<PAGE>   1


                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                   FORM 10-QSB


   [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 For the quarterly period ended August 1, 1998


   [ ] 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 small business issuer as specified in its charter)


            DELAWARE                                    75-2520896
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)
 
            301 COMMERCE STREET, SUITE 3600, FORT WORTH, TEXAS 76102
                    (Address of principal executive offices)

                                 (817) 335-7296
                           (Issuer's telephone number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

The number of shares of Common Stock outstanding as of September 1, 1998 was
7,209,445. The number of Series A Redeemable Common Stock Purchase Warrants
outstanding as of September 1, 1998 was 1,380,000. The number Series B
Redeemable Common Stock Purchase Warrants outstanding as of September 1, 1998
was 1,380,000.

Transitional small business disclosure format (check one): Yes [ ]   No [X]





<PAGE>   2





                          PART I. FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                         PAWNMART, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets


                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                                    August 1,    January 31,
                                                                                       1998          1998
                                                                                   -----------   ----------- 
                                                                                   (Unaudited)
                                  Assets
                                  ------
<S>                                                                                <C>           <C>     
Current assets:
   Cash and cash equivalents                                                       $    877      $    151
   Accounts receivable                                                                  147            32
   Pawn service charges receivable                                                      244           233
   Loans                                                                              2,420         2,421
   Inventories, net                                                                   2,361         1,944
   Prepaid expenses and other current assets                                            119            98
                                                                                   --------      --------
            Total current assets                                                      6,168         4,879
                                                                                   --------      --------

Property and equipment, net                                                           1,175           802
Goodwill and other intangible assets, net                                                33            63
Debt issuance costs, net (note 2)                                                        16           545
Other assets                                                                            150           388
                                                                                   --------      --------
                                                                                   $  7,542      $  6,677
                                                                                   ========      ========

              Liabilities and Stockholders' Equity (Deficit)
              ---------------------------------------------

Current liabilities:
   Accounts payable and accrued liabilities                                        $    590      $  1,051
   Current installments of notes payable (note 2)                                       362         2,070
                                                                                   --------      --------
            Total current liabilities                                                   952         3,121
                                                                                   --------      --------

Long-term notes payable, net of current installments (note 2)                          --           9,778
                                                                                   --------      --------
                                                                                        952        12,899
                                                                                   --------      --------

Stockholders' equity (deficit) (note 2):
   Preferred stock, $.01 par value; authorized 10,000,000 shares;
      3,661,200 shares issued at January 31, 1998                                      --              37
   Common stock, $.01 par value; authorized 20,000,000 shares;
      7,230,877 and 1,950,424 shares issued at August 1, 1998 and
      January 31, 1998, respectively                                                     72            19
   Series A redeemable common stock purchase warrants, $0.125 par
      value; 1,380,000 warrants issued and outstanding at August 1, 1998                173           --
   Series B redeemable common stock purchase warrants, $0.0625 par
      value; 1,380,000 warrants issued and outstanding at August 1, 1998                 86           --
   Additional paid-in capital                                                        22,241         7,657
   Preferred stock discount                                                            --            (674)
   Accumulated deficit                                                              (15,912)      (13,191)
                                                                                   --------      --------
                                                                                      6,660        (6,152)
   Less treasury stock, at cost; 21,432 common shares at August 1,
      1998 and 13,189 common shares and 25,000 preferred shares at
      January 31, 1998                                                                  (70)          (70)
                                                                                   --------      --------

            Total stockholders' equity (deficit)                                      6,590        (6,222)
                                                                                   --------      --------

                                                                                   $  7,542      $  6,677
                                                                                   ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2


<PAGE>   3






                         PAWNMART, INC. AND SUBSIDIARIES
                 Unaudited Consolidated Statements of Operations

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                  Three Months Ended         Six Months Ended
                                                                 August 1,    July 27,     August 1,    July 27,
                                                                   1998         1997         1998        1997
                                                                 -------      -------      --------     -------

<S>                                                              <C>          <C>          <C>          <C>    
Revenues:
   Merchandise sales                                             $ 1,685      $ 1,468      $ 3,527      $ 3,082
   Pawn service charges                                              776          700        1,551        1,374
   Other                                                              38           27           71           35
                                                                 -------      -------      -------      -------
         Total revenues                                            2,499        2,195        5,149        4,491

