U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 000-30105
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PAWNBROKERS EXCHANGE, INC.
--------------------------
(Name of Small Business Issuer in its Charter)
UTAH 84-1421483
---- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
158 South State Street
Salt Lake City, Utah 84111
--------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 238-0111
Securities Registered under Section 12(b) of the Exchange Act: None
Name of Each Exchange on Which Registered: None
Securities Registered under Section 12(g) of the Exchange Act: Common Stock,
no par value
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: December 31, 2001 -
$133,556.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days.
February 28, 2002 - $111,750. There are approximately 149,000 shares of
common voting stock of the Company held by non-affiliates. This valuation is
based upon the average bid prices for the common stock of the Registrant on
the OTC Bulletin Board of the NASD on February 28, 2002, of $0.75 per share.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Not applicable.
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date:
December 31, 2001
2,149,000
DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained
in Item 13, Part III.
Transitional Small Business Issuer Format Yes X No
--- ---
PART I
Item 1. Description of Business.
------------------------
Business Development.
---------------------
December 31, 2001.
------------------
On May 8, 2001, Pawnbrokers Exchange, Inc. ("Pawnbrokers" or the
"Company") formed "Pawnbrokers Exchange No. One, Inc.," a Utah corporation
("Pawnbrokers No. One"), and pursuant to a Distribution Agreement, on May 30,
2001, the Company transferred all of its properties, assets and business
operations, subject to liabilities, to this subsidiary, and the Company became
a holding company, owning all of the outstanding securities of this
subsidiary, through which all business operations of the Company where then
operated. Copies of the Articles of Incorporation of this subsidiary and the
Distribution Agreement are attached hereto and incorporated herein by
reference. See Item 13, Part III.
Events Subsequent to December 31, 2001.
---------------------------------------
On March 25, 2002, the Company declared an 8 for 1 dividend on its
outstanding securities that required a mandatory exchange of stock
certificates by the holders to receive the dividend. Immediately prior to the
declaration of the dividend, certain principal stockholders of the Company
delivered 1,649,000 pre-dividend shares to the Company for cancellation to
satisfy a condition precedent to the Share Exchange Agreement discussed under
this heading below; as a result, following the cancellation of these shares
and taking into account the effect of the dividend, there were 4,000,000 post-
dividend outstanding shares of the Company.
On March 22, 2002, the Company filed a "doing business as" Form with the
Department of Commerce of State of Utah under the name "Defense Industries
International, Inc.," also in contemplation of completing the Share Exchange
Agreement discussed under this heading below.
On March 25, 2002, the Company, Export Erez USA, Inc., a Delaware
corporation ("Export Erez") that is a "reporting issuer" under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and all of the Export
Erez stockholders entered into a Share Exchange Agreement pursuant to which
the Company acquired 100% of the outstanding securities of Export Erez, and
the stockholders of Export Erez became the controlling stockholders of the
Company, owning approximately 84% of its post-Share Exchange Agreement
outstanding voting securities. Prior to the closing of the Share Exchange
Agreement and the declaration of the aforesaid dividend, certain principal
stockholders of the Company contributed for cancellation 1,649,000 pre-
dividend shares of common stock that were owned by them as a condition to the
closing of the Share Exchange Agreement. Following the closing, in
consideration of the assumption and indemnification of the Company and Export
Erez from and against any and all liabilities of the Company, Michael
Vardakis, who was then the Company's President, was assigned all of the
Company's right, title and interest in all of the outstanding securities of
its wholly-owned subsidiary, Pawnbrokers No. One. Export Erez was organized
to develop high tech products, including stab-proof fabric, ballistic helmets,
ballistic ceramic boards, oneway protective windows, Kevlar fabric, dry
storage, ballistic wall coverings and oil and fuel pillow type storage tanks.
For further information regarding the business operations of Export Erez of
which the Company will be a successor, see the filings of Export Erez with the
Securities and Exchange Commission that are contained in the EDGAR archives at
www.sec.gov. An 8-K Current Report dated March 25, 2002, will be filed
regarding the Share Exchange Agreement on or before April 9, 2002.
Prior Historical Business Developments.
