EZCORP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO _____________

COMMISSION FILE NUMBER 000-19424
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EZCORP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 74-2540145
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)

1901 CAPITAL PARKWAY
AUSTIN, TEXAS 78746
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (512) 314-3400

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Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:

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 [X] No [ ]

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The only class of voting securities of the registrant issued and outstanding is
the Class B Voting Common Stock, par value $.01 per share, 100% of which is
owned by one record holder who is an affiliate of the registrant. There is no
trading market for the Class B Voting Common Stock. The aggregate market value
of the Class A Non-voting Common Stock held by non-affiliates of the registrant
as of November 30, 2001, based on the closing price on The Nasdaq Stock Market
on such date, was $15.4 million.

As of November 30, 2001, 10,937,841 shares of the registrant's Class A
Non-Voting Common Stock, par value $.01 per share and 1,190,057 shares of the
registrant's Class B Voting Common Stock, par value $.01 per share were
outstanding.

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EZCORP, INC.
YEAR ENDED SEPTEMBER 30, 2001
INDEX TO FORM 10-K

PART I

ITEM 1. BUSINESS

EZCORP, Inc. (the "Company") is a Delaware corporation with its principal
executive offices located at 1901 Capital Parkway, Austin, Texas 78746. Its
telephone number is (512) 314-3400. References to the Company include the
subsidiaries listed in Exhibit 22.1.

The discussion in this section of this report contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section and those discussed elsewhere in this report.

GENERAL

The Company is primarily engaged in operating pawnshops which function as
convenient sources of consumer credit and as value-oriented specialty retailers
of primarily previously owned merchandise. Through its lending function, the
Company makes relatively small, non-recourse loans secured by pledges of
tangible personal property. The Company contracts for a pawn service charge to
compensate it for each pawn loan. Pawn service charges, which generally range
from 12% to 300% per annum, are calculated based on the dollar amount and
duration of the loan and accounted for approximately 29% of the Company's
revenues for the year ended September 30, 2001 ("Fiscal 2001"). In Fiscal 2001,
approximately 76% of the pawn loans made by the Company were redeemed in full or
were renewed or extended through the payment of the pawn service charges. In
most states in which the Company operates, collateral is held one month with a
60-day extension period after which such collateral is forfeited for resale.

The Company also offers non-collateralized short-term loans, commonly referred
to as "payday loans" in most of its pawnshops. These short-term loans are made
based on a customer's credit history and are for periods ranging from one to 31
days, averaging about 15 days, for a fee of $15 to $20 per $100 loaned.

As of December 1, 2001, the Company operated 283 locations: 182 in Texas, 24 in
Colorado, 20 in Oklahoma, 18 in Florida, 15 in Indiana, 8 in Alabama, 4 in
Nevada, 3 in Tennessee, 3 in Louisiana, 3 in Mississippi, 2 in California, and 1
in Arkansas.

The pawnshop industry in the United States is large and highly fragmented. The
industry consists of over 10,000 pawnshops owned primarily by independent
operators who typically own one to three locations.

LENDING ACTIVITIES

The Company is primarily engaged in the business of making pawn loans, which
typically are relatively small, non-recourse loans secured by pledges of
tangible personal property. As of September 30, 2001, the Company had
approximately 646,000 loans outstanding, representing an aggregate principal
balance of $47.1 million. The Company contracts for a pawn service charge to
compensate it for a pawn loan. A majority of the Company's pawn loans are in
amounts that permit pawn service charges of 20% per month or 240% per annum. For
Fiscal 2001, pawn service charges accounted for approximately 29% of the
Company's total revenues.

Collateral for the Company's pawn loans consists of tangible personal property,
generally jewelry, consumer electronics, tools, sporting goods, and musical
instruments. The Company does not investigate the creditworthiness of a pawn
customer, but relies on the estimated resale value of the pledged property, the
perceived probability of its redemption, and the estimated time required to sell
the item as a basis for its lending decision. The amount that the Company is
willing to lend generally ranges from 20% to 65% of the pledged property's
estimated resale value depending on an evaluation of these factors. The sources
for the Company's determination of the resale value of collateral include the
Company's computerized valuation software, catalogues, newspaper advertisements,
and previous sales of similar merchandise.

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The pledged property is held through the term of the loan, which in Texas is one
month with an automatic 60-day grace period, unless repaid or renewed earlier.
The Company seeks to maintain a redemption rate (the percent of loans made that
are redeemed, renewed, or extended) between 70% and 80%, and in each of the
Company's last three fiscal periods, it achieved this targeted redemption rate.
The redemption rate is maintained through loan policy and proper implementation
of such policy at the store level. If a borrower does not repay, extend, or
renew a loan, the collateral is forfeited to the Company and then becomes
inventory available for sale in the Company's pawnshops. The Company does not
record loan losses or charge-offs of pawn loans because the principal amount of
an unpaid loan becomes the inventory carrying cost of the forfeited collateral.
The Company evaluates the salability of inventory and provides an allowance for
valuation of inventory, based on the type of merchandise, recent sales trends
and margins, and the age of merchandise.

The table below shows the dollar amount of loan activity by the Company for the
fiscal years ended September 30, 1999, 2000 and 2001:

The realization of gross profit on sales of inventory primarily depends on the
Company's initial assessment of the property's resale value. Improper assessment
of the resale value of the collateral in the lending function can result in
reduced marketability of the property and the realization of a lower margin.
Jewelry, which constitutes approximately 60% of the principal amount of items
pledged, can be evaluated primarily based on weight, carat content, and value of
gemstones, if any. The other items pawned typically consist of consumer
electronics, tools, and musical instruments. These can be evaluated based on
recent sales experience and the selling price of similar new merchandise,
adjusted for age, wear, and obsolescence.

At the time a pawn transaction is made, a pawn loan agreement, commonly referred
to as a pawn ticket, is delivered to the borrower. It sets forth, among other
things, the name and address of the pawnshop and the borrower, the borrower's
identification number from his driver's license, military identification or
other official number, the date of the loan, an identification and description
of the pledged goods (including applicable serial numbers), the amount financed,
the pawn service charge, the maturity date of the loan, the total amount that
must be paid to redeem the pledged goods, and the annual percentage rate.

Of the Company's 283 operating locations as of December 1, 2001, 182 were stores
located in Texas. Accordingly, Texas pawnshop laws and regulations govern most
of the Company's operations. In Texas, pawnshop operations are regulated by the
Office of Consumer Credit Commissioner in accordance with Chapter 371 of the
Texas Finance Code, commonly known as the Texas Pawnshop Act (the "Pawnshop
Act") and Rules of Operation for Pawnshops (the "Rules"). See "Regulation".

The maximum allowable pawn service charges for stratified loan amounts made in
the State of Texas are set in accordance with Texas law under the Pawnshop Act.
Historically, the maximum allowable pawn service charges under Texas law have
not changed; however, the stratified loan amounts have been adjusted upward each
year. The maximum allowable pawn service charges under the Pawnshop Act for the
various stratified loan amounts for the periods indicated below are as follows:

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SCHEDULE OF APPLICABLE LOAN SERVICE CHARGES FOR TEXAS

Under Texas law, there is a ceiling on the maximum allowable pawn loan. For year
ended June 30, 2001, the loan ceiling was $12,000. For the year ending June 30,
2002, the loan ceiling is $12,500. The Company's average loan amount at the end
of Fiscal 2001 was approximately $73.

In addition to pawn loans, the Company offers unsecured short-term loans,
commonly referred to as "payday loans" in most of its pawnshops. In a limited
number of locations, the Company originates short-term loans. In most locations,
the Company markets, services, processes, and collects short-term loans
originated by County Bank, a federally insured Delaware banking corporation.
After origination of the short-term loans, the Company is entitled to purchase
an 85% participation in the loans made by County Bank and marketed by the
Company. Short-term loan terms range from one to 31 days, averaging about 15
days. The fee per $100 loaned is typically $18 per 14-day period, but varies in
certain locations. The loans and related fees reported in the Company's
consolidated financial statements reflect only the Company's participation
interest in such loans.