Cost of sales                                                      1,125          964        2,344        2,111
                                                                 -------      -------      -------      -------
                                                                   1,374        1,231        2,805        2,380
                                                                 -------      -------      -------      -------

Expenses:
   Store operating expenses                                        1,162          930        2,223        1,852
   Corporate administrative expenses                                 764          589        1,523          988
   Interest expense                                                   22          455          831          874
   Depreciation and amortization                                     136          124          257          255
                                                                 -------      -------      -------      -------
         Total expenses                                            2,084        2,098        4,834        3,969
                                                                 -------      -------      -------      -------

         Net loss                                                   (710)        (867)      (2,029)      (1,589)

Preferred stock dividends                                           --           --            692         --
                                                                 -------      -------      -------      -------

         Net loss to common
            stockholders                                         $  (710)     $  (867)     $(2,721)     $(1,589)
                                                                 =======      =======      =======      =======

Loss per common share (note 3):
         Basic                                                   $ (0.10)     $ (0.47)     $ (0.47)     $ (0.86)
                                                                 =======      =======      =======      =======
         Diluted                                                 $ (0.10)     $ (0.47)     $ (0.47)     $ (0.86)
                                                                 =======      =======      =======      =======
</TABLE>













         See accompanying notes to consolidated financial statements.

                                       3


<PAGE>   4





                         PAWNMART, INC. AND SUBSIDIARIES
                 Unaudited Consolidated Statements of Cash Flows

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    Six Months   Six Months
                                                                                      Ended        Ended
                                                                                     August 1,    July 27,
                                                                                       1998         1997
                                                                                       ----         ----
<S>                                                                                  <C>          <C>     
Cash flows from operating activities:
   Net loss                                                                          $(2,029)     $(1,589)
   Adjustments to reconcile net loss to net cash used in operating activities:
         Depreciation and amortization                                                   257          255
         Amortization of debt issuance costs                                              96          128
         Amortization of debt discount                                                   495         --
         Common stock issued for services                                                200            4
         Changes in operating assets and liabilities:
               Accounts receivable                                                      (115)        --
               Pawn service charges receivable                                           (11)         (14)
               Inventories                                                              (417)        (153)
               Prepaid expenses and other current assets                                 (21)         (16)
               Other assets                                                              238            8
               Accounts payable and accrued liabilities                                 (461)        (744)
                                                                                     -------      -------
                     Net cash used in operating activities                            (1,768)      (2,121)
                                                                                     -------      -------

Cash flows from investing activities:
   Net (increase) decrease in pawn loans                                                   1         (138)
   Purchases of property and equipment                                                  (600)        (111)
                                                                                     -------      -------
                     Net cash provided by investing activities                          (599)        (249)
                                                                                     -------      -------

Cash flows from financing activities:
   Proceeds from issuance of notes payable                                               135        2,409
   Principal payments on notes payable                                                (2,596)        (107)
   Net proceeds from issuance of common stock and warrants                             5,582            3
   Purchase of treasury stock                                                           --             (5)
   Net proceeds from issuance of preferred stock                                        --            817
   Payment of debt issuance costs                                                        (10)        (228)
   Preferred stock dividends paid                                                        (18)        --
                                                                                     -------      -------
                     Net cash provided by financing activities                         3,093        2,889
                                                                                     -------      -------

Net increase in cash and cash equivalents                                                726          519
Cash and cash equivalents at beginning of period                                         151          143
                                                                                     -------      -------
Cash and cash equivalents at end of period                                           $   877      $   662
                                                                                     =======      =======

Supplemental disclosures of cash flow information -
   Cash paid for interest                                                            $   381      $   714
                                                                                     =======      =======
</TABLE>

Noncash Financing Activities:

    On March 20, 1998, $9,520,000 in convertible subordinated debentures, net of
unamortized debt issuance costs of $443,000, were automatically converted into
2,380,000 shares of common stock and 3,661,200 shares of preferred stock were
automatically converted into 1,482,766 shares of common stock in connection with
the completion of the Company's initial public offering (note 2). During the six
months ended August 1, 1998, the Company recognized $674,000 in preferred stock
dividends in connection with the amortization of preferred stock discounts
resulting from the preferred stock beneficial conversion feature. On May 1,
1998, the Company issued 44,445 shares of unregistered common stock to a
corporation in exchange for $200,000 in professional services associated with
marketing and new store site selection analysis.




