Use these links to rapidly review the documentPAWNMART, INC. INDEX

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended November 3, 2001
|- | ---------------------------------------------------------------------------------------------------------------------------------------

|o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to
|- | ---------------------------------------------------------------------------------------------------------------------------

Commission File No. 1-13919

PawnMart, Inc.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of incorporation or organization)

75-2520896(I.R.S. Employer Identification No.)


2175 Old Concord Rd. SE, Suite 200, Smyrna, Georgia 30080(Address of principal executive offices)

(678) 305-7211(Registrant's telephone number)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter 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 o    No ý

The
following securities of the registrant were outstanding as of May 30, 2002: 2,503,217 shares of common stock; 1,974,060 Series A redeemable common stock purchase warrants; and
1,380,000 Series B redeemable common stock purchase warrants.

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PAWNMART, INC.  INDEX



|                             |  |                                                                                      
|---------------------------- |  | -------------------------------------------------------------------------------------
|PART IFINANCIAL INFORMATION
|Item 1                       |  | Consolidated Financial Statements                                                    
|                             |  | Consolidated Balance Sheets                                                          
|                             |  | Consolidated Statements of Operations                                                
|                             |  | Consolidated Statements of Cash Flows                                                
|                             |  | Notes to Consolidated Financial Statements                                           
|Item 2                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 3                       |  | Quantitative and Qualitative Disclosures About Market Risk                           
|PART IIOTHER INFORMATION   
|Item 1                       |  | Legal Proceedings                                                                    
|Item 2                       |  | Changes in Securities and Use of Proceeds                                            
|Item 3                       |  | Defaults Upon Senior Securities                                                      
|Item 4                       |  | Submission of Matters to a Vote of Security Holders                                  
|Item 5                       |  | Other Information                                                                    
|Item 6                       |  | Exhibits and Reports on Form 8-K                                                     

2

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PAWNMART, INC. AND SUBSIDIARIESConsolidated Balance Sheets  (In thousands, except share and per share data)

|                                       |                                                                                                                                                                                               | November 3,
2001                            |        | February 3,
2001 |       
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------ | ---------------- | ------
|
|Assets                                 |                                                                                                                                                                                              
|Current assets:                        |                                                                                                                                                                                               |                                             |        |                  |       
|                                       | Cash and cash equivalents                                                                                                                                                                     |                                             | $      | 330              |       
|                                       | Accounts receivable                                                                                                                                                                           |                                             |        | 31               |       
|                                       | Pawn service charges receivable                                                                                                                                                               |                                             |        | 361              |       
|                                       | Pawn loans                                                                                                                                                                                    |                                             |        | 3,439            |       
|                                       | Inventories, net                                                                                                                                                                              |                                             |        | 3,937            |       
|                                       | Prepaid expenses and other current assets                                                                                                                                                     |                                             |        | 430              |       
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|                                       |                                                                                                                                                                                               | Total current assets                        |        |                  | 8,528 
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|Property and equipment, net            |                                                                                                                                                                                               |                                             | 992    |                  |       
|Debt issuance costs, net               |                                                                                                                                                                                               |                                             | 999    |                  |       
|Other assets, net                      |                                                                                                                                                                                               |                                             | 101    |                  |       
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|                                       |                                                                                                                                                                                               | Total assets                                |        | $                | 10,620
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|Liabilities and Stockholders' Deficit  |                                                                                                                                                                                              
|Current liabilities:                   |                                                                                                                                                                                               |                                             |        |                  |       
|Liabilities not subject to compromise: |                                                                                                                                                                                               |                                             |        |                  |       
|                                       | Accounts payable and accrued liabilities                                                                                                                                                      |                                             | $      | 623              |       
|                                       | Current installments of notes payable                                                                                                                                                         |                                             |        | 5,090            |       
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|                                       |                                                                                                                                                                                               |                                             |        |                  | 5,713 
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|Liabilities subject to compromise:     |                                                                                                                                                                                               |                                             |        |                  |       
|                                       | Prepetition liabilities                                                                                                                                                                       |                                             |        | 12,661           |       
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|                                       |                                                                                                                                                                                               | Total current liabilities                   |        |                  | 18,374
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|Stockholders' deficit:                 |                                                                                                                                                                                               |                                             |        |                  |       
|                                       | Preferred stock, $.01 par value; authorized 10,000,000 shares                                                                                                                                 |                                             |        |                 |       
|                                       | 8% Convertible preferred stock, $6.00 par value; authorized 416,667 shares; 416,667 shares issued and outstanding (liquidation preference $6.00 per share)                                    |                                             |        | 2,500            |       
|                                       | Common stock, $.01 par value; authorized 20,000,000 shares; 2,503,213 shares issued                                                                                                           |                                             |        | 25               |       
|                                       | Series A redeemable common stock purchase warrants, $0.125 par value; 1,974,060 and 1,842,840 warrants issued and outstanding at November 3, 2001 and February 3, 2001, respectively (note 2) |                                             |        | 249              |       
|                                       | Series B redeemable common stock purchase warrants, $0.0625 par value; 1,380,000 warrants issued and outstanding                                                                              |                                             |        | 86               |       
|                                       | Additional common stock purchase warrants                                                                                                                                                     |                                             |        | 60               |       
|                                       | Additional paid-in capital                                                                                                                                                                    |                                             |        | 22,004           |       
|                                       | Accumulated deficit                                                                                                                                                                           |                                             |        | (32,608          | )     
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|                                       |                                                                                                                                                                                               |                                             | (7,684 | )                |       
|                                       | Less treasury stock, at cost; 7,144 common shares                                                                                                                                             |                                             |        | (70              | )     
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|                                       |                                                                                                                                                                                               | Total stockholders' deficit                 |        |                  | (7,754
|                                       |                                                                                                                                                                                               |                                             |        |                  |       
|                                       |                                                                                                                                                                                               | Total liabilities and stockholders' deficit |        | $                | 10,620
|                                       |                                                                                                                                                                                               |                                             |        |                  |       

See accompanying notes to consolidated financial statements.