Unlike pawn loans, short-term loans are unsecured, and the Company provides for
a valuation allowance on both the principal and fees receivable based on recent
default and collection experience. At September 30, 2001, the valuation
allowance was 9.5% of the short-term loan principal and fees receivable. The
Company considers a loan defaulted if the loan has not been repaid or refinanced
by the maturity date. Although defaulted loans may be collected through
subsequent collection efforts, the Company charges defaulted loans to bad debt
when they default. When defaulted loans are collected, the amount collected is
recorded as a reduction of bad debt at the time of collection.

RETAIL ACTIVITIES

Jewelry sales represent approximately 40% of the Company's merchandise sales
with the remaining sales consisting primarily of consumer electronics, tools,
sporting goods, and musical instruments. The Company believes its ability to
offer quality used merchandise at prices significantly lower than original
retail prices attracts value-conscious customers. The Company obtains its
inventory primarily from unredeemed collateral, and to a lesser extent, from
purchases from the general public and from wholesale sources. For Fiscal 2001,
purchases from the general public and from wholesale sources constituted
approximately 9% of the dollar value of inflows to inventory. During Fiscal
2001, $70.9 million of merchandise was added to inventory through forfeited
collateral. For Fiscal 2001, retail activities accounted for approximately 69%
of the Company's total revenues, but only 46% of the Company's net revenue,
after deducting cost of goods sold on merchandise sales.

Analysis of the sales and inventory data provided by the Company's management
information systems facilitates the design and development of promotional and
merchandising programs and merchandise pricing decisions. Regional and area
managers implement these promotional and merchandising programs, review
merchandise pricing decisions, and balance inventory levels within markets.

The Company does not give prospective buyers any warranties on most merchandise
sold through its retail operations, except for certain purchases of new,
wholesale-purchased merchandise, which may

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have a limited manufacturer's warranty. Prospective buyers may purchase an item
on layaway, whereby a prospective purchaser will typically put down a minimum of
20% of an item's purchase price as a customer layaway deposit. The Company will
hold the item for a 90-day period during which the customer is required to pay
for the item in full. As of September 30, 2001, the Company had $2.1 million in
customer layaway deposits and payments.

The Company's overall inventory is stated at the lower of cost or market. The
Company provides inventory reserves for shrinkage and cost in excess of market
value. The Company estimates these reserves through study and analysis of sales
trends, inventory turnover, inventory aging, margins achieved on recent sales,
and shrinkage. Valuation allowances, including shrinkage reserves, amounted to
$1.1 million as of September 30, 2001. At September 30, 2001, total inventory on
hand was $34.2 million, after deducting such allowance for shrinkage and
valuation of inventory.

SEASONALITY

Historically, pawn service charge revenues are highest in the Company's fiscal
fourth quarter (July, August, and September) due to higher loan demand during
the summer months. Merchandise sales are highest in the Company's first and
second fiscal quarters (October through March) due to the holiday season and tax
refunds.

OPERATIONS

GENERAL

The typical Company location is a freestanding building or part of a retail
strip center. Nearly all of the Company's pawnshop locations have contiguous
parking available. Store interiors are designed to resemble small discount
operations and attractively display merchandise by category. Distinctive
exterior design and attractive in-store signage provide an appealing atmosphere
to customers. The typical store has approximately 1,800 square feet of retail
space and approximately 3,200 square feet dedicated to lending activities
(principally collateral storage). The Company maintains property and general
liability insurance for each of its pawnshops. The Company's stores are open six
or seven days a week, depending on location.

STORE MANAGEMENT

A typical Company store employs five to six people consisting of a manager, an
assistant manager, and three to four sales and lending representatives. Store
managers are specifically responsible for ensuring that their store is run in
accordance with the Company's established policies and procedures, and for
operating their store according to performance parameters consistent with the
Company's store operating guidelines. Each store manager reports to one of
approximately 33 area managers who are responsible for the stores within a
specific operating region. Area managers are responsible for the performance of
all stores within their area and report to one of four regional directors.
Regional directors, area managers, store managers, and assistant managers
receive incentive compensation based on their region, area, or store performance
to an operating budget. This incentive compensation typically ranges between 10%
and 25% of their total compensation, plus a gain-sharing component for store and
area managers whose stores exceed planned levels of earnings.

MANAGEMENT INFORMATION SYSTEMS AND CONTROLS

The Company has a store level point of sale (POS) system that automates the
recording of all store-level transactions. Financial summary data from all
stores is retrieved and processed at the corporate office each day and is
available for management review by early morning for the preceding day's
transactions. This information is available to field management via the
Company's internal network. The Company's communications network provides access
to each store from the corporate offices. During Fiscal 2000, the Company
completed the development of a new, three-tier architecture, store-level system.
This new system will provide additional store level functionality, increase
service offerings, enhance reporting and controls, and provide software and
hardware scalability. The company tested this new system in 51 of its 283 stores
in Fiscal 2001. The Company plans to install this new system in all its
locations by the end of Fiscal 2002.

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The Company has an internal audit staff of approximately 20 employees to help
ensure that the Company's policies and procedures are consistently followed. In
addition, the audit department monitors, among other matters, the Company's
perpetual inventory system, lending practices, and regulatory compliance.

HUMAN RESOURCES

As of September 30, 2001, the Company employed approximately 1,900 people. The
Company believes that its success is dependent upon its employees' ability to
make loans that achieve optimum redemption rates, to sell retail merchandise
effectively, and to provide prompt and courteous customer service. The Company
seeks to hire people who will become long-term, career employees. To achieve the
Company's long-range personnel goals, the Company strives to develop its
employees through a combination of learner-controlled instruction, classroom
training, and supervised on-the-job loan and sales training for new employees.
All employees go through periodic competency checks and all new employees go
through a learner-controlled instruction program. Managers attend on-going
management skills and operations performance training. Regional directors and
area managers receive training on how to effectively motivate employees and how
to increase each store's profitability. The Company's management believes that
its managers, at all levels, are the principal trainers in the organization.

The Company anticipates that store manager candidates will be promoted primarily
from the ranks of existing store employees and has created a process for
forecasting future needs and identifying potential internal candidates for
position openings. The Company's career development plan develops and advances
employees within the Company, and provides training for the efficient
integration of experienced retail managers and pawnbrokers from outside the
Company.

In Texas, each pawnshop employee must be licensed in order to make loans.
Employee pawnshop licenses are renewed annually. The licensing process and
renewals both include a review of each individual's background.

TRADE NAME

At December 1, 2001, the Company operated 281 of its pawnshops under the name
"EZ Pawn" and two locations under the name "EZMONEY." Both names are registered
with the United States Patent and Trademark Office.

GROWTH AND EXPANSION

In Fiscal 1998, the Company began expanding rapidly. In Fiscal 1998 and Fiscal
1999, the Company added a net 37 and 45 stores. Typically new stores turn
profitable during their second full year of operation as they build their loan
and sales customer base. During Fiscal 2000, the Company decided to slow its new
store expansion. As a result, the Company opened only five newly established
stores in Fiscal 2000 and none in Fiscal 2001. During the Fiscal 2000 fourth
quarter, the Company made the decision to close fifty-four under-performing
stores, 10 of which had been open less than two years. As of September 30, 2001,
forty-seven of the fifty-four stores had been closed. In the third quarter of
Fiscal 2001, the Company decided not to close the remaining seven of the stores
targeted for closure due to their improved operating performance.

The five most recently established stores with 12 full months of operating data,
opened by the Company in its fiscal year ended September 30, 2000, required an
average gross investment (including inventory, pawn loans, property, plant, and
equipment) of approximately $500,000 per pawnshop during the first 12 months of
operation.