See accompanying notes to consolidated financial statements.


                                       4

<PAGE>   5






                         PAWNMART, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

                                   (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. Due to a change in the Company's fiscal year end
       during January 1998, the financial results as of and for the three and
       six months ended July 27, 1997 end six days earlier than the financial
       results as of and for the three and six months ended August 1, 1998. The
       results of operations for the three and six months ended August 1, 1998
       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 include the financial
       statements of PawnMart, Inc. (the "Company") and its single purpose,
       wholly owned subsidiaries PCI Finance 1994-I, Inc., PCI Finance 1995-I,
       Inc., PCI Finance 1996-1, Inc., and PCI Finance 1996-2, Inc. All
       significant intercompany balances and transactions have been eliminated
       in consolidation. The consolidated financial statements should be read in
       conjunction with the consolidated financial statements for the fiscal
       year ended January 31, 1998 included in the Company's Form 10-KSB which
       has been previously filed with the Securities and Exchange Commission.

(2)    Completion of Initial Public Offering and Financial Restructuring

           On March 20, 1998, the Company completed an initial public offering
       of 1,200,000 shares of common stock at a price of $5.00 per share,
       1,380,000 Series A redeemable common stock purchase warrants at a price
       of $0.125 per warrant, and 1,380,000 Series B redeemable common stock
       purchase warrants at a price of $0.0625 per warrant and, on April 17,
       1998, the Company sold an additional 165,000 shares of common stock
       pursuant to an over-allotment option resulting in total net proceeds to
       the Company of approximately $5,582,000. Each Series A warrant and Series
       B warrant entitles the holder to purchase one share of common stock at a
       price of $6.00 per share and $8.00 per share, respectively, through March
       2003 and March 2004.

           In connection with the completion of the initial public offering,
       $9,520,000 in aggregate principal amount of the Company's 14% convertible
       subordinated debentures were automatically converted into 2,380,000
       shares of common stock and 3,661,200 shares of preferred stock
       automatically converted into an aggregate of 1,482,766 shares of common
       stock. Through August 1, 1998, the Company had utilized $2,524,000 of the
       net proceeds to repay certain notes payable.

(3)    Net Loss Per Common Share

           Net loss per common share is calculated as required by the Financial
       Accounting Standards Board's 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 anti-dilutive.


                                       5

<PAGE>   6






                         PAWNMART, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements




(3)    Net Loss Per Common Share, Continued

           The following table presents a reconciliation between basic and
       diluted weighted average common shares outstanding for the three and six
       months ended August 1, 1998 and July 27, 1997, 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
       and six months ended August 1, 1998 and July 27, 1997, diluted loss per
       share was calculated using the same weighted average number of common
       shares in the basic loss per share calculation.
<TABLE>
<CAPTION>

                                                       Three Months Ended           Six Months Ended
(In Thousands)                                        August 1,     July 27,      August 1,    July 27,
                                                        1998          1997          1998         1997
                                                        ----          ----          ----         ----

<S>                                                    <C>           <C>           <C>           <C>  
Weighted average shares - basic                        7,209         1,840         5,803         1,838
Shares attributable to stock options, warrants
and convertible securities                              --           3,456         1,040         3,353
                                                       =====         =====         =====         =====
Weighted average shares - diluted                      7,209         5,296         6,843         5,191
                                                       =====         =====         =====         =====
</TABLE>


                                       6

<PAGE>   7






ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

       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-KSB for the
fiscal year ended January 31, 1998.

GENERAL

       PawnMart, Inc. (the "Company") is a financial services and specialty
retail enterprise principally engaged in establishing and operating stores which
advance money secured by the pledge of tangible personal property and sell
pre-owned merchandise to the value-conscious consumer. 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. As of September 1, 1998, the Company was one of five
publicly traded pawnshop operators in the United States, and it owned and
operated twenty two (22) stores located in Texas, Georgia, Alabama, and North
Carolina.

       The completion of the Company's initial public offering on March 20, 1998
(see "Item 1. Consolidated Financial Statements") resulted in a significant
financial restructuring of the Company's capital structure which dramatically
improved the Company's consolidated balance sheet and virtually eliminated the
Company's existing interest and dividend requirements.

