SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-18291
U.S. PAWN, INC.
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(Name of Small Business Issuer in its charter)
Colorado 84-0819941
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(State or other jurisdiction of (I.R.S.Employer Identification
incorporation or organization) Number)
7215 Lowell Boulevard
Westminster, Colorado 80030
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 657-3550
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
No Par Value Common Stock
Indicated by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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As of March 18, 1999, 3,685,410 shares of the Issuer's no par value common stock
were outstanding and the aggregate market value of the shares held by
non-affiliates was approximately $11,063,783 based upon a closing sales price of
$3.44 per share of Common Stock on the Nasdaq SmallCap Market.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenue for its most recent fiscal year was $11,068,000.
The following documents are incorporated by reference into Part III, Items 9
through 12 hereof: None.
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PART I
ITEM 1. BUSINESS
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Introduction
U.S. Pawn, Inc. (the "Company") was organized as a Colorado corporation on March
18, 1980. As of December 31, 1998, the Company was one of five publicly traded
pawn shop operators in the United States, and owned and operated thirteen (13)
pawn shops in Colorado (12) and Wyoming (1). The Company's principal offices are
located at 7215 Lowell Boulevard, Westminster, Colorado 80030, and its telephone
number is (303) 657-3550. As used herein, the term "Company" includes U.S. Pawn,
Inc. and its subsidiaries.
Except for the historical information contained herein, certain matters set
forth in this report are forward- looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks and
uncertainties are detailed from time to time in the Company's periodic reports
filed with the Securities and Exchange Commission. These risks and uncertainties
are beyond the ability of the Company to control, and, in many cases, the
Company cannot predict all of the risks and uncertainties that could cause its
actual results to differ materially from those indicated by the forward-looking
statements. When used in this report, the words "believes", "estimates",
"plans", "expects", "anticipates" and similar expressions as they relate to the
Company or its management are intended to identify forward-looking statements.
These forward-looking statements speak only as of the date hereof and the
Company disclaims any intent or obligation to update these forward-looking
statements.
General
The Company is engaged in acquiring, establishing and operating pawn shops that
lend money on the security of pledged tangible personal property, a transaction
commonly referred to as a "pawn loan". Pawn shops provide a convenient source of
consumer loans and a ready market for the resale of previously-owned merchandise
acquired by the Company when customers do not repay pawn loans. The Company
receives a pawn service charge to compensate it for the pawn loan. The pawn
service charge is calculated as a percentage of the pawn loan amount based on
the size and term of the pawn loan, in a manner similar to which interest is
charged on a loan, and has generally ranged from 120% to 240% annually, as
permitted by state laws and local ordinances. The pledged property is held
through the term of the pawn loan contract, which generally is 30 to 120 days,
unless otherwise earlier paid or renewed. Generally, the customer repays the
pawn loan and accrued service charge in full, redeeming the pledged property, or
pays the accrued service charge and renews the pawn loan. In the event the
customer does not redeem the pledged property or renew the pawn loan, the
unredeemed collateral is forfeited to the Company and becomes inventory
available for sale in the pawn shop. For the years ended December 31, 1998
("1998") and 1997 ("1997"), the Company realized an annualized average pawn
service charge equal to 148% and 158% of pawn contracts outstanding.
The pawnshop industry in the United States is highly fragmented and in the early
stages of consolidation. The five publicly traded pawn shop companies operate
approximately 8% of the total United States pawn shops. Management believes that
there are significant opportunities for growth through the acquisition of
existing pawn shops, the opening of new pawn shops, and the improvement of
productivity in pawn shop operations through the application of modern
management techniques.
Business Strategy
The Company intends to identify specific geographic areas in which to
concentrate multiple pawn shops in order to achieve economies of scale in
supervision, improve market penetration, enhance name recognition and reinforce
market programs. Currently, the Company has 85% of its store locations clustered
in the Denver, Colorado Metropolitan Area ("Denver"). The Company's recent
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management activity has focused on identifying those of its seventeen (17) pawn
shops in existence at the beginning of Fiscal 1998 that management believed were
located in markets that offered the best opportunity for profitable operations.
Consistent with this focus, the Company consolidated its operations into
thirteen (13) pawn shops during Fiscal 1998.
Management believes that the Company is now properly positioned in the near term
to be successful in the markets in which it currently operates. Management
intends to continue its analysis of the markets in which the Company currently
operates and may decide to expand or contract its current market areas or enter
new markets in furtherance of its operating strategies.
Management believes that expanding the Company's market share through the
careful acquisition of existing locations in conjunction with opening new pawn
shops will provide the best opportunity to meet its strategic objectives.
Management believes that additional pawn shops in market clusters will provide
economies of scale in supervision, purchasing, administration and marketing. The
Company's primary pawn shop acquisition/store opening criteria include the
perceived competence of the pawn shop's current management, the annual number of
pawn transactions, the outstanding pawn loan balances, the quality and quantity
of pawn shop inventory, pawn shop locations, number of competitive pawn shops in
the market area, lease terms and physical condition of the pawn shop.
The Company expects to finance the acquisition or development of additional pawn
shops through internal cash flow, additional lines of credit and debt and/or
equity securities offerings. The Company cannot assure, however, that these
sources of financing will be available. Furthermore, a number of factors may
limit or even eliminate the Company's ability to increase its number of pawn
shops including, (i) unanticipated operating losses or increases in overhead
expenses, (ii) unavailability of acceptable acquisition candidates or pawn shop
locations, (iii) higher pawn loan demand which will reduce the Company's
available capital for expansion, and (iv) general economic conditions. There can
be no assurance that any future expansion can be continued on a profitable
basis.
Management's ability to identify, acquire or profitably manage additional
locations or successfully integrate their operations without substantial costs,
delays or other unanticipated problems is a risk factor for future expansion.
There can be no assurance that any entity that the Company acquires will achieve
profitability that justifies the Company's investment. Acquisitions involve a
number of risks, which may include: adverse short-term effects on the Company's
reported operating results and cash flows; diversion of management's attention;
dependence on retraining, hiring and training key personnel; and the effects of
amortization of intangibles. Such risks could have adverse effects on the
Company's operations and financial performance. As the Company expands, it will
be required to supplement its existing management team in order to effectively
manage any acquired entities and successfully implement its acquisition and
operating strategies.
Change in Management
On October 29, 1997, the Company accepted the resignations of Daniel B. Rudden,
Stanley M. Edelstein, Larry M. Snyder and Melvin Wedgle as members of its Board
Of Directors pursuant to an agreement contained and more fully described in
Schedule 14f(1) filed with the Securities and Exchange Commission on September
26, 1997. The Company also accepted the resignations of Melvin Wedgle as Chief
Executive Officer and President and Jack Simon as Secretary and Chief Financial
Officer. Gary A. Agron, a member of the Board since 1989 remained as a Director.
The Company appointed Charles C. Van Gundy as a Director, President, Chief
Executive Officer and Chief Financial Officer, and Jack Skidell and Mark
Honigsfeld as Directors. Mr. Van Gundy, associated with the Company since 1992,
served the Company as its Chief Financial Officer, Secretary and Director from
October 1994 until his resignation in August 1997. On August 6, 1998, Mr.
Honigsfeld resigned as a Director. On August 13, 1998, Ross L. Murphy was
appointed as a Director to fill the vacancy created by Mr. Honigsfeld's
resignation.
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Recent Store Activity
Immediately after the change in management, the Company's new management
completed an evaluation of the markets in which the Company was operating. Based
upon that evaluation, management made certain recommendations to the Board of
Directors (the "Board"). In November 1997, the Board approved two
recommendations; (i) improve the profitability of the Company's operations in
Cheyenne, Wyoming through the consolidation of under-performing pawn shops into
one; and (ii) locate a buyer for the Company's pawn shop in Las Vegas, Nevada
(Bobby's).
During 1996, the Company entered the Cheyenne, Wyoming market using its store
cluster market concept by acquiring or opening a total of four stores. The
Cheyenne, Wyoming market ultimately proved to be insufficient to support such a
cluster of stores. At December 31, 1997, two stores had been consolidated; and
in early February 1998, all three remaining stores were consolidated into one
location. Management believes that as a result of the operational cost savings
attainable through consolidating its pawn business into a single location in
this market, its one remaining pawn shop in Cheyenne will be profitable in the
future.
During late 1996, the Company acquired two pawn shops in the Las Vegas, Nevada
market, one through merger and one through purchase. On November 14, 1997, the
merger was rescinded by mutual agreement of the parties. In November 1997,
management evaluated the relative merits of expansion in the Las Vegas market
and determined that while the Las Vegas market presented potential for
establishing a profitable cluster of stores, other barriers to expansion in Las
Vegas were greater than its potential to the Company at this time. In July 1998,
the Company sold the Las Vegas store.
In June 1997, the Company acquired one store in the Omaha, Nebraska market. The
Company completed its evaluation of the Omaha, Nebraska market in the third
quarter of 1998 and determined that its potential to the Company for expansion
at this time was minimal. On December 31, 1998, the Company closed the Omaha,
Nebraska store.
Letter of Intent
On November 10, 1998, the Company entered into a non-binding letter of intent to
acquire Cash-N-Pawn International, Ltd., a Minneapolis, Minnesota based pawn
shop operator with a total of ten locations in three states. As of the date of
this report, final terms remained under negotiation.
Operating Controls
The Company has an organizational structure that management believes can support
a larger operating base. The store locations are monitored on a daily basis from
corporate headquarters through an online, real time computer network system. The
Company also has an internal audit staff that monitors the Company's perpetual
inventory system, lending practices, and regulatory compliance. Management
believes that the current operating and financial controls and its computer
systems are adequate for its current operating base and for planned growth in
the near term. However, the Company's management information and point of sale
systems will require extensive improvement to support long-term store growth.
Management intends to complete its current analysis of such requirements, both
software and hardware, and begin development and installation of these systems
improvements within the next eighteen months.
Pawn Operations
The Company is engaged in the business of advancing money to customers on the
security of pledged goods. The pledged goods are tangible personal property and
generally consist of jewelry, guns, tools, televisions and stereos, musical
instruments and other miscellaneous items. The pledged personal property is
offered by the customer to provide security to the Company for the repayment of
the pawn loan. Pawn loans cannot be made with personal liability to the
customer, and therefore, the Company does not investigate the creditworthiness
of the customer, but relies on the pledged personal property and the possibility
of its forfeiture as a basis for its credit decision. The Company receives a
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pawn service charge to compensate it for extending the pawn loan. Pawn service
charges contributed approximately 43% and 44% to the Company's total operating
revenues for 1998 and 1997, respectively.