The Company's ability to add new stores is dependent on several variables, such
as the availability of acceptable sites or acquisition candidates, the
regulatory environment, and the availability of qualified personnel. The
Company's ability to add newly established stores in Texas counties having a
population of 250,000 or more has been adversely affected by Texas law which
provides that, in counties with 250,000 or more residents, applications for new
licenses will be approved only at proposed locations which are not less than two
miles from another licensed pawnshop and applications to relocate a licensed

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pawnshop will be approved only for proposed locations which are not less than
one mile from another licensed pawnshop. Any existing store may relocate to
within one mile of its present location, regardless of the existence of other
pawnshops. The Company's ability to add newly established stores in such
counties may be adversely affected by such regulation. See "Regulation".

COMPETITION

The Company encounters significant competition in connection with the operation
of its business. These competitive conditions may adversely affect the Company's
revenues, profitability, and its ability to expand. In connection with the
lending of money, the Company competes primarily with other pawnshops. While
there are four pawnshop chains with more than fifty locations, the majority of
the Company's competitors are independently owned pawnshops. The Company is the
second largest pawnshop chain in the United States. The Company believes that
the primary elements of competition in the pawnshop business are store location
and design, the ability to loan competitive amounts on items pawned, management
of store-level employees, and the quality of customer service. In addition, as
the pawnshop industry consolidates, the Company believes that the ability to
compete effectively will be based increasingly on strong general management,
regional market focus, automated management information systems, and access to
capital. Some of the Company's competitors may have greater financial resources
than the Company.

To a certain extent, the Company also competes with other types of financial
institutions such as consumer finance companies and companies making payday
loans. Other lenders may and do lend money on an unsecured basis, at interest
rates which are lower than the service charges of the Company, and on other
terms more favorable than those offered by the Company.

The Company's competitors, in connection with the sale of merchandise, include
numerous retail and wholesale stores, including jewelry stores, discount retail
stores, consumer electronics stores, other pawnshops, other retailers of
previously owned merchandise, electronic commerce retailers, and auction sites.
Competitive factors in the Company's retail operations include the ability to
provide the customer with a variety of merchandise at an exceptional value. On a
retail level, the Company competes with numerous other retailers who have
significantly greater financial resources than the Company.

STRATEGIC INVESTMENT

In 1998, the Company acquired 29.47% of the outstanding shares of Albemarle &
Bond Holdings plc ("A&B"). As its largest shareholder, the Company holds two of
A&B's seven board of directors positions. A&B is a publicly traded company based
in Bristol, England and trades on the Alternative Investment Market of the
London Stock Exchange. At June 30, 2001, A&B operated 50 locations in the United
Kingdom that offer pawn loans, payday loans, check cashing, and retail jewelry.
For A&B's 2001 fiscal year, which ended June 30, 2001, A&B's operating profit
increased 26% over the prior year twelve-month period to approximately
(pound)2.8 million.

The Company accounts for its investment in A&B under the equity method. In
Fiscal 2001, the Company's equity interest in A&B's income was $267,000, after
$453,000 of goodwill amortization. At November 30, 2001, the market value of the
Company's investment was $11.9 million, based on the closing price and exchange
rates on that date.

REGULATION

PAWNSHOP OPERATIONS

The Company's pawnshop operations are subject to extensive regulation,
supervision, and licensing under various federal, state, and local statutes,
ordinances, and regulations. Of the Company's 283 locations as of December 1,
2001, 182 were in Texas. Accordingly, Texas pawnshop laws govern most of the
Company's operations. The laws of Colorado, Oklahoma, Indiana, Florida, Alabama,
California, Tennessee, Nevada, Louisiana, Mississippi, and Arkansas apply to the
Company's pawnshop operations in those states. At December 1, 2001, the Company
operated 283 locations: 182 in Texas, 24 in Colorado, 20 in Oklahoma, 18 in
Florida, 15 in Indiana, 8 in Alabama, 4 in Nevada, 3 in Tennessee, 3 in
Louisiana, 3 in Mississippi, 2 in California, and 1 in Arkansas. In many states
in which the Company

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operates, pawnshops are subject to local regulation at the municipal and county
level, which regulation may affect the ability of the Company to expand its
operations in those states.

In addition, the Company's short-term loan operations are subject to various
state and federal statutes and regulations including, but not limited to the
federal Equal Credit Opportunity Act, Fair Credit Reporting Act, the Truth in
Lending Act, the Gramm-Leach-Bliley Act, and the Fair Debt Collection Practices
Act. The Company complies with the requirements of these federal statutes and
their regulations with respect to its short-term loan business, and state
statutes and regulations, where applicable.

TEXAS REGULATIONS

In Texas, pawnshops are governed by the Texas Pawnshop Act and the related Rules
of Operation for Pawnshops, and are subject to licensing by and supervision of
the Office of Consumer Credit Commissioner ("OCCC"). In addition, pawnshops and
pawnshop employees in Texas must be licensed by the Texas Consumer Credit
Commissioner. Furthermore, the Company is required to supply the Office of
Consumer Credit Commissioner with copies of information filed with the
Securities and Exchange Commission.

The maximum allowable pawn service charges for stratified loan amounts made in
the State of Texas are set in accordance with the Texas Pawnshop Act.
Historically, the maximum allowable pawn service charges under Texas law have
not changed; however, the stratified loan amounts have been adjusted upward each
year. Under Texas law, there is a ceiling on the maximum allowable pawn loan.
For the period July 1, 2000 to June 30, 2001, the loan ceiling was $12,000. For
the period July 1, 2001 through June 30, 2002, the loan ceiling is $12,500. A
table of the maximum allowable pawn service charges under the Texas Pawnshop Act
for the various stratified loan amounts for July 1, 2001 to June 30, 2002 is
presented in "Lending Activities".

To be eligible for a license to operate a pawnshop in Texas, an applicant must:
(i) be of good moral character, which in the case of a business entity applies
to each officer, director, and holder of five percent or more of the entity's
outstanding shares; (ii) have net unencumbered assets (as defined in the Texas
Pawnshop Act) of at least $150,000 readily available for use in conducting the
business of each licensed pawnshop; (iii) demonstrate that the applicant has the
financial responsibility, experience, character, and general fitness to command
the confidence of the public in its operation; and (iv) demonstrate that the
pawnshop will be operated lawfully and fairly in accordance with the Texas
Pawnshop Act and Rules. Current applications to the Office of Consumer Credit
Commissioner inquire, among other matters, into the applicant's credit history
and criminal record.

In addition, for new pawnshop applications filed after September 1, 1999 to be
operated in counties with 250,000 or more people, applications for new licenses
will be approved only at proposed locations which are not less than two miles
from another licensed pawnshop, and applications to relocate a license will be
approved only for proposed locations which are not less than one mile from
another licensed pawnshop. Any existing store may relocate to within one mile of
its present location, regardless of the existence of other pawnshops. The
Company's ability to add newly established stores in such counties may be
adversely affected by such regulation.

For a new license application in any Texas county, the Commissioner provides
notice of the application, and the opportunity for a public hearing, to the
other licensed pawnshops in the county in which the applicant proposes to
operate. The timeframe for the license application approval process generally
requires the Commissioner's office to process an application within 60 days of
its receipt of a complete application file. When a public hearing is requested,
however, the public hearing process can increase the timeframe substantially or
result in no application approval at all. The Company's ability to add newly
established stores may be adversely affected by the referenced provisions of the
Texas Pawnshop Act. The Texas Consumer Credit Commission may, after notice and
hearing, suspend or revoke any license for a Texas pawnshop upon finding, among
other matters, that: (i) any fees or charges have not been paid; (ii) the
licensee has violated (whether knowingly or unknowingly without due care) any
provisions of the Texas Pawnshop Act or any regulation or order thereunder; or
(iii) any fact or condition exists which, if

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it had existed at the time the original application was filed for a license,
would have justified the Commissioner in refusing such license.