---------------------------------------
For a detailed description of the history and development of the
business of the Company from inception to the calendar year ended December 31,
2001, and information on the general business of pawn brokers, see our
Registration Statement on Form 10-SB, Part I, Item I, and our 10-KSB Annual
Report for the year ended December 31, 2000, which have previously been filed
with the Securities and Exchange Commission, and which are incorporated herein
by reference. See Item 13, Part III.
Business.
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General.
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The services of a pawnshop provide the approximately 15% of the adult
population of the United States, which has poor credit or lacks credit and
cannot obtain loans from banks or other lending institutions, with access to
cash without the scrutiny of a credit check and the delay in time associated
with the loan approval process. Thus, PEI and numerous other pawn brokerage
businesses fill a void in consumer lending services unsatisfied by the general
banking system. The Company engages in all aspects of the pawn brokerage
business, including, generally, the making of short-term loans secured by
pledged collateral and the buying and selling of previously-owned and new
merchandise.
The loan, or pawn, aspect of the Company's business, involves the lending
of money on a short-term basis on the security of pledged property. The
Company charges a pawn service fee on each loan that is typically calculated
as a percentage of the amount of the loan and, accordingly, is based upon the
size of the loan. The pawn service charge per month on each loan that exceeds
$40 is 15% of the amount of the loan. This rate permits the Company to
realize gross profit margins of approximately 150% and be competitive in the
Salt Lake City, Utah, metropolitan area. Management may reduce the pawn
service fees charged by PEI at any given time in order to increase the
Company's competitiveness. The Company charges a minimum monthly service fee
of $5 on each pawn that is equivalent to, or less than, the sum of $40.
Each pawn receivable, or outstanding loan, is collateralized by property
of the debtor that has a higher value than the amount of the loan. Pledged
merchandise generally consists of jewelry, firearms, tools, television sets,
stereo systems, musical instruments and other miscellaneous property. Upon
default in the payment of a loan obligation, the Company converts the
collateral to inventory that can be sold for a price in excess of the amount
of the loan. The bulk of the merchandise marketed and sold by PEI from time-
to-time is obtained as a result of the forfeiture of personal property by
debtors who have defaulted in the payment of their loans. The balance of the
merchandise is comprised of goods purchased by PEI from customers who do not
wish to pledge the goods as collateral for a loan and, in addition, new
merchandise. Management's policy is to purchase only merchandise that it
believes to be undervalued and able to be sold quickly in a retail
transaction.
The Company, through its wholly owned subsidiary, Pawnbrokers No. One,
operates one pawnshop located at its executive offices at 158
South State Street, Salt Lake City, Utah 84111. These offices are leased from
an affiliated Utah limited liability company of which Michael Vardakis,
the President and a director of the Company, is a 50% owner. Management plans
in the future to expand the Company's operations to include as many as four
additional pawnshops within the Salt Lake City, Utah, metropolitan area.
However, the implementation of these plans is dependent upon PEI's ability to
raise additional capital from equity and/or debt financing and/or achieve
profitable operations. Depending upon the Company's financial position in the
future, its long-range plans include expansion to various geographic areas in
the western and central United States lacking sufficient pawn brokerage
services. The Company may also expand through the acquisition of existing
pawnshops; there are presently no negotiations to acquire any existing
businesses at this time.
Because of the nature of the pawn brokerage business, the Company cannot
anticipate the total amount of loans it will have outstanding at any given
time. Because of this, among other things, the Company has, since its
inception, experienced periods characterized by the receipt of revenue from
pawn service charges and retail sales insufficient in amount to satisfy its
ongoing expenses. Accordingly, while the Company's independent auditors have
presented our financial statements on the basis that PEI is a going concern,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business over a reasonable length of time,
they have indicated that the Company has a substantial need for working
capital. This working capital is expected to be provided by loans from
management so as to enable PEI to continue as a going concern in the event
that the Company fails in its efforts to raise additional funding through
equity and/or debt financing.
The pawn brokerage industry is seasonal, with the greatest number of
retail sales occurring during the holidays and decreasing immediately
thereafter. Additionally, demand for the Company's products and services
fluctuates based upon changes in general economic conditions, including, among
others, inflation, unemployment and interest rates.