At the time a pawn transaction is entered into, a pawn contract agreement,
commonly referred to as a pawn ticket, is delivered to the customer (pledgor)
that sets forth, among other items, the name and address of the pawn shop and
the customer, the customer's identification number from a valid driver's
license, military or other official identification, a description of the pledged
goods, including applicable serial numbers, and the amount advanced, the pawn
service charge, the maturity date of the pawn loan, total amount that must be
paid to redeem the pledged goods on the maturity date and the monthly percentage
rate of the pawn service charge.
The amount which the Company is willing to finance is typically based on a
percentage of the pledged personal property's estimated resale value. The
sources for the Company's determination of the resale value include catalogs,
blue books, newspaper advertisements and previously made similar pawn
transactions. The pledged property is held through the term of the pawn loan,
which generally is 30 to 120 days, unless earlier paid or renewed. In the
majority of cases, the customer pays the pawn loan amount and accrued service
charge in full, redeeming the pledged property, or pays the accrued service
charge and renews the pawn loan. In the event the customer does not pay or renew
the pawn loan, the unredeemed collateral is forfeited to the Company and becomes
inventory available for sale in the pawn shop. The Company does not record pawn
loan losses or charge-offs inasmuch as, if the pledged property is not redeemed,
the pawn loan amount plus the accrued service charge becomes the inventory cost
of the forfeited collateral that is recovered through the resale operations
described below.
The recovery of the pawn loan amount and accrued service charges, as well as
realization of gross profit on sales of inventory, is dependent on the Company's
initial assessment of the property's estimated resale value. Improper assessment
of the resale value of the collateral when extending a pawn loan can result in
reduced marketability of the property and resale of the property for an amount
less than the pawn loan amount plus accrued service charge. However,
historically, the Company has experienced gross profits from sales of inventory.
The Company generated gross profit margins on the sale of inventory of
approximately 15% and 20% for 1998 and 1997, respectively.
At December 31, 1998, the Company had 24,645 pawn loans outstanding with an
aggregate balance of $2,750,000, or an average of $111.58 per pawn loan
outstanding. At December 31, 1997, the Company had 30,346 pawn loans outstanding
with an aggregate balance of $3,711,000, or an average of $122.29 per pawn loan
outstanding. The Company monitors and maintains record keeping in connection
with its pawn loans through a specialized computer hardware and software system.
During 1998 and 1997, approximately 32% and 33%, respectively, of pawn loans
were not redeemed, with the forfeited pledged property added to the Company's
sales inventory. For 1998 and 1997, the Company's annualized yield on its
average pawn loan balance outstanding was 148% and 158%, respectively.
Management believes that its profitability is dependent upon, among other
factors, its employees' ability to make pawn loans that achieve optimum
redemption rates, to be effective sales people and to provide superior customer
service. The Company provides an incentive compensation plan for its store level
employees based on managerial and financial performance.
Resale Operations
The Company sells used goods acquired when a pawn loan is not repaid and new
goods purchased from vendors. New goods, which historically represent less than
1% of the Company's total inventory, consist primarily of accessory merchandise
which enhances the marketability of inventory, such as settings for precious
stones. Sales of new and used goods were approximately 56% and 55% of the
Company's total operating revenues for 1998 and 1997, respectively.
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The Company does not provide its customers with warranties on used merchandise
purchased from the Company.
The Company permits customers to purchase inventory on a "lay-away" plan whereby
the customer purchases an item by making an initial cash deposit representing a
part of the selling price and agrees to make additional, non-interest bearing
payments of the balance of the selling price in accordance with a specified
schedule. The Company then sets aside the lay-away item until the selling price
is paid in full. Should the customer fail to make a required payment, the item
may be returned to inventory and previous payments forfeited to the Company.
Revenues derived from lay-away plans historically amount to less than 1% of
total revenues.
The Company provides an allowance for inventory valuation of its merchandise
held for resale based on management's evaluation of the marketability of the
merchandise. Management's evaluation takes into consideration the age of slow
moving merchandise on hand and mark downs necessary to liquidate slow moving
merchandise. At December 31, 1998, total merchandise held for resale was
$1,789,000 after reduction for a valuation allowance of $190,000.
Competition
The Company believes that the primary elements of competition in the pawnshop
industry are store location, the ability to loan competitive amounts on items
pawned, management of the store level employees and quality customer service. In
addition, as the pawnshop industry consolidates, the Company believes that the
ability to compete effectively will be based on strong general management,
regional market focus, automated management information systems, and access to
capital. Some of the Company's competitors have greater financial resources than
the Company.
In connection with its lending of money, the Company competes with other pawn
shops and with certain other financial institutions such as consumer finance
companies, which generally lend money on an unsecured as well as on a secured
basis. Other lenders may lend money on terms more favorable than the Company.
The pawn shop industry is highly fragmented and includes over 13,000 pawn shops
in the United States, the great majority of which are managed by independent
owner-operators. Some of these independent operators own multiple pawn shops,
and a few companies (who are generally regional operators) own more than 50 pawn
shops. Including the Company, there are five publicly held pawn shop chains of
which the Company has the fewest pawn shops and the smallest amount of assets,
revenues, net worth and personnel. In the Company's Colorado market, which
comprises 85% of all Company locations, there are approximately 180 competitor
pawn shops including 24 pawn shops operated by another publicly held pawn shop
chain, 16 of which are in the Denver metropolitan area. To the Company's
knowledge, there are no other pawn shop operators in Colorado who operate more
pawn shops than the Company.
In connection with its resale of tangible personal property, the Company
competes with numerous retail and wholesale stores, including jewelry stores,
gun stores, discount retail stores, consumer electronics stores and other pawn
shops. The Company encounters significant competition in all aspects of the
operation of its business. Many competitors (public and private) have greater
financial resources than the Company.
Regulation
The Company's pawn shop operations are subject to extensive regulation,
supervision and licensing under various federal, state and local statutes,
ordinances and regulations in the markets in which it operates. Set forth below
is a summary of the various regulations applicable to the Company's operations.
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Colorado. In Colorado pawn shops must be licensed by the city in which the pawn
shop is located, as well as by the state. Maximum allowable service charge rates
may be set by both city ordinance, as well as state statute. Pawn shop licenses
may be revoked by state or local authorities for certain defined improper
conduct. For instance, under Colorado state law, a pawnbroker may not accept a
pledge from a person under the age of 18 years; make any agreement requiring the
personal liability of the customer; accept any waiver of any right or protection
accorded to a pledgor under Colorado state law; fail to exercise reasonable care
to protect pledged goods from loss or damage; fail to return pledged goods to a
pledgor upon payment of the full amount due; make any charge for insurance in
connection with a pawn transaction; enter into any pawn transaction that has a
maturity date of more than 90 days; display for sale in storefront windows or
sidewalk display cases, pistols, swords, canes, blackjacks or similar weapons;
or purchase used or second hand personal property unless a record is established
containing the name, address and identification of the seller, a complete
description of the property, including serial number, and a signed statement
that the seller has the right to sell the property. Under applicable state law,
the maximum allowable pawn service charges for Colorado pawn loans are 240%
annually for pawn loans under $50 and 120% annually for pawn loans of $50 and
over. Local municipalities in which the Company operates may also regulate pawn
service charges within their jurisdictions. The City and County of Denver is the
only Colorado municipality in which the Company operates that deviates from the
Colorado statute pertaining to pawn service charges. The maximum allowable pawn
service charges for Denver pawn loans are 120% annually.
Wyoming. In Wyoming pawn shops must be licensed by the city in which the pawn
shop is located, as well as by the state. Maximum allowable service charge rates
may be set by both city ordinance, as well as state statute. Pawn shop licenses
may be revoked by state or local authorities for certain defined improper
conduct. For instance, under Wyoming state law, a pawnbroker may not accept a
pledge from a person under the age of 18 years; make any agreement requiring the
personal liability of the customer; accept any waiver of any right or protection
accorded to a pledgor under Wyoming state law; fail to exercise reasonable care
to protect pledged goods from loss or damage; fail to return pledged goods to a
pledgor upon payment of the full amount due; make any charge for insurance in
connection with a pawn transaction; enter into any pawn transaction that has a
maturity date of more or less than two months from the transaction date; fail to
disclose information concerning the pawn transaction to its customers pursuant
to applicable provisions of Federal Regulation Z of the Truth in Lending Act and
the Wyoming Uniform Consumer Credit Code; fail to display in a conspicuous place
on its premises the days and hours during which a redemption may be made; engage
in false or misleading advertising concerning the terms or conditions of credit
with respect to a pawn transaction; or purchase used or second hand personal
property unless a record is established containing the name, address, accurate
description and identification of the seller, a complete description of the
property, including serial number, and a signed statement that the seller has
the right to sell the property. Under applicable state law, the maximum
allowable pawn service charges for Wyoming pawn loans are 240% annually and the
amount lent in any one pawn transaction to any one customer may not exceed
$3,000. Local municipalities in which the Company operates may also regulate
pawn service charges within their jurisdictions. The City of Cheyenne, where the
Company's Wyoming pawn shop is located, deviates from the Wyoming statute
pertaining to pawn service charges. The maximum allowable pawn service charges
for Cheyenne pawn loans are set forth below:
Maximum Annual Rate On That Part of Unpaid Principal Balance
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Which is Between
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240% $0 to $200
120% $200 to $400
60% $400 to $1,000
18% $1,000 to $3,000
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Firearms. All the Company's pawn shops must comply with federal regulations
promulgated by the Department of the Treasury, Bureau of Alcohol, Tobacco and
Firearms which require, among other things, each pawn shop dealing in guns to
maintain a permanent written record of all guns received or disposed. During
Fiscal 1994, the Company implemented procedures which comply with all rules and
regulations promulgated by federal, state and local authorities under the Brady
Handgun Violence Prevention Act of 1993 (the "Brady Bill") which requires, among
other things, a background investigation of any person purchasing or redeeming a
handgun prior to completion of the transaction. The Company does not sell or
deal in ammunition for firearms. As a matter of policy, the Company does not
sell handguns to the general public in any of its stores operating in the Denver
Colorado metropolitan area (the "Denver Area"), but rather, wholesales all
forfeited handguns from Denver Area stores to licensed gun dealers.
In order to avoid the acquisition of stolen merchandise, all the Company's pawn
shops voluntarily or pursuant to municipal ordinance provide the local police
department with daily copies of all transactions involving pawn loans and
over-the-counter purchases. These daily transaction reports are designed to
provide the police with a detailed description of the merchandise including
serial numbers, if any, and the name and address of the owner obtained from a
valid identification card. A copy of the pawn ticket is provided to local law
enforcement agencies for processing by the National Crime Investigative Computer
to determine rightful ownership. Goods held to secure pawn loans or goods
purchased which are determined to belong to an owner other than the pledgor or
seller are subject to recovery by the rightful owner upon application to the
police department and satisfactory evidence of ownership. In connection with
pawn shops acquired by the Company, there is a risk that acquired merchandise
may be subject to claims of rightful owners. Historically, the Company has not
experienced a material number of rightful owner claims.
