations - (3) (61) -
Issuance of notes payable-related parties 22 50 21 11
Payments on notes payable-related parties - (30) (42) (3)
Purchase of treasury stock - (51) (23) -
Reissuance of treasury stock - 64 - -
Sale of common stock, net of offering costs 26 8 10 -
Issuance of common stock, net of offering
costs - - - 159
----------- ------------- -------------- ------------
Net Cash Used Provided by
Financing Activities (264) (114) (54) 3
----------- ------------- -------------- ------------
NET INCREASE (DECREASE) IN CASH (200) 339 (36) 100
CASH, beginning of period 482 143 179 282
----------- ------------- -------------- ------------
CASH, end of period $ 282 $ 482 $ 143 $ 382
=========== ============= ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: See Note 15
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
F-24
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Activity
- --------
U.S. Pawn, Inc., (the Company) was incorporated in the State of Colorado in
March 1980. The Company is engaged in acquiring, establishing and operating
pawnshops which lend money on the security of pledged tangible personal property
to residents of Colorado. In addition, the Company offers for resale the
personal property from forfeited loans, as well as merchandise purchased
directly from customers and vendors. As of December 31, 1995, the Company
operated eleven pawnshops in the Denver area and one pawnshop in Colorado
Springs.
On July 21, 1995 the Company's board of directors approved a change in year end
from September 30 to December 31 for the period ending December 31, 1995. The
change in taxable year end has been approved by the Internal Revenue Service.
Effective February 1, 1996, the Company acquired 80% of the outstanding common
stock of Advantage Pawn, Inc. (Advantage), a Wyoming corporation. 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. The operations of Advantage are consolidated with the Company only
from the applicable date of acquisition (see Note 16).
On August 2, 1996, the Company acquired three pawn shops, one in Ft. Collins,
Colorado and two in Cheyenne, Wyoming. Substantially all of the assets of the
three pawn shops were acquired for an aggregate purchase price of $775,000 (see
Note 16).
Unaudited Interim Financial Statements
- --------------------------------------
In the opinion of management, the unaudited interim financial statements for the
six month period ended June 30, 1996 are presented on a basis consistent with
the audited annual financial statements and reflect all adjustments, consisting
only of normal recurring accruals, necessary for fair presentation of the result
of the period. The results of operations for the interim period June 30, 1996
are not necessarily indicative of the results to be expected for the year ended
December 31, 1996.
Consolidation
- -------------
The Company and its subsidiary in which it exercises control through majority
ownership is consolidated, and all intercompany accounts and transactions are
eliminated. The acquisition of Advantage has been accounted for using the
purchase method of accounting for business combinations and accordingly, the
results of operations of Advantage are included in the Company's financial
statements only from the applicable date of acquisition.
Minority Interest
- -----------------
At June 30, 1996 the consolidated financial statements of the Company include
100% of the assets, liabilities and equity of Advantage which is owned 80% by
the Company. Since the Company is the majority stockholder in Advantage, the
remaining 20% ownership interests of the other stockholders have been recorded
as minority interests. A minority interest in the amount of $29,000 (unaudited)
was recorded at June 30, 1996.
F-25
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pawn Loans and Income Recognition
- ---------------------------------
Pawn loans (loans) are generally made for a period of one to three months with
an automatic 10-day extension period (loan term) on the pledge of tangible
personal property. The pawn service charge is calculated as a percentage of the
loan amount based on the size and duration of the loan. Pawn service charges on
loans are recognized on a constant yield basis over the loan term.
If the loan is not repaid, the principal amount loaned plus accrued pawn service
charges become the carrying value (cost) of the forfeited collateral (inventory)
which is recoverable through sales to customers. Accordingly, the Company does
not record loan losses or charge-offs on defaulted loans.
Concentrations of Credit Risk
- -----------------------------
Financial instruments that potentially subject the Company to credit risk
include notes receivable-related parties amounting to $311,000 at December 31,
1995 and $307,000, (unaudited) at June 30, 1996. The notes receivable are
collateralized by real property, personal property and shares of common stock of
the Company.
There are no concentrations of credit risk with respect to trade receivables.
Ongoing credit evaluations of customers' financial condition are performed and,
generally, no collateral is required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
The Company maintains all cash in bank deposit accounts, which at times may
exceed federally insured limits. The Company has not experienced a loss in such
accounts.
Fair Values of Financial Instruments
- ------------------------------------
Pawn loans are outstanding for a relatively short period, generally 90 days or
less. The rate of pawn service charge bears no relationship to interest rate
market movements. Pawn loans may not be resold to anyone but a licensed
pawnbroker. For these reasons, management believes that the fair value of pawn
loans approximates their carrying value.
The Company's bank credit facilities bear interest at rates which adjust
frequently based on market rate changes. Accordingly, management believes that
the fair value of that debt approximates its carrying value. The fair value of
investor notes payable was estimated based on market values for debt issues with
similar characteristics, or interest rates currently available for debt with
similar terms. Management believes that the fair value of those debts
approximates its carrying value.
Customer Layaways
- -----------------
Interim payments from customers on layaway sales are classified as customer
deposits and subsequently recorded as sales during the period in which the final
payment is received or when the deposit is forfeited.
F-26
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventory
- ---------
Inventory represents merchandise acquired from forfeited loans, merchandise
purchased directly from the public and new merchandise purchased from vendors.
Inventory is stated at the lower of cost (specific identification) or market.
Costs associated with the warehousing of merchandise, totaling approximately
$61,000 and $61,000 (unaudited), at December 31, 1995 and June 30, 1996,
respectively, are included in inventory.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Depreciation and amortization
expense is generally provided on a straight-line basis using estimated useful
lives of 5-10 years for equipment and 7-15 years for leasehold improvements.
Depreciation and amortization expense of property and equipment was $56,000,
$199,000, $175,000 and $111,000, (unaudited) for the three months ended December
31, 1995 and the years ended September 30, 1995 and 1994, and the six months
ended June 30, 1996, respectively.
Intangible Assets
- -----------------
Intangible assets consist primarily of costs in excess of net assets of
pawnshops acquired and noncompete agreements with the previous owners of
pawnshops acquired. The costs in excess of net assets acquired and the
noncompete agreements are amortized on a straight-line basis over 10 years and
over the term of the agreement of 10 years, respectively. Amortization expense
of intangible assets was $4,000, $15,000, $15,000 and $8,000 (unaudited) at
December 31, 1995 and September 30, 1995 and 1994, and June 30, 1996,
respectively.
Income Taxes
- ------------
Effective October 1, 1991, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. Under this method,
deferred income taxes are recorded to reflect the tax consequences in future
years of temporary differences between the tax basis of the assets and
liabilities and their financial statement amounts at the end of each reporting
period. Valuation allowances will be established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the current period and the change during the period in
deferred tax assets and liabilities. The deferred tax assets and liabilities
have been netted to reflect the tax impact of temporary differences. The
adoption of FAS 109 did not have a material effect on the Company's financial
statements, therefore there was no cumulative effect of this change in
accounting for income taxes at October 1, 1991.
F-27
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (Loss) Per Common Share
- --------------------------------
Earnings (loss) per common share is computed based upon the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Fully diluted and primary earnings per common share are the same amounts
for each of the periods presented.
Dilutive common equivalent shares consist of stock options and warrants and
redeemable common stock (calculated using the treasury stock method). In loss
periods, dilutive common equivalent shares are excluded as the effect would be
anti-dilutive.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions.
NOTE 2 - ACCOUNTS RECEIVABLE
Major classifications of accounts receivable were as follows (in thousands):
December 31, June 30,
1995 1996
----------- ------------
(Unaudited)
Secured, employee receivable, bearing
interest at 8% $ 10 $ -
Secured, employee receivable,
noninterest bearing 3 2
Trade receivables 25 40
Other receivables 29 14
---------- ---------
67 56
Less allowance for doubtful accounts (32) (43)
---------- ---------
$ 35 $ 13
========== =========
F-28
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 3 - NOTES RECEIVABLE
Notes Receivable - Related Parties
- ----------------------------------
Notes receivable-related parties totaling $310,000 and $307,000 (unaudited) as
of December 31, 1995 and June 30, 1996, respectively, consist of advances due
from officers, stockholders and employees. These loans bear interest
substantially at 8% per year and are due on various dates through October 1997.
The notes are collateralized by the Company's common stock, options to purchase
the Company's common stock, vehicles and second deeds of trust on real estate.
As of December 31, 1995 and June 30, 1996 $241,000 and $242,000 (unaudited) was
classified as current. Interest income received from related parties was
approximately $1,300, $35,000, $56,000 and $10,000 (unaudited) for the three
months ended December 31, 1995 and the years ended September 30, 1995 and 1994,
and six months ended June 30, 1996, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
December 31, June 30,
1995 1996
----------- -----------
(Unaudited)
Land $ 180 $ 180
Building 270 270
Equipment 970 1,049
Leasehold improvements 755 777
Vehicles 30 30
----------- ----------
2,205 2,306
Less accumulated depreciation and amortization (956) (1,067)
----------- ----------
$ 1,249 $ 1,239
=========== ==========
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consists of the following (in thousands):
December 31, June 30,
1995 1996
------------ ------------
(Unaudited)
Accrued salaries and payroll taxes $ 72 $ 57
Accrued interest 7 14
Other 70 46
------------ -------------
$ 149 $ 117
============ =============
F-29
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT
Notes Payable
- -------------
Notes payable consist of the following
(in thousands):
December 31, June 30,
1995 1996
----------- ----------
(Unaudited)
15% notes payable to various individuals
due prior to September 1996; interest
payable monthly, quarterly and annually;
unsecured. $ 538 $ 808
Bank line of credit agreement for
$650,000, due April 1, 1996; variable
interest rate is 2% above the bank's
base rate which was 11% and at December
31, 1995 and June 30, 1996, interest
payable quarterly; collateralized by
accounts receivable, service charges
receivable, pawn loans, inventory,
equipment, real estate and general
intangibles; guaranteed by a majority
stockholder/officer. The loan restricts
certain changes in the Company's
ownership structure, payments of
dividends, dealings with insiders and
restricts incurring debt and disposal of
assets. 349 23
--------- --------
$ 887 $ 831
========= =======
Notes Payable-Related Parties
- -----------------------------
The Company has notes payable to related parties, who are employees,
stockholders or family members, which are due on dates ranging from February
1996 to December 1996 totaling $419,000 and $433,000 (unaudited) as of December
31, 1995, and June 30, 1996, respectively, all of which is current. These notes
have interest rates of 15% per annum, payable monthly and are unsecured. These
notes are subordinated to the current bank line-of-credit.
F-30
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
Long-Term Debt
- --------------
Notes payable to an individual due
January 31, 1997; interest rate of 15%
per annum, due monthly; unsecured. $ 50 $ 50
Notes payable to a finance company due
on dates ranging from December 1995 to
November 1996; variable interest rate of
3% above Bank of America's prime rate of
8.5% at December 31, 1995 with a minimum
of 8% and a maximum of 14.5%, principal
and interest of $4,782 payable monthly;
collateralized by computer equipment. 21 8
---------- ---------
71 58
Less current portion (21) (58)
---------- ----------
$ 50 $ -
========== ==========
Maturities of long-term debt are as
follows (in thousands):
1997 $ 50 $ -
========== ==========
Interest expense incurred on notes payable and long-term debt was $52,000,
$241,000, $204,000 and $102,000 (unaudited), at December 31, 1995 and September
30, 1995 and 1994, and June 30, 1996, respectively. Included in interest expense
were amounts paid to related parties of approximately $16,000, $59,000, $68,000
and $35,000 (unaudited) at December 31, 1995, and September 30, 1995 and 1994,
and June 30, 1996, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
- ----------------
The Company leases one pawnshop facility from its majority stockholder\officer
and its other pawnshop facilities from unrelated parties expiring in various
years through 2002. Utilities, insurance and taxes are paid by the Company for
all of the pawnshop facilities. The majority of the operating leases provide for
an option to renew for one additional period of five years at the fair market
value at the time of renewal.
F-31
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Future minimum lease payments under noncancelable leases are as follows for each
of the years ending December 31 (in thousands):
<TABLE>
<CAPTION>
Related Non-Related
Party Parties Total
----------- ----------- -----------
<S> <C> <C> <C>
1996 $ 79 $ 392 $ 471
1997 79 265 344
1998 87 200 287
1999 87 150 237
2000 87 76 163
Thereafter 175 226 401
----------- ---------- -----------
$ 594 $ 1,309 $ 1,903
=========== ========== ===========
</TABLE>
Total future minimum lease payments above include $44,000 of noncancelable
sublease payments to be received from the AutoPawn sublease.
The Company's majority stockholder/officer has personally guaranteed
approximately $297,000 of the above lease payments to nonrelated parties.
Rent expense was $115,000, $535,000, $608,000 and $250,000 (unaudited) for the
three months ended December 31, 1995 and the years ended September 30, 1995 and
1994, and the six months ended June 30, 1996, respectively. Included in rent
expense were amounts paid to the Company's majority stockholder of $20,000,
$124,000, $85,000 and $40,000 (unaudited) for the three months ended December
31, 1995 and the years ended September 30, 1995 and 1994, and the six months
ended June 30, 1996.
Litigation
- ----------
On February 27, 1996, a former officer\director of the Company filed a lawsuit
alleging breach of the terms of a certain Stock Registration Agreement between
the former officer\director and the Company. Management believes the lawsuit
does not have merit, does not expect an unfavorable result and intends to
contest the action vigorously (see Note 16).
The Company is also party to a number of lawsuits arising in the normal course
of business. In the opinion of management, the resolution of these matters will
not have a material adverse effect on the Company's financial position.