3

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PAWNMART, INC.    Consolidated Statements of Operations    (Unaudited)    (In thousands, except per share data)

|                                |                                   | Three Months Ended              |       | Nine Months Ended |      
|------------------------------- | --------------------------------- | ------------------------------- | ----- | ----------------- | -----
|
|Revenues:                       |                                   |                                 |       |                   |      
|                                | Merchandise sales                 |                                 | $     | 3,621             |      
|                                | Pawn service charges              |                                 |       | 1,300             |      
|                                | Other                             |                                 |       | 102               |      
|                                |                                   |                                 |       |                   |      
|                                |                                   | Total revenues                  |       |                   | 5,023
|Cost of sales                   |                                   |                                 | 2,838 |                   |      
|                                |                                   |                                 |       |                   |      
|                                |                                   | Gross profit                    |       |                   | 2,185
|                                |                                   |                                 |       |                   |      
|Expenses:                       |                                   |                                 |       |                   |      
|                                | Store operating expenses          |                                 |       | 1,615             |      
|                                | Corporate administrative expenses |                                 |       | 638               |      
|                                | Interest expense                  |                                 |       | 157               |      
|                                | Depreciation and amortization     |                                 |       | 115               |      
|                                |                                   |                                 |       |                   |      
|                                |                                   | Total expenses                  |       |                   | 2,525
|                                |                                   |                                 |       |                   |      
|                                |                                   | Operating loss                  |       |                   | (340 
|Gain on sale of stores          |                                   |                                 |      |                   |      
|Preferred stock dividends       |                                   |                                 |      |                   |      
|                                |                                   |                                 |       |                   |      
|                                |                                   | Net loss to common stockholders |       | $                 | (340 
|                                |                                   |                                 |       |                   |      
|Loss per common share (note 3): |                                   |                                 |       |                   |      
|                                |                                   | Basic                           |       | $                 | (0.14
|                                |                                   |                                 |       |                   |      
|                                |                                   | Diluted                         |       | $                 | (0.14
|                                |                                   |                                 |       |                   |      

See accompanying notes to consolidated financial statements.

4

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PAWNMART, INC.Consolidated Statements of Cash Flows    (Unaudited)    (In thousands)

|                                                   |                                                                             | Nine Months Ended                            |                                          
|-------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:              |                                                                             |                                              |                                          
|                                                   | Net loss                                                                    |                                              | $                                        
|                                                   | Adjustments to reconcile net loss to net cash used in operating activities: |                                              |                                          
|                                                   |                                                                             | Depreciation and amortization                |                                          
|                                                   |                                                                             | Amortization of debt issuance costs          |                                          
|                                                   |                                                                             | Amortization of debt discount                |                                          
|                                                   |                                                                             | (Gain) on sale of stores                     |                                          
|                                                   |                                                                             | Changes in operating assets and liabilities: |                                          
|                                                   |                                                                             |                                              | Accounts receivable                      
|                                                   |                                                                             |                                              | Pawn service charges receivable          
|                                                   |                                                                             |                                              | Inventories, net                         
|                                                   |                                                                             |                                              | Prepaid expenses and other current assets
|                                                   |                                                                             |                                              | Other assets                             
|                                                   |                                                                             |                                              | Accounts payable and accrued liabilities 
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|Cash flows from investing activities:              |                                                                             |                                              |                                          
|                                                   | Proceeds from sale of stores                                                |                                              |                                          
|                                                   | Net increase in pawn loans                                                  |                                              |                                          
|                                                   | Purchases of property and equipment                                         |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|Cash flows from financing activities:              |                                                                             |                                              |                                          
|                                                   | Proceeds from issuance of notes payable                                     |                                              |                                          
|                                                   | Principal payments on notes payable (note 2)                                |                                              |                                          
|                                                   | Payment of debt issuance costs                                              |                                              |                                          
|                                                   | Preferred stock dividends paid                                              |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|Net decrease in cash and cash equivalents          |                                                                             |                                              | (87                                      
|Cash and cash equivalents at beginning of period   |                                                                             |                                              | 417                                      
|                                                   |                                                                             |                                              |                                          
|Cash and cash equivalents at end of period         |                                                                             | $                                            | 330                                      
|                                                   |                                                                             |                                              |                                          
|Supplemental disclosures of cash flow information |                                                                             |                                              |                                          
|                                                   | Cash paid for interest                                                      |                                              | $                                        
|                                                   |                                                                             |                                              |                                          

See
accompanying notes to consolidated financial statements.

5

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PAWNMART, INC. AND SUBSIDIARIES        Notes to Consolidated Financial Statements        November 3, 2001 and October 28, 2000  (Unaudited)

(1) Basis of Presentation

The accompanying consolidated financial statements were prepared in accordance with generally accepted accounting principles for interim financial information and
therefore do not include all disclosures necessary for complete financial statements. In the opinion of management, all adjustments have been made that are necessary for a fair presentation of the
financial position and results of operations and cash flows as of and for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three months
ended November 3, 2001 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

The
consolidated financial statements should be read in conjunction with the consolidated financial statements for the fiscal year ended February 3, 2001 included in the Company's
Form 10-K which has been previously filed with the Securities and Exchange Commission.