The Texas Pawnshop Act also contains provisions related to the operation of
pawnshops and authorizes the promulgation of administrative rules called the
Rules of Operation of Pawnshops (the "Rules") which regulate the day-to-day
management of the Company's pawnshops. Under the Pawnshop Act and the Rules, a
pawnbroker may not do any of the following: accept a pledge from a person under
the age of 18 years; make any agreement requiring the personal liability of the
borrower; accept any waiver of any right or protection accorded to a pledgor
under the Texas Pawnshop Act; fail to exercise reasonable care to protect
pledged goods from loss or damage; fail to return pledged goods to a pledgor
upon payment of the full amount due; make any charge for insurance in connection
with a pawn transaction; enter into any pawn transaction that has a maturity
date of more than one month; display for sale in storefront windows or sidewalk
display cases, pistols, swords, canes, blackjacks or similar weapons; purchase
used or second hand personal property unless a record is established containing
the name, address, and identification of the seller, a complete description of
the property, including serial number and a signed statement that the seller has
the right to sell the property; or accept into pawn or purchase stolen goods.

In order to market and service short-term loans in Texas, the Company's 184
pawnshops and collection center are required to be licensed as a regulated
lender by the OCCC. The Company's ability to market and service short-term loans
in Texas at current fee levels is dependent upon its continued relationship with
County Bank or another similarly situated financial institution. Without such a
relationship with a federally insured bank domiciled in a state that permits
these rates, such as County Bank, the Company could offer short-term loans at a
lower fee level, not in excess of the Texas usury ceiling. While Delaware law
governs the short-term loans made by County Bank, the Company's short-term loan
activities in Texas are subject to review and regulation by the OCCC.

COLORADO REGULATIONS

Colorado law provides for the licensing and bonding of pawnbrokers in that
state. It also requires that pawn transactions be reported to local authorities
and that certain bookkeeping records be maintained. Under Colorado law, the
maximum allowable pawn service charge is 240% annually for pawn loans up to $50,
and 120% annually for pawn loans in excess of $50.

In Colorado, the Company makes short-term loans to customers pursuant to its own
underwriting guidelines. Short-term loans originated by the Company in Colorado
are regulated by the Department of Law, Office of the Attorney General, Uniform
Consumer Credit Code Division (the "UCCC Division"). The Company's 24 pawnshops
in Colorado have and are required to maintain a supervised lender's license
issued by the UCCC Division. The UCCC Division maintains regulatory and
supervisory authority over the stores. Under Colorado law, the Company is
required to maintain certain records related to its short-term loans and include
specific information and disclosures in the loan agreement.

The maximum loan amount is $500, exclusive of the service fee. Colorado law
provides for a graduated service fee: twenty percent (20%) of the first $300 and
7.5% of the amount over $300. The loan term may not exceed 31 days. Customers
have the right to rescind the loan within one business day after the date of
loan origination. The loan cannot be renewed more than once and if it is renewed
prior to the maturity date, the Company must refund a prorated portion of the
service fee.

OKLAHOMA REGULATIONS

The Company's Oklahoma operations are subject to the Oklahoma Pawnshop Act.
Following a statutory scheme similar to the Texas Pawnshop Act, the Oklahoma
Pawnshop Act provides for, among other matters, the licensing and bonding of
pawnbrokers in Oklahoma and provides for the Oklahoma Administrator of Consumer
Credit to investigate the general fitness of the applicant and generally
regulate pawnshops in that state. The Administrator has broad rule-making
authority with respect to Oklahoma pawnshops.

10

In general, the Oklahoma Pawnshop Act prescribes stratified loan amounts and
maximum rates of service charges which pawnbrokers in Oklahoma may charge for
lending money in Oklahoma within each stratified range of loan amounts. The
regulations provide for a graduated rate structure, similar to the graduated
rate structure utilized in federal income tax computations. Under this method of
calculation, a $500 loan, for example, earns interest as follows: (1) first $150
at 240% annually, (2) next $100 at 180% annually, and (3) the remaining $250 at
120% annually. The maximum allowable pawn service charges for the various
stratified loan amounts under the Oklahoma statute are as follows:

The amount financed in Oklahoma may not exceed $25,000 per pawn transaction. In
addition, the Oklahoma Pawnshop Act requires each applicant to (1) be of good
moral character; (2) have net assets of at least $25,000; (3) show that the
pawnshop will be operated lawfully and fairly within the purpose of the Oklahoma
Pawnshop Act; and (4) not have been convicted of any felony which directly
relates to the duties and responsibilities of the occupation of pawnbroker.

Oklahoma does not currently regulate or require a license for the Company's
short-term loan activities. In the future, if the Company alters its current
short-term loan business model in the state of Oklahoma or if Oklahoma changes
its laws regarding short-term loans, such an alteration or change could have a
material effect on the Company's short-term loan program in Oklahoma.

FLORIDA REGULATIONS

Pawnshop transactions in Florida are subject to Florida regulations codified in
Chapter 539 of the Florida Statutes. Under such regulations, licensing of
pawnshops and regulatory enforcement of such shops is performed by the Division
of Consumer Services of the Department of Agriculture and Consumer Services.
Such regulations require, among other things, that the pawnshop fill out a
Pawnbroker Transaction Form showing the customer name, type of item pawned, and
disclosing the amount of the pawn loan and the applicable finance charges. A
copy of each form must be delivered to local law enforcement officials at the
end of each business day.

Pawn loans in Florida typically have a 30-day maturity date. If the customer
does not redeem the loan within 30 days following the maturity date (or the next
business day, whichever is later), all right, title, and interest to the
property vests in the pawnbroker. The pawnbroker is entitled to charge two
percent of the amount financed for each 30 days as interest, and an additional
amount as pawn service charges, provided the total amount of such charge,
inclusive of interest, does not exceed 25% of the amount financed for each 30
day period in a pawn transaction. The pawnbroker may charge a minimum pawn
service charge of $5.00 for each 30-day period. Pawns may be extended by
agreement, with the charge applicable being one-thirtieth of the original total
pawn service charge for each day by which the loan is extended. For loans
redeemed greater than 60 days after the date made, pawn service charges continue
to accrue at the daily rate of one-thirtieth of the original total pawn service
charge.

INDIANA REGULATIONS

The Company's Indiana operations are regulated by the Department of Financial
Institutions. The Department requires all persons or entities to obtain a
license to act as a pawnbroker. The Indiana Pawnbroker's Act provides for the
Department of Financial Institutions to investigate the general fitness of the
applicant, to determine whether the convenience and needs of the public will be
served by granting an applicant a license, and generally to regulate pawnshops
in the state.

11

The Department of Financial Institutions has broad investigatory and enforcement
authority under the statute. The Department may grant, revoke, and suspend
licenses. For compliance purposes, pawnshops are required to keep such books,
accounts, and records as will enable the Department to determine if the pawnshop
is complying with the statute. Each pawnshop is required to give authorized
agents of the Department of Financial Institutions free access to its books and
accounts for these purposes. The Indiana statute allows the following annual
rates of interest plus pawn service charges: 276% annually on transactions of
$300 or less; 261% annually on transactions greater than $300 but not exceeding
$1,000, and 255% annually on transactions greater than $1,000. Furthermore, the
Indiana Pawnbroker Act provided for a grace period of 90 days after the initial
30-day term of the loan, subject to notice. During the grace period, interest
and service fees continue to accrue, subject to daily proration depending on the
date of loan redemption. As of July 1, 2001, the grace period was reduced to 60
days, and notice is no longer required.

ALABAMA REGULATIONS

The Alabama Pawnshop Act regulates the licensing and operation of pawnshops in
that state. The general fitness of pawnshop applicants is investigated by the
Supervisor of the Bureau of Loans of the State Department of Banking. The
Supervisor also issues pawnshop licenses. The Alabama Pawnshop Act requires that
certain bookkeeping records be maintained and made available to the Supervisor
and to local law enforcement authorities. The Alabama Pawnshop Act establishes a
maximum allowable pawn service charge of 300% annually.