Expansion of Operations

       With the completion of the Company's initial public offering and
financial restructuring in March 1998, the Company strategic objective is to
implement a rapid roll-out of new PAWNMART(SM) stores in order to capitalize
upon growth opportunities afforded by the highly fragmented pawnshop industry.
To achieve its strategic objectives, the Company has adopted the following
strategy:


                                       7


<PAGE>   8















       o   Develop New - Rather Than Acquire - Stores That Meet Site Selection,
           Store Size and Configuration Requirements in Selected Markets. The
           Company believes that by opening new stores - rather than acquiring
           smaller "mom and pop" stores - it will enjoy substantial long-term
           strategic benefits. First, the Company believes that ideal site
           selection is one of the most critical factors in creating a
           successful PAWNMART(SM) store. In this regard, the Company has
           developed extensive customer demographics that identify both its
           borrowing and retail customers. The Company believes that most
           existing pawnshops are situated in less than ideal locations. The
           Company, therefore, believes that by opening new stores only in
           locations meeting its demographic and site selection requirements, it
           will be well situated to compete effectively in the highly fragmented
           pawnshop industry. Second, the Company believes that the "look and
           feel" of its stores is an important factor in establishing a
           successful specialty retail store and that most existing pawnshops do
           not meet, and cannot cost-effectively be modified to meet, the
           Company's store size and configuration requirements. By opening new
           stores only in accordance with its specifications, the Company can
           ensure that each PAWNMART(SM) has a similar "look and feel." During
           the fiscal year ending January 30, 1999 ("Fiscal 1998"), the Company
           anticipates opening between 12 and 15 stores.

       o   Market Positioning Strategy. The Company's strategy is to operate
           attractive stores that are clean, well-lit and conveniently located,
           with merchandise displayed in an organized and easy-to-shop manner,
           similar to national discount stores. The Company's store design and
           layout specifically target both its borrowing and retail customers.

       o   Utilize Targeted Database Marketing. The Company has developed a
           targeted database marketing segmentation system that identifies the
           customers for both pawn and product sales from proprietary data
           collected at the store level. Given this customer information, the
           Company has developed a marketing strategy that seeks to leverage its
           understanding of customer demographics, motivations and purchasing
           behavior. This demographic data will include utilizing direct
           marketing for customer acquisition, retention and promotions, and for
           store site selection.

       o   Expand in Metropolitan Areas in States With Favorable Pawn
           Regulations. The Company's roll-out strategy is to generate operating
           efficiencies by first expanding in the metropolitan areas of Atlanta,
           Georgia, Mobile, Alabama and Charlotte, North Carolina, and
           thereafter, in metropolitan areas in states with favorable pawn
           regulations.

       o   Franchise Operations in Smaller Markets. The Company intends to sell
           PAWNMART(SM) franchises in secondary markets. The Company's franchise
           strategy is designed to allow future franchisees to benefit from the
           Company's targeted database marketing segmentation system,
           PAWNLINK(TM) computer software and information system, as well as the
           Company's standardized operating procedures.

       o   Utilize Information Technology. The Company has developed
           PAWNLINK(TM), a proprietary software system, which is connected to a
           "wide area network" that allows for real-time point of sale
           connectivity. PAWNLINK(TM) is a user friendly, menu driven software
           package that operates in a Windows 95(TM) environment. PAWNLINK(TM)
           interfaces with the Company's centralized database, assists in
           determining the maximum amount of funds to advance on any particular
           pawn item, and provides in-store assistance with operational and
           sales management, inventory control and accounting.

       o   Operational Excellence. The Company believes that its success will be
           substantially dependent on its ability to achieve excellence in
           operating its stores. In this regard, the Company intends to
           capitalize upon the operational expertise of its experienced
           specialty retail management team and board of directors, employ
           specialty retailers as store management personnel, utilize extensive
           training programs for employees and maintain effective extensive
           operating controls.