PawnMart, Inc.
(the "Company"), was incorporated in Delaware on January 13, 1994. The Company is a specialty finance and retail enterprise principally engaged in
establishing and operating stores which advance money secured by the pledge of tangible personal property, and buy and sell pre-owned merchandise to the value-conscious consumer.

The
Company has suffered recurring losses from operations and negative cash flows. The Company's strategy of expansion during the two years ended January 29, 2000 (Fiscal 1999)
increased the Company's operating stores from 19 to 46. As of February 3, 2001 (Fiscal 2000) the Company was operating 45 stores. During the second quarter of the year ended Fiscal 2000, the
Company began to experience significant working capital shortages as the impact of industry over expansion and slower than projected maturation of new stores resulted in continued operating losses and
negative cash flow. The Company aggressively marked down aged inventory and liquidated over $1,800,000 of gold jewelry beginning in August 2000 to generate working capital. The inventory
liquidation had a negative impact on store operating results in the fourth quarter of Fiscal 2000, the Company's primary selling season. Inventory shortages, particularly in gold jewelry, resulted in
reduced sales and continuing negative cash flows.

The
Company failed to meet its financial covenants with its secured lender in January 2001, and was in arrears on sales taxes, personal property taxes and trade payables. In
January 2001, management concluded that without additional working capital, it would be unable to sustain operation of the 45 stores that were then operating. The Company attempted to raise
additional working capital through its brokerage contacts and negotiated a loan modification with its secured lender to provide a $1 million extension of credit in excess of its borrowing base.
The Company was unsuccessful in its attempts to raise working capital and in March 2001 announced its intention to close or sell stores as part of a restructuring effort.

On
July 9, 2001, the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the Northern District of Texas, Fort Worth Division (the "Bankruptcy Court") in the case ofPawnMart, Inc., Debtor, Case
No. 01-44957-BJH-11. On May 20, 2002 (the "Confirmation Date"), the Bankruptcy Court entered an order dated May 20, 2002 (the "Confirmation
Order") confirming the first amended plan of reorganization (the "Plan") filed by the Company under Chapter 11 of the United States Bankruptcy Code. The Plan became effective on May 30, 2002
(the "Effective Date").

The
Company's successful emergence from bankruptcy and its ability to continue as a going concern is subject to the Company consummating the proposed merger between the Company and C/M

6

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Holdings, Inc. (CMHI) which must be approved by the shareholders of CMHI. The meeting is scheduled to be held on August 29, 2002 subject to the Company completing all filings required
by the Securities and Exchange Commission. Management believes the merger and Plan will be approved but there can be no assurance of these events.

(2) Notes Payable



On October 13, 1998 the Company entered into a $10 million revolving credit facility (the "Credit Facility") with Comerica Bank ("Comerica"). In
January 2001 the Company failed to meet its financial covenants under the Credit Facility. Amounts available under the Credit Facility were limited to certain percentages of pawn loans,
inventories, and pawn service charges receivable. As of February 3, 2001 the Company's borrowings exceeded its available collateral base by $970,000. The Company negotiated a modification of
the Credit Facility on February 9, 2001 which allowed it to repay the over-advance beginning in March 2001 on a scheduled basis through asset liquidations, store sales, or
additional financing. The Credit Facility as modified matured on July 6, 2001 and accrued interest at the prevailing prime rate plus 2.0%. The Credit Facility was collateralized by
substantially all of the unencumbered assets of the Company. The Company was prohibited from paying cash dividends or acquiring treasury stock under the terms of the Credit Facility.

On
July 9, 2001 the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Texas, Fort Worth Division (the "Bankruptcy Court") in the case of PawnMart, Inc., Debtor, Case No. 01-44957-BJH-11. The Plan of
Reorganization was filed on February 15, 2002 and was amended on April 3, 2002 (the "Plan"). A confirmation hearing for the Plan was held on May 20, 2002 and the Plan was
confirmed by order of the Bankruptcy Court as of that date ("Confirmation Order"). The Plan became effective on May 31, 2002 (the "Effective Date").

The
Company secured a $7,200,000 post-petition credit facility with Comerica (the "Post-Petition Credit Facility"), and a $600,000 subordinated note from Hulen
Pawn Shop Investors, L.L.C., which is beneficially owned in part by Dwayne Moyers, a director of the Company (the "Hulen Note"), which loans were approved by the Bankruptcy Court on July 16,
2001. The Post-Petition Credit Facility bears interest at the prevailing prime rate plus 4%, which was 5.5% at November 3, 2001, and matures on September 9, 2002. The Hulen
Note bears interest at a rate of the prevailing prime rate plus 5% and is convertible into shares of Common Stock of the reorganized Company. The Hulen Note matures on December 31, 2002.
Amounts available under the Post Petition Credit Facility are limited to certain percentages of pawn loans, inventories, and pawn service charges receivable. The Post Petition Credit Facility is
collateralized by substantially all of the unencumbered assets of the Company. The Company is also prohibited from paying cash dividends or acquiring treasury stock under the terms of the
Post-Petition Credit Facility. At November 3, 2001, $4,430,000 was outstanding under the Credit Facility and an additional $762,000 was available to the Company pursuant to the
available borrowing base. Under the terms of the Credit Facility, the Company is required to maintain certain financial ratios and comply with certain technical covenants. The Company was in
compliance with these requirements covenants as of November 3, 2001. The terms of the Credit Facility also require the Company to pay an origination fee of $25,000 which is payable at the
maturity of the facility.