The Company has experienced no material losses by theft or casualty. The Company
maintains liability and casualty insurance and insurance against employee theft
at each of its pawn shop locations. The Company does not maintain insurance
against robbery and burglary, as the risk of loss does not justify the premium
cost of coverage.
Employees
The Company currently employs 85 employees, including its executive officers.
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has recently issued Statements
of Financial Accounting Standards ("SFAS") that may affect the Company's
financial statements as follows:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Currently, the Company's only component which would
comprise comprehensive income is its results of operations.
Also, in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131") which supercedes SFAS No. 14
"Financial Reporting for Segments of a Business Enterprise". SFAS 131
establishes reporting standards for the way public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. It also established standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
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decision maker in deciding how to allocate resources and assessing performance.
Currently, the Company has no identifiable operating segments as defined.
In February 1998, the FASB issued SFAS No. 132,"Employer's Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"), which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. SFAS 132 is
effective for years beginning after December 15, 1997 and requires comparative
information for earlier years to be restated, unless such information is not
readily available. This statement currently has no impact on the Company's
financial statements as the Company has no post retirement benefits.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 address the accounting for derivative instruments, including
certain derivatives instruments embedded in other contracts, and hedging
activities. SFAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. This statement currently has no impact on the
financial statements of the Company as the Company has no derivative instruments
nor participates in hedging activities.
ITEM 2. - PROPERTIES
The Company's executive offices are located at 7215 Lowell Boulevard in
Westminster, Colorado pursuant to a five year lease which commenced April 1,
1992 at a monthly rental of $2,800 with two options to renew for five years.
The Company owns the real estate and buildings for two of its Denver, Colorado
pawn shops and currently leases its other pawn shops at monthly rentals between
$2,200 and $7,000 on lease terms between three and eight years. The Company
expects to continue leasing its pawn shops in order to utilize its working
capital for pawn loans.
ITEM 3. - LEGAL PROCEEDINGS
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The Company is not a party to any pending or threatened material legal
proceedings.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
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PART II
ITEM 5. - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's Common Stock has been traded on the Nasdaq SmallCap Market
("NASDAQ") under the symbol "USPN" since May 10, 1989. On March 18, 1999, the
closing sales price for the Company's Common Stock was $3.44 per share.
The following table sets forth for the quarters indicated, the range of high and
low sales prices of the Company's Common Stock as reported by NASDAQ.
Common Stock
By Quarter Ended: High Low
---- ---
Fiscal 1998
December 31, 1998.................................. 2.19 1.16
September 30, 1998................................. 3.94 1.88
June 30, 1998...................................... 4.38 3.00
March 31, 1998..................................... 4.00 2.75
Fiscal 1997
December 31, 1997.................................. 4.06 2.87
September 30, 1997................................. 3.69 1.87
June 30, 1997...................................... 4.44 3.12
March 31, 1997..................................... 5.00 3.62
The above quotations were reported by NASDAQ and reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
As of December 31,1998, the Company had approximately 1,500 stockholders of
record. The Company has not declared any dividends on its Common Stock to date.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Except for the historical information contained herein, certain matters set
forth in this report are forward- looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks and
uncertainties are detailed from time to time in the Company's periodic reports
filed with the Securities and Exchange Commission. These risks and uncertainties
are beyond the ability of the Company to control, and, in many cases, the
Company cannot predict all of the risks and uncertainties that could cause its
actual results to differ materially from those indicated by the forward-looking
statements. When used in this report, the words "believes", "estimates",
"plans", "expects", "anticipates" and similar expressions as they relate to the
Company or its management are intended to identify forward-looking statements.
These forward-looking statements speak only as of the date hereof and the
Company disclaims any intent or obligation to update these forward-looking
statements.
10
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1998 ("1998") Compared to Year Ended December 31, 1997
("1997")
The following selected, unaudited financial data drawn from the Company's
audited statements for the years ended December 31, 1998 and 1997 for each
market in which the Company operates or operated during the years ended December
31, 1998 and 1997 is presented below to facilitate management's discussion and
analysis (all amounts, except per share data, in thousands):
<TABLE>
<CAPTION>
Colorado Wyoming Nevada Nebraska Consolidated
-------- ------- ------ -------- ------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues 9,380 10,343 623 1,354 485 691 580 356 11,068 12,744
Cost of sales 4,025 4,408 313 713 344 279 631 255 5,313 5,655
Operations 2,966 3,062 242 647 147 288 348 128 3,703 4,125
Admin 1,146 1,751 -- -- -- -- -- -- 1,146 1,751
Depreciation
and amortization 265 323 53 205 23 28 193 12 534 568
------ ------- ------ -------- -------- ------ -------- ------ -------- --------
Total expenses 8,402 9,544 608 1,565 514 595 1,172 395 10,696 12,099
------ ------- ------ -------- -------- ------ -------- ------ -------- --------
Income (loss) from
operations 978 799 15 (211) (29) 96 (592) (39) 372 645
Other
(expenses) (292) (571) (10) (18) (9) (19) -- (2) (311) (610)
------ ------- ------ -------- -------- ------ -------- ------ -------- --------
Income (loss) before
income taxes 686 228 5 (229) (38) 77 (592) (41) 61 35
Income taxes 245 129 17 (105) 78 17 (144) 8 196 49
Minority
interest -- -- -- 9 -- -- -- -- -- 9
------ ------- ------ -------- -------- ------ -------- ------ -------- --------
Net income(loss) 441 99 (12) (115) (116) 60 (448) (49) (135) (5)
Dividends on
preferred stock (36) (36) -- -- -- -- -- -- (36) (36)
------ ------- ------ -------- -------- ------ -------- ------ -------- --------
Earnings(loss)
for common
shares $ 405 $ 63 $ (12) $ (115) $ (116) $ 60 $ (448) $ (49) $ (171) $ (41)
====== ======= ====== ======== ======== ====== ======== ====== ======== ========
Earnings (loss)
per share $ .10 $ .02 $ -- $ (.03) $ (.03) $ .01 $ (.12) $ (.01) $ (.05) $ (.01)
====== ======= ====== ======== ======== ====== ======== ====== ======== ========
</TABLE>
Revenues
Total revenues for 1998 decreased by 13% to $11,068,000 from $12,744,000 for
1997. During 1998, same store (the "Colorado Market") operations (12 stores)
generated revenues of $9,380,000 compared to $10,343,000 during 1997. Stores in
other markets ("Other Market Stores") generated revenues of $1,688,000 in 1998
(3 stores) compared to $2,401,000 during 1997 (5 stores). The decrease in
revenues for 1998 reflects an 12% drop in merchandise sales, $6,217,000 compared
to $7,058,000, a decrease of 15% in pawn service charges to $4,785,000 from
$5,640,000, and a 41% increase in other income to $65,000 from $46,000. As a
percentage of total revenues, merchandise sales increased to 56% from 55% and
pawn service charges decreased to 43% from 44% during 1998 as compared to 1997.
This revenue mix is consistent with the Company's expectations.
Merchandise Sales
During 1998, the Colorado Market generated merchandise sales of $5,187,000 as
compared to $5,719,000 during 1997. Other Market Stores posted merchandise sales
of $1,030,000 for 1998 as compared to $1,339,000 for 1997. For 1998, the
Company's annualized inventory turnover rate was 2.6 times with a gross profit
margin on sales of 15% as compared to 2.6 times and 20% for 1997. However, in
11
<PAGE>
the markets in which the Company's operations will continue into 1999 (Colorado
and Wyoming), the Company experienced annualized inventory turns of 2.5 times
with a gross profit margin on sales of 22.2 % during 1998. The decrease in the
gross profit on sales percentage is primarily attributable to the liquidation of
merchandise inventory at or below cost from the Nevada (sold) and Nebraska
(closed) stores during 1998. The Company expects its annualized inventory
turnover rate to approximate 2.5 times and to produce gross margins on sales of
20% or higher for 1999.
Pawn Service Charges
During 1998, the Colorado Market generated pawn service charges of $4,135,000 as
compared to $4,592,000 for 1997. Other Market Stores contributed pawn service
charges of $650,000 for 1998 compared to $1,048,000 for 1997. The Company's pawn
loan balance outstanding decreased $961,000 or 26% to $2,750,000 from $3,711,000
at December 31, 1997. The decrease in the pawn loan balance during 1998
consisted primarily of a decrease of $374,000 in the Colorado Market, a decrease
of $70,000 in Wyoming, a decrease of $169,000 in Nebraska (closed) and a
decrease of $348,000 in Nevada (sold).
The decrease in the Company's pawn loans outstanding during 1998 is primarily
the result of a decrease of $2,147,000 in new pawn loans written during 1998 as
compared to 1997. The decrease in new pawn loans written during 1998 consisted
primarily of a decrease of $1,484,000 in the Colorado Market, a decrease of
$280,000 in Wyoming, a decrease of $462,000 in Nevada (sold) and an increase of
$79,000 in Nebraska (closed). Management believes that the decrease in the pawn
loan balance in its Colorado Market during 1998 is due primarily to the strong
overall economy in its Colorado Market ( which may have had the effect of
dampening the demand for pawn loans), increased competitive conditions for small
consumer loans, and the diversion of management's attention to issues related to
the Nevada and Nebraska stores. The decrease in the Company's Wyoming store is
attributable to the consolidation of that market from four pawnshops into one.
The decrease in the Company's Nevada market is attributable to the sale of the
Company's one store in Las Vegas on July 20, 1998. The decrease in the Company's
Nebraska market is attributable to the unsatisfactory performance of the
Company's one pawn shop there since it was acquired in June of 1997 and the
decision to close this pawnshop during fourth quarter of 1998.
Management is currently analyzing the available market data further in order to
more fully understand the trend which appears to be developing in its Colorado
Market. Strategies to increase the number of pawn loans written are currently
under evaluation. Management is anticipating that pawn loan demand may remain
weak into fiscal 1999. As a result of the conditions described above, the
Company realized an annualized pawn service charge on average pawn loans
outstanding during the period equal to 148% for 1998 as compared to 158% for the
1997.
The forfeiture rate for pawn loans (calculated as total current period new loans
plus previous period ending loan balance minus current period ending loan
balance in relationship to total forfeited amount during the period) decreased
to 32% for 1998 as compared to 33% for 1997. The Company's forfeiture rate is
believed to be in line with industry comparisons, but less than the Company's
expectations. The Company plans to re-emphasize its aggressive loan policy which
provides for slightly higher loan to value ratios than competing pawn shops in
an effort to attract more pawn customers. The Company plans to emphasize this
loan strategy for the reasonably foreseeable future and anticipates the
forfeiture rate to approximate 35% for Fiscal 1999.