                                       8

<PAGE>   9











Selected Financial Information

       Selected elements of the Company's unaudited consolidated financial
statements are shown below for the three and six months ended May 2, 1998 and
April 27, 1997 as a percentage of total revenues.
<TABLE>
<CAPTION>

                                         Three Months Ended            Six Months Ended
                                       August 1,     July 27,      August 1,     July 27,
                                         1998          1997          1998          1997
                                         ----          ----          ----          ----

<S>                                     <C>           <C>           <C>           <C>   
Merchandise Sales ...................    67.4 %        66.9 %        68.5 %        68.6 %
Pawn Service Charges ................    31.1          31.9          30.1          30.6
Other Income ........................     1.5           1.2           1.4           0.8
                                        -----         -----         -----         -----
Total Revenues ......................   100.0         100.0         100.0         100.0
Cost of Sales .......................    45.0          43.9          45.5          47.0
                                        -----         -----         -----         -----
Gross Profit ........................    55.0          56.1          54.5          53.0
Store Operating Expenses ............    46.5          42.4          43.2          41.2
                                        -----         -----         -----         -----
Store Contribution ..................     8.5          13.7          11.3          11.8
Corporate Administrative Expenses ...    30.6          26.8          29.6          22.0
Interest Expense ....................     0.9          20.7          16.1          19.5
Depreciation and Amortization .......     5.4           5.6           5.0           5.7
                                        -----         -----         -----         -----
Net Loss ............................   (28.4)%       (39.4)%       (39.4)%       (35.4)%
                                        =====         =====         =====         =====
</TABLE>

RESULTS OF OPERATIONS

Six Months Ended August 1, 1998 Compared to Six Months Ended July 27, 1997

       Total revenues increased 14.7% to $5,149,000 for the six months ended
August 1, 1998 (the "Six Month 1998 Period") as compared to $4,491,000 for the
six months ended July 27, 1997 (the "Six Month 1997 Period"). The overall
increase is attributable to a 12.0% increase in comparable store revenues at
stores opened 12 months or more as of August 1, 1998 ("Comparative Stores") and
revenues from two new locations opened during the second quarter of the Six
Month 1998 Period.

       Merchandise sales increased 14.4% to $3,527,000 during the Six Month 1998
Period from $3,082,000 during the Six Month 1997 Period due to a 11.9% increase
in merchandise sales from Comparative Stores and merchandise sales from two new
locations opened during the second quarter of the Six Month 1998 Period.

       Pawn service charges increased 12.9% to $1,551,000 during the Six Month
1998 Period from $1,374,000 during the Six Month 1997 Period primarily due to a
12.3% increase in pawn service charges from Comparative Stores and pawn service
charges from two new locations opened during the second quarter of the Six Month
1998 Period.

       Gross profit as a percentage of total revenues increased 1.5% from 53.0%
during the Six Month 1997 Period to 54.5% during the Six Month 1998 Period
primarily due to improvements in shrinkage at the Company's locations and an
uninsured theft at one of the Company's locations during February 1997.
Excluding the uninsured theft at one of the Company's locations during February
1997, the Company's annualized inventory turnover rate was 2.2 times during the
Six Month 1998 Period compared to 2.0 times during the Six Month 1997 Period
primarily due to increased store traffic and a conscious effort by the Company
to turn older inventory. Management expects to continue a positive trend in
inventory turns as the Company continues to implement its specialty retail
strategies. The Company currently maintains theft insurance at all locations.


                                       9


<PAGE>   10






       Store operating expenses increased 20.0% to $2,223,000 during the Six
Month 1998 Period from $1,852,000 during the Six Month 1997 Period primarily due
to increased labor at Comparative Stores to support increased store activity,
increased advertising expenses associated with the Company's marketing programs
and expenses attributable to new locations opened during the second quarter of
the Six Month 1998 Period. On a Comparative Store basis, store operating
expenses comprised 41.8% of total revenues during the Six Month 1998 Period
compared to 41.2% of total revenues during the Six Month 1997 Period.

       Store contribution margin increased 10.2% to $582,000 during the Six
Month 1998 Period compared to $528,000 during the Six Month 1997 Period.
Excluding the effects of new locations opened during the second quarter of the
Six Month 1998 Period, store contribution margin increased 20.3% to $635,000
during the Six Month 1998 Period compared to $528,000 during the Six Month 1997
Period.

       Corporate administrative expenses increased 54.1% to $1,523,000 during
the Six Month 1998 Period from $988,000 during the Six Month 1997 Period
primarily due to (i) the Company issuing 44,445 shares of unregistered common
stock in exchange for $200,000 in non-recurring professional fees associated
with marketing and new store site selection, (ii) increased labor costs
associated with the hiring of manager trainees to support new store openings
during the remainder of Fiscal 1998, (iii) increased labor costs associated with
the hiring of additional executive management to support planned growth, and
(iv) increased professional fees associated with human resource development and
regulatory matters.