7

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On July 16, 2001, the Bankruptcy Court approved a subordinated note from Hulen Pawn Shop Investors, L.L.C., an affiliate of a director of the Company (the
"Hulen Note"), in the amount of $600,000 which was outstanding on November 3, 2001. The Hulen Note bears interest at a rate of the prevailing prime rate plus 5.0% and matures on
December 31, 2002. The Hulen Note collateralized by a lien subordinate to Comerica on the pawn loans, inventories and pawn loan service charges of the Company and is convertible into shares of
Common Stock of the reorganized Company. The terms of the Hulen Note required the Company to pay an origination fee of $24,000.

On
March 11, 1999, the Company commenced a public offering of up to $10,000,000 in principal amount of 12% Subordinated Notes due December 31, 2004 (the "2004 Notes"). The
2004 Notes were offered on a "best efforts" basis by participating National Association of Securities Dealers, Inc. broker-dealers ("NASD Broker-Dealers"). Interest on the 2004 Notes was
payable monthly commencing with the second full calendar month following issuance. At November 3, 2001, the Company was in default related to payment of interest on the 2004 Notes. The 2004
Notes were classified as a prepetition liability subject to compromise the financial statements. The Company had issued a total of $9,950,000 of the 2004 Notes as of November 3, 2001.

In
connection with the sale of the 2004 Notes, the Company issued Series A Warrants to participating NASD Broker-Dealers for the purchase of up to 600,000 shares of the Company's
common stock. As of November 3, 2001, 594,060 Series A Warrants had been granted in connection with the sale of the 2004 Notes. The Company has recorded a debt discount of $66,000
representing the value of the Series A Warrants and is amortizing such amount into interest expense over the life of the 2004 Notes.

Under
the terms of the Plan, the 2004 Notes are to be converted to equity and the Series A Warrants are to be cancelled.

(3) Net Loss Per Common Share

Net loss per common share is calculated as required by FASB Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (Statement
No. 128). Statement No. 128 requires dual presentation of basic and diluted earnings per share and a reconciliation between the two amounts. Basic earnings per share excludes dilution,
and diluted earnings per share reflects the potential dilution that would occur if securities to issue common stock were exercised and converted into common stock. In loss periods, dilutive common
equivalent shares are excluded as the effect would be antidilutive.

The
following table presents a reconciliation between basic and diluted weighted average common shares outstanding for the three months and nine months ended November 3, 2001 and
October 28,
2000, respectively. Since the effect of using the weighted average number of shares on a diluted basis was antidilutive to the diluted loss per share calculation for the three months and nine months
ended November 3, 2001 and October 28, 2000, diluted loss per share was calculated using the same weighted average number of common shares in the basic loss per share calculation.

8

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|                                                                          |  | Three Months Ended |  | Nine Months Ended
|------------------------------------------------------------------------- |  | ------------------ |  | -----------------
|
|
|Weighted average sharesbasic                                             |  | 2,503              |  | 2,403            
|Shares attributable to stock options, warrants and convertible securities |  |                   |  |                 
|                                                                          |  |                    |  |                  
|Weighted average sharesdiluted                                           |  | 2,503              |  | 2,403            
|                                                                          |  |                    |  |                  

(4) Reorganization Under Bankruptcy

On July 9, 2001 the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division (the "Bankruptcy Court") in the case ofPawnMart, Inc.,
Debtor, Case No. 01-44957-BJH-11. The Plan of Reorganization was filed on February 15, 2002 and was amended on April 3,
2002 (the "Plan").

On
May 20, 2002 (the "Confirmation Date"), the Bankruptcy Court entered an order dated May 20, 2002 (the "Confirmation Order") confirming the first amended plan of
reorganization filed by the Company under Chapter 11 of the United States Bankruptcy Code. The Plan became effective on May 31, 2002 (the "Effective Date").

Under
the terms of the Plan, the Company cancelled all equity interests of its common and preferred shareholders, and interests of any holders of options or warrants. The Company will
issue approximately 2,280,000 shares of Common Stock to its unsecured creditors in exchange for indebtedness in connection with the Merger of the Company with CMHI which is owned in part by
Mr. Moyers, a director of the Company. The Merger will provide the Company with in excess of $7.5 million in net assets including over $1.2 million in working capital. The Company
has secured the Post-Confirmation Credit Facility in the amount of $4,500,000 in connection with the Merger.

The
Merger is subject to the approval of the shareholders of CMHI. A meeting of the shareholders of CMHI to consider resolutions to approve the Merger is currently scheduled to be held
on August 29, 2002. The Company's successful emergence from bankruptcy and its ability to continue as a going concern is subject to the Company consummating the proposed merger between the
Company and (CMHI). Management believes the merger will be approved.

9

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements appearing in the following discussion that are not historical facts are forward-looking statements ("forward-looking
statements") within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created by those sections. Such forward-looking statements are necessarily estimates reflecting the best judgment of the Company's management based upon current information
and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors, include, but are not limited to, those set
forth and those appearing from time to time in filings made by the Company with the Securities and Exchange Commission. These risks, uncertainties and other factors should not be construed as
exhaustive and the Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after
the date of such statements.

In addition, the following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes thereto and other
financial data included in the Company's Form 10-K for the fiscal year ended February 3, 2001.

GENERAL

PawnMart, Inc.
(the "Company") is a specialty finance and retail enterprise principally engaged in establishing and operating stores which advance money secured by the pledge of
tangible personal property and sell pre-owned merchandise to the value-conscious consumer. The Company generates income in two ways: through collection of a monthly service charge from
advancing money to individuals based primarily upon the estimated resale value of pledged personal property such as jewelry, consumer electronics, tools, musical instruments, firearms, automobiles and
other miscellaneous items and through profit realized on the retail sale of the unredeemed or other purchased pre-owned merchandise.