F-32
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Insurance
- ---------
For the most part, the Company does not maintain robbery and burglary insurance
for personal property losses as management believes that the risk of loss does
not justify the premium cost of coverage. Insurance is provided to insure
against casualty loss and against general business liability claims. Costs
resulting from uninsured property losses will be charged against income upon
occurrence. No material amounts for uninsured property losses were charged to
operations for any of the periods presented.
NOTE 8 - INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Years Ended For the Six
Enced September 30, Months Ended
December 31, -------------------------------------- June 30,
1995 1995 1994 1996
--------------- ---------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C>
Current $ 128 $ 162 $ - $ 246
Deferred (17) 106 (32) (38)
--------------- ---------------- ---------------- ----------------
Provision (Benefit) $ 111 $ 268 $ (32) $ 208
=============== ================ ================ ================
</TABLE>
The components of deferred tax assets and (liabilities) are as follows (in
thousands):
December 31, June 30,
1995 1996
---------------- ---------------
(Unaudited)
Total deferred
tax assets $ 11 $ 11
Total deferred
tax (liabilities) (142) (104)
---------------- ----------------
Net deferred tax
(liabilities) $ (131) $ (93)
================ ================
F-33
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 8 - INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to deferred tax assets
and (liabilities) are as follows (in thousands):
December 31, June 30,
1995 1996
Temporary differences: ------------ -------------
Change in tax accounting (Unaudited)
method for service
charges receivable $ (88) (76)
Property and equipment (23) (6)
Inventory (21) (21)
Other 1 10
----------- ------------
$ (131) $ (93)
=========== ============
The components of deferred income tax (benefit) expense are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Years Ended Six Months
Ended September 30, Ended
December 31, ---------------------------------- June 30,
1995 1995 1994 1996
------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Depreciation and
amortization $ (8) $ (29) $ (10) $ (19)
Change in tax
accounting method for
service charges receivable (8) (32) (37) (17)
Inventory warehousing costs - (9) (6) -
Restructuring costs - 43 (42) -
Other (1) 1 20 (2)
Utilization of net operating
loss carryforward - 132 43 -
------------- -------------- -------------- --------------
$ (17) $ 106 $ (32) $ (38)
============= ============== ============== ==============
</TABLE>
F-34
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
==========================================
NOTE 8 - INCOME TAXES (Continued)
Following is a reconciliation of the amount of income tax (benefit) expense that
would result from applying the statutory federal income tax rates to pre-tax
income and the reported amount of income tax expense for the periods ended (in
thousands):
<TABLE>
<CAPTION>
Three Months Years Ended Six Months
Ended September 30, Ended
December 31, ------------------------- June 30,
1995 1995 1994 1996
------------ ------------------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Tax expense (benefit) at
federal statutory rates $ 97 $ 271 $ (44) $ 201
Increase (decrease) resulting from:
State tax - net 15 3 (6) 30
Nondeductible items -- 1 6 --
Depreciation and amortization (9) (13) 9 (18)
Change in tax accounting method
for pawn service charges 8 32 37 16
Reserve method for bad debts 3 3 (3) 2
Restructuring costs -- (42) 42 --
Inventory warehousing costs -- 8 5 --
Other 14 43 2 15
(Benefit) of net operating
loss carryforward -- (144) (48) --
----- ----- ----- -----
$ 128 $ 162 $ -- $ 246
===== ===== ===== =====
</TABLE>
Effective October 1, 1992, the Company changed its income tax method of
accounting for pawn service charges from the cash basis to the accrual method of
accounting. The cumulative effect of this change of approximately $564,000 is
included in taxable income over six years on a straight-line basis beginning
September 30, 1993.
F-35
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 9 - REDEEMABLE COMMON STOCK
On February 17, 1994 the Company retired a note payable to a stockholder in the
amount of $115,000 with a note receivable due from the same stockholder in the
amount of $29,000 and the remaining amount of $86,000 was converted to 53,170
shares of the Company's common stock ($1.62 per share).
Under the terms of the agreement, the Company was required to repurchase the
redeemable common stock at the stockholder's request at the market value on the
date of request. The repurchase agreement was limited to a maximum of $75,000
for a period of two years. During 1994 and 1995 the stockholder requested the
Company to redeem 16,745 shares for a total of $24,000 and 25,966 shares for a
total of $51,000, respectively (see Note 11). The remaining 10,459 shares of
redeemable common stock were cancelled and re-issued as common stock in the
amount of $11,000 ($1.06 per share). As of December 31, 1995 there were no
shares of redeemable common stock outstanding.
NOTE 10 - REDEEMABLE PREFERRED STOCK
The Company has authorized 1,000,000 shares of $10 par value, redeemable
preferred stock. The preferred stock is redeemable only at the Company's option
at par value. The preferred stock is nonvoting, cumulative, pays a monthly
dividend at an annual rate of 9.5% and has the same rights in the event of
liquidation as the common stockholders.
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS
In connection with a July 1993 private placement offering, the Company issued to
an underwriter warrants to purchase up to 127,026 shares of common stock until
July 31, 1998 at an exercise price of $3.00 per share. No warrants have been
exercised at December 31, 1995.
Employee Incentive Stock Option Plan
- ------------------------------------
In 1988 the Company's Board of Directors adopted the 1988 Employee Incentive
Stock Option Plan (1988 Plan) under which 125,000 shares of the Company's common
stock were reserved for issuance at prices not less than the fair market value
on the date of grant which were registered on September 11, 1990. For options
granted to an employee owning shares of common stock possessing more than 10% of
the total combined voting power of all classes of the Company's common stock,
the option price shall not be less than 110% of the fair market value of the
common stock on the date of grant. The options may be exercised 331/3% for each
year of continuous service beginning one year from the date of grant, unless
otherwise specified by the Company's board of directors. The options expire
within six years of the date of grant and must be exercised within four years
from the date of grant or within 90 days of termination.
F-36
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (Continued)
During 1994, the Company's board of directors approved a proposal to increase
the number of shares reserved under the 1988 Plan by 1,074,833 which was later
rejected during 1995. On March 25, 1995, the Company's Board of Directors
increased the number of shares reserved under the 1988 plan to 275,000. On July
25, 1995, the Company registered the 150,000 additional shares reserved under
the 1988 Plan. On September 30, 1995, pursuant to its express authority under
the 1988 Plan, the Company's board of directors extended the expiration period
to ten years and the exercise period to eight years for certain options
previously granted under the 1988 Plan.
A summary of stock option activity under the 1988 Plan is as follows:
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------------
Reserved Price Per
Shares Shares Share
-------- -------- ----------------
<S> <C> <C> <C>
Balance, September 30, 1993 115,167 45,925 $ .68-5.12
Reserved 1,074,833 -- --
Granted -- 1,127,500 $ 1.81-1.87
Exercised (15,000) (15,000) $ .68-1.12
Expired -- (697,175) --
--------- ---------
Balance at
September 30, 1994 1,175,000 461,250 $ 1.12-5.12
Reserved 150,000 -- --
Adjustment to reserve (1,074,833) -- --
Adjustment to grant -- (1,050,000) $ 1.81
Adjustment to expiration -- 649,875 --
Granted -- 32,000 $ 2.06
Expired -- (125) --
--------- ---------
Balance at
September 30, 1995 and 250,167 93,000 $ 1.12-5.12
December 31, 1995
Exercised (unaudited) (4,667) (4,667) $ 1.87
Expired (unaudited) -- (3,333) --
--------- ---------
Balance at
June 30, 1996 (unaudited) 245,500 85,000 $ 1.12-5.12
========= =========
</TABLE>
F-37
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (Continued)
During 1994 the Company's board of directors granted options, subject to
stockholder approval, under the 1988 Plan for 600,000 shares of the Company's
common stock to the majority stockholder/officer and 450,000 shares of the
Company's common stock to an officer who was terminated in July 1994. The option
for 450,000 shares was not submitted to the stockholders for approval as the
officer was terminated in July 1994 and, therefore, the option expired. The
option for 600,000 shares was approved by the stockholders on March 25, 1995.
However, the Company's board of directors later determined that the 1988 Plan
was not the appropriate vehicle for the grant, and instead implemented the
stockholders intent through a separate option agreement (the "Executive
Option").
At December 31, 1995 and June 30, 1996 (unaudited), options for 60,083 shares
were exercisable and 157,167 shares were available for future grants under the
1988 Plan.
Directors' Stock Option Plan
- ----------------------------
On October 21, 1991 the Company's Board of Directors adopted a Directors' Stock
Option Plan (Directors' Plan) effective October 16, 1989 under which 75,000
shares of the Company's common stock are reserved for issuance at prices not
less than the fair market value on the date of grant. All of the Company's
directors are eligible to participate. The options must be exercised within five
years from the date of grant
or within 30 days of termination.
A summary of stock option activity under the Directors' Plan is as follows:
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------
Reserved Price Per
Shares Shares Share
------------- ------------ -------------
<S> <C> <C> <C>
Balance at
September 30, 1993 and 1994 75,000 62,500 $ 2.00-4.36
Expired - (12,500) -
------------- ------------
Balance at 75,000 50,000 $ 2.00-4.36
September 30, 1995, ============= ============
December 31, 1995 and
June 30, 1996 (unaudited)
</TABLE>
At December 31, 1995 and June 30, 1996 options for 50,000 shares were
exercisable and 12,500 were available for future grants under the Directors'
Plan. On October 9, 1996 the Company filed a registration statement for 50,000
shares underlying the outstanding options.
F-38
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (Continued)
1994 Director's Stock Option Plan
- ---------------------------------
On March 25, 1994 the Company's Board of Directors adopted the 1994 Directors'
Stock Option Plan (1994 Plan), subject to stockholder approval, under which
300,000 shares of the Company's common stock were reserved for issuance at
prices not less than the fair market value of the common stock on date of the
grant. For options granted to a director owning shares of common stock
possessing more than 10% of the total combined voting power of all classes of
the Company's common stock, the option price shall not be less than 110% of the
fair market value of the common stock on the date of grant. All of the Company's
directors were eligible to participate. The options were to be exercised within
10 years from the date of grant or within six months of termination. On March
26,1994 the Company's board of directors granted options for 300,000 shares of
the Company's common stock at an exercise price of $1.81 per share.
On January 20, 1995 the Company's board of directors rescinded the 1994 Plan and
all options granted thereunder.
1995 Directors' Stock Option Plan
- ---------------------------------
On July 21, 1995 the Company's board of directors adopted the 1995 directors'
stock option plan (1995 Plan), subject to stockholder approval, under which
90,000 shares of the Company's common stock were reserved for issuance at prices
not less than the fair market value on the date of the grant. For options
granted to a director owning shares of common stock possessing more than 10% of
the total combined voting power of all classes of the Company's common stock,
the option price shall not be less than 110% of the fair market value of the
common stock on the date of grant. All of the Company's directors are eligible
to participate. The options must be exercised within 10 years of the date of
grant or within six months of termination. At December 31, 1995 and June 30,
1996 no options had been granted under the 1995 Plan and 90,000 shares were
available for future grants.
On June 22, 1996 the shareholders approved the 1995 Plan. As of June 30, 1996,
18,000 options have been granted under the 1995 Plan and 72,000 were available
for future grants (unaudited).
F-39
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (Continued)
Management Incentive Stock Option Plan
- --------------------------------------
During 1990 the Company's Board of Directors adopted the 1990 Management
Incentive Stock Option Plan (1990 Plan) under which 150,000 shares of the
Company's common stock were reserved for issuance at prices not less than the
fair market value of the common stock on the date of the grant. For options
granted to a management employee owning shares of common stock possessing more
than 10% of the total combined voting power of all classes of the Company's
common stock, the option price shall not be less than 110% of the fair market
value of the common stock on the date of the grant originally under the Plan.
The options had to be exercised 331/3% for each year of continuous service
beginning one year from the date of the grant, unless otherwise specified by the
Company's board of directors. The options must be exercised within three years
from the date of grant or within 30 days of termination. During 1994, the
Company's Board of Directors approved a proposal to increase the number of
shares reserved under the 1990 Plan by 112,500 and to extend the option period
an additional six years. The proposal was rejected during 1995. On July 25, 1995
the Company registered 150,000 shares previously granted under the 1990 Plan.
A summary of the stock option activity under the 1990 Plan is as follows:
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------
Reserved Price Per
Shares Shares Share
---------- ------------ --------------
<S> <C> <C> <C>
Balance at
September 30, 1993 125,000 212,500 $ .50-2.12
Reserved 112,500 - -
Expired - (62,500) -
---------- -------------
Balance at
September 30, 1994 237,500 150,000 $ .50-.62
Reserved 25,000 - -
Adjustment to reserve (112,500) - -
Exercised (16,000) (16,000) $ .50
----------- -------------
Balance at
September 30, 1995 134,000 134,000 $ .50-.62
Exercised (62,000) (62,000) $ .50-.62
----------- -------------
Balance at
December 31, 1995 72,000 72,000 $ .62
Exercised (unaudited) (47,000) (47,000) $ .62
----------- -------------
Balance at
June 30, 1996 (unaudited) 25,000 25,000 $ .62
=========== =============
</TABLE>
F-40
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (Continued)
During 1995 the Company's Board of Directors, pursuant to its express authority
under the 1990 Plan, extended option periods to August 1, 1996 for an option to
purchase 50,000 shares of the Company's common stock at $.625 per share and an
option to purchase 50,000 shares of the Company's common stock at $.50 per share
previously granted to an officer who was terminated in July 1994. On September
30, 1995 the Company's board of directors, pursuant to its express authority
under the 1990 Plan, extended the expiration period to ten years and the
exercise period to eight years for an option to purchase 50,000 shares of the
Company's common stock at $.625 per share previously granted to the majority
stockholder/officer.