       Interest expense decreased 4.9% to $831,000 during the Six Month 1998
Period from $874,000 during the Six Month 1997 Period. The Six Month 1998 Period
includes $495,000 in noncash non-recurring interest expense resulting from the
accounting treatment relating to the beneficial conversion feature associated
with the Company's convertible subordinated debentures and $313,000 in interest
expense which was incurred by the Company related to debt that was either
converted or repaid upon completion of the Company's initial public offering.
See note 6 to the consolidated financial statements included in the Company's
Form 10-KSB for the year ended January 31, 1998 for a discussion of the
accounting treatment relating to the beneficial conversion feature associated
with the Company's convertible subordinated debentures. The Six Month 1997
Period included $855,000 in interest expense which was incurred by the Company
related to debt that was either converted or repaid upon completion of the
Company's initial public offering.

       During the Six Month 1998 Period, the Company recognized $674,000 in
noncash non-recurring preferred stock dividends resulting from the accounting
treatment relating to the beneficial conversion feature associated with the
Company's convertible preferred stock and $18,000 in non-recurring preferred
stock dividends associated with the Company's 12% Series Convertible
Exchangeable Preferred stock. See note 9 to the consolidated financial
statements included in the Company's Form 10-KSB for the year ended January 31,
1998 for a discussion of the accounting treatment relating to the beneficial
conversion feature associated with the Company's convertible preferred stock.

       Net loss to common stockholders during the Six Month 1998 Period was
$2,721,000, or $0.47 per basic and diluted share, compared to $1,589,000, or
$0.86 per basic and diluted share, during the Six Month 1997 Period. Excluding
the non-recurring corporate administrative expenses, non-recurring interest
expense, interest expense related to debt that was either converted or repaid
upon completion of the Company's initial public offering and non-recurring
preferred stock dividends, net loss to common stockholders during the Six Month
1998 Period would have been $1,021,000, or $0.18 per basic and diluted share,
compared to $734,000, or $0.40 per basic and diluted share, during the Six Month
1997 Period.

Three Months Ended August 1, 1998 Compared to Three Months Ended July 27, 1997

       Total revenues increased 13.8% to $2,499,000 for the three months ended
August 1, 1998 (the "Three Month 1998 Period") as compared to $2,195,000 for the
three months ended July 27, 1997 (the "Three Month 1997 Period"). The overall
increase is attributable to a 8.9% increase in revenues at Comparative Stores
and revenues from two new locations opened during the Three Month 1998 Period.


                                       10

<PAGE>   11





       Merchandise sales increased 14.8% to $1,685,000 during the Three Month
1998 Period from $1,468,000 during the Three Month 1997 Period due to a 9.4%
increase in merchandise sales from Comparative Stores and merchandise sales from
two new locations opened during the Three Month 1998 Period.

       Pawn service charges increased 10.9% to $776,000 during the Three Month
1998 Period from $700,000 during the Three Month 1997 Period primarily due to a
9.7% increase in pawn service charges from Comparative Stores and pawn service
charges from two new locations opened during the Three Month 1998 Period.

       Gross profit as a percentage of total revenues decreased 1.1% from 56.1%
during the Three Month 1997 Period to 55.0% during the Three Month 1998 Period
primarily due to a conscious effort by the Company to turn older inventory and
the impact of lower gross margins realized from promotions at two new locations
opened during the Three Month 1998 Period. On a Comparative Store basis, gross
profit as a percentage of total revenues decreased 0.7% from 56.1% during the
Three Month 1997 Period to 55.4% during the Three Month 1998 Period. The
Company's annualized inventory turnover rate was 2.0 times during the Three
Month 1998 Period compared to 1.9 times during the Three Month 1997 Period.

       Store operating expenses increased 24.9% to $1,162,000 during the Three
Month 1998 Period from $930,000 during the Three Month 1997 Period primarily due
to increased labor at Comparative Stores to support increased store activity,
increased advertising expenses associated with the Company's marketing programs
and expenses attributable to new locations opened during the Three Month 1998
Period. On a Comparative Store basis, store operating expenses comprised 43.8%
of total revenues during the Three Month 1998 Period compared to 43.5% of total
revenues during the Three Month 1997 Period.