The
Company experienced cash flow difficulties in the second quarter of the fiscal year ended February 3, 2001. ("Fiscal 2000") when it reported substantial difficulties in
meeting its obligations.
Continued operating losses and negative cash flow forced management to scrap and sell over $1.8 million in gold jewelry at cost to raise working capital but had a detrimental effect on store
sales which created larger operating losses and negative cash flow in the fourth quarter of Fiscal 2000.

In
January 2001, the Company failed to meet its financial covenants with its secured lender and was in arrears on sales taxes, personal property taxes and trade payables as well
as a default on payment of interest on the 2004 Notes. Management concluded that without additional working capital, it would be unable to sustain operation of the 45 stores it was then operating. The
Company attempted to raise additional working capital through its brokerage contacts and negotiated a loan modification on February 9, 2001 with its secured lender to provide a
$1 million extension of credit in excess of its borrowing base. The Company was required to repay the over-line advance with new equity, additional financing or through the sale of
assets over a nine-month period from the date of the extension beginning in March 2001.

The
Company was unsuccessful in its attempts to raise working capital and in March 2001 announced its intention to close or sell stores as part of a restructuring effort. From
March 2001 through June 2001, the Company closed or sold 15 stores. During the nine months ended November 3, 2001, the Company sold one store and closed fourteen stores.
Continuing efforts to secure new financing and equity were unsuccessful and on July 9, 2001, the Company filed for protection under the Bankruptcy Code.

10

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On
July 9, 2001 the Company filed a voluntary petition for relief under the Bankruptcy Code. The Plan was filed on February 15, 2002 and was amended on April 3,
2002. A confirmation hearing for the Plan was held on May 20, 2002 and the Plan was confirmed by the Bankruptcy Court as of that date. The Plan became effective on May 31, 2002. The
Company will issue approximately 2,280,000 shares of Common Stock to its unsecured creditors in exchange for indebtedness in connection with the Merger. The equity holders of CMHI will receive two new
classes of Preferred Stock in the Company that will have a liquidation preference over the new common shareholders and the preferred shareholders will be able to convert one of the classes of
Preferred Stock to approximately 43% of the Common Stock. The Company also negotiated a post-confirmation credit facility with Comerica in the amount of $4,500,000 in connection with the
Plan. Terms of the Plan are set forth in the Company's Form 10-K for the year ended February 3, 2001 and the Confirmation Order, the Plan, and the Disclosure Statement filed
as exhibits thereto are incorporated herein by reference.

The
Company's total revenues are derived primarily from service charges on loans and the proceeds from the sales of merchandise inventory. The Company's pawn loans are generally made on
the pledge of tangible personal property for one month, with an automatic sixty-day extension period. All pawn loans are collateralized by tangible personal property placed in the
possession of the Company, except for automobile title loans. During the term of an automobile title loan, the borrower is allowed to maintain possession of the collateral. Pawn service charges are
recognized when loans are repaid or renewed. If a loan is not repaid, the principal amount advanced on the loan, exclusive of any uncollected pawn service charges, becomes the carrying value of the
forfeited collateral (inventory), which is recovered through subsequent sales..

Selected
elements of the Company's unaudited consolidated statements of operations are shown below for the three and nine months ended November 3, 2001 and October 28, 2000
as a percentage of total revenues. The following table, as well as the discussion following, should be read in conjunction with the Company's consolidated financial statements and notes thereto and
other financial data included in the Company's Form 10-K for the fiscal year ended February 3, 2001.

|                                      |                           | Three Months Ended |       | Nine Months Ended |      
|------------------------------------- | ------------------------- | ------------------ | ----- | ----------------- | -----
|
|Merchandise sales                     |                           | 72.1               | %     | 72.0              | %    
|Pawn service charges                  |                           | 25.9               |       | 26.8              |      
|Other income                          |                           | 2.0                |       | 1.2               |      
|                                      |                           |                    |       |                   |      
|                                      | Total revenues            |                    | 100.0 |                   | 100.0
|Cost of sales                         |                           | 56.3               |       | 60.5              |      
|                                      |                           |                    |       |                   |      
|                                      | Gross profit              |                    | 43.7  |                   | 39.5 
|Store operating expenses              |                           | 32.2               |       | 34.8              |      
|                                      |                           |                    |       |                   |      
|                                      | Store contribution margin |                    | 11.5  |                   | 4.7  
|Corporate administrative expenses (1) |                           | 12.7               |       | 9.8               |      
|Interest expense                      |                           | 3.1                |       | 8.4               |      
|Depreciation and amortization         |                           | 2.3                |       | 3.8               |      
|                                      |                           |                    |       |                   |      
|(Gain) on sale of store               |                           |                   |       |                  |      
|                                      |                           |                    |       |                   |      
|                                      | Net loss                  |                    | (6.6  | )%                | (17.3
|                                      |                           |                    |       |                   |      

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11

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RESULTS
OF OPERATIONS

Three Months Ended November 3, 2001 Compared to Three Months Ended October 28, 2000

Total revenues decreased 28.9% to $5,023,000 during the three months ended November 3, 2001 (the "Three Month 2001 Period") as compared to $7,074,000
during the three months ended October 28, 2000 (the "Three Month 2000 Period"). The overall decrease was attributable primarily to the closing or sale of 15 stores ("Closed Stores") since the
beginning of the current fiscal year which accounted for $1,583,000 of the decrease. Stores that remained open for the full 12 months or more as of November 3, 2001 (the "Comparable
Stores") experienced a net increase in revenues of $167,000 or 3.8%.