Principal Products and Services.
--------------------------------
The Company is engaged in the pawn brokerage business, including,
generally, the following: (1) the lending of money on the security of pledged
property and (2) the retail sale of (i) merchandise forfeited upon default in
the payment of collateralized loans and (ii) new merchandise.
Distribution Methods of the Products or Services.
-------------------------------------------------
The Company's target market is the approximately 15% of the adult
population of the United States that has poor credit or lacks credit, and
cannot obtain loans from banks or other lending institutions. Accordingly,
PEI, together with numerous other pawn brokerage businesses, fills a void in
consumer lending services unsatisfied by the general banking system. The
services of a pawnshop provide this segment of the adult population with
access to cash without the scrutiny of a credit check and the delay in time
associated with the loan approval process.
The principal method by which PEI currently generates, and in the future
intends to generate, business is by locating its pawnshop(s) in high traffic
areas. This is the reason for the selection of 158 South State Street, Salt
Lake City, Utah 84111, as the site for the Company's first and sole existing
pawnshop. Management believes that this location is advantageous because, as
a direct result of the selection of the site, the Company has realized a
significant portion of its sales from "walk-in" business. Additionally, the
Company generates, and proposes to generate, business through multi-media
advertising on the radio and television, currently, and on the Internet in the
near future. While the Company has no web site on the Internet presently,
management estimates the cost of developing a site to be less than $2,000.
Management believes that an additional marketing tool is the Company's policy
of offering customers a greater loan value than its competitors; that is,
making a larger loan to a customer for a given item pledged by the customer as
collateral. To date, the Company has not achieved profitability or generated
sales needed to fund growth as a result of management's strategy of locating
the Company's first pawnshop in a high traffic area and allocating
approximately 10% of the monthly budget for advertising.
Status of any Publicly Announced New Product or Service.
--------------------------------------------------------
None; not applicable.
Competitive Business Conditions.
--------------------------------
The pawn brokerage industry is intensely competitive and, because of the
lucrative nature of the business, is growing at a rapid rate and becoming ever
increasingly competitive. The business is characterized by a large number of
independent owner/operators, some of whom own and operate multiple retail
locations. Accordingly, the Company is in competition with pawn brokerage
businesses of all sizes that have their central offices located both within
and without the State of Utah and other financial institutions, such as
consumer finance companies, that lend money on both a secured, and unsecured,
basis. The Company's principal competitor, however, is Cash America, a company
with assets in excess of $325 million that operates over 380 pawnshops
worldwide. As part of its marketing strategy, PEI will endeavor to establish
any additional retail locations in geographic areas where Cash America has no
presence.
Management hopes, to the extent practicable, to minimize the Company's
weaknesses, including, among others, its undercapitalization, cash shortage,
limitations with respect to personnel, technological, financial and other
resources and a limited customer base and market recognition through two
principal strategies: (1) the location of pawnshop(s) in high traffic areas so
as to obtain significant "walk-in" business and (2) offering customers a
greater loan value than its competitors. The Company may also reduce its
monthly pawn service charge (currently 15% of any loan amount in excess of
$40) in order to increase PEI's competitiveness. Nevertheless, the Company
expects that its opportunities may be limited by its financial resources and
other assets. In this regard, many of the companies and other organizations,
such as Cash America, with which PEI will be in competition are established
and many such entities have far greater financial resources, substantially
greater experience and larger staffs than the Company. Additionally, many of
such organizations have proven operating histories, which the Company lacks.
Therefore, these companies are in a better position than PEI to compete for
the business of individuals that have poor credit or lack credit.
Additionally, many corporations engaged in the pawn brokerage business have
recently completed securities offerings, which have provided them with the
necessary capital to limit competition through expansion and offer more
favorable credit terms. The Company has experienced, and expects to continue
to face, strong competition from both well-established companies and small
independent companies like itself. There can be no assurance that the Company
will be successful in raising additional capital and/or realizing profits from
operations so as to enable PEI to acquire existing pawnshops or otherwise
establish pawnshops in addition to the Company's existing location. In
addition, the Company's operations may be subject to decline because of
generally increasing costs and expenses of doing business, thus further
increasing anticipated competition.