At December 31, 1995 and June 30, 1996 options for 72,000 and 25,000 (unaudited)
shares, respectively, were exercisable and no shares are available for future
grants under the 1990 Plan.
On February 1, 1996, options for 30,000 shares were exercised for $.62 per share
or $19,000 and on April 17, 1996 options for 17,000 shares were exercised at
$0.62 for $11,000 (unaudited).
Executive Option
- ----------------
On March 25, 1995, the stockholders approved a proposal authorizing the
Company's board of directors to grant the majority stockholder/officer options
to purchase up to 200,000 shares of the Company's common stock for $1.81 per
share exercisable until March 25, 2004, each year for three years commencing
from March 24, 1994. The number of shares granted in each year's option may be
further limited based upon the Company's operating results for the years ending
September 30, 1994, 1995 and 1996. No grant was made for the year ended
September 30, 1994 due to the Company's failure to meet the required minimum
profitability goal.
On September 30, 1995 the Company's board of directors granted an option to the
majority stockholder/officer for 125,000 shares of the Company's common stock at
an exercise price of $1.81 expiring within ten years of the date of grant or
within 90 days of termination. The option was granted based on the Company
achieving certain profitability goals for the year ended September 30, 1995. At
December 31, 1995 and June 30, 1996 (unaudited) the option for 125,000 shares
was exercisable and 200,000 shares were available for a future grant.
NOTE 12 - TREASURY STOCK
As of December 31, 1995, 54,511 shares of treasury stock which were valued at
$91,581 were cancelled.
F-41
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 13 - RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the notes
to financial statements, the following related party transactions have occurred:
Two stockholders/directors of the Company are attorneys who have provided
certain legal services to the Company. Legal fees incurred totaled approximately
$6,000, $27,000, $22,000 and $14,000 (unaudited) for the three months ended
December 31, 1995 and the years ended September 30, 1995 and 1994, and the six
months ended June 30, 1996, respectively.
A stockholder of the Company provided construction services to the Company in
the form of repairs, maintenance and leasehold improvements totaling $18,000 and
$27,000 for the years ended September 30, 1995 and 1994, respectively.
In March of 1995 the Company purchased a building and land from a majority
stockholder/officer of the Company for $450,000 of which $143,000 was paid in
cash and the remaining $307,000 was applied to reduce the majority
stockholder/officer's note receivable (see Note 14). According to an independent
appraisal dated March 1994, the market value of the building and land was
appraised at $380,000 and a leased/income value of $438,000 to $470,000.
NOTE 14 - RESTRUCTURING COSTS
On September 30, 1994 the Company's Board of Directors approved a restructuring
plan to reduce costs, thereby achieving the Company's goal to increase
profitability. In order to achieve this goal, the Plan provided for:
1) the elimination of the positions of executive vice president and vice
president of operations;
2) the elimination of the assistant controller position and a computer
services support position;
3) the relocation of the corporate offices;
4) an incentive compensation bonus based on profitability for store managers;
5) the sale of AutoPawn assets; and
6) the implementation of additional cost containment strategies.
Subject to the provisions of the plan the Company terminated its executive vice
president and vice president of operations as of September 30, 1994.
On December 20, 1994 the Company sold its AutoPawn inventories and "Contracts to
purchase" (pawn loans) for motor vehicles located at the AutoPawn location for
cash of $37,000 and a noninterest bearing note receivable of $120,000 payable in
12 monthly installments of $10,000 each beginning January 1, 1995 and maturing
on December 1, 1995.
F-42
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 14 - RESTRUCTURING COSTS (Continued)
Under the plan the Company incurred the following restructuring costs as of
September 30, 1994 (in thousands):
Severance payments to employees $ 54
Corporate office relocation:
Broker's commissions 30
Unamortized leasehold improvements 21
Settlement of current lease 11
Loss on sale of excess furniture 2 64
------
Loss on sale of AutoPawn assets 61
------
Total Restructuring Costs $ 179
======
The Company incurred total restructuring costs of $179,000 of which severance
payments to employees in the amount of $54,000 were paid at September 30, 1994.
No additional restructuring costs were incurred during 1995 or 1996.
NOTE 15 SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR
NONCASH INVESTING AND FINANCING ACTIVITIES
During 1994 notes payable of $123,000 were incurred to acquire computer
equipment and vehicles.
On February 17, 1994 the Company retired the balance of a note payable to a
stockholder in the amount of $115,000 with a note receivable from the same
stockholder of $29,000 and issued 53,170 shares of redeemable common stock
($1.62 per share) for $86,135.
During 1994 the Company applied a credit for the return of merchandise totaling
$4,000 to reduce a note receivable from a stockholder.
During 1994 an employee exercised an option to purchase 3,750 shares of common
stock totaling $4,000 ($1.12 per share) with an advance on his note receivable.
Employees purchased merchandise totaling $14,000 with advances on their notes
receivable during 1994.
During the year ended September 30, 1994 the Company applied a credit for the
return of merchandise totaling $9,000 to reduce a note receivable from a
stockholder.
F-43
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 15 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR
NONCASH INVESTING AND FINANCING ACTIVITIES (Continued)
During the year ended September 30, 1995 the Company purchased one of the stores
it was leasing from its majority stockholder/officer and thereby reduced his
note receivable by $307,000 (see Note 13).
During the year ended September 30, 1995 the Company offset deferred note
payments from a related party against accrued interest receivable on his note
receivable.
During the year ended September 30, 1995 the Company discharged the $125,000 of
accrued restructuring costs recognized during 1994 of which $92,000 was
comprised of the following non-cash transactions:
1) During 1995 the Company sold equipment with a net book value of $4,000,
inventories of $143,000, pawn loans of $31,000 and service charges
receivable of $2,000 relating to motor vehicles located at the AutoPawn
location for a $120,000 note receivable resulting in a loss of $61,000
which was included in accrued restructuring costs;
2) During 1995 the Company abandoned leasehold improvements with a net book
value of $21,000 resulting in a loss of $21,000 which was included in
accrued restructuring costs;
3) During 1995 the Company sold equipment with a net book value of $12,000
which resulted in a loss of $2,000 which was included in accrued
restructuring costs; and
4) During 1995 the Company applied a $8,000 deposit as rent to terminate its
corporate office lease which was included in accrued restructuring costs.
During the three months ended December 31, 1995, the years ended September 30,
1995 and 1994, and the six months ended June 30, 1996, the company transferred
$849,000, $ 2,965,000, $3,427,000 and $1,643,000 (unaudited), respectively, of
forfeited pawn loan collateral to inventory.
<TABLE>
<CAPTION>
Ended
September 30,
December 31, ------------------------------ June 30,
1995 1995 1994 1996
------------ ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash paid during the
period for interest $ 50,000 $ 224,000 $ 201,000 $ 95,000
============ ============= ============= ============
Cash paid during the
period for income
taxes $ 209,000 $ - $ - $ 221,000
============ ============= ============== ===========
F-44
</TABLE>
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 16 - SUBSEQUENT EVENTS
Consulting and Stock Option Plan
- --------------------------------
On January 27, 1996, the Company's board of directors adopted the 1996
Consultant's Stock Option Plan (1996 Plan) for benefit of consultants and others
providing services to the Company under which 500,000 shares were reserved for
issuance at prices not less than 75% of the fair market value at the date of
grant of which 250,000 shares were registered on February 7, 1996 by a form S-8
registration statement. Options must be exercised within 12 months following the
date of grant and the optionee must exercise options during employment or
service to the Company or within 30 days of termination of such service or
employment of consultants or employees are terminated for cause, any unexercised
options are cancelled as of the date of termination.
On February 7, 1996, 250,000 options were issued at exercise prices of $1.50 for
150,000 options; $2.50 for 50,000 options and $3.50 for the remaining 50,000
options.
Acquisitions
- ------------
Advantage
- ---------
In January, 1996 the Company agreed to acquire 80% of the outstanding common
stock of Advantage Pawn, a Wyoming corporation for $187,500 as follows: $82,500
in cash and $105,000 of common stock of the Company. In addition, the sellers
will be paid $22,500 for an agreement not to compete and will receive employment
agreements. The Company has further agreed to guarantee $105,000 of the debts of
the acquiree.
The unaudited balance sheet as of December 31, 1995 is as follows (in
thousands):
ASSETS
------
Current assets $ 234
Equipment and other, net 19
--------------
Total Assets $ 253
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities $ 34
Notes payable and long-term debt 134
--------------
Total Liabilities 168
Stockholders' Equity 85
--------------
Total Liabilities and
Stockholders' Equity $ 253
==============
F-45
<PAGE>
U. S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 16 - SUBSEQUENT EVENTS (Continued)
The unaudited statement of operation for the initial twelve months ended
December 31, 1995 is as follows (in thousands):
Revenues:
Sales $ 201
Pawn service charges 74
Other 1
------------
Total Revenues 276
------------
Cost of Sales and Expenses
Cost of sales 114
Operations 11
Administration 91
Interest 8
Depreciation and amortization 3
------------
Total Costs and Expenses 227
------------
Net Income Before Income Taxes 49
Income taxes (7)
------------
Net Income $ 42
============
The acquisition will be accounted for as a purchase which will recognize
approximately $109,000 in goodwill.
City National Pawn, the Division (Unaudited)
- --------------------------------------------
On August 2, 1996, the Company acquired three pawn shops, one in Ft. Collins,
Colorado and two in Cheyenne, Wyoming. Substantially all of the assets of the
three pawn shops were acquired for an aggregate price of $775,000, $225,000 paid
in cash was generated by operations and $550,000 paid in cash was from increases
in notes payable.
F-46
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 16 - SUBSEQUENT EVENTS (Continued)
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
=========================================================
(In Thousands)
City National,
Advantage the Division Pro Forma
Pro Forma City National, Pro Forma Consolidated
U.S. Pawn Advantage Adjustments the Division Adjustments Balance Sheet
--------- --------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS $5,104 $ 235 $(133) $ 559 $ (297) $5,468
PROPERTY AND EQUIPMENT, net 1,249 18 -- 67 (24) (2) 1,310
NOTES RECEIVABLE -
RELATED PARTIES 69 -- -- -- -- 69
INTANGIBLE ASSETS, net 134 -- 23 (3) -- 10 (3) 523
109 (3) 247 (3)
OTHER ASSETS 20 -- -- -- -- 20
------ ----- ------ ----- ------- ------
$6,576 $ 253 $ (1) $ 626 $ (64) $7,390
====== ===== ====== ===== ======= ======
CURRENT LIABILITIES $1,630 $ 26 $ -- $ 19 $ (7) $1,668
LONG-TERM DEBT,
less current portion 50 134 (32) (4) -- 550 (2) 702
DEFERRED INCOME TAXES 131 -- -- -- -- 131
MINORITY INTEREST
IN SUBSIDIARY -- -- 19 (10) -- 57 (10) 76
STOCKHOLDERS' EQUITY 4,765 93 12 607 (664) 4,813
------ ----- ------ ----- ------- ------
$6,576 $ 253 $ (1) $ 626 $ (64) $7,390
====== ===== ======= ===== ======= ======
</TABLE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
===================================================================
(In Thousands, Except for Per Share Data)
U.S. Pawn U.S. Pawn U.S. Pawn U.S. Pawn
Three Months Twelve Months Three Months Twelve Months
Ended Ended Ended Ended U.S. Pawn
December 31, September 30, December 31, December 31, Pro Forma
1995 1995 1994 1995 Adjustments
------------ ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ 2,579 $9,510 $2,461 $9,628 $ --
COST OF SALES AND EXPENSES 2,293 8,712 2,271 8,734 --
------- ------ ------ ------ ------
INCOME FROM OPERATIONS 286 798 190 894 --
PROVISION FOR INCOME TAXES 111 268 61 318 (48)(8)
------- ------ ------ ------ ------
INCOME BEFORE MINORITY INTEREST 175 530 129 576 48
MINORITY INTEREST INCOME -- -- -- -- --
------- ------ ------ ------ ------
NET INCOME 175 530 129 576 48
DIVIDENDS ON PREFERRED STOCK 9 36 9 36 --
------- ------ ------ ------ ------
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS $ 166 $ 494 $ 120 $ 540 $ 48
======= ====== ====== ====== ======
EARNINGS PER COMMON SHARE $ 0.05 $ 0.17
======= ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,103 3,103
======= ======
F-47 (Continued on following page)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
===================================================================
(In Thousands, Except for Per Share Data)
City National, Pro Forma
Advantage the Division City National, Twelve Months
Year Ended Advantage Year Ended the Division Ended
December 31, Pro Forma December 31, Pro Forma December 31,
1995 Adjustments 1995 Adjustments 1995
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 276 $ -- $ 1,089 $ -- $ 10,993
COST OF SALES AND EXPENSES 227 12 932 49 9,954
------ ------- --------- -------- --------
INCOME FROM OPERATIONS 49 (12) 157 (49) 1,039
PROVISION FOR INCOME TAXES 7 6 (8) -- 40 (8) 323
------ ------- --------- -------- --------
INCOME BEFORE MINORITY INTEREST 42 (18) 157 (89) 716
MINORITY INTEREST INCOME
-- (5) (10) -- (7) (10) (12)
------ ------- --------- -------- --------
NET INCOME 42 (23) 157 (96) 704
DIVIDENDS ON PREFERRED STOCK -- -- -- -- 36
------ ------- --------- -------- --------
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS 42 $ (23) $ 157 $ (96) $ 668
====== ======= ======== ======== ========
EARNINGS PER COMMON SHARE $ 0.21
WEIGHTED AVERAGE NUMBER OF ========
COMMON SHARES OUTSTANDING 3,148
========
F-47 (Continued from previous page)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================================
NOTE 16 - SUBSEQUENT EVENTS (Continued)
U.S.PAWN, INC. AND SUBSIDIARY
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30 1996
========================================================
(In Thousands)
City National,
the Division Pro Forma
City National, Pro Forma Consolidated
U.S. Pawn the Division Adjustments Balance Sheet
------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 5,401 $ 619 $ (369) $ 5,651
PROPERTY AND EQUIPMENT, net 1,239 60 (17) (2) 1,282
NOTES RECEIVABLE -
RELATED PARTIES 65 - - 65
INTANGIBLE ASSETS, net 277 - 10 (3) 534
247 (3)
OTHER ASSETS 35 1 (1)(4) 35
-------------- ----------- ------------- -------------
$ 7,017 $ 680 $ (130) $ 7,567
============== =========== ============= =============
CURRENT LIABILITIES 1,616 16 (16) 1,616
LONG-TERM DEBT, less current portion - - 550 (2) 550
DEFERRED INCOME TAXES 93 - - 93
MINORITY INTEREST IN SUBSIDIARY 29 - 57 86
STOCKHOLDERS' EQUITY 5,279 664 (721) 5,222
-------------- ----------- ------------- -------------
$ 7,017 $ 680 $ (130) $ 7,567
============== =========== ============= =============
</TABLE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARY
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
==================================================================
(In Thousands, Except for Per Share Data)
City
National, Pro Forma
U.S. Pawn Advantage the Division City Twelve
Six Months One Month Six Months National, Months
Ended U.S. Pawn Ended Advantage Ended the Division Ended
June 30, Pro Forma January 31, Pro Forma June 30, Pro Forma June 30,
1996 Adjustments 1996 Adjustments 1996 Adjustments 1996
---------- ----------- ---------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 4,922 $ -- $ 39 $ -- $ 578 $ -- $ 5,539
COST OF SALES AND EXPENSES 4,332 -- 23 -- 485 44 4,884
------- ------- ------ ------ ------ ------ -------
INCOME FROM OPERATIONS 590 -- 16 -- 93 (44) 655
PROVISION FOR INCOME TAXES 208 -- 2 3 -- 17 230
------- ------- ------ ------ ------ ------ -------
INCOME BEFORE MINORITY INTEREST 382 -- 14 (3) 93 (61) 425
MINORITY INTEREST (9) -- -- (1) -- (3) (13)
------- ------- ------ ------ ------ ------ -------
NET INCOME 373 -- 14 (4) 93 (64) 412
DIVIDENDS ON PREFERRED STOCK 18 -- -- -- -- -- 18
------- ------- ------ ------ ------ ------ -------
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS $ 355 $ -- $ 14 $ (4) $ 93 $ (64) $ 394
======= ======= ====== ====== ====== ====== =======
EARNINGS PER COMMON SHARE $ 0.11 $ 0.12
======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,310 3,318
======= =======
F-48
</TABLE>
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 16 - SUBSEQUENT EVENTS (Continued)
Settlement of Litigation (unaudited)
- ------------------------------------
On February 26, 1996, a former officer\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\director
agreed to a dismissal of the suit.