NEVADA REGULATIONS

In Nevada, all pawn loans must be held for redemption for at least 120 days
after the date the loan is made. A pawnbroker may charge interest at the rate of
10% per month for money loaned on the security of personal property actually
received. In addition, the pawnbroker may collect an initial set up fee of $5.
Property received in pledge may not be removed from the pawnshop, except when
redeemed by the owner, after a report of the receipt of such property is
reported to the sheriff or chief of police.

Nevada does not regulate short-term loans. The Company originates short-term
loans in Nevada and charges a service fee of $20 per $100 loaned on a 14-day
term.

TENNESSEE REGULATIONS

Tennessee law provides for the licensing of pawnbrokers in that state. It
further requires (1) that pawn transactions be reported to local law enforcement
agencies, (2) requires pawnbrokers to maintain insurance coverage on the
property held in pledge for the benefit of the pledgor, (3) establishes certain
hours during which pawnshops may be opened for business, and (4) requires
certain bookkeeping records be maintained. Tennessee law prohibits pawnbrokers
from selling, redeeming, or disposing of any goods pledged or pawned to or with
them within 48 hours after making their report to local law enforcement
agencies.

Applicable Tennessee law provides that pawnbrokers may charge interest of 2% per
month, plus service charges of 20% for investigating the title, storing, and
insuring the pledged goods, closing the loan, and for other expenses and losses
associated with the loan.

LOUISIANA REGULATIONS

The Company's Louisiana operations are governed by the Louisiana Pawnshop Act.
The statute gives regulatory and enforcement powers to the Commissioner of the
Office of Financial Institutions within the Department of Economic Development.
This statute provides for, among other things, the licensing and bonding of all
pawnbrokers in Louisiana.

Under Louisiana law, the maximum allowable interest charge is 120% annually. In
addition, pawnshops may collect a 10% service charge for the first month of a
pawn transaction. Louisiana law requires that a pawnbroker hold jewelry that is
pledged as collateral until the lapse of six months prior to resale from the
time the loan was entered or extended. Louisiana law requires a three-month
lapse on other items.

12

MISSISSIPPI REGULATIONS

The Company's Mississippi operations are subject to the Mississippi Pawnshop
Act. The Commissioner of Banking administers the Mississippi Pawnshop Act.
Municipalities in the state may enact ordinances which are in compliance with,
but not more restrictive than those in the Mississippi Pawnshop Act.

The Mississippi Pawnshop Act provides for, among other matters, the licensing of
pawnbrokers. The Act also provides for the Commissioner of Banking to
investigate the general fitness of the applicant and generally to regulate
pawnshops in the state. The Commissioner has broad rule-making authority with
respect to Mississippi pawnshops. The Mississippi Pawnshop Act establishes a
maximum allowable pawn service charge of 300% annually.

CALIFORNIA REGULATIONS

In California, both state and city or county licenses are required. Applicants
must pass a state and local background check, post a bond in the amount of
$20,000, and maintain net assets of at least $100,000 per location. Pawn loans
in California require a written contract, which must provide for a four-month
loan period. If the pledgor does not redeem the loan within such period, the
pawnbroker must, within 30 days thereafter, send a notification to the pledgor
giving him ten days from the date of the mailing to redeem the pawn. The
pawnbroker may charge up to $2 for this notice.

In California, a pawnbroker may charge an initial set up fee of $2 on a pawn
transaction. In addition, a pawnbroker may charge interest of 2.5% per month on
loans up to $225; 2.0% per month on the portion of any loan between $225.01 and
$900; 1.5% per month on the portion of any loan between $900.01 and $1,650; and
1.0% per month on the portion of any loan that is $1,650.01 and above.
Pawnbrokers may also charge storage fees of $3 for any article that cannot be
contained within one cubic foot, $9 for any article that cannot be contained
within three cubic feet, and $18 for any article that cannot be contained within
six cubic feet. Additionally, pawnbrokers may make service charges consistent
with the following schedule:

For loans not more than 30 days:

13

For loans not more than 90 days:

The Company originates short-term loans in California which are regulated under
California's check cashers statute as "deferred deposit" transactions. The
maximum loan amount may not exceed $300 for a term not to exceed 30 days. The
service fee is limited to 15% of the amount of the loan. Only one short-term
loan may be outstanding at a time.

ARKANSAS REGULATIONS

Arkansas law does not provide for the licensing of pawnbrokers or pawnshops in
that state. By statute, pawnbrokers must maintain certain records of each pawn
transaction and make those records available to local law enforcement agencies.
Arkansas law establishes a maximum allowable interest rate of 17% annually;
however, a pawnshop operator may charge reasonable fees for investigating title,
storage, and other services.

LOCAL REGULATIONS

At the local level, each pawnshop, voluntarily or pursuant to municipal
ordinance, provides copies of transactions involving pawn loans and
over-the-counter purchases to the local police department. These daily
transaction reports are designed to provide the local police with a detailed
description of the goods involved, including serial numbers, if any, and the
names and addresses of the owners obtained from valid identification cards.

A copy of each transaction ticket is provided to local law enforcement agencies
for processing by the National Crime Investigative Computer to determine
rightful ownership. Goods held to secure pawn loans or goods purchased which are
determined to belong to an owner other than the borrower or seller are subject
to recovery by the rightful owner. While a risk exists that pledged or purchased
merchandise may be subject to claims of rightful owners, historically, the
Company has experienced such claims with respect to less than 0.5% of pawn loans
made.

14

There can be no assurance that additional local, state, or federal legislation
will not be enacted or that existing laws and regulations will not be amended
which would materially, adversely impact the Company's operations and financial
condition.

FIREARMS REGULATIONS

With respect to firearm sales, each pawnshop must comply with the regulations
promulgated by the Bureau of Alcohol, Tobacco, and Firearms (the "ATF"). The ATF
regulations require each pawnshop dealing in firearms to maintain a permanent
written record of all transactions involving the receipt or disposition of guns.

The Brady Handgun Violence Prevention Act (the "Brady Act") and the ATF rules
promulgated under the Brady Act require all federal firearm licensees, in either
selling inventoried firearms or releasing pawned firearms, to have the customer
complete appropriate forms and pass a background check through the National
Instant Criminal Background Check System ("NICS") before the Company may
transfer a firearm to any customer.

The Company complies with the Brady Act and the regulations promulgated by the
ATF relating thereto. The Company does not believe that compliance with the
Brady Act and the ATF regulations materially affect the Company's operations.
There can be no assurance, however, that compliance with the Brady Act and the
ATF regulations, or any future changes or amendments thereto will not adversely
affect the Company's operations.

15

ITEM 2. PROPERTIES

As of December 1, 2001, the Company owned the real estate and buildings for 24
of its pawnshops and leased 259 of its operating pawnshop locations. The Company
generally leases facilities for a term of five to ten years with one or more
options to renew. The Company's existing leases expire on dates ranging between
January 1, 2002 and June 30, 2021. All leases provide for specified periodic
rental payments and such leases provide for market rental rates. Most leases
require the Company to maintain the property and pay the cost of insurance and
taxes. The Company believes that the termination of any one of its leases would
not have a material adverse effect on the Company's operations. The Company's
strategy is generally to lease, rather than acquire, space for its pawnshop
locations unless the Company finds what it believes is a superior location at an
attractive price. The Company completed sale-leasebacks on twenty of its owned
locations during Fiscal 2001 and plans to complete sale-leasebacks on other
owned properties in Fiscal 2002. The Company believes that the facilities owned
and leased by it as pawnshop locations are suitable for such purpose.