Sources and Availability of Raw Materials and Names of Principal
Suppliers.
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None; not applicable.
Dependence on One or a Few Major Customers.
-------------------------------------------
None; not applicable.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty
Agreements or Labor Contracts.
------------------------------
None; not applicable.
Need for any Governmental Approval of Principal Products or
Services.
---------
Because the Company currently produces no products or services, it is not
presently subject to any governmental regulation in this regard.
Effect of Existing or Probable Governmental Regulations on
Business.
---------
Certain aspects of the pawn brokerage business are subject to regulation
by local government agencies. The Company has obtained all permits, including
a municipal pawnbroker's license and a retail sales tax license, necessary in
order to operate its business. Each state has different regulatory policies
with regard to the interest rate that may be charged in a pawn transaction.
Interest charged on loans typically ranges from 18% to 720% annually, as
permitted by state regulatory policies.
Also, the integrated disclosure system for small business issuers adopted
by the Securities and Exchange Commission in Release No. 34-30968 and
effective as of August 13, 1992, substantially modified the information and
financial requirements of a "Small Business Issuer," defined to be an issuer
that has revenues of less than $25 million; is a U.S. or Canadian issuer; is
not an investment company; and if a majority-owned subsidiary, the parent is
also a small business issuer; provided, however, an entity is not a small
business issuer if it has a public float (the aggregate market value of the
issuer's outstanding securities held by non-affiliates) of $25 million or
more.
The Securities and Exchange Commission, state securities commissions and
the North American Securities Administrators Association, Inc. ("NASAA") have
expressed an interest in adopting policies that will streamline the
registration process and make it easier for a small business issuer to have
access to the public capital markets. The present laws, rules and regulations
designed to promote availability to the small business issuer of these capital
markets and similar laws, rules and regulations that may be adopted in the
future will substantially limit the demand for companies like the Company, and
may make the use of these companies obsolete.
Our common stock is "penny stock" as defined in Rule 3a51-1 of the
Securities and Exchange Commission. Penny stocks are stocks:
* with a price of less than five dollars per share;
* that are not traded on a "recognized" national exchange;
* whose prices are not quoted on the NASDAQ automated quotation
system; or
* in issuers with net tangible assets less than $2,000,000, if the
issuer has been in continuous operation for at least three
years, or $5,000,000, if in continuous operation for less than
three years, or with average revenues of less than $6,000,000 for
the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the Securities and
Exchange Commission require broker/dealers dealing in penny stocks to provide
potential investors with a document disclosing the risks of penny stocks and
to obtain a manually signed and dated written receipt of the document before
making any transaction in a penny stock for the investor's account. You are
urged to obtain and read this disclosure carefully before purchasing any of
our shares.
Rule 15g-9 of the Securities and Exchange Commission requires
broker/dealers in penny stocks to approve the account of any investor for
transactions in these stocks before selling any penny stock to that investor.
This procedure requires the broker/dealer to:
* get information about the investor's financial situation,
investment experience and investment goals;
* reasonably determine, based on that information, that transactions
in penny stocks are suitable for the investor and that the
investor can evaluate the risks of penny stock transactions;
* provide the investor with a written statement setting forth the
basis on which the broker/dealer made his or her determination;
and
* receive a signed and dated copy of the statement from the
investor, confirming that it accurately reflects the investor's
financial situation, investment experience
and investment goals.
Compliance with these requirements may make it harder for our
stockholders to resell their shares.
Research and Development.
-------------------------
None; not applicable.
Cost and Effects of Compliance with Environmental Laws.
-------------------------------------------------------
None; not applicable.
Number of Employees.
--------------------
As of the date hereof, the Company has four part-time employees,
including Michael Vardakis, President, Terry S. Pantelakis, Vice
President, Angelo Vardakis, Secretary/Treasurer and Vincent C. Lombardi,
Director of Marketing and Shareholder Relations, respectively, and
directors, of PEI, and three full-time employees, including one manager and
two sales persons. Messrs. Michael Vardakis, Pantelakis, Angelo Vardakis and
Lombardi are responsible for, among other things, management, refurbishing
(preparing inventory for resale), sales and shareholder relations,
respectively. No cash compensation has been awarded to, earned by or paid to
these persons for any services rendered in all capacities to the Company since
PEI's inception on July 9, 1997, and none is presently due to these persons.