Exercise of Options Under Consulting and Stock Option Plan (unaudited)
- ----------------------------------------------------------------------
During the three months ended June 30, 1996, 30,000 options were exercised for
$1.50 per share for $45,000.
At June 30, 1996, 220,000 options were outstanding and exercisable. 120,000
options were exercisable at $1.50 per share; 50,000 options were exercisable at
$2.50 per share and 50,000 options were exercisable at $3.50 per share.
During the three months ended September 30, 1996, options for 90,000 shares were
exercised for $1.50 per share or $135,000.
At September 30, 1996, 130,000 options were outstanding and exercisable. 30,000
options were exercisable at $1.50 per share; 50,000 options were exercisable at
$2.50 per share and 50,000 options were exercisable at $3.50 per share.
Exercise of Options Under the Executive Option Plan (unaudited)
- ---------------------------------------------------------------
During August and September 1996, options for 72,000 shares were exercised for
$1.81 per share or $130,000. At September 30, 1996, 53,000 options were
exercisable for $1.81.
F-49
ASSET PURCHASE AGREEMENT
BETWEEN
U.S. PAWN, INC.
AND
CITY NATIONAL PAWN, INC.
d/b/a
CITY NATIONAL PAWN
<PAGE>
TABLE OF CONTENTS
1. Assets To Be Transferred. 1
2. Assets Not To Be Transferred. 3
3. Calculation of Purchase Price. 3
4. Purchase Price and Allocation of Purchase Price. 3
5. Payment of Purchase Price. 4
6. Right of Inspection Prior To The Closing Date. 4
7. Closing. 4
8. Contingencies. 4
9. Covenant of Further Assistance. 5
10. Additional Closing Procedures. 5
11. Liabilities To Be Assumed. 5
12. Possession of Property. 5
13. Seller's Warranties. 6
14. Risk of Loss. 9
15. Purchaser's Warranties. 9
16. Conduct of Business. 10
17. Trade Secrets. 10
18. Covenant Not To Compete. 11
19. Indemnification. 11
20. Seller's Right To Access To Certain Records. 11
21. Construction of Agreement. 11
22. Entire Agreement. 12
23. Broker Commissions. 12
24. Costs. 13
25. Headings. 13
26. Notices. 13
27. Default. 13
28. Succession and Assignment. 13
29. Execution. 13
30. Gender. 13
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (hereinafter "Contract" or "Agreement") is
made and entered into this 2nd day of August 1996, (the "Transfer Date") by and
between U.S. PAWN ("Purchaser"), and CITY NATIONAL PAWN, INC., d/b/a CITY
NATIONAL PAWN (hereinafter called "Seller"), upon the following premises, terms,
conditions, considerations and agreements:
PREMISE
It is recognized that Seller is the owner and operator of a pawnshop store,
located at 802 South College Ave., Fort Collins, CO, 80524 which shall
hereinafter be referred to as "the pawnshop business". It is further recognized
that it is those assets constituting the pawnshop business which are being sold
and are those identified in Paragraph 1 and respective exhibits attached hereto.
It is intended hereby that whatever right, title and/or interest is owned by
each of the parties included in the term "Seller" shall be conveyed to Purchaser
hereby.
1. Assets To Be Transferred. For and in consideration of the purchase
price set forth below, and of the mutual covenants and agreements
herein contained, Seller agrees to SELL, TRANSFER, CONVEY AND DELIVER
to Purchaser, and Purchaser agrees to PURCHASE AND ACCEPT from Seller,
the following described property, being intended to describe all of
the assets of the pawnshop business located at 802 South College Ave.,
Fort Collins, CO, 80524 except those excluded in Paragraph 2 below:
A. All furniture, fixtures, equipment and supplies of Seller located
at and used by Seller in the operation of the pawnshop business
owned by Seller at the address stated above.
B. All merchandise inventory owned and/or acquired through Seller's
pawnshop business or otherwise located at the address stated
above, and all existing rights to the merchandise;
C. All contracts to purchase and accounts receivable of Seller,
together with all promissory notes, contracts to purchase and
other evidences of indebtedness owed to Seller arising out of the
pawnshop business (including, but not limited to, the contracts
to purchase accounts of Seller heretofore furnished to Purchaser
for examination), together with all of Seller's rights in and
with respect to pawned merchandise securing same. Contracts to
purchase inventory consisting of firearms is specifically
included in the assets, but title to such inventory shall remain
vested in Seller until Purchaser has obtained its own license
from the Bureau of Alcohol, Tobacco and Firearms (ATF) for the
pawnshop, on which date title to such inventory shall vest in
Purchaser;
<PAGE>
D. The right of Seller to not engage in any business of the nature
presently being operated by Seller at the address referred to
above, or any business similar thereto or any degree competitive
therewith, including any business subject to regulation as a
pawnshop by any governmental entity or agency or regulation under
the Federal Firearms Act, as hereinafter set out;
E. All layaway receivables and contracts, together with all
promissory notes, contracts and evidences of indebtedness owed to
Seller on such layaway receivables and contracts, together with
all rights to evidences of indebtedness, claims, choses in
action, liens, pledges and other instruments and security of
every kind and nature owned by Seller as security for and in any
manner securing or collateral to or for said layaway receivables
and/or contracts;
F. All of Seller's right, title and interest in and to the leasehold
assets in and upon the premises presently occupied by the
pawnshop business located at 802 South College Ave., Fort
Collins, CO, 80524.
G. Goodwill and all compilations and lists of present or former
customers and/or borrowers, all mailing lists, all business
records (including all records relating to borrowers, loan
accounts and contracts heretofore charged off on the books of
Seller, and all pawn and inventory records), all telephone
numbers, listings and advertisements (including specifically the
telephone number(s) set out above presently used by Seller in the
pawnshop business), all prepaid expenses, all utility deposits,
the right (but not the obligation) to assume Seller's experience
rating or other rating with any employment commission or
regulatory agency, all transferable and non-transferable licenses
and permits (specifically including Seller's pawnshop license),
unless otherwise excluded, and all intangibles and other rights
and privileges of Seller desirable or useful to Purchaser for the
purpose of continuing the pawnshop business of Seller and
maintaining and retaining the existing customers and business of
Seller, together with the right to use the trade name or assumed
name of Seller set out above, any other trade names presently or
formerly used by Seller in the pawnshop business, and any name so
similar as to require the consent of Seller to its rightful use,
for any lawful business purpose. In connection with the right to
use such similar name, Seller shall withdraw all Certificates or
Notices on file in any recording office in order that the name
referred to above or any similar name may be used by Purchaser.
Further, Purchaser shall have the right, but not the obligation,
2
<PAGE>
to hire any and all of the present employees of Seller. Purchaser
shall also have the right, but not the obligation, to assume any
rights, privileges or duties under any continuing contracts
relating in any way to the operation of the pawnshop business.
2. Assets Not To Be Transferred. Seller and Purchaser recognize and agree
that there is not sold as a part of the pawnshop business, the
following described assets:
A. Cash on hand;
B. Cash in banks;
C. Loans to affiliates;
D. Employee stockholder notes receivable;
E. Vehicles;
F. Seller's accounting forms or other work sheets;
G. Office furniture in Seller's office;
H. Animal Heads;
I. Store computers (Purchaser will be allowed to use the computers
for a period of six months);
3. Calculation of Purchase Price. The actual contracts to purchase
principal balance (the Contract Loan Balance) and the actual inventory
cost valuation ( the "Inventory Valuation") shall be verified and
determined by an on-the-premises audit and negotiation between the
parties. A list of the furniture, fixtures, equipment, pawn
transactions and inventory shall be prepared at the time of the audit
and attached hereto and incorporated herein by reference as Exhibit
"A. The Contract Loan Balance shall be equal to the amount of the
current contracts to purchase principal balance, unless Purchaser
determines that the Seller's cost exceeds fair market value for that
item, in which case the Contract Loan Balance for that item shall be
equal to its fair market value thereof. The Inventory Valuation,
furniture fixture and equipment valuation shall be equal to the net
book value of the inventory furniture fixture and equipment. The
purchase price shall be determined by adding the Contract Loan Balance
to the Inventory Valuation, furniture fixture and equipment valuation,
goodwill, covenant not to compete and trade secret covenants. The sum
so obtained shall be the total purchase price.
4. Purchase Price and Allocation of Purchase Price. The parties have
considered and negotiated the purchase price and allocation of the
purchase price. It is agreed and understood that the total purchase
price and allocation of the purchase price shall be set forth in
Exhibit "B" which will be completed prior to the closing. Seller and
Purchaser each agree to use the Exhibit "B" allocations in reporting
this transaction to any federal, state or local taxing authorities.
3
<PAGE>
5. Payment of Purchase Price. As consideration for the sale of the assets
described in Paragraph 1 above, Purchaser agrees to pay, the total
purchase price as follows:
A. $225,000.00 shall be paid by cashier's check on the transfer
date.
B. The remaining balance due shall be paid by Purchaser's Company
check, the receipt and sufficiency of which is hereby
acknowledged by Seller, except that $3,000.00 shall be held by
Purchaser in escrow for 60 days for payment of any unforeseen
expenses arising from Seller's operation of the business prior to
the transfer date.
C. In the event that Purchaser does not obtain a pawnshop license to
operate said businesses located at 1312 South Greeley Highway,
Cheyenne, WY 82007, 1958 Dell Range Blvd. Cheyenne WY 82009 and
802 South College Ave., Fort Collins, CO, 80524 all funds paid to
Seller hereunder and under the Asset Purchase Agreement for the
1312 South Greeley Highway, Cheyenne, WY 82007, 1958 Dell Range
Blvd. Cheyenne WY 82009 stores shall be returned to the
Purchaser. Seller shall also pay to Purchaser all monies paid by
Purchaser for Contracts to Purchase and inventory while Purchaser
was operating aforesaid stores.
6. Right of Inspection Prior To The Closing Date. The Purchaser shall
have the right to inspect and physically audit the assets prior to the
Transfer Date, to confirm the representations made herein by Seller to
Purchaser. If the results of the audit are unacceptable to Purchaser,
then in its sole discretion, Purchaser may cancel this Agreement or
modify the purchase price or calculation thereof.
7. Closing. Closing will be on the Transfer Date.;
8. Contingencies. The asset purchase agreement will be specifically
contingent upon the following:
A. Approval of the transfer of the pawnshop license to Purchaser
pursuant to the provisions of applicable ordinances or laws in
the municipality or county where the pawnshop is located except
as provided in paragraph 5 C. The transfer fee shall be paid by
Purchaser.
B. Seller and Purchaser executing a new lease for the store located
at 802 South College Ave., Fort Collins, CO, 80524 in a form and
pursuant to terms reasonably acceptable to Purchaser.