Total Cost of Sales and Expenses
Total cost of sales and expenses for 1998 decreased 12% to $10,696,000 as
compared to $12,099,000 for 1997. As a percentage of total revenues, total cost
of sales and expenses for 1998 increased to 97% from 95% as compared to 1997.
The increase in total cost of sales and expenses as a percentage of total
revenues for 1998 is comprised primarily of a 4% increase in cost of sales, a 1%
increase in operating expenses, a 4% decrease in administration, and a 1%
increase in depreciation and amortization. The Company will strive to reduce,
whenever possible, cost of sales and expenses as a percentage of total revenues
in future periods.
12
<PAGE>
Operating Expenses
Operating expenses decreased by $422,000 or 10% during 1998 as compared to 1997.
However, as a percentage of total revenues, operating expenses increased to 33%
for 1998 as compared to 32% for 1997. The increase in operating expenses as a
percentage of revenues for 1998 is primarily attributable to the decrease in
revenues for 1998. As many operating expenses are fixed, i.e., they do not
fluctuate as revenues fluctuate, the expense to revenue ratio will in some cases
increase.
Administration
Administrative overhead decreased during 1998 by $605,000 or 35% to $1,146,000
from $1,751,000 as compared to 1997. As a percentage of total revenues,
administrative overhead decreased to 10% for 1998 from 14% as compared to 1997.
The decrease in administrative overhead is due primarily to reductions in salary
expense and related employee benefits of $355,000 and $250,000 in other
administrative expense categories during 1998 as compared to 1997.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased during 1998 by $34,000 as
compared to the 1997. The decrease consists primarily of a decrease of $58,000
for the Colorado Market stores, a decrease of $152,000 in Wyoming, a decrease of
$5,000 in Nevada, and an increase of $181,000 due to the impairment of
unamortized long-lived intangible assets related to the Company's Nebraska
operation.
Other Expense
Interest expense for 1998 decreased by $65,000. The Company reduced its
outstanding debt during 1998 by $2,194,000. The Company recognized an aggregate
loss of $25,000 during 1998 on the disposal of equipment related to the
consolidation of its Wyoming operations and the sale of its Nevada store.
Operating Results
Income from operations for 1998 decreased by 42% to $372,000 from $645,000 as
compared to 1997. After accounting for the effects of income taxes, preferred
dividends and minority interest, (losses) attributable to common stockholders
for 1998 increased 317% to $(171,000) from $(41,000) as compared to 1997.
Income Taxes
The current provision for income taxes includes an estimated tax liability of
$139,000 related to non deductible amortization of certain intangible assets and
a difference between the basis for purposes of income tax versus financial
accounting in connection with the sale of certain assets of the Company's Las
Vegas, Nevada store. These items represent permanent differences between book
and tax calculations.
Loss Per Share
(Loss) per share for 1998 equaled $(0.05) as compared to $(0.01) for 1997. The
number of common shares outstanding decreased during 1998 by 87,369 as a result
of the issuance of 59,375 common shares from the exercise of employee options
and underwriter warrants and the repurchase of 146,744 common shares by the
Company. The weighted average number of shares outstanding increased by 1.4% in
1998 to 3,783,000 from 3,731,000. In loss periods, the weighted average number
of shares outstanding, assuming dilution does not include the dilutive effects
of outstanding stock purchase options and warrants, as including such effects
would be anti-dilutive.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital increased by 5% to $5,407,000 at December 31, 1998 from
$5,148,000 at December 31, 1997. Total assets decreased during 1998 by
$2,532,000 mainly due to decreases in pawn loans, service charges receivable,
inventory, income tax receivables and intangible assets. Total liabilities
decreased by $2,331,000 at December 31, 1998 to $1,412,000 from $3,743,000 at
13
<PAGE>
December 31, 1997 mainly due to the Company's ability to repay $2,194,000 of
debt. Total stockholders' equity decreased during 1998 by $201,000 as a result
of losses, net of income taxes and preferred dividends of $171,000 and a net
decrease of $30,000 from common stock transactions.
The Company's operations have been financed from funds generated from
operations, bank borrowing, private borrowing, and public offerings. During the
1998 Periods, the Company raised sufficient capital to satisfy its capital
requirements.
During 1998, the Company maintained a bank line of credit totaling $1,000,000.
The agreement was fully paid on its maturity date of April 4, 1998. The Company
is currently seeking a renewal of this credit facility or a new banking
relationship.
The private borrowings which comprises $711,000 of the total liabilities are due
in 1999 through 2002. Management intends to repay the majority of these
obligations as they mature from internally generated funds or other borrowings.
The Company plans to expand its operating base with acquisitions of existing
pawn shops and the development of new locations by actively seeking such
acquisitions and locations. The Company expects to fund this expansion and meet
its on-going working capital needs with internally generated funds, debt and/or
equity offerings if needed and lines of credit. There can be no assurance
however, that such debt or equity offerings and lines of credit will be
available to the Company.
The Company has experienced that new start-up stores generally result in
operating losses during the first three to twelve months of operations.
Leasehold improvements and equipment costs for new stores have ranged from
approximately $75,000 to $100,000 per store. Acquisition of existing pawn shops
generally result in immediate increases in operating income. However,
acquisitions also generally result in an increase in intangibles due to purchase
prices which may be in excess of the value of assets acquired. Such intangibles
are then amortized to expense over their estimated useful lives.
Profitability vs. Liquidity
The profitability and liquidity of the Company is affected by the amount of the
Company's outstanding pawn loans, which in turn is affected in part by the
Company's pawn loan decisions. The Company is generally able to influence the
frequency of pawn loan redemptions and forfeitures of pawn loan collateral by
increasing or decreasing the amount loaned in relation to the estimated resale
value of the pledged property. A more conservative loan policy, i.e., smaller
loans in relation to the pledged property's estimated resale value, generally
results in fewer and smaller transactions being entered into, a decrease in the
Company's aggregate pawn loan balance and a decrease in pawn service charge
income. However, smaller pawn loans also tend to increase pawn loan redemptions
and improve the Company's liquidity. A conservative pawn loan policy also tends
to decrease the cost of merchandise inventory, thereby improving the margins
possible through resale of forfeited pawn loan collateral. Conversely, a more
aggressive pawn loan policy which provides for larger pawn loans in relation to
the estimated resale value of the pledged property generally results in
increased pawn service charge income, but also tends to increase pawn loan
forfeitures, thereby increasing the quantity of inventory on hand and, unless
the Company is able to increase inventory turns, reducing the Company's
liquidity.
Unprecedented and/or unexpected pawn loan demand tends to drain liquidity
reserves, and if other external sources of working capital are unavailable, the
implementation of a more conservative pawn loan policy and increasing inventory
turns will generate cash at the expense of profitability if not optimally
balanced.
Inflation
The Company does not believe that inflation has had a material effect on the
Company's results of operations.
14
<PAGE>
Seasonality
The Company's pawn loan demand and sales follow slight seasonal trends. Sales
are generally highest during the fourth calendar quarter of the year, while pawn
loan demand is general lower during the first and second calendar quarters than
during the third and fourth calendar quarters.
COMPUTER SYSTEMS - THE YEAR 2000 ISSUE
Many computers, software programs and other equipment with embedded computer
chips ("systems") in use today utilize two digits to specify the year, such as
"98" for 1998 (the "Y2K Issue"). As a result of the Y2K Issue, such systems may
recognize a date using "00" as the year 1900 rather than the year 2000. In some
cases, the date "00" may cause system(s) failure(s) or miscalculations causing
disruptions of the Company's operations.
In early 1998, the Company began formulating a comprehensive plan to assess the
Company's Y2K issues. The plan calls for the identification of those systems,
both internal and external, which are critical to the Company's ability to
continue normal operations, the assessment of any required remediation
(including any upgrading, modification and replacement of computer hardware and
software and adequate testing to ensure Y2K compliance), and the resources
needed to bring those critical systems into Y2K compliance.
The internal systems under evaluation include the Company's point-of-sale,
accounting, data processing, telephone and other miscellaneous information
technology systems, as well as alarm systems, security cameras, printers, HVAC
units, fax machines, credit card processing equipment, and modems. The Company
believes that it has identified the internal systems that are susceptible to
failures or potential processing errors as a result of the Y2K Issue. The
Company is concentrating its Y2K efforts on these systems. The Company
anticipates that its Y2K identification, assessment and remediation efforts for
critical internal systems will be completed by June 30, 1999. However, testing
for Y2K compliance will be an on-going process.
The Company has identified its pawn shop operating system as its only critical
internal business system. The Company's pawn shop operating system is comprised
of computer hardware and peripheral equipment such as printers and modems and
pawn shop management software. These components are provided by third-party
vendors. The pawn shop management software has been upgraded for Y2K compliance
and is currently being tested. The upgraded software is currently scheduled to
be installed in each of the Company's locations by June 30, 1999. The Company
believes that its computer hardware and related peripherals are currently Y2K
compliant based upon representations made by the providers of such equipment.
The Company also believes that its accounting and payroll software systems are
Y2K compliant and testing to ensure such compliance will be completed by June
30, 1999.
The Company is reviewing, and has initiated written communications with other
third parties providing goods or services, such as financial institutions and
utility companies, which may be critical to the Company's operations to: (i)
ascertain the extent to which the Company may be exposed to adverse effects for
any failure by such third parties to remediate their Y2K issues; and (ii)
resolve, to the extent practicable, such problems. However, the Company has no
control over and has only limited ability to influence such third parties' Y2K
compliance. The failure of such third parties to achieve Y2K compliance in a
timely manner and the potential inability to replace such a third party
provider, could adversely impact the Company's operations.
The Company currently estimates that the total identifiable cost of its Y2K
compliance effort will not exceed $150,000. As of December 31, 1998, the Company
has expended approximately $30,000 of this estimate to obtain upgraded software
licenses. The remaining costs include possible replacement of computer hardware
and/or software, other equipment, installation charges and testing procedures.
The Company does not track personnel costs associated with its Y2K compliance
effort. The Company expects to fund Y2K expenditures from internal sources.
15
<PAGE>
Based on the progress made to date and its time-table for further progress in
attaining Y2K compliance, the Company does not currently anticipate any
significant risks associated with its Y2K issues. However, management believes
that it is not possible to determine with absolute certainty that all Y2K issues
pertaining to the Company have or will be identified and corrected. Because the
assessment of its Y2K issues is incomplete at this time, the Company has yet to
determine the most reasonably likely worst case scenario relating to Y2K issues,
and has yet to complete a comprehensive contingency plan with respect to its Y2K
issues. The Company anticipates completing its Y2K assessment and comprehensive
contingency plan by September 30, 1999.