None of the Company's employees is represented by a labor union; there has
never had a strike or lockout; and management considers its employee relations
to be good.
It is anticipated that at such time, if ever, as the Company's financial
position permits, assuming that the Company is successful in raising
additional funds through equity and/or debt financing and/or generating a
sufficient level of revenue from operations, the executive officers and/or
directors of PEI will receive reasonable salaries and other appropriate
compensation, such as bonuses, coverage under medical and/or life insurance
benefits plans and participation in stock option and/or other profit sharing
or pension plans, for services as executive officers of the Company and may
receive fees for their attendance at meetings of the Board of Directors.
Additionally, if financing permits, the Company intends to establish up to
four additional locations in the Salt Lake City, Utah, metropolitan area with
approximately five employees, including a manager, an individual in charge of
refurbishing, a controller/accountant and two sales persons to transact pawns,
at each location.
Item 2. Description of Property.
------------------------
The Company's executive offices and pawnshop are located at 158 South
State Street, Salt Lake City, Utah 84111. The facility, a storefront location
comprised of 3,500 square feet of useable space, is leased from M.N.V.
Holdings, LLC ("MNV Holdings"), an affiliated Utah limited liability company
owned 50% by Michael Vardakis, the President and a director of the Company,
pursuant to a triple net lease at a rental rate of $3,000 per month. The term
of the lease, which commenced on June 19, 1997, and terminated on June 19,
1999, was renewed for an additional two years through June 19, 2001, and is
now on a month to month basis. The space is expected to be adequate to meet
PEI's foreseeable future needs at the South State Street location. However,
while the Company plans to establish pawnshops in up to four additional
locations in the Salt Lake City, Utah, metropolitan area, these plans have not
yet been, and may never be, implemented. The Company's telephone and facsimile
numbers are (801) 238-0111 and (801) 532-0325, respectively. See Item 12,
Part III, for information regarding payments made to Mr. Vardakis under this
lease.
Item 3. Legal Proceedings.
------------------
The Company is not a party to any pending legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against the Company. No director,
executive officer or affiliate of the Company or owner of record or
beneficially of more than five percent of the Company's common stock is a
party adverse to the Company or has a material interest adverse to the Company
in any proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
The Company filed an Information Statement with the Securities and
Exchange Commission on May 11, 2001. This Information Statement was furnished
to the stockholders in connection with resolutions providing for an amendment
to the Articles of Incorporation to increase the authorized capital from
50,000,000 shares of common stock to 300,000,000 shares of common stock. The
majority stockholder voted in favor of this amendment. See Item 13, Part III.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
Market Information.
-------------------
There is no "established trading market" for shares of common stock of
the Company. The Company's common stock is nominally quoted on the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. (the
"NASD") under the symbol "PAWN." Regardless, no assurance can be given
that any "established trading market" for the Company's common stock will ever
develop or be maintained.
The range of high and low closing bid quotations for the Company's
common stock during each quarter of the calendar year ended December 31,
2000 and 2001, during which the Company's securities have been quoted on the
OTC Bulletin Board is shown below. Prices are inter-dealer quotations as
reported by the NASD and do not necessarily reflect transactions, retail
markups, mark downs or commissions.
STOCK QUOTATIONS*
BID
Quarter ended: High Low
-------------- ---- ---
July 3, 2000 and ending
September 30, 2000 $1 $1
December 31, 2000 $1 $1
March 31, 2001 $1 $1
June 30, 2001 $1 $0.25
September 30, 2001 $0.51 $0.25
December 31, 2001 $0.51 $0.30
* The future sale of presently outstanding "unregistered" and
"restricted" common stock of the Company by present members of
management and persons who own more than five percent of the
outstanding voting securities of the Company may have an adverse
effect on any "established trading market" that may develop in the
shares of common stock of the Company. See the caption "Business
Development" of Item I, Part I.