C. The execution of a management agreement for firearms transaction
by Purchaser and Seller.
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<PAGE>
D. At the time of the inventory, the Seller must have an approximate
Contract Loan balance of $115,117.00 and inventory with an
approximate value (net book value) of $72,956.00.
9. Covenant of Further Assistance. Without additional consideration,
Seller agrees to aid, assist and cooperate with Purchaser in all
respects in the orderly transfer to Purchaser of the business
operations of Seller, and to use all reasonable efforts to the end
that Purchaser shall realize a maximum retention of the customers and
general business and goodwill of Seller. Seller specifically agrees to
take all steps to complete all instruments, and to do everything
necessary or beneficial to assist in the orderly and fully effective
transfer of the business and assets covered hereby to Purchaser.
10. Additional Closing Procedures. Additional closing procedures, upon the
execution hereof, are agreed to be as follows:
A. Possession and title to all assets, except firearms contracts to
purchase, purchased hereunder shall pass to Purchaser as of the
Transfer Date so that Purchaser may thereafter commence its
business operations with all assets sold hereunder;
B. Upon the execution hereof and at any time thereafter, Seller
shall and does hereby agree to execute and deliver any other
releases, instruments, or documents required to complete any
legal requirements for the transfer of title to any assets sold
hereunder, consistent with the terms of this Agreement.
11. Liabilities To Be Assumed. It is specifically agreed and understood
that Purchaser does not and shall not assume any accounts payable of
Seller, nor any other obligations, liabilities or duties of Seller
arising out of or in any way connected with Seller's activities and/or
the operation of the pawnshop business prior to the Transfer Date,
except as specifically set forth herein and those obligations in
connection with contracts to purchase and accounts receivables
(layaways) which shall include, but not be limited to, the accounts
receivable deposits. Purchaser shall assume certain utility
obligations; provided, however, that such utilities shall be prorated
and paid by Seller at the Closing Date. Seller agrees to indemnify
Purchaser from any outstanding debts of Seller; provided Purchaser
shall afford Seller thirty (30) days in which to pay, compromise, or
defend any claim that may be a lien on the assets herein sold.
12. Possession of Property. Possession of all property sold hereunder
shall be effectively transferred to Purchaser as of the Transfer Date
and title to all such property, except firearm contracts to purchase,
shall be and has been delivered on the same date. It is recognized
that Seller has been operating a pawnshop business on the
above-described premises which Purchaser intends to continue
operating, and in connection therewith, the following additional
agreements are made:
A. All income earned before the Transfer Date shall be credited or
received by Seller, and all income earned or accrued after the
Transfer Date shall be credited and received by Purchaser;
5
<PAGE>
B. All expenses incurred or benefitting operations before the
Transfer Date shall be paid by Seller, and all expenses incurred
thereafter shall be paid by Purchaser;
C. Both parties agree to cooperate with each other so that there is
an orderly transfer of the business operations of the pawnshop
business, collection of all applicable income of each party, and
the payment of all applicable expenses attributable to each party
in accordance with this Agreement. All income collected by one
party attributable to the other shall, upon receipt, be
immediately remitted to the other party entitled to the income.
Any expenses attributable to one party presented for payment
after the Transfer Date shall be immediately paid by the party
owing such expense in accordance herewith, or such party shall
immediately reimburse the other party for any such expense paid
by such other party upon accounting therefor.
13. Seller's Warranties. Seller, and if there is more than one, then each
of them as Seller, individually and collectively, jointly, and
severally, all hereby make the following representations, warranties,
and guarantees to Purchaser, which representations, warranties, and
guarantees are in addition to and not exclusive of any other
representations, warranties, or guarantees made elsewhere in this
Agreement:
A. All contracts to purchase accounts, accounts receivable, notes
and other evidences of indebtedness reflected by Seller's books
and records as owed to and owned by Seller and which are being
transferred and sold to Purchaser represent bona fide assets of
Seller and bona fide transactions between Seller and the
respective parties to such transactions. Seller's books and
records, which are being delivered to Purchaser, contain an
accurate record of the amount loaned, the lawful finance charge
and other lawful charges, if any, to accrue thereon, renewals, if
any, and an accurate description of the pledged goods, and all
contracts to purchase accurately reflect the lawful finance
charge and other lawful charges, if any, applicable to the
transaction and merchandise pawned. All pawned merchandise
reflected by Seller's books and records is physically present on
the pawnshop premises at the address referred to above, and all
such merchandise is available for redemption or sale, as the case
may be;
B. Seller has complied with the provisions of state statute C.R.S.
ss. 12-56-101 et. seq. and the Pawnbroker provisions of Fort
Collins Municipal Code;
6
<PAGE>
C. Seller is the owner of the pawnshop business and all assets of
every kind and nature being transferred to Purchaser hereunder,
and has good and marketable title to and the absolute right to
sell, assign, convey, transfer and deliver to Purchaser the
pawnshop business and such assets, free and clear of any
contracts, interests, security interests, claims, liens, pledges,
penalties, charges, encumbrances, buy-sell agreements or other
rights of any party whatsoever of every kind and character. Upon
payment of the purchase price in accordance with this Agreement,
good and marketable title to all such assets, except firearm
contracts to purchase, shall be and has become vested in
Purchaser, free and clear of any contracts, interests, security
interests, claims, liens, pledges, penalties, charges,
encumbrances, buy-sell agreements or other rights of any party
whatsoever;
D. No refunds, repayments or claims of any nature are now due or
will become due and payable relating to any transactions of
Seller, and all transactions of any nature have been entered into
and/or completed in accordance with all applicable statutes,
laws, rules, codes, regulations, and ordinances;
E. Seller is not a party to, nor is there any threat of any action,
lawsuit, claim or proceeding, whether judicial or administrative,
arising out of, in connection with, or in any way affecting any
of the business, assets or property being transferred under or in
connection with the terms of this Agreement;
F. There are no judgments, liens, claims, bankruptcy proceedings,
encumbrances, charges, demands, bankruptcy holds, police holds,
restitution owed to Seller, or security interests in effect or
outstanding against Seller. If there are any police or bankruptcy
holds, Seller will reimburse Purchaser for the current Contract
Loan Balance (or fair market value if there is not a current
Contract Loan Balance) of each hold;
G. Seller has not entered into any other currently valid or existing
contract relating to or affecting the business and assets sold
and conveyed pursuant to the terms of the Agreement;
H. Seller has not been, is not presently, and has no reason to
anticipate being considered, in violation of any statute, rule,
ordinance, regulation, decision, charge or order of any Court or
official or administrative body, nor is any type of action or
proceeding pending or threatened against Seller that could in any
respect affect the business and/or assets being transferred
pursuant to the terms of this Agreement;
7
<PAGE>
I. Seller has paid all ad valorem, FICA, payroll, withholding,
sales, income and unemployment insurance taxes owed to date,
except those not currently due and payable, and any taxes which
later become due and owing and are attributable to Seller's
ownership and/or operation of the pawnshop business prior to the
Transfer Date will be paid by Seller when due, and Seller will
comply with all requirements under all applicable tax law. No
deficiency assessment or proposed adjustment of Seller's United
States or Colorado taxes is pending, and Seller has no knowledge
of any proposed liability for any tax to be imposed upon Seller
or the Assets, for which there is not an adequate reserve
reflected in the financial information provided by Seller to
Purchaser;
J. There are no agreements with any labor union, other labor
organization or labor representatives applicable to or covering
the employees of Seller, nor are any discussions or negotiations
in anticipation of any such agreement presently under way or
anticipated, nor has there been any request made to enter any
such negotiations or to hold any type of election relating to
employer/employee relations or bargaining;
K. There are no oral or written agreements of employment with any
employee of the pawnshop business which are not terminable at
will with liability for such termination;
L. Seller has made no commitment to past or present employees
regarding expenses, pension, profit sharing or any other type of
compensation, benefit, option, remuneration or reimbursement;
M. Seller has complied with all applicable federal and state wage
and hour laws and regulations.
N. Purchaser will suffer no loss, cost or expense because of the
non-compliance of the parties hereto with any bulk transfer
statute or law;
O. Seller has full power and authority to execute and perform this
Agreement. All necessary action has been taken by Seller to
authorize the execution, delivery and performance of this
Agreement and the transaction contemplated hereby. This Agreement
has been duly executed and delivered and is a valid and binding
obligation of Seller, enforceable in accordance with its terms.
No consent, waiver, approval or authorization of, or declaration,
designation, filing, registration or qualification with, any
governmental or regulatory authority, or any other third party,
is required to be made or obtained by Seller in connection with
the execution, delivery and performance of this Agreement or the
8
<PAGE>
transaction contemplated hereby, or to preserve for Purchaser any
rights and benefits enjoyed by Seller on the date hereof
following the consummation of this transaction;
P. The execution, delivery and performance of this Agreement by
Seller will not conflict with or result in any breach of any of
the terms, conditions, or provisions of, or with the passage of
time or by the giving of notice, constitute a default, or result
in the creation of any lien, charge, claim or encumbrance upon
any of the properties or assets of Seller covered hereby, under
any contract, indenture, mortgage, deed of trust, agreement or
other instrument to which Seller is a party or by which any of
the property covered hereby may be bound or affected;
Q. The representations, warranties, and guarantees contained in this
Agreement and all information contained in any exhibits hereto,
and any other written documents furnished by Seller in connection
with the transaction contemplated hereby are true and correct in
all material respects. There are no facts known to Seller, which
are not also known to Purchaser, or generally known in the
pawnshop industry, which materially adversely affect or in the
future may (so far as Seller can now reasonably foresee)
materially adversely affect the pawnshop business or the
condition, properties, assets, operations or prospects of the
pawnshop business.
R. The premises currently occupied by seller satisfies all local
ordinances and Colorado statutes and seller has complied in all
material respects with all environmental laws, including
hazardous or toxic waste disposal laws and regulations applicable
to Seller and its business.
14. Risk of Loss. SELLER shall assume all risk of loss of the assets to be
sold due to destruction or damage due to fire or other casualty up to
the time of closing. PURCHASER shall have no right to terminate this
Agreement and waives any claims for damages against SELLER if the
business is curtailed or interrupted prior to closing by loss,
destruction, damage due to fire or other casualty, or condemnation. In
the event of damage to the assets to be conveyed, Seller at Seller's
option may either declare this Agreement void or enforce this sale
with a pro-rata adjustment for the conveyance of the non-damaged or
partially damaged assets.
15. Purchaser's Warranties. As an inducement to Seller hereunder,
Purchaser represents and warrants to Seller that:
A. Purchaser is a Colorado Corporation duly organized, validly
existing and in good standing under the laws of the State of
Colorado, with the authority to own, purchase and acquire
Seller's assets as described herein.
9
<PAGE>
B. This Agreement has been validly authorized by Purchaser.
C. Purchaser will apply forthwith to the appropriate authorities to
transfer or acquire a new pawnshop license in the name of the
Purchaser.
16. Conduct of Business. Up to and until the Transfer Date, Seller shall
continue to conduct its business and shall use reasonable efforts to
maintain its business relationships in the ordinary course and shall
not, without the prior written consent of Purchaser, take the
following actions which would adversely affect the Assets of the
pawnshop:
A. borrow any money;
B. enter into any agreement with any customer other than in the
ordinary and usual course of business;
C. incur any liability other than in the ordinary course of business
or in connection with the performance or consumption of this
agreement;
D. encumber or permit to be encumbered any of the assets;
E. dispose of any assets other than inventory which may be disposed
of in the ordinary course of business;
F. enter into any lease or contract for the purchase of any
property, real or personal.
17. Trade Secrets. As further consideration for the purchase price
provided for in Paragraph 4, Seller recognizes and acknowledges that
any and all compilations and lists of Seller's customers are valuable,
special and unique assets of the pawnshop business. Seller covenants
that Seller will not, directly or indirectly, for a five year period
from the date of this Agreement, or from the date of a final judgment
of a Court of competent jurisdiction enforcing this covenant,
whichever is later, disclose any compilation or list or identity of
Seller's customers or any part thereof, or any information of any
kind, nature or description concerning any matters affecting or
relating to the pawnshop business, its manner of operations, its
plans, processes, or other data of any kind, nature or description, to
any person, firm, corporation, association or other entity (other than
Purchaser, its agents and employees, and except as required by law)
for any reason or purpose whatsoever. The parties hereto stipulate
that as between them and the successors and assigns of the Purchaser,
all such items of information are important, material, confidential,
valuable, special unique assets that greatly affect the effective and
successful conduct of the pawnshop business and its goodwill and
disclosure of all such items of information will constitute a breach
of this Agreement. In the event that Seller violates or threatens to
violate or cause Purchaser to believe Seller may violate any of the
provisions of this paragraph, Seller specifically understands and
agrees that Purchaser shall be entitled to an injunction from any
Court having competent jurisdiction to legally enforce the covenants
and agreements stated herein, without prejudice to any of the other
rights or remedies which Purchaser may have and without the necessity
of Purchaser having to allege or prove irreparable harm or injury or
10
<PAGE>
the absence of an adequate remedy at law. The existence of any claim
or cause of action of any kind of Seller against Purchaser, whether
predicated in this Agreement or otherwise, shall not constitute a
defense to the enforcement of the covenants in this paragraph by
Purchaser.