ITEM 7. - FINANCIAL STATEMENTS
- ------------------------------
16
<PAGE>
U.S. PAWN, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998 and 1997
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Table of Contents
-----------------
Page
----
Independent Auditors' Report.............................................F-2
Consolidated Financial Statements:
Consolidated Balance Sheets.........................................F-3
Consolidated Statements of Operations...............................F-4
Consolidated Statements of Changes in Stockholders' Equity..........F-5
Consolidated Statements of Cash Flows...............................F-6
Notes to Consolidated Financial Statements...............................F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
U.S. Pawn, Inc. and Subsidiaries
Westminster, Colorado
We have audited the accompanying consolidated balance sheets of U.S. Pawn, Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Pawn, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
February 26, 1999
Denver, Colorado
F-2
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
-------------------------
1998 1997
----------- -----------
Assets
Current assets
Cash $ 831,000 $ 791,000
Service charges receivable 371,000 534,000
Pawn loans 2,750,000 3,711,000
Accounts receivable, net 28,000 18,000
Income tax refund receivable 162,000 356,000
Deferred income taxes 81,000 94,000
Inventory, net 1,789,000 2,343,000
Prepaid expenses and other 134,000 124,000
----------- -----------
Total current assets 6,146,000 7,971,000
Property and equipment, net 1,574,000 1,808,000
Intangible assets, net 328,000 801,000
Other assets 20,000 20,000
----------- -----------
$ 8,068,000 $10,600,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Line of credit $ -- $ 637,000
Accounts payable 54,000 48,000
Customer layaway deposits 33,000 70,000
Accrued expenses 408,000 494,000
Current portion of notes payable
- related parties 136,000 905,000
Current portion of notes payable 108,000 669,000
----------- -----------
Total current liabilities 739,000 2,823,000
Notes payable - related parties,
less current portion -- 161,000
Notes payable, less current portion 665,000 731,000
Deferred income taxes 8,000 28,000
----------- -----------
Total liabilities 1,412,000 3,743,000
----------- -----------
Commitments and contingencies
Stockholders' equity
Redeemable preferred stock, 9.5%,
$10 par value, 1,000,000 shares
authorized; 37,800 shares issued
and outstanding 378,000 378,000
Common stock, no par value,
30,000,000 shares authorized; 3,685,410 and
3,772,779 shares issued and outstanding 5,462,000 5,492,000
Retained earnings 816,000 987,000
----------- -----------
Total stockholders' equity 6,656,000 6,857,000
----------- -----------
$ 8,068,000 $10,600,000
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended
December 31,
----------------------------
1998 1997
------------ ------------
Revenues
Sales $ 6,217,000 $ 7,058,000
Pawn service charges 4,785,000 5,640,000
Other income 66,000 46,000
------------ ------------
Total revenues 11,068,000 12,744,000
------------ ------------
Cost of sales and expenses
Cost of sales 5,313,000 5,655,000
Operations 3,703,000 4,125,000
Administration 1,146,000 1,751,000
Depreciation and amortization 534,000 568,000
------------ ------------
Total cost of sales and expenses 10,696,000 12,099,000
------------ ------------
Income from operations 372,000 645,000
Other income (expenses)
Interest (183,000) (208,000)
Interest, related parties (103,000) (143,000)
Loss on settlement of contract -- (220,000)
Loss on disposal of assets (25,000) (39,000)
------------ ------------
Total other income (expenses) (311,000) (610,000)
Income before income taxes and
minority interest 61,000 35,000
Income tax expense 196,000 49,000
------------ ------------
Income (loss) before minority interest (135,000) (14,000)
Minority interest -- 9,000
------------ ------------
Net income (loss) (135,000) (5,000)
Dividends on preferred stock (36,000) (36,000)
------------ ------------
Net income (loss) available for
common stockholders $ (171,000) $ (41,000)
============ ============
Earnings (loss) per common share
- basic and diluted $ (.05) $ (.01)
============ ============
Weighted average shares outstanding 3,782,844 3,730,715
============ ============
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
U.S. PAWN, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1998 and 1997
Preferred Stock Common Stock
------------------- ------------------------- Retained
Shares Amount Shares Amount Earnings Total
------ ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 37,800 $ 378,000 3,496,489 $ 4,859,000 $ 1,028,000 $ 6,265,000
Exercise of common stock options - - 200,624 424,000 - 424,000
Stock issued for acquisition - - 75,666 275,000 - 275,000
Tax effect of options exercised - - - 225,000 - 225,000
Repurchase of options - - - (267,000) - (267,000)
Option offering costs - - - (24,000) - (24,000)
Dividends on preferred stock - - - - (36,000) (36,000)
Net loss - - - - (5,000) (5,000)
-------- --------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 37,800 $ 378,000 3,772,779 $ 5,492,000 $ 987,000 $ 6,857,000
Exercise of common stock options - - 8,875 16,000 - 16,000
Exercise of common stock warrants - - 50,500 151,000 - 151,000
Repurchase of common stock - - (146,744) (196,000) - (196,000)
Stock issuance costs - - - (1,000) - (1,000)
Dividends on preferred stock - - - - (36,000) (36,000)
Net loss - - - - (135,000) (135,000)
-------- --------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 37,800 $ 378,000 3,685,410 $ 5,462,000 $ 816,000 $ 6,656,000
======== ========= =========== =========== =========== ===========
See notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended
December 31,
----------------------------
1998 1997
------------ ------------
Cash flows from operating activities
Net income (loss) $ (135,000) $ (5,000)
------------ ------------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Loss on disposal of fixed assets 25,000 39,000
Allowance for inventory obsolescence (24,000) 214,000
Accrued interest receivable written off -- (4,000)
Settlement costs -- 220,000
Depreciation and amortization 534,000 568,000
Deferred income taxes (7,000) (179,000)
Minority interest -- (9,000)
Income tax effect of stock
options exercised -- 225,000
Changes in:
Service charges receivable 76,000 37,000
Inventory 578,000 (292,000)
Accounts receivable (10,000) (37,000)
Income taxes receivable 194,000 (356,000)
Prepaid expenses and other (10,000) 99,000
Accounts payable 6,000 19,000
Accrued expenses (86,000) 273,000
Customer layaway deposits (37,000) 16,000
------------ ------------
1,239,000 833,000
------------ ------------
Net cash provided by
operating activities 1,104,000 828,000
------------ ------------
Cash flows from investing activities
Pawn loans made (9,644,000) (11,791,000)
Pawn loans repaid 6,929,000 7,736,000
Pawn loans forfeited 3,371,000 3,893,000
Proceeds from sale of equipment (9,000) 6,000
Purchase of property and equipment (68,000) (470,000)
Proceeds from sale of pawnshop 632,000 --
Cash paid for pawn shop acquisitions,
net of cash acquired -- (150,000)
Acquisition costs -- (30,000)
Other assets -- 7,000
Purchase of minority interest in subsidiary (15,000) (20,000)
------------ ------------
Net cash provided (used) by
investing activities 1,196,000 (819,000)
------------ ------------
Cash flows from financing activities
Net activity on line-of-credit (637,000) 424,000
Dividends paid (36,000) (36,000)
Issuance of notes payable and long-term debt 42,000 553,000
Payments on notes payable and long-term debt (669,000) (186,000)
Issuance of notes payable-related parties 10,000 189,000
Payments on notes payable-related parties (940,000) (972,000)
Net proceeds from exercise of options
and warrants, net of offering costs 166,000 400,000
Repurchase of options and common stock (196,000) (267,000)
------------ ------------
Net cash provided (used) by
financing activities (2,260,000) 105,000
------------ ------------
Net increase in cash 40,000 114,000
Cash, beginning of year 791,000 677,000
------------ ------------
Cash, end of year $ 831,000 $ 791,000
============ ============
See notes to consolidated financial statements.
F-6
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
- --------------------------------------------------------------------
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, Wyoming, Nevada and Nebraska. In addition, the Company
offers for resale personal property from forfeited loans, as well as merchandise
purchased directly from customers and vendors. As of December 31, 1998, the
Company operated 12 pawnshops in Colorado and 1 pawnshop in Wyoming.
Principles of Consolidation
- ---------------------------
The Company and its subsidiaries in which it exercises control through majority
ownership are consolidated, and all intercompany accounts and transactions are
eliminated. The acquisitions of subsidiaries have been accounted for using the
purchase method of accounting for business combinations and accordingly, the
results of operations of the acquirees are included in the Company's financial
statements only from the applicable dates of acquisition.
Minority Interest
- -----------------
The consolidated financial statements of the Company include the assets,
liabilities and equity of Advantage Pawn, Inc. (Advantage) which was owned 100%
and 94% by the Company at December 31, 1998 and 1997, respectively.
Pawn Loans and Income Recognition
- ---------------------------------
Pawn loans (loans) are generally made for a period of one to four months with an
automatic 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
- -----------------------------
There are no concentrations of credit risk, except for geographical
concentrations, with respect to pawn loans receivable. The Company is engaged in
the business of advancing money to customers on the security of pledged goods.
The pledged goods are tangible personal property and are offered by the customer
to provide security to the Company for the repayment of the pawn loan. Pawn
loans cannot be made with personal liability to the customer, and therefore, the
Company does not investigate the creditworthiness of the customer, but relies on
the pledged personal property and the possibility of its forfeiture as a basis
for its credit decision.
F-7
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Concentrations of Credit Risk (continued)
- -----------------------------------------
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 120 days or
less. The rate of pawn service charges 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 the fair values of those debts approximate
their carrying value.
Customer Layaways
- -----------------
Interim payments from customers on layaway sales are classified as customer
layaway deposits and subsequently recorded as income during the period in which
the final payment is received or when the deposit is forfeited.
Cash Equivalents
- ----------------
For purposes of reporting cash flows, the Company considers all funds with
original maturities of three months or less to be cash equivalents.
Inventory
- ---------
Inventory consists of 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 5-10 years for equipment, 7-15 years for leasehold improvements and
15-39 years for buildings. Depreciation and amortization expense of property and
equipment was $291,000 for each of the years ended December 31, 1998 and 1997.
F-8
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
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 agreements of 5 to 10 years, respectively. Recoverability
is reviewed annually or sooner if events or circumstances indicate that the
carrying amount may exceed fair value. Recoverability is then determined by
comparing the undiscounted net cash flows of the assets to which goodwill
applies to the net book value including goodwill of those assets. The analysis
involves significant management judgment to evaluate the capacity of an acquired
business to perform within projections. Amortization expense of intangible
assets for 1998 was $243,000, of which $186,000 relates to the write-off of
goodwill related to a pawnshop location closed during 1998, and for 1997 was
$277,000 of which $167,000 relates to the write-off of goodwill related to
certain pawnshop locations abandoned and consolidated into other operations
during 1997.
Advertising Costs
- -----------------
The Company expenses all advertising costs as incurred.
Income Taxes
- ------------
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.