The following table presents the metropolitan areas or regions (as defined by
the Company) generally served by the Company and the number of pawnshop
locations serving each such market as of December 1, 2001:

In addition to its store locations, the Company leases its 27,400 square foot
corporate offices located in Austin, Texas and leases certain warehouse
facilities. The Company also leases approximately 8,100 square feet for its
Central Jewelry Processing Center.

17

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising from its normal business operations. Currently, the Company is a
defendant in several lawsuits. Some of these lawsuits involve claims for
substantial amounts. While the ultimate outcome of these lawsuits cannot be
ascertained, after consultation with counsel, the Company believes the
resolution of these suits will not have a material adverse effect on the
Company's financial condition. There can be no assurance, however, that this
will be the case.

Pursuant to a settlement agreement dated February 4, 1998, the Company and its
founder and former President and Chief Executive Officer, Courtland L. Logue,
Jr., reached an out of court settlement in the lawsuit styled EZCORP, Inc. v.
Courtland L. Logue, Jr., in the 201st District Court of Travis County, Texas.
Under the terms of the settlement, which closed February 18, 1998, both the
Company and Mr. Logue released their claims against each other, including all
claims under Mr. Logue's employment agreement, and neither party admitted any
liability nor paid any cash consideration to the other.

The Company agreed to accelerate the release of contractual restrictions on the
transfer of Mr. Logue's 967,742 shares of common stock, which converted, as of
February 18, 1998, to publicly traded Class A Non-voting Common Stock. In
exchange, Mr. Logue agreed to assign 10,000 shares of his stock to the Company.

The settlement released 191,548 shares immediately from certain restrictions
against transfer, and a like amount was released as of October 29, 1998. An
additional 95,774 shares were released from restrictions on each of October 29,
1999 and October 29, 2000, with the remaining 40% of the shares released in July
2001. The Company and Mr. Logue also clarified the scope of Mr. Logue's
continuing non-competition agreement, agreed to a five-year limitation on Mr.
Logue's financial investments in competing pawnshop businesses and agreed to
renewal options with respect to certain existing real estate leases for store
locations.

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

None.

18

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since August 27, 1991, the Company's Class A Non-voting Common Stock ("Class A
Common Stock") has traded on The NASDAQ Stock Market under the symbol EZPW. As
of November 30, 2001, there were 176 stockholders of record of the Company's
Class A Common Stock. There is no trading market for the Company's Class B
Voting Common Stock ("Class B Common Stock"), and as of November 30, 2001, such
stock was held by one stockholder of record.

The high and low per share price for the Company's Class A Common Stock for the
past two fiscal years, as reported by The NASDAQ Stock Market, were as follows:

As of November 30, 2001, the Company's Class A Common Stock closed at $1.41 per
share.

The Company's restated certificate of incorporation provides that cash dividends
on common stock, when declared, must be declared and paid share and share alike
on the Class A Common Stock and the Class B Common Stock.

19

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial information should be read in conjunction with,
and is qualified in its entirety by reference to the financial statements of the
Company and the notes thereto included elsewhere in this Form 10-K:

SELECTED FINANCIAL DATA

(a) Beginning in Fiscal 2000, the Company changed its method of
accounting for pawn service charge revenue and inventory, as described in
Management's Discussion and Analysis. Service charges and inventory before
Fiscal 2000 are stated on the historical accounting method, and are not directly
comparable to Fiscal 2000 and 2001 amounts.

20

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This discussion and analysis compares the results of operations for the 12 month
periods ending September 30, 2001, 2000, and 1999 ("Fiscal 2001", "Fiscal 2000",
and "Fiscal 1999"). The discussion should be read in conjunction with, and is
qualified in its entirety by, the accompanying financial statements and related
notes. For purposes of management's discussion and analysis of results of
operations and financial condition, all comparisons reflect the pro forma
effects of applying the new accounting principle described below to the
consolidated financial statements as if the change had occurred on September 30,
1998.

SUMMARY FINANCIAL DATA

- ----------

(1) Average locations in operation during the period is calculated based on the
average of the stores operating at the beginning and end of each month during
such period.

21

RESULTS OF OPERATIONS

In Fiscal 2000, the Company adopted a restructuring plan, including the closure
of several under-performing stores. The restructuring plan and its effects are
described more fully below.

The Company's primary activity is the making of small, non-recourse loans
secured by tangible personal property. The income earned on this activity is
pawn service charge revenue. While the Company's average store count during
Fiscal 2001 was down 12.3% from Fiscal 2000 due to the restructuring, its pawn
service charge revenue decreased only 4.9%, or $2.8 million from Fiscal 2000 to
$54.7 million. This represents an increase in same store pawn service charge
revenue ($0.6 million) offset by the decrease in pawn service charge revenue
from the forty-seven closed stores ($3.4 million). At September 30, 2001, same
store pawn loan balances were 4% above September 30, 2000 and the annualized
yield on the average pawn loan balance decreased 5 percentage points to 120%.
Variations in the annualized loan yield, as we saw between these periods, are
due generally to changes in the level of loan forfeitures and a mix shift
between loans with different yields.

In Fiscal 2000, pawn service charge revenue decreased $1.2 million from Fiscal
1999 to $57.5 million as a result of a decrease in same store pawn service
charge revenue ($2.7 million), offset somewhat by pawn service charge revenue
from new stores not open the full 12 month period ($1.5 million). At September
30, 2000, same store pawn loan balances were 11.5% below September 30, 1999 and
the annualized yield on the average pawn loan balance increased by 5 percentage
points to 125%.

A secondary, but related, activity of the Company is the sale of merchandise,
primarily collateral forfeited from its pawn lending. For Fiscal 2001,
merchandise sales decreased approximately $10.4 million from Fiscal 2000 to
$129.4 million, primarily due to a reduction in sales from closed stores ($11.2
million). Also contributing to the change were increases in wholesale jewelry
sales ($4.6 million), offset by a decrease in same store merchandise sales ($3.6
million or 3%), and other revenues ($0.2 million).

For Fiscal 2000, merchandise sales increased approximately $9.7 million from
Fiscal 1999 to $139.8 million. Increases in wholesale jewelry sales ($5.7
million), new stores' merchandise sales ($4.4 million), and other revenues ($0.2
million) were offset by a decrease in same store merchandise sales ($0.6 million
or 0.5%).

Fiscal 2001 overall gross margins on sales improved 1.8 percentage points from
Fiscal 2000 to 38.9%. Margins on merchandise sales, excluding jewelry scrapping,
improved 3.1 percentage points, partially due to the absence of a restructuring
charge to cost of goods as was seen in Fiscal 2000 (1.4 percentage points). This
improvement in merchandise sales margins comprised 5.1 percentage points of the
improvement in overall gross margins. A 51% increase in jewelry scrapping
(jewelry is generally scrapped at a loss), reduced the overall gross margins
improvement by 3.3 percentage points. Inventory shrinkage was 1.4% of
merchandise sales in Fiscal 2001 compared to 1.1% in Fiscal 2000.

For Fiscal 2000, gross margins on merchandise sales decreased 4.1 percentage
points from Fiscal 1999 to 37.1%. This decrease was largely due to the impact of
increased jewelry scrapping activity (5.4 percentage points), and the charge to
cost of goods related to the fourth quarter restructuring discussed above (0.8
of a percentage point). Improved margins on merchandise sales (2.1 percentage
points) and lower levels of inventory shrinkage (1.1% in Fiscal 2000 v. 1.2% in
Fiscal 1999) partially offset the impact from jewelry scrapping and the
restructuring charge. During the Fiscal 2000 fourth quarter, the Company
identified and liquidated specific categories of jewelry that were overstocked.
This excess inventory had a cost basis of approximately $7.7 million and
generated cash proceeds of approximately $5.9 million.