Holders.
--------
The number of record holders of the Company's common stock as of the date
of this Report is approximately 50.
Dividends.
----------
The Company has not paid any dividends on its common stock and intends
to retain earnings, if any, to finance the development and expansion of its
business. Future dividend policy is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including future earnings,
capital requirements and the financial condition of the Company.
Recent Sales of Unregistered Securities.
----------------------------------------
Date Number of Aggregate
Name Acquired Shares Consideration
---- -------- ------ -------------
Michael Vardakis 7-9-97 1,600,000(1) $ 27,820
Vincent C. Lombardi 7-9-97 300,000(1) $ 20,000
Terry S. Pantelakis 7-9-97 50,000(1) $ 1,200
Angelo Vardakis 7-9-97 50,000(1) $ 1,000
Shares sold under 7-7-98 through 149,000(2) $ 149,000
Rule 504 4-29-99
(1) The Company relied, in connection with the sales of these
shares, upon the exemptions from registration afforded by
Section 4(2)of the Securities Act of 1933, as amended, and
Section 61-1-14(2)(q) of the Utah Uniform Securities Act (the
"Utah Act"), as amended. The Company relied upon the fact that
the issuance and sale of these shares by the Company did not
constitute a public securities offering together with the fact
that Messrs. Michael Vardakis, Lombardi, Pantelakis and Angelo
Vardakis were directors, executive officers and/or controlling
shareholders of PEI at the time of the sales, to make the
exemptions available.
(2) These sales were made by the Company in reliance upon the
exemption from registration with the Securities and
Exchange Commission provided under Section 3(b) of the
Securities Act of 1933, as amended (the "1933 Act")
and Rule 504 of Regulation D promulgated thereunder and via
registration by qualification with the Utah Division of
Securities (the "Division") under Section 61-1-10 of the Utah
Act and Rule 164-10-2 promulgated thereunder. The Company's
Form U-7 Disclosure Document became effective with the Division
on April 30, 1998. No underwriter was employed in connection
with the offering and sale of the shares.
Item 6. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
Plan of Operation.
------------------
Since its inception, the Company has operated one pawnshop in Salt Lake
City, Utah, which has generated limited sales and net losses from operations.
While management has plans to open up to an additional four pawnshops in
the Salt Lake City, Utah, metropolitan area and, over the long-term, to expand
the Company's operations to various geographic areas in the western and
central United States lacking sufficient pawn brokerage services, the
implementation of these plans is dependent upon PEI's ability to raise
additional capital from equity and/or debt financing and/or achieve profitable
operations. The Company may also expand through the acquisition of existing
pawnshops; however, management has not targeted any existing businesses for
acquisition as of the date hereof. Based upon the Company's performance to
date, management believes that sales, comprised of pawn service charges and
retail merchandise sales, will not be sufficient to finance all future
activities, and that it will be necessary to raise additional funds through
equity and/or debt financing. Although management intends to explore all
available alternatives for debt and/or equity financing, including, but not
limited to, private and public securities offerings, there can be no
assurance that the Company will be able to generate additional capital for
expansion and/or other purposes. In the event that only limited additional
financing is received, PEI expects its opportunities in the pawn brokerage
business to be limited with regard to the establishment of additional retail
locations and increasing sales at the Company's sole existing pawnshop in the
Salt Lake City, Utah, metropolitan area. Further, even if the Company
succeeds in obtaining the level of funding necessary to increase sales at its
present location through the expenditure of additional funds for marketing,
advertising and/or promotion and/or open additional pawnshops, this will not
ensure that the Company will be able to realize a profit from operations.
Results of Operations.
----------------------
At December 31, 2001, the Company had total assets of $90,149, as
compared with total assets of $108,939 at December 31, 2000.
The Company is classified as a development stage enterprise. The Company
received revenues, before costs of sales, of $133,556 and $153,338 for the
years ended December 31, 2001 and 2000. The Company had net losses of
($98,246) and ($108,521), respectively.
Liquidity.