Merchandise
sales decreased 28.9% to $3,621,000 during the Three Month 2001 Period from $5,094,000 during the Three Month 2000 Period primarily due to the net loss of sales attributable
to the Closed Stores of $1,211,000 and due to a $733,000 liquidation sale of gold jewelry in the Three Month 2000 Period. Sales in Comparable Stores for the Three Month 2001 Period increased $302,000
or 9.1%.

Pawn
service charges decreased $599,000 or 31.5% to $1,300,000 during the Three Month 2001 Period from $1,899,000 during the Three Month 2000 Period. Pawn service charges from Comparable
Stores decreased $235,000 or 15.3% from $1,535,000 to $1,300,000 for the Three Month 2001 period as compared to the Three Month 2000 period. Pawn service charges from Closed Stores decreased $372,000
for the Three Month 2001 Period as compared to the Three Month 2000 Period.

Gross
profit decreased 21.8% to $2,185,000 during the Three Month 2001 Period from $2,793,000 during the Three Month 2000 Period primarily due to a reduction in gross profit from Closed
Stores of $548,000 which included losses on inventory liquidated during the store closings and consolidations. Gross profit for Comparable Stores decreased $47,000 for the Three Month 2001 Period as
compared to the Three Month 2000 Period, a 24.5% increase.

Store
operating expenses decreased to $1,615,000 for the Three Month 2001 Period from $2,465,000 during the Three Month 2000 Period primarily due to reduction in expenses attributable to
Closed Stores. On a Comparable Store basis, store operating expenses were 32.8% of total revenues during the Three Month 2001 Period compared to 35.8% of total revenues during the Three Month 2000
Period.

Store
contribution margin (defined as total store revenues less direct operating expenses, which exclude corporate administrative expenses, interest expense, and depreciation and
amortization expense) increased to $570,000 from $328,000 during the Three Month 2001 Period compared to Three Month 2000 Period primarily due the closing of the Company's unprofitable stores.

Corporate
administrative expenses decreased 7.5% to $638,000 during the Three Month 2001 Period from $690,000 during the Three Month 2000 Period primarily due to staff reductions at the
corporate office related to the financial restructuring. Corporate administrative expenses increased to 12.7% of
total revenues during the Three Month 2001 Period as compared to 9.4% during the Three Month 2000 Period.

Interest
expense decreased to $157,000 from $597,000 during the Three Month 2001 Period as compared to the Three Month 2000 Period primarily due to decreased borrowings under the Credit
Facility and due to the Company discontinuing accrual of interest on the 2004 Notes as a result of the bankruptcy filing. The 2004 Notes are to be exchanged fop common stock pursuant to the Plan
approved by the Bankruptcy Court on May 20, 2002.

12

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Net
loss to common stockholders during the Three Month 2001 Period was $340,000, or $0.14 per basic and diluted share, compared to $1,273,000, or $0.53 per basic and diluted share,
during the Three Month 2000 Period.

Nine Months Ended November 3, 2001 Compared to Nine Months Ended October 28, 2000

Total revenues decreased 21.4% to $16,051,000 during the nine months ended November 3, 2001 (the "Nine Month 2001 Period") as compared to $20,417,000 for
the nine months ended October 28, 2000 (the "Nine Month 2000 Period"), primarily due to the closing of 15 stores.

Merchandise
sales decreased $2,608,000 or 18.9% to $11,192,000 during the Nine Month 2001 Period from $13,800,000 during the Nine Month 2000 Period due to the net loss of sales
attributable to the Closed Stores totaling $1,444,000. Sales from Comparable Stores decreased $121,000 or 1.2% during the Nine Month 2001 Period as compared to the Nine Month 2000 Period.

Pawn
service charges decreased 18.4% to $4,606,000 during the Nine Month 2001 Period from $5,646,000 during the Nine Month 2000 Period primarily due to a $827,000 reduction in pawn
service charges from Closed Stores.

Gross
profit decreased 32.6% to $5,873,000 during the Nine Month 2001 Period from $8,714,000 during the Nine Month 2000 Period primarily due to a $2,444,000 decrease in gross profit from
Closed Stores. Comparable Stores gross profit increased $133,000 during the Nine Month 2001 Period as compared to the Nine Month 2000 Period. Gross profit was adversely affected by aggressive pricing
of merchandise from the liquidation of inventories during the closing and consolidation of the 15 stores in the Nine Month 2001 Period.

Store
operating expenses decreased 21.2% to $5,825,000 during the Nine Month 2001 Period from $7,389,000 during the Nine Month 2000 Period primarily due to expense and personnel
reductions for Closed Stores. The Company did not accrue any rent expense related to properties it vacated and it intended to cancel leases in its bankruptcy Plan. Store operating expenses for
Comparable Stores increased 0.7% or $37,000 primarily due to increased personnel costs attributable to increased turnover due to the Company's financial difficulties and its bankruptcy filing.

Corporate
administrative expenses decreased 9.2% to $2,114,000 for the Nine Month 2001 Period from $2,329,000 during the Nine Month 2000 Period due to reductions in corporate personnel
and the relocation of its corporate headquarters to the Atlanta, Georgia metropolitan area. The Nine Month 2001 Period expenses included $99,000 in reorganization costs for professional fees.