       Store contribution margin decreased 29.5% to $212,000 during the Three
Month 1998 Period compared to $301,000 during the Three Month 1997 Period
primarily due to the impacts of planned start-up losses at new locations.
Excluding the effects of new locations opened during the Three Month 1998
Period, store contribution margin decreased 7.6% to $278,000 during the Three
Month 1998 Period compared to $301,000 during the Three Month 1997 Period
primarily due to increases in Comparative Store operating expenses which were
not offset by corresponding increases in gross profit.

       Corporate administrative expenses increased 29.7% to $764,000 during the
Three Month 1998 Period from $589,000 during the Three Month 1997 Period
primarily due to (i) increased labor costs associated with the hiring of manager
trainees to support new store openings during the remainder of Fiscal 1998, (ii)
increased labor costs associated with the hiring of additional executive
management to support planned growth, and (iii) increased professional fees
associated with human resource development and regulatory matters.

       Interest expense decreased 95.2% to $22,000 during the Three Month 1998
Period from $455,000 during the Three Month 1997 Period due to the repayment or
conversion of substantially all of the Company's debt upon completion of the
initial public offering. Interest expense incurred during the Three Month 1997
Period was related to debt that was either converted or repaid upon completion
of the Company's initial public offering.

       Net loss to common stockholders during the Three Month 1998 Period was
$710,000, or $0.10 per basic and diluted share, compared to $867,000, or $0.47
per basic and diluted share, during the Three Month 1997 Period. Excluding the
interest expense related to debt that was either converted or repaid upon
completion of the Company's initial public offering, net loss to common
stockholders during the Three Month 1997 Period would have been $412,000, or
$0.22 per basic and diluted share.



                                       11

<PAGE>   12





LIQUIDITY AND CAPITAL RESOURCES

       The profitability and liquidity of the Company are affected by the amount
of loans outstanding, which is controlled in part by the Company's loan
decisions. The Company is able to influence the frequency of forfeiture of
collateral by increasing or decreasing the amount loaned in relation to the sale
value of the pledged property. Tighter credit decisions generally result in
smaller loans in relation to the estimated sale value to the pledged property
and can thereby decrease the Company's aggregate loan balance and, consequently,
decrease pawn service charges. Additionally, small loans in relation to the
pledged property's estimated sale value tend to increase loan redemptions and
improve the Company's liquidity. Conversely, providing larger loans in relation
to the estimated sale value of the pledged property can result in an increase in
the Company's pawn service charge income. Also larger average loan balances can
result in an 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
product sales and the pace of store expansions.

       At September 1, 1998, the Company operated twenty two (22) stores. Prior
to the completion of the Company's initial public offering on March 20, 1998,
the Company's operations were financed from funds generated from private debt
and equity offerings and funds generated from operations. On March 20, 1998, the
Company completed an initial public offering resulting in net proceeds to the
Company of approximately $5,582,000. See "Item 1. Consolidated Financial
Statements." In connection with the completion of the initial public offering,
$9,520,000 in aggregate principal amount of the Company's 14% convertible
subordinated debentures were automatically converted into 2,380,000 shares of
common stock and all classes of the Company's preferred stock were automatically
converted into an aggregate of 1,482,766 shares of common stock. Additionally,
the Company utilized $2,524,000 of the net proceeds to repay $2,142,000 in 15%
notes payable, $157,000 in notes payable to stockholders and $225,000 in notes
payable to the Company's Chief Executive Officer. In connection with this
financial restructuring, the Company's annual cash interest requirements have
been decreased by approximately $1,697,000 and the Company's annual cash
dividend requirements have been decreased by approximately $130,000. Management
believes the completion of the initial public offering and the resulting
financial restructuring have positioned the Company with a capital structure
that will allow its planned retail store expansion.

       At August 1, 1998, the Company's primary sources of liquidity were
$877,000 in cash and cash equivalents, $244,000 in pawn service charges
receivable, $2,420,000 in loans, and $2,361,000 in inventories. The Company had
a current ratio of approximately 6.5 to 1.0 and 1.6 to 1.0 at August 1, 1998 and
January 31, 1998, respectively. Net cash used in operating activities was
$1,768,000 during the Six Month 1998 Period and $2,121,000 during the Six Month
1997 Period.

