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

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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 May 4, 2002
|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

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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 Road SE, Suite 200, Smyrna, Georgia 30080(Address of principal executive offices)

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

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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                       |  | Financial Statements                                                                 
|                             |  | Balance Sheets                                                                       
|                             |  | Statements of Operations                                                             
|                             |  | Statements of Cash Flows                                                             
|                             |  | Notes to 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. FINANCIAL STATEMENTS

PAWNMART, INC. AND SUBSIDIARIES  (Operating as Debtor-In-Possession)        Balance Sheets        (In thousands, except share and per share data)

|                                       |                                                                                                                                                                                                                           | May 4,
2002 |                                             | February 2,
2002 |  
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------------------------- | ---------------- | -
|
|Assets                                 |                                                                                                                                                                                                                          
|Current assets:                        |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       | Cash and cash equivalents                                                                                                                                                                                                 |             | $                                           | 385              |  
|                                       | Accounts receivable                                                                                                                                                                                                       |             |                                             | 93               |  
|                                       | Pawn service charges receivable                                                                                                                                                                                           |             |                                             | 321              |  
|                                       | Pawn loans                                                                                                                                                                                                                |             |                                             | 2,946            |  
|                                       | Inventories, net                                                                                                                                                                                                          |             |                                             | 2,545            |  
|                                       | Prepaid expenses and other current assets                                                                                                                                                                                 |             |                                             | 224              |  
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       |                                                                                                                                                                                                                           |             | Total current assets                        |                  |  
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|Property and equipment, net            |                                                                                                                                                                                                                           |             | 881                                         |                  |  
|Debt issuance costs, net               |                                                                                                                                                                                                                           |             | 999                                         |                  |  
|Other assets, net                      |                                                                                                                                                                                                                           |             | 111                                         |                  |  
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       |                                                                                                                                                                                                                           |             | Total assets                                |                  | $
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|Liabilities and Stockholders' Deficit  |                                                                                                                                                                                                                          
|Current liabilities:                   |                                                                                                                                                                                                                           |             |                                             |                  |  
|Liabilities not subject to compromise: |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       | Accounts payable and accrued liabilities                                                                                                                                                                                  |             | $                                           | 531              |  
|                                       | Current installments of notes payable                                                                                                                                                                                     |             |                                             | 3,687            |  
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       |                                                                                                                                                                                                                           |             | 4,218                                       |                  |  
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|Liabilities subject to compromise      |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       | Prepetition Liabilities                                                                                                                                                                                                   |             |                                             | 12,531           |  
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       |                                                                                                                                                                                                                           |             | Total current liabilities                   |                  |  
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|Stockholders' deficit:                 |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       | Preferred stock, $0.01 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, $0.01 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 May 4, 2002 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                                                                                                                                                                                                       |             |                                             | (33,098          | )
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       | Less treasury stock, at cost; 7,144 common shares                                                                                                                                                                         |             |                                             | (70              | )
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       |                                                                                                                                                                                                                           |             | Total stockholders' deficit                 |                  |  
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  
|                                       |                                                                                                                                                                                                                           |             | Total liabilities and stockholders' deficit |                  | $
|                                       |                                                                                                                                                                                                                           |             |                                             |                  |  

See accompanying notes to financial statements.

3

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PAWNMART, INC.  (Operating as Debtor-In-Possession)        Statements of Operations        (Unaudited)        (In thousands, except per share data)

|                                |                                   | Three Months Ended |               
|------------------------------- | --------------------------------- | ------------------ | --------------
|
|Revenues:                       |                                   |                    |               
|                                | Merchandise sales                 |                    | $             
|                                | Pawn service charges              |                    |               
|                                | Other                             |                    |               
|                                |                                   |                    |               
|                                |                                   |                    | Total revenues
|Cost of sales                   |                                   |                    | 1,777         
|                                |                                   |                    |               
|                                |                                   |                    | Gross profit  
|                                |                                   |                    |               
|Expenses:                       |                                   |                    |               
|                                | Store operating expenses          |                    |               
|                                | Corporate administrative expenses |                    |               
|                                | Interest expense                  |                    |               
|                                | Depreciation and amortization     |                    |               
|                                |                                   |                    |               
|                                |                                   |                    | Total expenses
|                                |                                   |                    |               
|                                |                                   |                    | Operating Loss
|Gain on sale of stores          |                                   |                    |              
|                                |                                   |                    |               
|                                |                                   |                    | Net loss      
|                                |                                   |                    |               
|Loss per common share (note 3): |                                   |                    |               
|                                |                                   |                    | Basic         
|                                |                                   |                    |               
|                                |                                   |                    | Diluted       
|                                |                                   |                    |               

See
accompanying notes to financial statements.