18. Covenant Not To Compete. As further consideration for the purchase
price provided for in Paragraph 4 herein, Seller, for a five-year
period (the Non- Competition Period), shall not open, own, engage in,
consult, promote, advise or otherwise operate in any manner, any form
of business which competes directly or indirectly with any pawnshop,
jewelry or firearms business (collectively, the "Specified
Businesses") operated by Purchaser, in any area or location within a
ten-mile radius of Seller's store located at 802 South College Ave.,
Fort Collins, CO, 80524 and Purchaser's stores. With respect to
Customers, during the Non- Competition Period, Seller will not,
directly or indirectly, make any statement, written or oral, or
perform any other act or omission which is, or is likely to be,
materially detrimental to the goodwill of Purchaser. The parties
hereto stipulate that Seller is presently connected with and
conducting the pawnshop business at the address stated above and that
the restricted territory and Non-Competition Period specified herein
are reasonable, and that the restrictions are not oppressive to Seller
and do not deprive the public of competition or of needed goods or
services. The parties hereto further stipulate that this restrictive
covenant is necessary to protect the business that is being sold to
Purchaser. In the event that Seller violates or threatens to violate
or cause Purchaser to believe Seller may violate any of the provisions
of this paragraph, Seller specifically understands and agrees that
Purchaser shall be entitled to an injunction from any Court having
competent jurisdiction to legally enforce the covenants and agreements
stated herein, without prejudice to any of the other rights or
remedies which Purchaser may have and without the necessity of
Purchaser having to allege or prove irreparable harm or injury or the
absence of an adequate remedy at law. The existence of any claim or
cause of action of any kind of Seller against Purchaser, whether
predicated in this Agreement or otherwise, shall not constitute a
defense to the enforcement of the covenants in this paragraph by
Purchaser.
19. Indemnification. Seller and Purchaser, and if there is more than one,
then each of them as Seller and Purchaser, individually and
collectively, jointly and severally, agrees to fully indemnify and
save and hold each other harmless of and from any and all loss, costs,
or expense, of any type or nature and whensoever or howsoever
incurred, as a result of any breach of any warranty, representation,
covenant, guarantee, promise or agreement contained in this Agreement
or any instrument referred to in this Agreement or any instrument
executed pursuant to this Agreement. Such indemnity and covenant to
hold harmless shall include, but not be limited to, attorneys' fees
incurred with or without litigation, court costs, witness fees, travel
expenses, direct or indirect losses and overhead costs and payments to
third parties in settlement of any claim or judgment against Seller
and/or Purchaser by a creditor of or claimant against Seller or
Purchaser seeking to enforce against Seller and/or Purchaser any claim
against Seller and/or Purchaser as a result of or in any way arising
from Purchaser's purchase hereunder.
20. Seller's Right To Access To Certain Records. It is agreed that Seller
shall have, upon reasonable notice, the right of reasonable access to
the accounts, books, records and other information being transferred
to Purchaser to meet any requirements imposed upon Seller by any
statute, code, or rule of law. Purchaser shall not be required to keep
or maintain such items longer than it normally retains its own such
items.
11
<PAGE>
21. Construction of Agreement. This Agreement shall be construed under and
in accordance with the laws of the State of Colorado, even if executed
elsewhere, and even if pertaining to a business located elsewhere. All
of the terms, agreements, covenants, warranties, representations,
promises and conditions contained in this Agreement shall apply to, be
binding upon, and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, legal representatives,
successors and assigns, and shall survive the closing hereunder and
the Transfer Date. In case any one or more of the provisions contained
in this Agreement or any instrument(s) executed pursuant to the terms
of this Agreement shall be held to be invalid, illegal, or
unenforceable in any respect for any reason, such invalidity,
illegality or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provisions had never been contained herein,
and specifically, with reference to the non-disclosure and/or
non-competitive covenant contained in the Agreement, the parties
hereto specifically agree that, in the event any Court of appropriate
jurisdiction should determine that any portion or provision of any
part of the language setting out such agreed to non-disclosure and/or
non-competitive covenant is invalid, unenforceable or excessively
restrictive, the parties agree that any such Court shall, and the
parties agree to request such Court to, rewrite such provision in
order to make such portion or provision legal, enforceable and
acceptable to such Court to the maximum extent permissible under the
law actually applied to determine the validity or reasonableness of
any such provision.
22. Entire Agreement. This agreement and the documents and papers executed
in accordance with the provisions herein at time of closing embrace
and include the entire transaction between the parties hereto. This
Agreement supersedes any and all other prior understandings and
agreements, either oral or in writing, between the parties hereto with
respect to the subject matter hereof. Each party to this Agreement
acknowledges that no representations, inducements, warranties,
covenants, guarantees, promises or other agreements, oral or
otherwise, have been made by any party, or by anyone acting on behalf
of any party, which are not embodied herein, and that no
representation, inducement, warranty, covenant, guarantee, agreement,
statement or promise not contained in this writing shall be valid or
binding or of any force or effect. However, notwithstanding any
investigation by Purchaser of the accounts, books, records, or any
other business of Seller, Purchaser shall be entitled to rely upon all
agreements, covenants, promises, warranties, representations, and
guarantees of Seller contained in this Agreement. No change or
modification of this Agreement shall be valid or binding upon the
parties hereto unless such change or modification shall be in writing
and signed by all of the parties hereto.
23. Broker Commissions. Seller represents and warrants that it has not
incurred any obligation to pay any brokerage commission or finder's
fee with regard to the transaction contemplated by this Agreement, and
Purchaser represents and warrants that any commission or other
compensation payable to any broker(s) engaged by it will be borne by
Purchaser. Purchaser hereby agrees to fully indemnify Seller, and
Seller hereby agrees to fully indemnify Purchaser, from and against
any and all liability (including, without limitation, reasonable
attorneys' fees and other costs of defending any such liability and
enforcing its indemnification) for payment of any commission, fee or
12
<PAGE>
other compensation in the nature of a brokerage's commission or
finder's fee to any person, firm, or corporation claiming to have
acted on behalf of such indemnifying party in connection with the
transaction contemplated by this Agreement.
24. Costs. Purchaser and Seller shall each pay their own expenses and
costs (including, without limitation, all accountants' and attorneys'
fees) in connection with the negotiation, preparation and consummation
of this Agreement and the transaction contemplated hereby.
25. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
26. Notices. Any notices required or permitted to be given pursuant to
this Agreement must be in writing and may be given by registered or
certified mail, shall be deemed to have been given and received
forty-eight (48) hours after a registered or certified letter
containing such notice, properly addressed with postage pre-paid, is
deposited in the United States mail; and if given other than by
registered or certified mail, it shall be deemed to have been given
when actually delivered to and received by the party to whom
addressed. Notice shall be given to the parties hereto at the
addresses to be designated by their signatures.
27. Default. If any action, at law or in equity, including any action for
declaratory relief, is brought to enforce or interpret the provisions
of this Agreement, the prevailing party or parties shall be entitled
to recover reasonable attorneys' fees from the other party or parties,
which fees may be set by the Court in the trial of such action or may
be enforced in a separate action brought for that purpose, and which
fees shall be in addition to any other relief that may be awarded.
28. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this
Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other parties.
29. Execution. This Agreement may be executed in separate or multiple
counterparts, each of which shall be deemed an original, but all of
which together shall be considered as one and the same Agreement.
30. Gender. Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female
gender and the neuter, and vice versa.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 2nd day
of August, 1996.
SELLER'S ADDRESS:
/S/ MARK BOHLINGER
3020 Iron Mountain Road ------------------------------------
Cheyenne, WY 82009 Mark Bohlinger, President
CITY NATIONAL PAWN, INC., Seller
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<PAGE>
/S/ MELVIN WEDGLE
-----------------------------------
MELVIN WEDGLE, President
U.S. PAWN, INC., Purchaser
/S/ CHARLES C. VAN GUNDY
-----------------------------------
CHARLES C. VAN GUNDY,
Chief Financial Officer
PURCHASER'S ADDRESS:
7215 Lowell Blvd
Westminster, CO 80030
Attn: Melvin Wedgle
14
<PAGE>
EXHIBIT "B"
PART II
ASSET AND PURCHASE PRICE ALLOCATION
1. Total Purchase Price $ 225,000.00
----------
A. Inventory $ 75,301.88
----------
B. Contract Loans $ 118,872.60
----------
C. Furniture, Fixtures and Equipment $ 12,632.00
----------
D. Less Layaways $ 2,743.00
----------
F. Subtotal (A + B + C - D) $ 204,063.48
----------
G. Remaining to be allocated (1-F) $ 20,936.52
----------
H. Non-Compete and Trade Secrets
(24% x G) $ 5,000.00
----------
I. Goodwill (76% x G) $ 15,936.52
----------
2. Total [F + H + I] (1 must equal 2) $ 225,000.00
----------
SELLER: PURCHASER:
CITY NATIONAL PAWN, INC., d/b/a U.S. PAWN, INC.
CITY NATIONAL PAWN
By: /S/ MARK BOHLINGER By: /S/ MELVIN WEDGLE
------------------------------- ------------------------------
Mark Bohlinger Melvin Wedgle
President President
By: /S/ CHARLES C. VAN GUNDY
-----------------------------
Charles C. Van Gundy
Chief Financial Officer
ASSET PURCHASE AGREEMENT
BETWEEN
ADVANTAGE PAWN, INC.
AND
BOHLINGER, INC.
d/b/a
CITY NATIONAL PAWN
<PAGE>
TABLE OF CONTENTS
1. Assets To Be Transferred. 1
2. Assets Not To Be Transferred. 3
3. Calculation of Purchase Price. 3
4. Purchase Price and Allocation of Purchase Price. 3
5. Payment of Purchase Price. 4
6. Right of Inspection Prior To The Closing Date. 4
7. Closing. 4
8. Contingencies. 4
9. Covenant of Further Assistance. 5
10. Additional Closing Procedures. 5
11. Liabilities To Be Assumed. 5
12. Possession of Property. 5
13. Seller's Warranties. 6
14. Risk of Loss. 9
15. Purchaser's Warranties. 9
16. Conduct of Business. 10
17. Trade Secrets. 10
18. Covenant Not To Compete. 11
19. Indemnification. 11
20. Seller's Right To Access To Certain Records. 12
21. Construction of Agreement. 12
22. Entire Agreement. 12
23. Broker Commissions. 12
24. Costs. 13
25. Headings. 13
26. Notices. 13
27. Default. 13
28. Succession and Assignment. 13
29. Execution. 13
30. Gender. 13
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (hereinafter "Contract" or "Agreement") is
made and entered into this 2nd day of August 1996, (the "Transfer Date") by and
between ADVANTAGE PAWN ("Purchaser"), and BOHLINGER, INC., d/b/a CITY NATIONAL
PAWN (hereinafter called "Seller"), upon the following premises, terms,
conditions, considerations and agreements:
PREMISE
It is recognized that Seller is the owner and operator of a pawnshop
stores, located at 1312 South Greeley Highway, Cheyenne, WY 82007 and 1958 Dell
Range Blvd. Cheyenne WY 82009, which shall hereinafter be referred to as "the
pawnshop business". It is further recognized that it is those assets
constituting the pawnshop business which are being sold and are those identified
in Paragraph 1 and respective exhibits attached hereto. It is intended hereby
that whatever right, title and/or interest is owned by each of the parties
included in the term "Seller" shall be conveyed to Purchaser hereby.
1. Assets To Be Transferred. For and in consideration of the purchase
price set forth below, and of the mutual covenants and agreements
herein contained, Seller agrees to SELL, TRANSFER, CONVEY AND DELIVER
to Purchaser, and Purchaser agrees to PURCHASE AND ACCEPT from Seller,
the following described property, being intended to describe all of
the assets of the pawnshop business located at 1312 South Greeley
Highway, Cheyenne, WY 82007 and 1958 Dell Range Blvd. Cheyenne WY
82009 except those excluded in Paragraph 2 below:
A. All furniture, fixtures, equipment and supplies of Seller located
at and used by Seller in the operation of the pawnshop business
owned by Seller at the address stated above.
B. All merchandise inventory owned and/or acquired through Seller's
pawnshop business or otherwise located at the address stated
above, and all existing rights to the merchandise;
C. All pawn transactions and accounts receivable of Seller, together
with all promissory notes, pawn transactions and other evidences
of indebtedness owed to Seller arising out of the pawnshop
business (including, but not limited to, the pawn transactions
accounts of Seller heretofore furnished to Purchaser for
examination), together with all of Seller's rights in and with
respect to pawned merchandise securing same. Pawn transactions
inventory consisting of firearms is specifically included in the
assets, but title to such inventory shall remain vested in Seller
until Purchaser has obtained its own license from the Bureau of
Alcohol, Tobacco and Firearms (ATF) for the pawnshop, on which
date title to such inventory shall vest in Purchaser;
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D. The right of Seller to not engage in any business of the nature
presently being operated by Seller at the address referred to
above, or any business similar thereto or any degree competitive
therewith, including any business subject to regulation as a
pawnshop by any governmental entity or agency or regulation under
the Federal Firearms Act, as hereinafter set out;
E. All layaway receivables and contracts, together with all
promissory notes, contracts and evidences of indebtedness owed to
Seller on such layaway receivables and contracts, together with
all rights to evidences of indebtedness, claims, choses in
action, liens, pledges and other instruments and security of
every kind and nature owned by Seller as security for and in any
manner securing or collateral to or for said layaway receivables
and/or contracts;
F. All of Seller's right, title and interest in and to the leasehold
interest and leasehold assets in and upon the premises presently
occupied by the pawnshop business and the lease between Kroenke
Group as Lessor and the leasehold assets in Seller's property
located at 1958 Dell Range Blvd. Cheyenne WY 82009;
G. Goodwill and all compilations and lists of present or former
customers and/or borrowers, all mailing lists, all business
records (including all records relating to borrowers, loan
accounts and contracts heretofore charged off on the books of
Seller, and all pawn and inventory records), all telephone
numbers, listings and advertisements (including specifically the
telephone number(s) set out above presently used by Seller in the
pawnshop business), all prepaid expenses, all utility deposits,
the right (but not the obligation) to assume Seller's experience
rating or other rating with any employment commission or
regulatory agency, all transferable and non-transferable licenses
and permits (specifically including Seller's pawnshop license),
unless otherwise excluded, and all intangibles and other rights
and privileges of Seller desirable or useful to Purchaser for the
purpose of continuing the pawnshop business of Seller and
maintaining and retaining the existing customers and business of
Seller, together with the right to use the trade name or assumed
name of Seller set out above, any other trade names presently or
formerly used by Seller in the pawnshop business, and any name so
similar as to require the consent of Seller to its rightful use,
for any lawful business purpose. In connection with the right to
use such similar name, Seller shall withdraw all Certificates or
Notices on file in any recording office in order that the name
referred to above or any similar name may be used by Purchaser.