       The Company believes that its planned retail store expansion program will
be funded by borrowings from a commercial credit facility, the remaining net
proceeds from the initial public offering, cash flows generated from its
established stores, and future debt or equity offerings. The Company is
currently finalizing the terms of an expected three-year, $10 million revolving
line of credit with a commercial bank which will be provided to the Company on
terms similar to credit facilities provided to other public companies in the
pawnshop industry. However, no assurance can be made that the credit facility
will be obtained. In the event the Company does not obtain the credit facility,
the Company will pursue additional capital in the form of debt or equity
offerings. Notwithstanding the above, the Company's planned retail store
expansion program could be reduced or modified.



                                       12

<PAGE>   13





YEAR 2000 COMPLIANCE

       Many computer software programs installed over the past several decades
utilize two digits to recognize the year, such as "97" for 1997 (the "Year 2000
Issue"). As a result of the Year 2000 Issue, time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. In some
cases, the date "00" may cause computers to stop operating, while in other
cases, incorrect output may result. Many of the Company's software programs are
time-sensitive.

       The Company has upgraded all software programs to prevent the Year 2000
Issue from affecting its reliance on its computer network. The vendors who
provide accounting systems and general office programs to the Company have
upgraded their software systems to solve the Year 2000 Issue. The Company has
upgraded substantially all of its hardware to prevent the Year 2000 Issue from
affecting its operations and anticipates incurring approximately $30,000 to
bring existing hardware into compliance with the Year 2000 Issue. Based on
preliminary information, costs of addressing additional potential problems are
not currently expected to have a material adverse impact on the Company's
consolidated financial position, results of operations or cash flows in future
periods. The Company plans to devote the necessary resources to resolve all
additional Year 2000 Issues in a timely manner.



                                       13

<PAGE>   14





                           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

       None

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

       The Company's Annual Meeting of Stockholders was held on June 12, 1998 in
Fort Worth, Texas. Of the 7,209,445 shares outstanding as of the record date,
5,467,410 shares were present or represented by proxy at the meeting. The
following matters were submitted to a vote of the security holders:

       (1) To elect the following to serve as Class I directors for terms
expiring in 2001:

<TABLE>
<CAPTION>

                                                   Votes For           Votes Abstaining
                                                   ---------           ----------------

<S>                                                 <C>                      <C>   
                  Carson R. Thompson                5,383,573                83,837
                  Robert E. Camp                    5,383,573                83,837
                  J. Roger Williams                 5,383,573                83,837
</TABLE>

       (2) To approve an amendment to the PawnMart, Inc. 1997 Employee Stock
           Option Plan to increase the number of shares of common stock
           authorized for issuance from 494,602 to 1,000,000:

<TABLE>

                  <S>                                                      <C>      
                  Votes for:                                               3,843,055
                  Votes against:                                           1,535,315
                  Votes abstaining:                                           89,040

</TABLE>

       (3) To ratify the Company's appointment of KPMG Peat Marwick LLP as
           independent auditors for the fiscal year ending January 30, 1999:
<TABLE>

                  <S>                                                      <C>      
                  Votes for:                                               5,289,530
                  Votes against:                                              80,063
                  Votes abstaining:                                           97,817
</TABLE>


ITEM 5. OTHER INFORMATION

       None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibit 27.1 - Financial Data Schedule (EDGAR version only)

(b)     Reports on Form 8-K:  None


                                       14

<PAGE>   15





                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

PAWNMART, INC.
<TABLE>


<S>                                 <C>                       <C>                                <C> 
By:  /s/ Carson R. Thompson         September 16, 1998        By: /s/ Thomas W. White            September 16, 1998
    -----------------------         ------------------            -------------------            ------------------
Carson R. Thompson                  Date                      Thomas W. White                    Date
Chief Executive Officer, Director                             Vice President - Finance
and Chairman of the Board                                     and Chief Accounting Officer

</TABLE>



<PAGE>   16




                               Index to Exhibits
<TABLE>
<CAPTION>

     Exhibit No.              Description
     -----------              -----------
<S>                 <C>

     Exhibit 27.1 - Financial Data Schedule (EDGAR version only)
</TABLE>