At the end of Fiscal 2001, the Company also offered unsecured short-term loans,
commonly referred to as "payday loans" in 205 of its pawnshops. In five
locations, the Company originates short-term loans. In 200 locations, the
Company is the marketer, servicer, processor, and collector of short-term loans
originated by County Bank, a federally insured Delaware banking corporation.
After origination of the short-term loans, the Company is entitled to purchase
an 85% participation in the loans made by County Bank and marketed by the
Company. Short-term loan terms range from one to 31 days, averaging about 15
days. The fee per $100 loaned is

22

typically $18 per 14-day period, but varies in certain locations. The loans and
related fees reported in the Company's consolidated financial statements reflect
only the Company's participation interest in such loans. In Fiscal 2001,
short-term loan service charge revenue increased $2.0 million from Fiscal 2000
to $2.1 million as a result of offering the short-term loan product in 196
additional locations.

Unlike pawn loans, short-term loans are unsecured, and their profitability is
highly dependent upon the Company's ability to manage the default rate and
collect defaulted loans. The Company considers a loan defaulted if the loan has
not been repaid or refinanced by the maturity date. Although defaulted loans may
be collected through subsequent collection efforts, the Company charges
defaulted loans and related fees to bad debt expense when they default, leaving
only active loans in the reported balance. When defaulted loans are collected,
the amount collected is recorded as a reduction of bad debt expense at the time
of collection. During Fiscal 2001, the Company experienced a net default rate
(defaults net of collections measured as a percent of loans made) of 8.1%. The
Company provides for a valuation allowance on both the principal and fees
receivable, based on recent net default rates. Net defaults and changes in the
principal valuation allowance are charged to bad debt expense. In Fiscal 2001,
the Company's bad debt expense, included in store operating expense, was $1.2
million. Changes to the fee receivable valuation allowance are charged to
service charge revenue.

In Fiscal 2001, store operating expenses as a percent of total revenues
decreased 2.9 percentage points to 40.4%. Administrative expenses measured as a
percentage of total revenues decreased 2.3 percentage points from Fiscal 2000 to
7.5%. This expense level improvement is largely due to improved cost management
and the closure of 47 lower volume stores. On a per average store basis,
operating expenses in Fiscal 2001 were up slightly to $258,000 from $257,000 in
Fiscal 2000. Administrative expenses per average store decreased 17% during
Fiscal 2001 to $48,000, compared to $58,000 in Fiscal 2000.

In Fiscal 2000, store operating expenses as a percent of total revenues
decreased 0.1 of a percentage point from Fiscal 1999 to 43.3%. Exclusive of
stores opened in Fiscal 1999 and 2000, store operating expenses decreased from
39.9% in Fiscal 1999 to 38.1% of total revenues in Fiscal 2000. Newer stores
generally have a higher level of operating expense relative to revenues than do
mature stores. Administrative expenses measured as a percentage of total
revenues increased 2.0 percentage points from Fiscal 1999 to 9.8%, primarily due
to non-capitalizable software development costs (approximately $1.4 million),
higher labor related costs, and other inflationary cost increases.

Depreciation and amortization expense, when measured as a percent of total
revenue, increased 0.6 of a percentage point in Fiscal 2001 to 5.8%, primarily
due to additional software depreciation. Depreciation and amortization expense,
when measured as a percent of total revenue, increased 0.2 of a percentage point
in Fiscal 2000 to 5.2%. The increase was a net effect of greater revenues and an
increase in depreciation and amortization expense, primarily due to investments
made in new stores.

In Fiscal 2001, interest expense increased $2.0 million to $8.2 million. The
increase was primarily due to higher interest rates, offset somewhat by lower
average debt balances. At September 30, 2001, the Company's total long-term debt
was $60.2 million compared to $81.1 million at September 30, 2000. In Fiscal
2000, interest expense increased $2.5 million from $3.7 million in Fiscal 1999.
This increase was primarily due to higher interest rates coupled with increased
average debt balances needed to fund new store expansion and other capital
expenditures.

The income tax benefit for Fiscal 2001 was $0.1 million (20% of pretax loss)
compared to an income tax benefit of $3.8 million (17% of pretax loss) for
Fiscal 2000 and an income tax expense of $3.2 million (37% of pretax income) for
Fiscal 1999. Exclusive of the deferred tax asset valuation allowance, the Fiscal
2000 income tax benefit was $7.5 million (34% of pretax loss). The decrease in
effective tax rate for Fiscal 2001 compared to the Fiscal 2000 benefit before
valuation allowance is due to non-tax deductible items having a greater
percentage effect on a smaller pre-tax loss.

A valuation allowance of $3.7 million was established during the year ended
September 30, 2000, to offset certain deferred tax assets due to uncertainties
regarding the realization of the deferred tax assets.

23

No additional valuation allowance was recorded for the year ended September 30,
2001, because management believes that it is more likely than not that certain
of the Company's deferred tax assets will be realized as a result of expected
future taxable income from continuing operations. Uncertainties that might
impact the realization of the deferred tax assets include possible declines in
sales, margins and revenues.

The amount of expected future taxable income that would have to be generated to
realize the deferred tax asset is approximately $18 million. Projected levels of
pre-tax earnings for financial reporting purposes over the next three years,
primarily attributable to ordinary and recurring operating results, are
sufficient to generate the required amount of taxable income noted above. The
Company intends to evaluate the realizability of the deferred tax assets
quarterly by assessing the need for additional valuation allowance, if any.

Operating income before depreciation, amortization, and restructuring for Fiscal
2001 increased $13.3 million over Fiscal 2000 to $17.8 million. Same store net
revenue growth ($6.1 million), expense management ($5.0 million) and the closure
of under-performing stores ($2.2 million) account for the earnings improvement.
After depreciation, amortization, interest expense, the Fiscal 2000
restructuring charge, and other non-operating items, the Fiscal 2001 net loss
improved to $0.6 million from Fiscal 2000's $18.2 million net loss before the
$14.3 million cumulative effect of the accounting change adopted in Fiscal 2000.
Net loss for Fiscal 2000 was $32.6 million compared to net income of $1.7
million for Fiscal 1999, assuming the effect of the cumulative change in
accounting principle is applied retroactively. The increase in net loss resulted
from several factors, including the cumulative effect of changing to a
preferable revenue recognition method ($14.3 million), recognition of a
restructuring charge ($11.8 million), lower gross margins on merchandise sales
($4.5 million), the establishment of a valuation reserve on the Company's
deferred tax asset ($3.7 million), and higher operating, administrative, and
interest expenses.

ACCOUNTING CHANGE

During the second quarter of Fiscal 2000, the Company changed its method of
revenue recognition on pawn loans by reducing the accrual of pawn service charge
revenues to the estimated amount that will be realized through loan collection,
and recording forfeited collateral at the lower of the principal balance of the
loan or estimated market value. Previously, pawn service charges were accrued on
all loans, and the carrying value of the forfeited collateral was the lower of
cost (principal amount of loan plus accrued pawn service charges) or market.

The Company believes the new method of revenue recognition is preferable in that
it better aligns reported net revenues and earnings with current economic trends
in its business and the management of the Company. In addition, the Company
believes the new method improves comparability of its operating results and
financial position with similar companies. This change was made effective
October 1, 1999, the first day of the Company's fiscal year.

The $14.3 million cumulative effect of this accounting change on prior years
(net of a tax benefit of $7.4 million) increased net loss for the year ended
September 30, 2000. Of the $2.71 net loss per share for the year ended September
30, 2000, $1.19 per share is attributable to the cumulative effect of the
accounting change.

RESTRUCTURING

Pursuant to a restructuring plan, the Company decided to close 54 stores and
recorded a pretax charge of $11.8 million ($7.8 million net of tax) during the
fourth quarter of Fiscal 2000.

The total pretax charge included $9.6 million (included in Restructuring expense
on the Consolidated Statement of Operations) for the write-down to realizable
value the closed stores' property, equipment, pawn loans outstanding, intangible
assets, and the estimated costs for the settlement of lease obligations,
administrative costs, severance costs, and other exit costs. Also included in
the total charge is approximately $1.0 million (included in Restructuring
expense on the Consolidated Statement of Operations) related to other
restructuring charges, primarily severance for administrative staff reductions.