----------
The Company had cash resources of $3,829 and $5,243, respectively, at
December 31, 2001 and 2000. Management believes that its current cash on hand
may not be sufficient to meet its expenses during the next 12 months, and that
additional advances from members of management, with December 31, 2001
balances for these advances being $130,500, may be required; or funds from
other equity or debt financing may be required.
Item 7. Financial Statements.
---------------------
Financial Statements for the years ended
December 31, 2001 and 2000
Independent Auditors' Report
Balance Sheet - December 31, 2001 and 2000
Statement of Operations for the years ended
December 31, 2001 and 2000 and from inception
at July 9, 1997, through December 31, 2001
Statement of Stockholders' Deficiency for the
years from inception to December 31, 2001
Statements of Cash Flows for the years ended
December 31, 2001 and 2000 and from inception
at July 9, 1997, through December 31, 2001
Notes to the Financial Statements
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . .F-3
CONSOLIDATED STATEMENTS OF OPERATIONS . . . . . . . . . . . . . .F-4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DEFICIT) . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . .F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . .F-7
Smith & Company [letterhead]
INDEPENDENT AUDITOR'S REPORT
Officers and Directors
Pawnbrokers Exchange, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Pawnbrokers Exchange, Inc.
(a Utah corporation) (a development stage company) as of December 31, 2001 and
2000, and the related consolidated statements of operations, shareholders'
(deficit) equity, and cash flows for the years ended December 31, 2001 and
2000, and for the period of July 9, 1997 (date of inception) to December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of Pawnbrokers Exchange, Inc. (a
Utah Corporation) (a development stage company) as of December 31, 2001 and
2000, and the results of its operations, shareholders' (deficit) equity, and
cash flows for the years ended December 31, 2001 and 2000, and for the period
of July 9, 1997 (date of inception) to December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company has an accumulated deficit of $383,914 at December 31,
2001. The Company has suffered losses from operations and has a substantial
need for working capital. This raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters
are described in Note 5 to the consolidated financial statements. The
accompanying consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
/s/Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 5, 2002, except Note 9 which is dated March 25, 2002
F-2
PAWNBROKERS EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
2001 2000
CURRENT ASSETS
Cash $ 3,829 $ 5,243
Pawns receivable (Note 1) 14,088 18,057
Inventory (Note 1) 55,312 60,571
TOTAL CURRENT ASSETS 73,229 83,871
Property & equipment (Note 1) 16,920 25,068
$ 90,149 $ 108,939
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable $ 53,058 $ 40,523
Accrued expenses 8,432 7,182
Loan Payable (Note 6) 10,000 10,000
Accrued expenses - related parties (Note 7) 80,601 53,530
Franchise tax payable 200 100
Loans payable - related parties (Note 7) 130,500 92,000
TOTAL CURRENT LIABILITIES 282,791 203,335
TOTAL LIABILITIES 282,791 203,335
SHAREHOLDERS' (DEFICIT) EQUITY
Common stock no par value, 300,000,000
shares authorized; 2,149,000 shares issued
(2,149,000 in 2000) 191,372 191,372
Deficit accumulated during development stage (384,014) (285,768)
TOTAL SHAREHOLDERS' (DEFICIT) EQUITY (192,642) (94,396)
$ 90,149 $108,939
See Notes to the Consolidated Financial Statements.
F-3
PAWNBROKERS EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period
from
7/9/97
Year Ended (Date of
December 31, inception) to
2001 2000 12/31/2001
Sales $ 133,556 $ 153,338 $ 563,847
Cost of Sales 53,084 56,973 214,749
GROSS PROFIT 80,472 96,365 349,098
Expenses:
General and Administrative expenses:
Advertising 10,063 12,532 51,941
Bank charges 1,848 837 4,474
Depreciation 8,148 8,148 32,180
Insurance 1,105 1,118 4,894
Interest 1,000 1,667 2,667
Interest - related parties 27,071 19,780 81,601
Miscellaneous overhead (9,339) 3,960 3,285
Office supplies 2,027 2,900 19,928
Outside services 23,416 37,736 77,103
Payroll and payroll taxes 66,925 70,537 244,885
Property taxes 4,649 4,119 16,002
Rent - related party 36,000 36,000 162,000
Repairs 464 1,085 10,924
Utilities 5,141 4,467 20,628
178,518 204,886 732,512
(LOSS) BEFORE INCOME TAXES (98,046) (108,521) (383,414)
PROVISION FOR INCOME TAXES 200 100 600
NET (LOSS) $ (98,246)$(108,621) $(384,014)
BASIC AND DILUTED
(LOSS) PER COMMON SHARE
Net (loss) per weighted average common
share outstanding $ (.05) $ (.05)
Weighted average number of common
shares outstanding (Note 1) 2,149,000 2,149,000
See Notes to the Consolidated Financial Statements.