Earnings (Loss) Per Common Share
- --------------------------------
Basic earnings (loss) per common share is computed based upon the weighted
average number of common shares outstanding during the period. Diluted earnings
per share consists of the weighted average number of common shares outstanding
plus the dilutive effects of options and warrants calculated using the treasury
stock method. In loss periods, dilutive common equivalent shares are excluded as
the effect would be anti-dilutive.
Stock Options
- -------------
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for all stock option plans. Under APB 25, no compensation cost has been
recognized for stock options granted to employees when the option price equals
or exceeds the market price of the underlying common stock on the date of grant.
F-9
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Stock Options (continued)
- -------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), requires the Company to provide pro forma information
regarding net income as if compensation cost for the Company's stock option
plans had been determined in accordance with the fair value based method
prescribed in SFAS 123. To provide the required pro forma information, the
Company estimates the fair value of each stock option at the grant date by using
the Black-Scholes option-pricing model.
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, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates and assumptions.
Management of the Company has determined that a reserve for obsolescence of
inventory is necessary in order to reflect a value for inventory that is not in
excess of net realizable value. Management has calculated an estimate of the net
realizable value of inventory and has recognized an allowance of approximately
$190,000 and $213,000 at December 31, 1998 and 1997, respectively, in the
accompanying financial statements. Actual net realizable value may differ from
these results.
During 1997, the Company approved a plan to consolidate operations in Wyoming
and in 1998 close operations in Nebraska. The Company has recognized expenses
totaling $162,000 based upon the estimated costs to terminate leases on these
locations. The balance of the liability at December 31, 1998 was $114,000.
Actual results could differ from these amounts.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Currently, the Company's only component which would
comprise comprehensive income is its results of operations.
F-10
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements (continued)
- -----------------------------------------------------
Also, in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available, that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Currently, the Company has no identifiable operating segments as
defined.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits" (SFAS 132) which standardizes the disclosure requirements for pensions
and postretirement benefits and requires additional information on changes in
the benefit obligations and fair values of plan assets that will facilitate
financial analysis. This statement currently has no impact on the Company's
financial statements as the Company has no post retirement benefits.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). SFAS No. 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. This statement currently has no
impact on the financial statements of the Company as the Company has no
derivative instruments nor participates in hedging activities.
Reclassifications
- -----------------
Certain balances in the December 31, 1997 financial statements have been
reclassified to conform to the December 31, 1998 presentation.
F-11
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Property and Equipment
- -------------------------------
Property and equipment consists of the following:
December 31,
--------------------------
1998 1997
----------- -----------
Land $ 236,000 $ 236,000
Buildings 546,000 546,000
Equipment and vehicles 1,095,000 1,089,000
Leasehold improvements 835,000 796,000
----------- -----------
2,712,000 2,667,000
Less accumulated depreciation and amortization (1,138,000) (859,000)
----------- -----------
$ 1,574,000 $ 1,808,000
=========== ===========
Note 3 - Intangible Assets
- --------------------------
Intangible assets consist of the following:
December 31,
---------------------------
1998 1997
--------- ---------
Goodwill $ 603,000 $ 834,000
Acquisition costs 45,000 115,000
Non-compete agreements 67,000 32,000
--------- ---------
715,000 981,000
Less accumulated amortization (387,000) (180,000)
--------- ---------
$ 328,000 $ 801,000
========= =========
Note 4 - Accrued Expenses
- -------------------------
Accrued expenses consist of the following:
December 31,
------------------------
1998 1997
-------- --------
Accrued salaries and payroll taxes $132,000 $160,000
Accrued property and sales taxes 92,000 95,000
Accrued interest-related parties 2,000 11,000
Accrued lease abandonment costs 114,000 137,000
Other 68,000 91,000
-------- --------
$408,000 $494,000
======== ========
F-12
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 - Line-of-Credit
- -----------------------
The Company had an agreement with a bank for a line of credit of $1,000,000
which matured in April 1998; collateralized by substantially all assets of the
Company. The Company did not renew this agreement upon maturity. The outstanding
balance at 1997 was $637,000.
Note 6 - Notes Payable - Related Parties
- ----------------------------------------
The Company has notes payable to related parties, who are stockholders or family
members of stockholders, totaling $136,000 and $1,066,000 as of December 31,
1998 and 1997, respectively. These notes have interest rates of 10% to 15% per
annum, and are unsecured. Interest is due monthly. As a condition of several
note payable agreements, the Company issued warrants to purchase 9,000 shares of
the Company's common stock, exercisable at $4.00 per share through 1999. A
deferred charge of $10,000 has been recorded for the value of the warrants and
is being amortized over the term of the loan, which is three years. Amortization
of $3,000 was expensed for each of the years ended December 31, 1998 and 1997,
respectively.
There were no future maturities of notes payable, related parties at December
31, 1998 as all remaining related party debt is due during 1999.
Notes 7 - Notes Payable
- -----------------------
Notes payable consists of the following:
December 31,
-----------------------
1998 1997
-------- --------
Note payable to a finance company due November
1999; interest rate of 10% per annum; principal
and interest of $8,100 due monthly; collateralized
by computer equipment. The note allows for up to
$250,000 in principal. $ 62,000 $ 147,000
Note payable to an individual due April 2002;
interest rate of 15% per annum due monthly;
unsecured. 450,000 450,000
Note payable to an individual; due August 2002;
interest rate of 12% per annum; principal and
interest of $2,547 due monthly; collateralized by
real estate. 219,000 224,000
F-13
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Notes 7 - Notes Payable (continued)
- -----------------------------------
December 31,
-----------------------
1998 1997
--------- ---------
Notes payable to various individuals; due October
31, 1999, interest rate of 10% per annum, due
monthly; unsecured. 42,000 579,000
--------- ---------
773,000 1,400,000
Less current portion (108,000) (669,000)
--------- ---------
$ 665,000 $ 731,000
========= =========
Maturities of notes payable are as follows:
Year Ending December 31,
- ------------------------
1999 $ 108,000
2000 5,000
2001 6,000
2002 654,000
2003 -
------------
$ 773,000
============
Note 8 - Commitments and Contingencies
- --------------------------------------
Operating Leases
- ----------------
The Company leases a pawnshop facility from a stockholder and leases its other
pawnshop facilities from unrelated parties under operating leases expiring in
various years through 2006. 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-14
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Commitments and Contingencies (continued)
- --------------------------------------------------
Operating Leases (continued)
- ----------------------------
Future minimum lease payments under noncancelable leases are as follows:
Related Non-Related
Year Ending December 31, Party Parties Total
- ------------------------ ------------ ------------ -----------
1999 $ 36,000 $ 431,000 $ 467,000
2000 36,000 353,000 389,000
2001 37,000 307,000 344,000
2002 39,000 191,000 230,000
2003 19,000 93,000 112,000
Thereafter - 187,000 187,000
------------ ------------ -----------
$ 167,000 $ 1,562,000 $ 1,729,000
============ ============ ===========
Total future minimum lease payments above do not include a reduction of $140,000
for noncancelable sublease payments.
Rent expense was $568,000 and $644,000, for the years ended December 31, 1998
and 1997, respectively. Included in rent expense were amounts paid to a
stockholder of $36,000 for 1998 and to a stockholder/officer of $70,000 for
1997.
Litigation
- ----------
The Company is a 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.
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, employee dishonesty and 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.
F-15
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Commitments and Contingencies (continued)
- --------------------------------------------------
Employment Agreements
- ---------------------
The Company has entered into employment agreements with two officers of the
Company. The agreements include annual salary requirements which total $225,000
and have incentive compensation provisions. The agreements expire in December
2000.
Note 9 - Income Taxes
- ---------------------
The components of deferred tax assets and (liabilities) are as follows:
December 31,
------------------------------
1998 1997
--------- ----------
Total deferred tax assets $ 81,000 $ 94,000
Total deferred tax (liabilities) (8,000) (28,000)
--------- ----------
Net deferred tax assets (liabilities) $ 73,000 $ 66,000
========= ==========
The tax effects of temporary differences that give rise to deferred tax assets
and (liabilities) are as follows:
December 31,
--------------------------
Temporary differences: 1998 1997
--------- ---------
Abandonment of leases $ 43,000 $ 51,000
Change in tax accounting method
for service charges receivable (8,000) (111,000)
Property and equipment (1,000) 85,000
Inventory 25,000 29,000
Other 14,000 12,000
--------- ---------
$ 73,000 $ 66,000
========= =========
Income tax expense (benefit) consists of the following:
Year Ended
December 31,
--------------------------------
1998 1997
--------- ---------
Current $ 203,000 $ 228,000
Deferred (7,000) (179,000)
--------- ---------
$ 196,000 $ 49,000
========= =========
F-16
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 - Income Taxes (continued)
- ---------------------------------
The current tax benefit for 1997 associated with the exercise of stock options
reduced taxes currently payable by approximately $225,000. Such benefit is
reflected as additional paid in capital.
The following is a reconciliation of the amount of income tax expense that would
result from applying the statutory federal income tax rates to pre-tax income
and the reported amount of income tax expense:
Year Ended
December 31,
-----------------------
1998 1997
-------- --------
Tax expense at federal statutory rates $ 21,000 $ 15,000
Goodwill amortization 20,000 14,000
Non deductible items 6,000 3,000
State tax, net of federal benefit 17,000 1,000
Sale of pawnshop 119,000 --
Other 13,000 16,000
-------- --------
$196,000 $ 49,000
======== ========
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
- --------------------------------------------
Warrants
- --------
In connection with a July 1993 private placement offering, the Company issued to
an underwriter warrants to purchase up to 125,000 shares of common stock until
July 31, 1998 at an exercise price of $3.00 per share. In July 1998, 50,500
warrants were exercised and the remaining warrants expired.
In connection with $300,000 of notes payable issued during 1996, the Company
issued warrants to purchase up to 9,000 shares of the Company's common stock for
an exercise price of $4.00 per share through 1999. No warrants have been
exercised as of December 31, 1998.
F-17
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Common Stock, Options and Warrants (continued)
- --------------------------------------------------------
Warrants (continued)
- --------------------
A summary of the status of the Company's warrants follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1998 1997
--------------------------- ----------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 134,000 $ 3.07 134,000 $ 3.07
Granted -- -- -- --
Exercised (50,500) 3.00 -- --
Canceled (74,500) 3.00 -- --
-------- -------- ----------- --------
Outstanding and exercisable at end of year
9,000 $ 4.00 134,000 $ 3.07
======== ======== =========== ========
The following information summarizes warrants outstanding and exercisable at
December 31, 1998:
Number of Warrants
Outstanding and Weighted
Exercisable at Average Weighted
December 31, Remaining Average
Contractual Exercise
Exercise price 1998 Life Price
- -------------- ------------------ ----------- ---------
$4.00 9,000 .91 $ 4.00
===== ================ =========== =========
</TABLE>
Stock-Based Compensation Plans
- ------------------------------
The Company's stock option plans provide for the granting of stock options to
employees, key employees, consultants and directors. Under the plans, the
Company has reserved 1,452,500 shares of common stock for issuance at prices not
less than the fair market value at the date of grant. 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 maximum term of the options is ten years and all plans
are fully vested at December 31, 1998.