24

All charges for severance included in the restructuring related to employees
notified of their position elimination prior to September 30, 2000. The $11.8
million pretax charge included a $1.2 million write down of inventory (included
in Cost of goods sold on the Consolidated Statement of Operations) for discounts
expected in liquidating these stores' remaining inventory. Of the 54 stores, 47
were closed as of June 30, 2001, resulting in 148 employee terminations.

In June 2001, the Company re-evaluated the seven remaining stores and decided to
continue their operation, based on their improved operating performance and
future outlook. Accordingly, the Company reversed the $1.3 million restructure
accrual related to these seven stores. The Company recorded an additional $0.3
million restructure expense for the 47 store previously closed, primarily to
account for lease obligations costing more than originally estimated, resulting
in a net credit to restructuring expense of $1.0 million in Fiscal 2001.

Of the $1.0 million net credit, $0.7 million is for the anticipated
administrative costs and loss from disposing of fixed and intangible assets and
is recorded as a credit to the restructuring expense, where the charge was
recorded in September 2000. The remaining $0.3 million was originally charged to
cost of goods sold to write these stores' inventory down to liquidation value,
and was credited to cost of goods sold in Fiscal 2001, as the Company no longer
expects to sell this inventory at liquidation prices.

The results of operations from the 47 closed stores were as follows (in
thousands):

At September 30, 2001, the Company had a remaining restructuring reserve of $0.2
million. It is anticipated that all remaining material cash outlays required for
these store closings and related restructuring costs will be made during Fiscal
2002.

LIQUIDITY AND CAPITAL RESOURCES

The Company's $11.7 million Fiscal 2001 cash flow from operations consisted of
$10.2 million of earnings before non-cash depreciation and amortization, a $5.0
million income tax refund, and the collection of a $1.5 million note receivable,
reduced by $1.9 million restructuring expenditures and other changes in
operating assets and liabilities. In Fiscal 2000, net cash provided by operating
activities increased to $10.9 million from $0.6 million in Fiscal 1999.
Excluding restructuring expenses of $10.6 million and the $14.3 million
cumulative effect of a change in accounting principle, the Company's most
significant item in reconciling net loss to cash flow from operations was a $7.5
million decrease in inventory, compared to a $14.1 million increase in inventory
in the year earlier period.

In Fiscal 2001, the Company invested $4.5 million in property and equipment and
$1.2 million in funding the net increase in short-term loans. These investments
and a $20.9 million reduction in debt were funded by cash flow from operating
activities of $11.7 million, $14.0 million in proceeds from the sale of assets,
primarily the sale-leaseback of owned properties, and $0.9 million of cash on
hand.

During Fiscal 2001, the Company completed sales and sale-leasebacks of certain
non-core assets and twenty owned properties in accordance with its restructuring
plan. During Fiscal 2002, the Company plans to complete sale-leasebacks of other
owned properties. The Company anticipates that cash flow from operations and
proceeds from sale-leasebacks will be adequate to fund planned capital
expenditures, working capital requirements, and required debt payments during
the coming year. However, there can be no assurance that the sale of these
assets will be completed or that cash flow from operating activities will be
adequate for these expenditures.

Effective December 3, 2001, the Company amended and restated its credit
agreement. Among other things, the amendment extends the maturity date to
October 1, 2002. The amended credit agreement provides for a $45 million
revolving credit facility and a term loan of approximately $15 million, which
are

25

secured by substantially all of the Company's assets. Availability under the
revolving credit facility continues to be tied to loan and inventory balances.
The term facility must be paid in full by July 1, 2002. These term facility
payments will be made from operating cash flow and the sale of assets, primarily
sale-leaseback transactions of owned properties. Interest on the revolving
credit facility will accrue at the agent bank's prime rate ("Prime") plus 300
basis points, but will be payable monthly at Prime plus 100 basis points. The
accrued but unpaid interest will be payable upon the earlier of the refinancing
or maturity of the revolving credit facility. Interest on the term loan will
accrue and be paid monthly at Prime plus 350 basis points. The Company pays a
commitment fee of 25 basis points on the unused amount of the revolving
facility.

The Company believes that the financial covenants established in the amended
credit facility will be achieved based upon the Company's current and
anticipated performance. Based upon management's expected performance for Fiscal
2002, including the sale-leaseback of certain assets and the availability under
the revolving credit facility, the Company believes that there is adequate
liquidity to fund the Company's operations and to make the required principal
payments under the term loan during Fiscal 2002. However, material shortfalls or
variances from anticipated performance or the delay in the sale of certain of
its assets could require the Company to seek a further amendment to the amended
credit facility or alternate sources of financing, or to limit capital
expenditures to an amount less than that currently anticipated or permitted
under the amended and restated credit facility.

SEASONALITY

Historically, pawn service charge revenues are highest in the fourth fiscal
quarter (July, August and September) due to higher loan demand during the summer
months and merchandise sales are highest in the first and second fiscal quarters
(October through March) due to the holiday season and tax refunds.

FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K includes "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. All statements other
than statements of historical information provided herein are forward-looking
and may contain information about financial results, economic conditions,
trends, and known uncertainties. The Company cautions the reader that actual
results could differ materially from those expected by the Company depending on
the outcome of certain factors, including without limitation (i) fluctuations in
the Company's inventory and loan balances, inventory turnover, average yields on
loan portfolios, redemption rates, labor and employment matters, competition,
operating risk, acquisition, and expansion risk, liquidity, and capital
requirements and the effect of government and environmental regulations, and
(ii) adverse changes in the market for the Company's services. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligations to
release publicly the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereon, including without limitation, changes in the Company's business strategy
or planned capital expenditures, or to reflect the occurrence of unanticipated
events.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK DISCLOSURES

The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
The Company does not use derivative financial instruments.

The Company's earnings are affected by changes in interest rates due to the
impact those changes have on its debt, all of which is variable-rate debt at
September 30, 2001. If interest rates average 25 basis points more in 2002 than
they did in 2001, the Company's annual interest expense would be increased by
approximately $150,000. This amount is determined by considering the impact of
the hypothetical interest rates on the Company's variable-rate debt at September
30, 2001.

26

The Company's earnings and financial position are affected by foreign exchange
rate fluctuations related to the equity investment in Albemarle & Bond Holdings,
plc ("A&B"). A&B's functional currency is the U.K. pound. The U.K. pound
exchange rate can directly and indirectly impact the Company's results of
operations and financial position in several ways, including potential economic
recession in the U.K. resulting from a devalued pound. The impact on the
Company's financial position and results of operations of a hypothetical change
in the exchange rate between the U.S. dollar and the U.K. pound cannot be
reasonably estimated. The translation adjustment representing the weakening in
the U.K. pound during Fiscal 2001 was approximately $241,000. On November 30,
2001, the U.K. pound closed at 0.7007 to 1.00 U.S. dollar, an increase from
0.6782 at September 30, 2001. No assurance can be given as to the future
valuation of the U.K. pound and how further movements in the pound could effect
future earnings or the financial position of the Company.

27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

28

REPORT OF INDEPENDENT AUDITORS

Board of Directors
EZCORP, Inc.

We have audited the accompanying consolidated balance sheets of EZCORP, Inc. and
its subsidiaries as of September 30, 2000 and 2001, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 2001. Our audits also included the
financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of EZCORP,
Inc. and its subsidiaries at September 30, 2000 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note B to the financial statements, in the year ended September
30, 2000 the Company changed its method of accounting for revenue recognition on
pawn loans.

ERNST & YOUNG LLP

Austin, Texas

November 13, 2001 except for Note H,
as to which the date is December 20, 2001.

29

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

30

CONSOLIDATED STATEMENTS OF OPERATIONS