Interest
expense decreased 32.3% to $1,143,000 during the Nine Month 2001 Period from $1,688,000 during the Nine Month 2000 Period primarily due to reduced borrowings under the Credit
Facility and due to the Company discontinuing accrual of interest on the 2004 Notes as a result of the bankruptcy filing which are to be converted to common stock pursuant to the Plan approved by the
Bankruptcy Court on May 20, 2002.

Net
loss to common shareholders was $3,454,000, or $1.38 per basic and diluted share, for the Nine Month 2001 Period as compared to a net loss of $3,630,000, or $1.51 per basic and
diluted share, during the Nine Month 2000 Period.

LIQUIDITY
AND CAPITAL RESOURCES

The
Company experienced cash flow difficulties in the second quarter of Fiscal 2000 when it reported substantial difficulties in meeting its obligations. Continued operating losses and
negative cash flow forced management to scrap and sell over $1.8 million in gold jewelry at cost to raise working capital but had a detrimental effect on store sales which created larger
operating losses and negative cash flow in the fourth quarter of Fiscal 2000.

13

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In
January 2001, the Company failed to meet its financial covenants with its secured lender and was in arrears on sales taxes, personal property taxes and trade payables as well
as a default on payment of interest on the 2004 Notes. Management concluded that without additional working capital, it would be unable to sustain operation of the 45 stores it was then operating. The
Company attempted to raise additional working capital through its brokerage contacts and negotiated a loan modification on February 9, 2001 with its secured lender to provide a
$1 million extension of credit in excess of its borrowing base. The Company was required to repay the over-line advance with new equity, additional
financing or through the sale of assets over a six-month period from the date of the extension beginning in March 2001.

The
Company was unsuccessful in its attempts to raise working capital and in March 2001 announced its intention to close or sell stores as part of a restructuring effort. From
March 2001 through June 2001 the Company closed or sold 15 stores. During the Three Month 2001 Period the Company sold or closed seven stores. Continuing efforts to secure new financing
and equity were unsuccessful and on July 9, 2001, the Company filed for protection under the Bankruptcy Code.

The
Company secured the $7,200,000 Post-Petition Credit Facility with Comerica, and the $600,000 Hulen Note, which loans were approved by the Bankruptcy Court on
July 16, 2001. The Post-Petition Credit Facility bears interest at the prevailing prime rate plus 4.0%, which was 4.75% at August 4, 2002, and matures on September 9,
2002. The Hulen Note bears interest at a rate of the prevailing prime rate plus 5% and is convertible, at the option of the lender, into shares of Common Stock of the reorganized Company. The Hulen
Note matures on December 31, 2002.

At
November 3, 2001, the Company's primary sources of liquidity were $331,000 in cash and cash equivalents, $361,000 in pawn service charges receivable, $3,439,000 in pawn loans
outstanding, and $3,937,000 in inventories.    At November 3, 2001, the Company had availability of $770,000 under the Post-Petition Credit Facility based on the
available collateral under its advance formula. The Company had borrowed $600,000 available under the Hulen Note as of November 3, 2001.

The
Plan was filed on February 15, 2002 and was amended on April 3, 2002. The Plan was confirmed by the Bankruptcy Court on May 20, 2002 and became effective on
May 31, 2002. Under the terms of the Plan, the Company cancelled all equity interests of its common and preferred shareholders, and interests of any holders of options or warrants. The Company
will issue approximately 2,280,000 shares of Common Stock to its unsecured creditors in exchange for indebtedness in connection with the Merger. The equity holders of CMHI will receive two new classes
of Preferred Stock, Series A Preferred Stock and Series B Preferred Stock, that will have a liquidation preference over the new common shareholders. Additionally, under the terms of the
Plan, the Company will receive an investment of approximately $7.5 million, of which at least $1.2 million will be in cash in exchange for two classes of Preferred Stock pursuant to the
Merger. The non-voting Series A Preferred Stock and the Series B Preferred Stock will have a par value of $0.01 per share and will pay a 5% cumulative cash dividend annually.
The Series A Preferred Stock must be redeemed by the Company for cash at $5.00 per share beginning three years after the Closing Date in amounts of at least 100,000 shares, or $500,000, per
year. The Series B Preferred Stock is not subject to mandatory redemption. After April 30, 2009 the Series B Preferred Stock may be redeemed by the Company in cash at any time in
whole or (with some exceptions), from time to time in part, at the option of the Company, at $5.00 per share plus accumulated, unpaid dividends on the date of redemption. The Series B Preferred
Stock is convertible into approximately 43% of the Company's Common Stock on the date of issuance, subject to anti-dilutive adjustment, and will have voting rights on the same basis as the
Common Stock. The Company also negotiated a post-confirmation credit facility with Comerica in the amount of $4,500,000.

The
Company's successful emergence from bankruptcy and its ability to continue as a going concern is subject to the Company consummating the proposed merger between the Company and

14

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CMHI. The Company is dependent on the investment of cash and marketable securities provided in the Merger to fund projected operating losses and fund the costs of reorganization.