4

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PAWNMART, INC.  (Operating as Debtor-In-Possession)        Statements of Cash Flows        (Unaudited)        (In thousands)

|                                                   |                                                                             | Three 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          |                                          
|                                                   |                                                                             | (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
|                                                   |                                                                             |                                              | Accounts payable and accrued liabilities 
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|Cash flows from investing activities:              |                                                                             |                                              |                                          
|                                                   | Proceeds from sale of stores                                                |                                              |                                          
|                                                   | Decrease in pawn loans                                                      |                                              |                                          
|                                                   | Purchases of property and equipment                                         |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|Cash flows from financing activities:              |                                                                             |                                              |                                          
|                                                   | Principal payments on notes payable                                         |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|                                                   |                                                                             |                                              |                                          
|Net decrease in cash and cash equivalents          |                                                                             |                                              | (28                                      
|Cash and cash equivalents at beginning of period   |                                                                             |                                              | 413                                      
|                                                   |                                                                             |                                              |                                          
|Cash and cash equivalents at end of period         |                                                                             | $                                            | 385                                      
|                                                   |                                                                             |                                              |                                          
|Supplemental disclosures of cash flow information |                                                                             |                                              |                                          
|                                                   | Cash paid for interest                                                      |                                              | $                                        
|                                                   |                                                                             |                                              |                                          

See
accompanying notes to financial statements.

5

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PAWNMART, INC.        (Operating as Debtor-in-Possession)        Notes to Financial Statements        May 4, 2002 and May 5, 2001  (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 May 4, 2002 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 2, 2002 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 of PawnMart, 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").

6

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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
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

Revolving 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 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"). The Plan was
confirmed on May 20, 2002 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 8.75% at May 4, 2002. The Post- Petition Credit facility was
reduced to $4,500,000 due to the Company's decreased borrowing needs 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.

Under
the terms of the Plan, the Company secured a post-confirmation credit facility in the amount of $4,500,000 with Comerica (the Post-Confirmation Credit
Facility). The Post-Confirmation Credit Facility bears interest at the prevailing prime rate plus 2%. The Post-Confirmation Credit Facility matures in January 2004. The
Post Petition Credit Facility is collateralized by substantially all of the unencumbered assets of the Company. The Company is also limited from making acquisitions and is prohibited from making
paying cash dividends or acquiring treasury stock under the terms of the Post-Petition Credit Facility.

7

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Subordinated Debt

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. The Company defaulted on payment of interest on the 2004 Notes in December 2001 and did not
accrue any interest expense for the indebtedness from
the bankruptcy petition date. The Company had issued a total of $9,950,000 of the 2004 Notes as of May 4, 2002.

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 May 4, 2002, 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 $63,000
representing the value of the Series A Warrants and is amortized such amount into interest expense until the bankruptcy petition date based on the original life of the 2004 Notes.

Under
the terms of the Plan, the 2004 Notes are to be converted to equity and the related Series A Warrants are to be cancelled. The 2004 Notes were classified as liabilities
subject to compromise in the financial statements.

(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 or 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 ended May 4, 2002 and May 5, 2001,
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 ended May 4,
2002 and May 5, 2001, 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 EndedMay 4,
2002

May 5,
2001Weighted average sharesbasic

2,503

2,503Shares attributable to stock options, warrants and convertible securities



Weighted average sharesdiluted

2,503

2,503


(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 Confirmation Order, the First Amended Plan of Reorganization, as modified following the Confirmation Date
(the "Plan"), and the related First Amended Disclosure Statement (the "Disclosure Statement") are attached as Exhibits 99.1, 99.2, 99.3, 99.4 hereto and are incorporated herein by reference. 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 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 2, 2002.

GENERAL

The
Company's strategy of expansion during Fiscal 1999 and Fiscal 1998 increased the Company's operating stores from 19 to 46. During the second quarter of Fiscal 2000, the Company began
to experience significant working capital shortages as the impact of industry overexpansion and slower than projected maturation of new stores resulted in continued operating losses and negative cash
flow. The Company initiated a financial restructuring in early Fiscal 2001 due to severe cash flow difficulties. 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 its 45 stores. 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-advance over a six-month
period 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.

Efforts
to secure new financing were unsuccessful and on July 9, 2001, the Company filed for protection under the Bankruptcy Code. The Company continued its financial and
operational restructuring after the bankruptcy filing, closing or selling an additional five stores prior to the end of Fiscal 2001 and two additional stores during the three month period ended
May 4, 2002. The Company arranged a Post-Petition Credit Facility with Comerica in the amount of $7,200,000 and a $600,000 Note from Hulen. The Plan was filed with the Bankruptcy
Court on February 15, 2002 and was amended on April 3, 2002. Pursuant to the Confirmation Order, the Plan 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 of the Company with CMHI, an affiliate of 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.