F-18
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Common Stock, Options and Warrants (continued)
- --------------------------------------------------------
Stock-Based Compensation Plans (continued)
- ------------------------------------------
A summary of the status of the Company's stock option plans follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1998 1997
--------------------------------- -------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 324,500 2.71 655,040 $ 1.96
Granted 40,000 3.50 125,000 3.47
Exercised (8,875) 1.76 (423,874) 1.96
Canceled (59,083) 1.70 (31,666) 1.72
------------- ------------ ------------- ------------
Outstanding and exercisable at end of year
296,542 $ 2.89 324,500 $ 2.71
============= ============ ============= ============
Options available for future grant 218,709 199,626
============= =============
Weighted average fair value of options granted
during the year $ .88 $ .86
============= =============
</TABLE>
F-19
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Common Stock, Options and Warrants (continued)
- --------------------------------------------------------
Stock-Based Compensation Plans (continued)
- ------------------------------------------
The following information summarizes stock options outstanding and exercisable
at December 31, 1998:
<TABLE>
<CAPTION>
Number of Options
Outstanding and
Exercisable at Weighted Average
December 31, Remaining Weighted Average
Contractual Exercise
Range of exercise prices 1998 Life Price
- ------------------------ ----------------- ------------------ ------------
<S> <C> <C> <C> <C>
$1.13 to $2.50 126,417 5.24 $ 1.95
$2.50 to $3.50 127,500 8.94 3.32
$3.50 to $5.13 42,625 2.95 4.38
-------------- --------------- -------------- --------------
$1.13 to $5.13 296,542 6.50 $ 2.89
============== =============== ============== ==============
</TABLE>
Had compensation cost for these plans been determined based on their fair value
at the date of grant pursuant to SFAS 123, net income (loss) and earnings (loss)
per share would have been reduced to the pro forma amounts indicated as follows
(in thousands except for per share data):
December 31,
----------------------------
1998 1997
---------- -----------
Net income (loss) - as reported $ (172,000) $ (41,000)
Net income (loss) - pro forma $ (207,000) $ (150,000)
Earnings (loss) per share - basic
and assuming dilution as reported
$ (.05) $ (.01)
Earnings (loss) per share - pro forma $ (.05) $ (.04)
F-20
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Common Stock, Options and Warrants (continued)
- --------------------------------------------------------
Stock-Based Compensation Plans (continued)
- ------------------------------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
Expected dividend yield - %
Expected stock price volatility 52.05%
Risk free interest rate 5.6%
Expected life of options 1.5 years
Earnings (Loss) Per Share
- -------------------------
The following table sets forth the computation of earnings (loss) per common
share:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------------
1998 1997
Numerator: ------------- -------------
<S> <C> <C>
Net income (loss) available for common stockholders
$ (171,000) $ (41,000)
============= =============
Denominator:
Denominator for basic earnings per share - weighted average shares
3,782,844 3,730,715
Effect of dilutive securities:
Stock options and warrants - -
------------- ------------
Denominator for diluted earnings per share - adjusted weighted
average shares and assumed conversions 3,782,844 3,730,715
============= =============
Earnings (loss) per common share - basic and assuming dilution
$ (.05) $ (.01)
============ ============
</TABLE>
The numerators for earnings (loss) per common share consists of net income
(loss) adjusted only for dividends paid to preferred stockholders.
The Company approved a plan to repurchase up to 500,000 shares of the Company's
common stock through December 31, 1999. During 1998, the Company repurchased
141,500 shares from the open market. In addition, the Company may repurchase up
to 37,800 shares of preferred stock at par value of $10.
F-21
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - Related Party Transactions
- ------------------------------------
In addition to transactions with related parties discussed throughout the notes
to financial statements, the following related party transactions have occurred:
Certain stockholders/directors of the Company are attorneys who have provided
certain legal services to the Company. Legal fees incurred totaled approximately
$4,000 and $47,000, for the years ended December 31, 1998 and 1997,
respectively. In addition, one such attorney received a finder's fee for
locating an investor who placed a $450,000 note with the Company.
In October 1997, a stockholder/officer resigned from his position with the
Company. The terms of the resignation agreement between the Company and the
stockholder/officer provided that (i) the Company purchase certain real estate
from the stockholder/officer valued at $332,000 in consideration of the Company
assuming a $224,000 mortgage and the cancellation of amounts due to the Company
from the stockholder of $108,000 and; (ii) redeem for cash options to purchase
223,250 common shares of the Company exercisable by the stockholder/officer for
approximately $267,000.
Note 13 - Acquisition/Divestiture Activity
- ------------------------------------------
Effective February 1, 1996, the Company acquired 80% of the outstanding stock of
Advantage for an aggregate purchase price of $188,000. During 1997, the Company
acquired an additional 14% of Advantage for an aggregate purchase price of
$37,489. The minority stockholders received $19,615 in cash and a promissory
note of $17,874 of which $0 and $13,405 was outstanding as of December 31, 1998
and 1997, respectively. During 1998, the Company acquired the remaining 6% of
Advantage for $15,000 in cash.
In December 1996, the Company acquired all of the outstanding stock in Bobby's
Pawnshop, Inc. (Bobby's) which operated one pawnshop in Las Vegas, Nevada for an
aggregate purchase price of $700,000. In July 1998, the Company sold most of
these assets for approximately $630,000 in cash. The assets sold included pawn
loans, pawn license, trade fixtures and trade name of Bobby's Pawn Shop, Inc.
The Company's operations in Nevada closed upon the sale of these assets.
In December 1996, the Company agreed to issue approximately 250,000 shares of
its common stock for 100% of the outstanding common stock of Pawnbroker, Inc.
d/b/a Quick Bills (Bill's). However, in November 1997, the merger was rescinded
by mutual agreements of the parties. The agreement to rescind the merger
obligated the Company to pay $220,000 to Bill's shareholders.
F-22
<PAGE>
U.S. PAWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 - Acquisition/Divestiture Activity (continued)
- ------------------------------------------------------
On June 17, 1997, the Company acquired all of the outstanding common stock of
Pawn Warehouse Outlet, Inc. (Pawn) a pawnshop located in Omaha, Nebraska for an
aggregate purchase price of $435,000. Under the agreement, the sellers received
75,666 shares of the Company's common stock valued at $275,000 and cash in the
amount of $160,000 in payment of a note payable due to one of the sellers. The
purchase price has been allocated to assets based on their fair market value net
of liabilities assumed. The purchase price in excess of the assets acquired of
approximately $196,000 was recorded as goodwill. The operating results of Pawn
have been included in the Company's consolidated financial statements since the
date of acquisition. Management ceased operations of this location in December
1998 and the remaining assets are being liquidated.
Note 14 - Supplemental Information to Statement of Cash Flows for Noncash
Investing and Financing Activities
- -----------------------------------------------------------------------------
Year Ended
December 31,
--------------------------
1998 1997
------------ -----------
Cash paid during the year for interest $ 283,000 $ 335,000
============ ===========
Cash paid during the year for income taxes $ -- $ 338,000
============ ===========
Note issued in acquisition of minority interest $ -- $ 18,000
============ ===========
F-23
<PAGE>
ITEM 8. - DISAGREEMENTS IN ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
On March 26, 1998 the Company's principal independent accountant resigned due to
certain independence issues. On March 30, 1998 the Company engaged a new
independent accountant. On March 31, 1998 a Form 8-K, which is incorporated
herein by reference, was filed reflecting this change.
PART III
ITEM 9. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The following table sets forth certain information as to each director's or
officer's age, positions with the Company, and the year wheneach first became an
officer or director of the Company.
<TABLE>
<CAPTION>
Officer or
Director
Name Age Office Since
- ---- --- ------ -----
<S> <C> <C> <C>
Charles C. Van Gundy 46 President, Chief Executive 1994
Officer, Chief Financial Officer,
and Director
Ronald A. Mitola 44 Vice President - Operations,
Secretary 1997
Gary A. Agron 54 Director 1989
Jack Skidell 56 Director 1997
Ross L. Murphy 48 Director 1998
</TABLE>
- ------------------
Charles C. Van Gundy has been employed by the Company since January 1992.
His positions within the Company have included Vice President of Accounting,
Vice President and Chief Financial Officer, and Secretary. Mr. Van Gundy
currently serves as the Company's President, Chief Executive Officer, and Chief
Financial Officer and is responsible for the overall operations of the Company.
Mr. Van Gundy earned his Bachelor of Science degree in accounting and finance
from Metropolitan State College of Denver in 1979, and subsequently studied law
at the University of San Diego School of Law until 1981. From 1982 to 1992 he
served as an accounting officer for various mutual fund, high technology and
economic redevelopment organizations. Since August of 1996, he has also been
director and officer of Medical Management Systems, Inc., a publicly-held
company currently seeking acquisition opportunities.
From November 1995 until May 1997, Mr. Van Gundy was a director and officer of
Lahaina Acquisitions, Inc., a publicly-held company seeking acquisition
opportunities. He devotes substantially all of his time to the Company's
affairs.
Ronald A. Mitola has been employed by the Company since May of 1992 and has
over ten years experience in the pawn industry. In July of 1994, he became
General Manager responsible for the day to day operations of the Company's store
locations. In January of 1997, he was promoted to Vice President of Operations
and was elected to the office of Secretary in November of 1997. He devotes
substantially all of his time to the Company's affairs.
Gary A. Agron earned his Bachelor of Arts degree from the University of
Colorado in 1966 and his Juris Doctorate degree from the University of Colorado
School of Law in 1969. Since 1969, he has been engaged in the private practice
of law in Denver, Colorado, and since 1974, has specialized exclusively in
securities law. Mr. Agron has acted as the Company's securities counsel since
1988. He is a director of Xedar Corporation, a publicly-held high technology
research and development firm and Meadow Valley Corporation, a publicly-held
heavy construction contractor. He devotes such time as is necessary to the
Company's affairs.
17
<PAGE>
Jack Skidell has been President and sole shareholder of Colin Winthrop &
Co., Inc., a New York based broker-dealer, registered under Section 15 of the
Securities Exchange Act of 1934 since 1990. In addition, Mr. Skidell was also
President of Shelter Rock Securities Corporation, a broker-dealer registered
under Section 15 of the Securities Exchange Act of 1934 which voluntarily ceased
to do business as a broker-dealer in 1990. He devotes such time as is necessary
to the Company's affairs.