The
Company's profitability and liquidity is affected by the amount of loans outstanding, which is controlled in part by the Company's lending decisions. The Company is able to influence
the frequency of forfeiture of collateral by increasing or decreasing the amount loaned in relation to the sales value of the pledged property. Tighter credit decisions generally result in smaller
loans in relation to the estimated sales value of the pledged property and can thereby decrease the Company's aggregate loan balance and, consequently, decrease pawn service charges. Additionally,
lower loans in relation to the pledged property's estimated sales value tend to slightly increase loan redemptions and improve the Company's liquidity. Conversely, providing higher loans in relation
to the estimated sales value of the pledged property can result in an increase in the Company's pawn service charge income. Higher average loan balances can also result in a slight increase in loan
forfeitures, which increases the quantity of goods on hand and, unless the Company increases inventory turnover, reduces the Company's liquidity. In addition to these factors, liquidity is also
affected by merchandise sales and the pace of store expansion.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposure relates to changes in interest rates related to its long-term notes payable. The Company's revolving line
of credit with Comerica bears interest at a variable rate that is frequently adjusted on the basis of market rate changes and is equal to rates available for debt with similar characteristics.
Accordingly, management believes that the carrying value of such debt approximates its fair value. The 2004 Notes bear interest at a fixed rate of 12% per annum. As a result, the Company's only
interest rate risk is the opportunity loss associated with this debt should interest rates decline for debt with similar characteristics. The carrying amount of all other financial instruments
included in the Company's consolidated balance sheets approximate fair value due to the short maturity of these instruments. The 2004 Notes are to be exchanged for common stock under the Company's
Plan.

15

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company was in default on payment of interest on its 2004 Notes and on the payment of dividends on its 8% Preferred Stock. The 2004 Notes are to be exchanged
for equity in the reorganized Company under the terms of the plan of reorganization approved by the Bankruptcy Court. The interest of the holders of the 8% Preferred Stock were cancelled on the
Effective Date.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|Exhibit
Number |  |                                                                                                                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | PawnMart, Inc.'s Restated and Amended Certificate of Incorporation (1)                                                                                                                                                         
|3.2            |  | PawnMart, Inc.'s Second Amended and Restated Bylaws (1)                                                                                                                                                                        
|4.1            |  | Specimen Common Stock Certificate(2)                                                                                                                                                                                           
|4.2            |  | Specimen Series A Warrant Certificate(2)                                                                                                                                                                                       
|4.3            |  | Specimen Series B Warrant Certificate(2)                                                                                                                                                                                       
|4.4            |  | Form of Warrant Agreement, dated as of March 20, 1998 between PawnMart, Inc. and Continental Stock Transfer & Trust Company(2)                                                                                                 
|4.5            |  | Form of National Association of Securities Dealers, Inc. broker-dealer warrants(3)                                                                                                                                             
|4.6            |  | Form of Amendment to Warrant Agreement, dated as of March 20, 1998 Between PawnMart, Inc. and Continental Stock Transfer & Trust Company(5)                                                                                    
|4.7            |  | Indenture, dated as of March 15, 1999 Between PawnMart, Inc. and Trust Management, Inc., as Trustee, Relating to PawnMart, Inc.'s 12% Subordinated Notes Due 2004(5)                                                           
|4.8            |  | Form of 12% Subordinated Note Due 2004 (included as part of Exhibit 4.7 hereto)                                                                                                                                                
|4.9            |  | Form of Broker-Dealer Selling Agreement(5)                                                                                                                                                                                     
|4.10           |  | Form of Subscription Escrow Agreement dated March 15, 1999 Between PawnMart, Inc., Massie Capital, Ltd. and Norwest Bank Texas, N.A.(6)                                                                                        
|4.11           |  | Certificate of Designations of the 8% Convertible Preferred Stock(7)                                                                                                                                                           
|4.12           |  | 8% Convertible Preferred Stock and Warrant Purchase Agreement, dated as of August 19, 1999, by and between PawnMart, Inc. and Jesse L. Upchurch, Trustee of Trust C of the Constance J. Upchurch Family Trust Dated
10/14/94(7)

16

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|4.13 |  | Purchaser Warrant Agreement, dated as of September 1, 1999, by and between PawnMart, Inc. and Jesse L. Upchurch, Trustee of Trust C of the Constance J. Upchurch Family Trust Dated 10/14/94(7)  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 |  | Registration Rights Agreement, dated as of September 1, 1999, by and between PawnMart, Inc. and Jesse L. Upchurch, Trustee of Trust C of the Constance J. Upchurch Family Trust Dated 10/14/94(7)
|4.15 |  | Transaction Warrant Agreement, dated as of September 1, 1999, by and between PawnMart, Inc. and Andrew Garrett, Inc.(7)                                                                          
|10.1 |  | Form of Indemnity Agreement with Officers and Directors of PawnMart, Inc.(2)                                                                                                                     
|10.2 |  | 1997 PawnMart, Inc. Employee Stock Option Plan(1)                                                                                                                                                
|10.3 |  | 1997 PawnMart, Inc. Director Stock Option Plan(2)                                                                                                                                                
|10.4 |  | Revolving Credit Agreement Dated October 13, 1998 Between PawnMart, Inc. and Comerica Bank as amended(4)                                                                                         
|99.1 |  | Confirmation Order dated May 20, 2002(8)                                                                                                                                                         
|99.2 |  | Debtor's First Amended Plan of Reorganization dated April 3, 2002(8)                                                                                                                             
|99.3 |  | Debtor's First Amended Disclosure Statement dated April 3, 2002(8)                                                                                                                               
|99.4 |  | Fourth Modification to Debtor's First Amended Plan of Reorganization dated April 3, 2002(9)                                                                                                      
|99.5 |  | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(10)                                                        

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17

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

PAWNMART, INC.

|By: |  | /s/JOHN R. BOUDREAUJohn R. Boudreau
Chief Executive Officer, Director and Chairman of the Board |  | August 8, 2002
Date |  | By: |  | /s/ROBERT W. SCHLEIZERRobert W. Schleizer
Senior Vice President Chief Financial Officer |  | August 8, 2002
Date
|--- |  | ----------------------------------------------------------------------------------------------- |  | ------------------- |  | --- |  | --------------------------------------------------------------------------------------- |  | -------------------

18

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