10

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On
the Closing Date, CMHI and the Company will combine in a merger intended to qualify under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Merger").
Pursuant to the Merger shareholders of CMHI will receive Series A Preferred Stock and Series B Preferred Stock. 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 and the Closing Date is anticipated to be
August 30, 2002. It is anticipated that as of the Closing Date, CMHI will provide over $7.5 million in net assets, of which at least $1.2 million will be in cash. An independent
valuation of the net assets of CMHI will be performed by SWS Securities, Inc., financial consultants engaged by the Unsecured Creditors Committee. The estimated value of the Company as of the
Closing Date is projected to be $2,616,716, based on the net book value of the assets after conversion of the Class 4 Claims to Common Stock, as more fully described below.

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 financial statements are presented below for the three months ended May 4, 2002 ("Three Month 2002 Period") and the three months ended
May 5, 2001 (the "Three Month 2001 Period"), respectively. 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 2, 2002.

Three Months EndedOperating statement items as a percent of
total revenues:

May 4,
2002

May 5,
2001Merchandise sales

68.1
%
69.6
%Pawn service charges

30.8

29.0Other

1.1

1.4Total revenues

100.0

100.0Cost of sales

48.9

71.6Gross profit

51.1

28.4Store operating expenses

35.7

40.7Store contribution

15.4

(12.3
)Corporate administrative expenses

16.0

12.8Interest expense

2.4

10.0Depreciation and amortization

2.8

2.0(Gain) on sale of stores



(1.4
)Net loss

(5.8
)%
(35.7
)%


11

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RESULTS
OF OPERATIONS

Three Months Ended May 4, 2002 Compared to Three Months Ended May 5, 2001

Total revenues decreased 37.6% to $3,632,000 during the Three Month 2002 Period from $5,823,000 during the Three Month 2001 Period. During the Three Month 2002
Period, the Company operated 23 stores as compared to 42 stores during the Three Month 2001 Period. The Company initiated its financial restructuring during March 2001 when it began closing
stores. Total revenues at the Company's comparable stores, which include those stores that operated for the full 12 month period through May 4, 2002 (the "Comparable Stores"), increased
12.2% or $386,000.

Merchandise
sales decreased 39.0% to $2,472,000 during the Three Month 2002 Period from $4,053,000 during the Three Month 2001 Period. Merchandise sales at the Company's Comparable
Stores increased 10.9% or $236,000. Average inventory per store decreased to $111,000 or 14.0% at May 4, 2002 from $129,000 at May 5, 2001. The Company initiated an aggressive sales
program to reduce inventories and tightened its lending criteria which generated less inventory as default rates declined.

Pawn
service charges decreased 33.8% to $1,119,000 during the Three Month 2002 Period from $1,689,000 during the Three Month 2001 Period. Pawn service charges at the Company's Comparable
Stores increased 16.1% to $1,100,000 during the Three Month 2002 Period from $939,000 during the Three Month 2001 Period. The increased pawn services charges from Comparable Stores resulted primarily
from the improved quality of pawn loans due to tightening lending policies resulting in higher redemption rates.

Gross
profit increased 12.2% to $1,855,000 during the Three Month 2002 Period from $1,653,000 during the Three Month 2001 Period. Gross profit at the Company's Comparable Stores
increased 15.7%. The increase in gross profit is primarily due to the impact of the Company's financial restructuring and contraction during the Three Month 2001 Period. On a Comparable Store basis,
the Company's annualized inventory turnover rate decreased to 2.8 times during the Three Month 2002 Period from to 2.0 times during the Three Month 2001 Period.

Store
operating expenses consist of all items directly related to the operation of the stores, including salaries and related payroll costs, rent, property taxes, utilities, supplies,
security costs, and other miscellaneous store expenses. Store operating expenses decreased 45.3% to $1,297,000 during the Three Month 2002 Period from $2,370,000 during the Three Month 2001 Period
primarily due to the reduced number of operating stores. As a percentage of total revenues, store operating expenses increased to 35.7% from 40.7% during the prior year period, primarily due to costs
associated to closing stores and liquidating excess inventory during the Three Month 2001 Period. On a Comparable Store basis, store operating expenses increased 2.3% or $28,000 during the Three Month
2002 Period compared to 37.0% during the Three Month 2001 Period.