Further, Purchaser shall have the right, but not the obligation,
to hire any and all of the present employees of Seller. Purchaser
shall also have the right, but not the
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obligation, to assume any rights, privileges or duties under any
continuing contracts relating in any way to the operation of the
pawnshop business.
2. Assets Not To Be Transferred. Seller and Purchaser recognize and agree
that there is not sold as a part of the pawnshop business, the
following described assets:
A. Cash on hand;
B. Cash in banks;
C. Loans to affiliates;
D. Employee stockholder notes receivable;
E. Vehicles;
F. Seller's accounting forms or other work sheets;
G. Office furniture in Seller's office;
H. Sign and canoe located within the Dell Range Store;
I. Ladder in the South Greeley Store;
J. Animal Heads in all stores;
K. Store computers (Purchaser will be allowed to use the computers
for a period of six months);
3. Calculation of Purchase Price. The actual pawn transactions principal
balance (the Pawn Loan Balance) and the actual inventory cost
valuation ( the "Inventory Valuation") shall be verified and
determined by an on-the-premises audit and negotiation between the
parties. A list of the furniture, fixtures, equipment, pawn
transactions and inventory shall be prepared at the time of the audit
and attached hereto and incorporated herein by reference as Exhibit
"A. The Pawn Loan Balance shall be equal to the amount of the current
pawn transactions principal balance, unless Purchaser determines that
the Seller's cost exceeds fair market value for that item, in which
case the Pawn Loan Balance for that item shall be equal to its fair
market value thereof. The Inventory Valuation, furniture fixture and
equipment valuation shall be equal to the net book value of the
inventory furniture fixture and equipment. The purchase price shall be
determined by adding the Pawn Loan Balance to the Inventory Valuation,
furniture fixture and equipment valuation, goodwill, covenant not to
compete and trade secret covenants. The sum so obtained shall be the
total purchase price.
4. Purchase Price and Allocation of Purchase Price. The parties have
considered and negotiated the purchase price and allocation of the
purchase price. It is agreed and understood that the total purchase
price and allocation of the purchase price shall be set forth in
Exhibit "B" which will be completed prior to the closing.
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Seller and Purchaser each agree to use the Exhibit "B" allocations in
reporting this transaction to any federal, state or local taxing
authorities.
5. Payment of Purchase Price. As consideration for the sale of the assets
described in Paragraph 1 above, Purchaser agrees to pay, the total
purchase price as follows:
A. $550,000 shall be paid by cashier's check on the transfer date.
B. The remaining balance due shall be paid by Purchaser's Company
check, the receipt and sufficiency of which is hereby
acknowledged by Seller, except that $3,000.00 shall be held by
Purchaser in escrow for 60 days for payment of any unforeseen
expenses arising from Seller's operation of the business prior to
the transfer date.
C. In the event that Purchaser does not obtain a pawnshop license to
operate said businesses located at 1312 South Greeley Highway,
Cheyenne, WY 82007, 1958 Dell Range Blvd. Cheyenne WY 82009 and
802 South College Ave., Fort Collins, CO, 80524 all funds paid to
Seller hereunder and under the Asset Purchase Agreement for the
802 South College Ave., Fort Collins, CO, 80524 store shall be
returned to the Purchaser. Seller shall also pay to Purchaser all
monies paid by Purchaser for pawn transactions and inventory
while Purchaser was operating aforesaid stores.
6. Right of Inspection Prior To The Closing Date. The Purchaser shall
have the right to inspect and physically audit the assets prior to the
Transfer Date, to confirm the representations made herein by Seller to
Purchaser. If the results of the audit are unacceptable to Purchaser,
then in its sole discretion, Purchaser may cancel this Agreement or
modify the purchase price or calculation thereof.
7. Closing. Closing will be on the Transfer Date.;
8. Contingencies. The asset purchase agreement will be specifically
contingent upon the following:
A. Approval of the transfer of the pawnshop license to Purchaser
pursuant to the provisions of applicable ordinances or laws in
the municipality or county where the pawnshop is located except
as provided in paragraph 5 C. The transfer fee shall be paid by
Purchaser.
B. Seller and Purchaser executing a new lease for the store located
at 1312 South Greeley Highway, Cheyenne, WY 82007 and Lessor in a
form and pursuant to terms reasonably acceptable to Purchaser.
C. The execution of a management agreement for firearms transaction
by Purchaser and Seller.
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D. At the time of the inventory, the Seller must have an approximate
Pawn Loan balance of $119,144.00 and inventory with an
approximate value (net book value) of $104,247.00.
9. Covenant of Further Assistance. Without additional consideration,
Seller agrees to aid, assist and cooperate with Purchaser in all
respects in the orderly transfer to Purchaser of the business
operations of Seller, and to use all reasonable efforts to the end
that Purchaser shall realize a maximum retention of the customers and
general business and goodwill of Seller. Seller specifically agrees to
take all steps to complete all instruments, and to do everything
necessary or beneficial to assist in the orderly and fully effective
transfer of the business and assets covered hereby to Purchaser.
10. Additional Closing Procedures. Additional closing procedures, upon the
execution hereof, are agreed to be as follows:
A. Possession and title to all assets, except firearms pawn
transactions, purchased hereunder shall pass to Purchaser as of
the Transfer Date so that Purchaser may thereafter commence its
business operations with all assets sold hereunder;
B. Upon the execution hereof and at any time thereafter, Seller
shall and does hereby agree to execute and deliver any other
releases, instruments, or documents required to complete any
legal requirements for the transfer of title to any assets sold
hereunder, consistent with the terms of this Agreement.
11. Liabilities To Be Assumed. It is specifically agreed and understood
that Purchaser does not and shall not assume any accounts payable of
Seller, nor any other obligations, liabilities or duties of Seller
arising out of or in any way connected with Seller's activities and/or
the operation of the pawnshop business prior to the Transfer Date,
except as specifically set forth herein and those obligations in
connection with pawn transactions and accounts receivables (layaways)
which shall include, but not be limited to, the accounts receivable
deposits. Purchaser shall assume certain utility obligations;
provided, however, that such utilities shall be prorated and paid by
Seller at the Closing Date. Seller agrees to indemnify Purchaser from
any outstanding debts of Seller; provided Purchaser shall afford
Seller thirty (30) days in which to pay, compromise, or defend any
claim that may be a lien on the assets herein sold. Purchaser will
assume the following other obligations:
A. Yellow Page Advertisements
B. TCI Football Package advertisement
C. Kolt & King Radio Advertisement.
12. Possession of Property. Possession of all property sold hereunder
shall be effectively transferred to Purchaser as of the Transfer Date
and title to all such property, except firearm pawn transactions,
shall be and has been delivered on the same date. It is recognized
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that Seller has been operating a pawnshop business on the
above-described premises which Purchaser intends to continue
operating, and in connection therewith, the following additional
agreements are made:
A. All income earned before the Transfer Date shall be credited or
received by Seller, and all income earned or accrued after the
Transfer Date shall be credited and received by Purchaser;
B. All expenses incurred or benefitting operations before the
Transfer Date shall be paid by Seller, and all expenses incurred
thereafter shall be paid by Purchaser;
C. Both parties agree to cooperate with each other so that there is
an orderly transfer of the business operations of the pawnshop
business, collection of all applicable income of each party, and
the payment of all applicable expenses attributable to each party
in accordance with this Agreement. All income collected by one
party attributable to the other shall, upon receipt, be
immediately remitted to the other party entitled to the income.
Any expenses attributable to one party presented for payment
after the Transfer Date shall be immediately paid by the party
owing such expense in accordance herewith, or such party shall
immediately reimburse the other party for any such expense paid
by such other party upon accounting therefor.
13. Seller's Warranties. Seller, and if there is more than one, then each
of them as Seller, individually and collectively, jointly, and
severally, all hereby make the following representations, warranties,
and guarantees to Purchaser, which representations, warranties, and
guarantees are in addition to and not exclusive of any other
representations, warranties, or guarantees made elsewhere in this
Agreement:
A. All pawn transactions accounts, accounts receivable, notes and
other evidences of indebtedness reflected by Seller's books and
records as owed to and owned by Seller and which are being
transferred and sold to Purchaser represent bona fide assets of
Seller and bona fide transactions between Seller and the
respective parties to such transactions. Seller's books and
records, which are being delivered to Purchaser, contain an
accurate record of the amount loaned, the lawful finance charge
and other lawful charges, if any, to accrue thereon, renewals, if
any, and an accurate description of the pledged goods, and all
pawn transaction tickets accurately reflect the lawful finance
charge and other lawful charges, if any, applicable to the
transaction and merchandise pawned. All pawned merchandise
reflected by Seller's books and records is physically present on
the pawnshop premises at the address referred to above, and all
such merchandise is available for redemption or sale, as the case
may be;
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B. Seller has complied with the provisions of state statute ss.40-
14-359 et. seq. and the Pawnbroker provisions of Cheyenne
Municipal Code;
C. Seller is the owner of the pawnshop business and all assets of
every kind and nature being transferred to Purchaser hereunder,
and has good and marketable title to and the absolute right to
sell, assign, convey, transfer and deliver to Purchaser the
pawnshop business and such assets, free and clear of any
contracts, interests, security interests, claims, liens, pledges,
penalties, charges, encumbrances, buy-sell agreements or other
rights of any party whatsoever of every kind and character. Upon
payment of the purchase price in accordance with this Agreement,
good and marketable title to all such assets, except firearm pawn
transactions, shall be and has become vested in Purchaser, free
and clear of any contracts, interests, security interests,
claims, liens, pledges, penalties, charges, encumbrances,
buy-sell agreements or other rights of any party whatsoever;
D. No refunds, repayments or claims of any nature are now due or
will become due and payable relating to any transactions of
Seller, and all transactions of any nature have been entered into
and/or completed in accordance with all applicable statutes,
laws, rules, codes, regulations, and ordinances;
E. Seller is not a party to, nor is there any threat of any action,
lawsuit, claim or proceeding, whether judicial or administrative,
arising out of, in connection with, or in any way affecting any
of the business, assets or property being transferred under or in
connection with the terms of this Agreement;
F. There are no judgments, liens, claims, bankruptcy proceedings,
encumbrances, charges, demands, bankruptcy holds, police holds,
restitution owed to Seller, or security interests in effect or
outstanding against Seller. If there are any police or bankruptcy
holds, Seller will reimburse Purchaser for the current Pawn Loan
Balance (or fair market value if there is not a current Pawn Loan
Balance) of each hold;
G. Seller has not entered into any other currently valid or existing
contract relating to or affecting the business and assets sold
and conveyed pursuant to the terms of the Agreement;
H. Seller has not been, is not presently, and has no reason to
anticipate being considered, in violation of any statute, rule,
ordinance, regulation, decision, charge or order of any Court or
official or administrative body, nor is any type of action or
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proceeding pending or threatened against Seller that could in any
respect affect the business and/or assets being transferred
pursuant to the terms of this Agreement;
I. Seller has paid all ad valorem, FICA, payroll, withholding,
sales, income and unemployment insurance taxes owed to date,
except those not currently due and payable, and any taxes which
later become due and owing and are attributable to Seller's
ownership and/or operation of the pawnshop business prior to the
Transfer Date will be paid by Seller when due, and Seller will
comply with all requirements under all applicable tax law. No
deficiency assessment or proposed adjustment of Seller's United
States or Wyoming taxes is pending, and Seller has no knowledge
of any proposed liability for any tax to be imposed upon Seller
or the Assets, for which there is not an adequate reserve
reflected in the financial information provided by Seller to
Purchaser;
J. There are no agreements with any labor union, other labor
organization or labor representatives applicable to or covering
the employees of Seller, nor are any discussions or negotiations
in anticipation of any such agreement presently under way or
anticipated, nor has there been any request made to enter any
such negotiations or to hold any type of election relating to
employer/employee relations or bargaining;
K. There are no oral or written agreements of employment with any
employee of the pawnshop business which are not terminable at
will with liability for such termination;
L. Seller has made no commitment to past or present employees
regarding expenses, pension, profit sharing or any other type of
compensation, benefit, option, remuneration or reimbursement;
M. Seller has complied with all applicable federal and state wage
and hour laws and regulations.
N. Purchaser will suffer no loss, cost or expense because of the
non-compliance of the parties hereto with any bulk transfer
statute or law;
O. Seller has full power and authority to execute and perform this
Agreement. All necessary action has been taken by Seller to
authorize the execution, delivery and performance of this
Agreement and the transaction contemplated hereby. This Agreement
has been duly executed and delivered and is a valid and binding
obligation of Seller, enforceable in accordance with its terms.