Ross L. Murphy has been the Chief Executive Officer and Chairman of the
Board of Directors of BancPro Inc., an OTC Bulletin Board specialty lender
company located in Tempe, Arizona since 1994. Mr. Murphy earned his Bachelor of
Business Administration Degree from the University of Texas in 1973. He owned
and led a chain of retail furniture stores for 16 years. Mr. Murphy later
acquired Haymco Marketing, which he successfully ran for three years and sold.
Mr. Murphy is currently an investment banker with Eaton Mews in Tempe, Arizona
and is responsible for raising capital for BancPro, Inc. He devotes such time as
is necessary to the Company's affairs.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
The Company's executive officers and directors are required to file under the
Securities Exchange Act of 1934 reports of ownership and changes of ownership in
securities of the Company with the Securities and Exchange Commission. Based
solely upon copies of such reports and information provided to the Company by
individual executive officers and directors, the Company believes that during
the year ended December 31, 1998 all executive officers and directors complied
with such reporting requirements, except for Mr. Murphy who filed his Form 3
seven months late.
ITEM 10. - EXECUTIVE COMPENSATION
- ---------------------------------
The following tables set forth compensation with respect to the chief executive
officer of the Company for the fiscal years indicated in each table:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Fiscal Other Long-Term Compensation
Name and Position Year Salary Compensation Stock Options(#)
- ----------------- ---- ------ ------------ ----------------
<S> <C> <C> <C> <C>
Charles C. Van Gundy (1) 1998 $150,000 -0- -0-
President, Chief Executive 1997 125,000 -0- 87,500
Officer, Chief Financial 1996 86,000 -0- -0-
Officer and Secretary
Melvin Wedgle (2) 1997 $178,500 -0- -0-
President and 1996 157,000 -0- -0-
Chief Executive Officer
</TABLE>
(1) Mr. Van Gundy was elected to the office of President and Chief Executive
Officer on October 29, 1997. Prior to October 29, 1997, Mr. Van Gundy
served as the Company's Chief Financial Officer and Secretary.
(2) Mr. Wedgle resigned from the office of President and Chief Executive
Officer on October 29, 1997.
18
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
% of Value at Assumed Annual
Total Exercise Rates of Stock Price
Granted Price Appreciation for Option
Options in Fiscal per Share Expiration Term(5)
Name Granted(1,2) Year ($/Sh)(3) Date(4) 5% ($) 10%($)
- ---- ------------ ---- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Charles C. -0- - - - - -
Van Gundy
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Value of Unexercised
Number of Unexercised Options In-the-Money Options at
Shares Acquired At Fiscal Year End Fiscal Year End(2)
Name on Exercise(#) Value Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- -------------------- ----------- ------------- ----------- -------------
Charles C.
Van Gundy -0- $ -0- 116,750 -0- $ -0- $ -0-
</TABLE>
(1) Represents the difference, if any, between the market value of the
Company's common stock at exercise and the exercise price of the options.
(2) Represents the difference, if any, between the market value of the
Company's common stock on December 31, 1998 and the exercise price of the
options.
Employment Agreements
The Company and Mr. Van Gundy have entered into an employment agreement, which
expires on December 31, 2000. Provisions of the agreement include: (i) an annual
base salary of $150,000; (ii) the right to receive incentive compensation during
each fiscal year covered by the agreement up to a maximum of 50% of annual base
salary and as determined by criteria set by the Board; (iii) an option to
purchase 75,000 common shares of the Company at an exercise price of $3.24 per
share, which in the event of a change in control of the Company or constructive
termination, Mr. Van Gundy could cause the Company to repurchase at a price
equal to the difference between the exercise price and the closing price of the
Company's common stock on the effective date of termination or to extend the
exercisability of the option under other circumstances; (iv) the right to earn
up to 100,000 and 75,000 options to purchase common shares of the Company based
on performance criteria set by the Board for fiscal years 1999 and 2000,
respectively, which, if vested, in the event of a change in control of the
Company or constructive termination, Mr. Van Gundy could cause the Company to
repurchase at a price equal to the difference between the exercise price and the
closing price of the Company's common stock on the effective date of termination
or to extend the exercisability of the option under other circumstances; (v)
continuation of salary payments for the greater of the remainder of the term of
the agreement or for one year and a lump sum payment equal to 50% of annual base
salary in the event of termination without cause by the Company as defined in
the agreement; (vi) continuation of salary payments equal to one year's salary
in the event of a change in control of the Company; and (vii) continuation of
salary payments during periods of disability as defined in the agreement.
The Company and Mr. Mitola have entered into an employment agreement, which
expires on December 31, 2000. Provisions of the agreement include: (i) an annual
base salary of $75,000; (ii) the right to receive incentive compensation during
each fiscal year covered by the agreement up to a maximum of 50% of annual base
salary and as determined by criteria set by the Board; (iii) an option to
purchase 40,000 common shares of the Company at an exercise price of $3.50 per
share, which in the event of a change in control of the Company or constructive
termination, Mr. Mitola could cause the Company to repurchase at a price equal
to the difference between the exercise price and the closing price of the
Company's common stock on the effective date of termination or to extend the
exercisability of the option under other circumstances; (iv) the right to earn
19
<PAGE>
up to 30,000 options to purchase common shares of the Company based on
performance criteria set by the Board for fiscal years 1999 and 2000, which, if
vested, in the event of a change in control of the Company or constructive
termination, Mr. Mitola could cause the Company to repurchase at a price equal
to the difference between the exercise price and the closing price of the
Company's common stock on the effective date of termination or to extend the
exercisability of the option under other circumstances; (v) continuation of
salary payments not to exceed more than an aggregate amount equal to one year's
salary in the event of termination without cause by the Company as defined in
the agreement or in the event of a change in control of the Company; and (vi)
continuation of salary payments during periods of disability as defined in the
agreement.
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------
The following table sets forth the holdings of common stock, by each person who,
as of the date hereof, holds of record or is known by the Company to hold
beneficially or of record, more that 5% of the Company's common stock, by each
director or officer, and by all directors and officers as a group.
Shareholdings
Name and Address Number Percent
- ---------------- ------ -------
Charles C. Van Gundy(1) 146,750 3.7%
7215 Lowell Blvd.
Westminster, CO 80030
Gary A. Agron(2) 26,500 0.7%
5445 DTC Parkway, Suite 520
Englewood, CO 80111
Jack Skidell(3) 93,969 2.4%
500 N. Broadway #159
Jericho, NY 11753
Ross Murphy(4) 12,500 0.3%
3923 S. McClintock Drive #410
Tempe, AZ 85282
Ronald A. Mitola(5) 60,000 1.5%
7215 Lowell Blvd.
Westminster, CO 80030
Rodney W. Smith 356,225 8.9%
P.O. Box 7022
Tyler, TX 75711
All officers and directors
as a group(five in number)(1)(2)(3)(4)(5) 339,719 8.5%
(1) Includes currently exercisable stock options to purchase 1,250 shares at
$5.13 per share until January 20, 2002, 20,000 shares at $2.06 per share
until March 24, 2005, 8,000 shares at $1.70 per share until December 28,
2005, 12,500 shares at $4.38 per share until January 17, 2007, and 75,000
shares at $3.24 per share until October 29, 2007.
(2) Includes currently exercisable stock options to purchase 12,500 shares at
$2.00 per share until October 23, 2000 and 8,000 shares at $1.70 per share
until December 28, 2005.
(3) Includes currently exercisable stock options to purchase 4,500 shares at
$4.00 per share until December 31, 1999 and 12,500 shares at $3.24 per
share until October 29, 2007.
(4) Includes currently exercisable stock options to purchase 12,500 shares at
$2.39 per share until August 13, 2008.
(5) Includes currently exercisable stock options to purchase 20,000 shares at
$2.06 per share until March 24, 2005 and 40,000 shares at $3.50 per share
until March 4, 2008.
20
<PAGE>
ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
The Company leased one of its pawnshop locations from Melvin Wedgle, its former
President, at a monthly rental of $6,600 until November 1, 1997 at which time
the Company purchased the real property under the terms of a change in control
arrangement previously herein described . The Company believes the rental rate
was as fair to the Company as rates which could have been obtained in arm's
length transactions with unaffiliated third parties.
The Company was indebted at December 31, 1998 in the aggregate amount of
approximately $136,000 for loans advanced to the Company by shareholders and/or
employees. These loans are unsecured, bear interest between 10% and 15% per
annum, were used for working capital and are due on dates ranging from February
to December 1999. The terms of the loans are believed to be as fair as terms
which could have been obtained in arm's length transactions with unaffiliated
third parties.
Mr. Agron, a director of the Company, performs legal services on the Company's
behalf. Mr. Agron received legal fees from the Company totaling $4,000 and
$41,000 for fiscal 1998 and 1997, respectively. Mr. Snyder, a director of the
Company during 1997, performed legal services on the Company's behalf. Mr.
Snyder received legal fees totaling $33,000 during fiscal 1997.
ITEM 13. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
(a) 1. Financial Statements:
----------------------------
The following consolidated financial statements are included in Part II, Item 7
for the years ended December 31, 1998 and 1997: Balance Sheets, Statements of
Operations, Statements of Changes in Stockholder's Equity, Statements of Cash
Flows and Notes to Financial Statements.
2. Financial Statements Schedules:
--------------------------------------
None.
3. Exhibits:
----------------
Exhibit #27.1 Financial Data Schedule.
(b) Reports on Form 8-K: During the twelve months covered by this report,
the Company filed one report on Form 8-K. On March 26, 1998, the Company filed
Form 8-K to report a change in the Company's principle independent accountant.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
March 26, 1999 on its behalf by the undersigned, thereto duly authorized.
U.S. PAWN, INC.
By: /s/ Charles C. Van Gundy
-----------------------------------
Charles C. Van Gundy
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 26, 1999.
Signature Capacity
- --------- --------
Chief Executive Officer,
Chief Financial Officer,
/s/ Charles C. Van Gundy (Principal Accounting Officer)
- ---------------------------- and Director
Charles C. Van Gundy
/s/ Gary A. Agron Director
- ----------------------------
Gary A. Agron
/s/ Jack Skidell Director
- ----------------------------
Jack Skidell
/s/ Ross L. Murphy Director
- ----------------------------
Ross L. Murphy
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 831
<SECURITIES> 0
<RECEIVABLES> 3,121
<ALLOWANCES> 0
<INVENTORY> 1,789
<CURRENT-ASSETS> 6,146
<PP&E> 3,427
<DEPRECIATION> (1,525)
<TOTAL-ASSETS> 8,068
<CURRENT-LIABILITIES> 739
<BONDS> 665
0
378
<COMMON> 5,462
<OTHER-SE> 816
<TOTAL-LIABILITY-AND-EQUITY> 8,068
<SALES> 6,217
<TOTAL-REVENUES> 11,068
<CGS> 5,313
<TOTAL-COSTS> 5,383
<OTHER-EXPENSES> 25
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> 61
<INCOME-TAX> 196
<INCOME-CONTINUING> (135)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