Store
contribution margin increased to $558,,000 during the Three Month 2002 Period compared to negative contribution of $717,000 during the Three Month 2001 Period. The Three Month 2001
Period was impacted by reduced margins on merchandise liquidated from closed stores and recognition of losses on broken merchandise due to customer returns under the Company's former policies.
Comparable Store contribution margin increased 61.2% to $585,000, or 16.5% of total revenues, during the Three Month 2002 Period compared to $363,000, or 11.5% of total revenues, during the Three
Month 2001 Period.

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The
following table presents an analysis of Comparable Store performance for the Three Month 2002 Period compared to the Three Month 2001 Period:

Three Month
2002 Period

Three Month
2001 Period(In thousands)Merchandise sales

$
2,404

$
2,168Pawn service charges


1,100


939Other


39


50Total revenues


3,543


3,157Cost of sales


1,709


1,572Gross profit


1,834


1,585Store operating expenses


1,249


1,222Store contribution margin

$
585

$
363


Corporate
administrative expenses consists of all items relating to the operation of the corporate headquarters and the field supervision cost of the district managers, store audit team
members, other administrative personnel. Corporate administrative expenses decreased 22.6% to $580,000 during the Three Month 2002 Period from $748,000 during the Three Month 2001 Period primarily due
to reduced corporate personnel costs. The Three Month 2002 Period corporate administrative expenses included $106,000 in reorganization expenses.

Interest
expense decreased to $88,000 during the Three Month 2002 Period from $580,000 during the Three Month 2001 Period. The decrease is attributable to reduced borrowings under the
Company's Post Petition Credit Facility and due to the discontinuance of accruing interest on the Company's 2004 Notes and amortization of debt issuance costs since the bankruptcy petition date. Under
the terms of the Plan, the 2004 Notes were to be exchanged for equity at the Effective Date of the Plan, subject to consummation of the Plan. See discussion in General above.

During
the Three Month 2002 Period, the Company closed two stores. During the Three Month 2001 Period, the Company sold its Weatherford, Texas store to former shareholders of the Company
for a cash purchase price of $300,000, realizing a profit on the sale of $83,000. Additionally, the Company was relieved of any liability under the lease, which was held by an affiliate of the
purchasers.

The
Three Month 2001 Period included $50,000 in preferred stock dividends related to the Company's issuance of $2.5 million of 8% convertible preferred stock on
September 1, 1999.

Net
loss to common stockholders during the Three Month 2002 Period was $211,000 or $0.08 per basic and diluted share, compared to $2,079,000 or $0.83 per basic and diluted share, during
the Three Month 2001 Period.

LIQUIDITY
AND CAPITAL RESOURCES

At
May 4, 2002, the Company's primary sources of liquidity were $385,000 in cash and cash equivalents, $321,000 in pawn service charges receivable, $2,946,000 in pawn loans
outstanding, and $2,545,000 in inventories. The Company had $841,000 available to borrow under the Post-Petition Credit Facility.

The
Company initiated its financial restructuring in February 2001, selling or closing 15 stores between February and June 2001 to fund operating losses and repay the
over-advance on the Credit Facility. The Company's attempts to raise additional working capital were unsuccessful and on July 9, 2001, the Company filed its bankruptcy petition. The
Company was able to secure post-petition financing from Comerica in the amount of $7,200,000 which was contingent on the Company providing additional working capital financing which the
Company was able to secure through the Hulen Note.

13

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Under
the terms of the Plan approved by the Bankruptcy Court, the Company will receive an investment of approximately $7.5 million, of which at least $1.2 million will be
in cash, through the Merger, in exchange for two classes of Preferred Stock. 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. Each April 30 thereafter through 2009, an additional 100,000 shares must be redeemed at par value for cash. On
April 30, 2010, any unredeemed shares plus any accrued and unpaid dividends must be redeemed at par value for cash. The value of Series A Preferred Stock to be issued is estimated to be
approximately $5 million based on the current value of CMHI net assets. 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 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 value of the Series B Preferred Stock to be issued is estimated to be approximately
$2,500,000.

The
Company is dependent on the investment of cash and marketable securities provided in the Merger to fund projected operating losses during Fiscal 2002 and to provide sufficient
working capital to increase pawn loans and inventories to levels necessary for the Company to be profitable and to continue as a going concern.

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.

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 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.

14

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company filed its Plan and Disclosure Statement on February 15, 2002 and filed its First Amended Plan and First Amended Disclosure Statement on
April 3, 2002. The Disclosure Statement was approved by the Bankruptcy Court on April 3, 2002. The Plan was confirmed by the Bankruptcy Court on May 20, 2002 with an Effective
Date of May 31, 2002. All legal proceedings prior to the July 9, 2001 petition date have been consolidated in the bankruptcy proceeding and are treated as Class 4 claims.

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)                                                                                                
|               |  |                                                                                                                                                                     

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|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)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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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16

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

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