No consent, waiver, approval or authorization of, or declaration,
designation, filing, registration or qualification with, any
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governmental or regulatory authority, or any other third party,
is required to be made or obtained by Seller in connection with
the execution, delivery and performance of this Agreement or the
transaction contemplated hereby, or to preserve for Purchaser any
rights and benefits enjoyed by Seller on the date hereof
following the consummation of this transaction;
P. The execution, delivery and performance of this Agreement by
Seller will not conflict with or result in any breach of any of
the terms, conditions, or provisions of, or with the passage of
time or by the giving of notice, constitute a default, or result
in the creation of any lien, charge, claim or encumbrance upon
any of the properties or assets of Seller covered hereby, under
any contract, indenture, mortgage, deed of trust, agreement or
other instrument to which Seller is a party or by which any of
the property covered hereby may be bound or affected;
Q. The representations, warranties, and guarantees contained in this
Agreement and all information contained in any exhibits hereto,
and any other written documents furnished by Seller in connection
with the transaction contemplated hereby are true and correct in
all material respects. There are no facts known to Seller, which
are not also known to Purchaser, or generally known in the
pawnshop industry, which materially adversely affect or in the
future may (so far as Seller can now reasonably foresee)
materially adversely affect the pawnshop business or the
condition, properties, assets, operations or prospects of the
pawnshop business.
R. The premises currently occupied by seller satisfies all local
ordinances and Wyoming statutes and seller has complied in all
material respects with all environmental laws, including
hazardous or toxic waste disposal laws and regulations applicable
to Seller and its business.
14. Risk of Loss. SELLER shall assume all risk of loss of the assets to be
sold due to destruction or damage due to fire or other casualty up to
the time of closing. PURCHASER shall have no right to terminate this
Agreement and waives any claims for damages against SELLER if the
business is curtailed or interrupted prior to closing by loss,
destruction, damage due to fire or other casualty, or condemnation. In
the event of damage to the assets to be conveyed, Seller at Seller's
option may either declare this Agreement void or enforce this sale
with a pro-rata adjustment for the conveyance of the non-damaged or
partially damaged assets.
15. Purchaser's Warranties. As an inducement to Seller hereunder,
Purchaser represents and warrants to Seller that:
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A. Purchaser is a Corporation duly organized, validly existing and
in good standing under the laws of the State of Wyoming, with the
authority to own, purchase and acquire Seller's assets as
described herein.
B. This Agreement has been validly authorized by Purchaser.
C. Purchaser will apply forthwith to the appropriate authorities to
transfer or acquire a new pawnshop license in the name of the
Purchaser.
16. Conduct of Business. Up to and until the Transfer Date, Seller shall
continue to conduct its business and shall use reasonable efforts to
maintain its business relationships in the ordinary course and shall
not, without the prior written consent of Purchaser, take the
following actions which would adversely affect the Assets of the
pawnshop:
A. borrow any money;
B. enter into any agreement with any customer other than in the
ordinary and usual course of business;
C. incur any liability other than in the ordinary course of business
or in connection with the performance or consumption of this
agreement;
D. encumber or permit to be encumbered any of the assets;
E. dispose of any assets other than inventory which may be disposed
of in the ordinary course of business;
F. enter into any lease or contract for the purchase of any
property, real or personal.
17. Trade Secrets. As further consideration for the purchase price
provided for in Paragraph 4, Seller recognizes and acknowledges that
any and all compilations and lists of Seller's customers are valuable,
special and unique assets of the pawnshop business. Seller covenants
that Seller will not, directly or indirectly, for a five year period
from the date of this Agreement, or from the date of a final judgment
of a Court of competent jurisdiction enforcing this covenant,
whichever is later, disclose any compilation or list or identity of
Seller's customers or any part thereof, or any information of any
kind, nature or description concerning any matters affecting or
relating to the pawnshop business, its manner of operations, its
plans, processes, or other data of any kind, nature or description, to
any person, firm, corporation, association or other entity (other than
Purchaser, its agents and employees, and except as required by law)
for any reason or purpose whatsoever. The parties hereto stipulate
that as between them and the successors and assigns of the Purchaser,
all such items of information are important, material, confidential,
valuable, special unique assets that greatly affect the effective and
successful conduct of the pawnshop business and its goodwill and
disclosure of all such items of information will constitute a breach
of this Agreement. In the event that Seller violates or threatens to
violate or cause Purchaser to believe Seller may violate any of the
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provisions of this paragraph, Seller specifically understands and
agrees that Purchaser shall be entitled to an injunction from any
Court having competent jurisdiction to legally enforce the covenants
and agreements stated herein, without prejudice to any of the other
rights or remedies which Purchaser may have and without the necessity
of Purchaser having to allege or prove irreparable harm or injury or
the absence of an adequate remedy at law. The existence of any claim
or cause of action of any kind of Seller against Purchaser, whether
predicated in this Agreement or otherwise, shall not constitute a
defense to the enforcement of the covenants in this paragraph by
Purchaser.
18. Covenant Not To Compete. As further consideration for the purchase
price provided for in Paragraph 4 herein, Seller, for a five-year
period (the Non- Competition Period), shall not open, own, engage in,
consult, promote, advise or otherwise operate in any manner, any form
of business which competes directly or indirectly with any pawnshop,
jewelry or firearms business (collectively, the "Specified
Businesses") operated by Purchaser, in any area or location within a
ten-mile radius of Seller's stores located at 1312 South Greeley
Highway, Cheyenne, WY 82007 and 1958 Dell Range Blvd. Cheyenne WY
82009 and Purchaser's stores. With respect to Customers, during the
Non-Competition Period, Seller will not, directly or indirectly, make
any statement, written or oral, or perform any other act or omission
which is, or is likely to be, materially detrimental to the goodwill
of Purchaser. The parties hereto stipulate that Seller is presently
connected with and conducting the pawnshop business at the address
stated above and that the restricted territory and Non-Competition
Period specified herein are reasonable, and that the restrictions are
not oppressive to Seller and do not deprive the public of competition
or of needed goods or services. The parties hereto further stipulate
that this restrictive covenant is necessary to protect the business
that is being sold to Purchaser. In the event that Seller violates or
threatens to violate or cause Purchaser to believe Seller may violate
any of the provisions of this paragraph, Seller specifically
understands and agrees that Purchaser shall be entitled to an
injunction from any Court having competent jurisdiction to legally
enforce the covenants and agreements stated herein, without prejudice
to any of the other rights or remedies which Purchaser may have and
without the necessity of Purchaser having to allege or prove
irreparable harm or injury or the absence of an adequate remedy at
law. The existence of any claim or cause of action of any kind of
Seller against Purchaser, whether predicated in this Agreement or
otherwise, shall not constitute a defense to the enforcement of the
covenants in this paragraph by Purchaser.
19. Indemnification. Seller and Purchaser, and if there is more than one,
then each of them as Seller and Purchaser, individually and
collectively, jointly and severally, agrees to fully indemnify and
save and hold each other harmless of and from any and all loss, costs,
or expense, of any type or nature and whensoever or howsoever
incurred, as a result of any breach of any warranty, representation,
covenant, guarantee, promise or agreement contained in this Agreement
or any instrument referred to in this Agreement or any instrument
executed pursuant to this Agreement. Such indemnity and covenant to
hold harmless shall include, but not be limited to, attorneys' fees
incurred with or without litigation, court costs, witness fees, travel
expenses, direct or indirect losses and overhead costs and payments to
third parties in settlement of any claim or judgment against Seller
and/or Purchaser by a creditor of or claimant against Seller or
Purchaser seeking to enforce against Seller and/or Purchaser any claim
against Seller and/or Purchaser as a result of or in any way arising
from Purchaser's purchase hereunder.
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20. Seller's Right To Access To Certain Records. It is agreed that Seller
shall have, upon reasonable notice, the right of reasonable access to
the accounts, books, records and other information being transferred
to Purchaser to meet any requirements imposed upon Seller by any
statute, code, or rule of law. Purchaser shall not be required to keep
or maintain such items longer than it normally retains its own such
items.
21. Construction of Agreement. This Agreement shall be construed under and
in accordance with the laws of the State of Wyoming, even if executed
elsewhere, and even if pertaining to a business located elsewhere (the
parties recognize and agree that Purchaser is a subsidiary of a
corporation whose principal place of business is in the State of
Colorado. All of the terms, agreements, covenants, warranties,
representations, promises and conditions contained in this Agreement
shall apply to, be binding upon, and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators,
legal representatives, successors and assigns, and shall survive the
closing hereunder and the Transfer Date. In case any one or more of
the provisions contained in this Agreement or any instrument(s)
executed pursuant to the terms of this Agreement shall be held to be
invalid, illegal, or unenforceable in any respect for any reason, such
invalidity, illegality or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been contained
herein, and specifically, with reference to the non- disclosure and/or
non-competitive covenant contained in the Agreement, the parties
hereto specifically agree that, in the event any Court of appropriate
jurisdiction should determine that any portion or provision of any
part of the language setting out such agreed to non-disclosure and/or
non-competitive covenant is invalid, unenforceable or excessively
restrictive, the parties agree that any such Court shall, and the
parties agree to request such Court to, rewrite such provision in
order to make such portion or provision legal, enforceable and
acceptable to such Court to the maximum extent permissible under the
law actually applied to determine the validity or reasonableness of
any such provision.
22. Entire Agreement. This agreement and the documents and papers executed
in accordance with the provisions herein at time of closing embrace
and include the entire transaction between the parties hereto. This
Agreement supersedes any and all other prior understandings and
agreements, either oral or in writing, between the parties hereto with
respect to the subject matter hereof. Each party to this Agreement
acknowledges that no representations, inducements, warranties,
covenants, guarantees, promises or other agreements, oral or
otherwise, have been made by any party, or by anyone acting on behalf
of any party, which are not embodied herein, and that no
representation, inducement, warranty, covenant, guarantee, agreement,
statement or promise not contained in this writing shall be valid or
binding or of any force or effect. However, notwithstanding any
investigation by Purchaser of the accounts, books, records, or any
other business of Seller, Purchaser shall be entitled to rely upon all
agreements, covenants, promises, warranties, representations, and
guarantees of Seller contained in this Agreement. No change or
modification of this Agreement shall be valid or binding upon the
parties hereto unless such change or modification shall be in writing
and signed by all of the parties hereto.
23. Broker Commissions. Seller represents and warrants that it has not
incurred any obligation to pay any brokerage commission or finder's
fee with regard to the transaction contemplated by this Agreement, and
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Purchaser represents and warrants that any commission or other
compensation payable to any broker(s) engaged by it will be borne by
Purchaser. Purchaser hereby agrees to fully indemnify Seller, and
Seller hereby agrees to fully indemnify Purchaser, from and against
any and all liability (including, without limitation, reasonable
attorneys' fees and other costs of defending any such liability and
enforcing its indemnification) for payment of any commission, fee or
other compensation in the nature of a brokerage's commission or
finder's fee to any person, firm, or corporation claiming to have
acted on behalf of such indemnifying party in connection with the
transaction contemplated by this Agreement.
24. Costs. Purchaser and Seller shall each pay their own expenses and
costs (including, without limitation, all accountants' and attorneys'
fees) in connection with the negotiation, preparation and consummation
of this Agreement and the transaction contemplated hereby.
25. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
26. Notices. Any notices required or permitted to be given pursuant to
this Agreement must be in writing and may be given by registered or
certified mail, shall be deemed to have been given and received
forty-eight (48) hours after a registered or certified letter
containing such notice, properly addressed with postage pre-paid, is
deposited in the United States mail; and if given other than by
registered or certified mail, it shall be deemed to have been given
when actually delivered to and received by the party to whom
addressed. Notice shall be given to the parties hereto at the
addresses to be designated by their signatures.
27. Default. If any action, at law or in equity, including any action for
declaratory relief, is brought to enforce or interpret the provisions
of this Agreement, the prevailing party or parties shall be entitled
to recover reasonable attorneys' fees from the other party or parties,
which fees may be set by the Court in the trial of such action or may
be enforced in a separate action brought for that purpose, and which
fees shall be in addition to any other relief that may be awarded.
28. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this
Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other parties.
29. Execution. This Agreement may be executed in separate or multiple
counterparts, each of which shall be deemed an original, but all of
which together shall be considered as one and the same Agreement.
30. Gender. Whenever the context hereof shall so require, the singular
shall include the plural, the male gender shall include the female
gender and the neuter, and vice versa.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 2nd day
of August, 1996.
13
<PAGE>
SELLER'S ADDRESS:
/S/ MARK BOHLINGER
3020 Iron Mountain RD -------------------------------
Cheyenne, WY 82000 Mark Bohlinger, President
BOHLINGER, INC., Seller
/S/ ROBERT PHETTEPLACE
-------------------------------
ROBERT PHETTEPLACE, President
ADVANTAGE PAWN, INC., Purchaser
PURCHASER'S ADDRESS:
1711 Logan
Cheyenne, WY 82001
Attn: Robert Phetteplace
14
<PAGE>
EXHIBIT "B"
PART II
ASSET AND PURCHASE PRICE ALLOCATION
1. Total Purchase Price $ 550,000.00
-----------
A. Inventory $ 106,353.38
----------
B. Pawn Loans $ 114,988.81
----------
C. Furniture, Fixtures and Equipment $ 30,070.00
----------
D. Less Layaways $ 2,647.10
----------
F. Subtotal (A + B + C - D) $ 248,765.09
----------
G. Remaining to be allocated (1-F) $ 301,234.91
----------
H. Non-Compete and Trade Secrets
(1.7% x G) $ 5,000.00
----------
I. Goodwill (98.3% x G) $ 296,234.91
----------
2. Total [F + H + I] (1 must equal 2) $ 550,000.00
----------
SELLER: PURCHASER:
BOHLINGER, INC., d/b/a ADVANTAGE PAWN, INC.
CITY NATIONAL PAWN
By: /S/ MARK BOHLINGER By: /S/ ROBERT PHETTEPLACE
--------------------------------- -------------------------------
Mark Bohlinger Robert Phetteplace
President President