F-4
PAWNBROKERS EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Period from July 9, 1997 (date of inception) to December 31, 2001
Deficit
Accumulated
During
Common Stock Development
Shares Amount Stage
Balances at July 9, 1997 0 $ 0 $ 0
Sale of common stock at $.025 per share
8/15/97 2,000,000 50,020
Net loss for period (38,041)
Balances at December 31, 1997 2,000,000 50,020 (38,041)
Sale of common stock at $1.00 per share
July through October 95,300 95,300
Capital raising costs (7,926)
Net loss for year (67,874)
Balances at December 31, 1998 2,095,300 137,394 (105,915)
Sale of common stock at $1.00 per share
February through April 53,700 53,978
Net loss for year (71,232)
Balances at December 31, 1999 2,149,000 191,372 (177,147)
Net loss for year (108,621)
Balances at December 31, 2000 2,149,000 191,372 (285,768)
Net loss for year (98,246)
Balances at December 31, 2001 2,149,000 $191,372 $(384,014)
See Notes to the Consolidated Financial Statements.
F-5
PAWNBROKERS EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLDIATED STATEMENTS OF CASH FLOWS
Period
from
7/9/97
Year Ended (Date of
December 31, inception) to
2001 2000 12/31/2001
OPERATING ACTIVITIES
Net (loss) $ (98,246)$(108,621) $ (384,014)
Adjustments to reconcile net (loss) to net
cash required by operating activities:
Depreciation 8,148 8,148 32,180
Changes in:
Pawns receivable 3,969 9,957 (14,088)
Inventory 5,259 (222) (55,312)
Franchise tax payable 100 0 200
Accounts payable and accrued expenses 40,856 52,007 142,091
NET CASH REQUIRED BY OPERATING ACTIVITIES (39,914) (38,731) (278,943)
INVESTING ACTIVITIES
Purchase of equipment 0 (177) (49,100)
NET CASH USED IN INVESTING ACTIVITIES 0 (177) (49,100)
FINANCING ACTIVITIES
Stock sold 0 0 191,372
Loan 0 0 10,000
Loans - related parties 41,500 40,000 208,500
Loan repayments - related parties (3,000) 0 (78,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,500 40,000 331,872
NET INCREASE (DECREASE) IN CASH (1,414) 1,092 3,829
CASH AT BEGINNING OF PERIOD 5,243 4,151 0
CASH AT END OF YEAR $ 3,829 $ 5,243 $ 3,829
SUPPLEMENTAL INFORMATION
Cash paid for:
Interest $ 0 $ 0 $ 1,000
Income taxes 100 100 400
See Notes to the Consolidated Financial Statements.
F-6
PAWNBROKERS EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1:SUMMARY OF HISTORY AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company was incorporated in the State of Utah on July 9, 1997. The
Company is engaged in the business of pawn brokering through its subsidiary.
Principals of Consolidation
The consolidated financial statements contain the accounts of the Company and
its wholly-owned subsidiary, Pawnbrokers Exchange No. One, Inc. which was
incorporated on May 8, 2001. All significant inter-company transactions have
been eliminated on consolidation. At December 31, 2001, all assets and
liabilities are owned by the subsidiary.
Development Stage Company
The financial statements present the Company as a development stage company
because of its short operating history.
Pawns Receivable
These amounts are collateralized by property of the debtor which has a higher
value than the receivable. The Company's experience has been that about 40%
of the receivable will not be collected and the Company will convert the
collateral to inventory that can be sold for more than the receivable.
Property and Equipment
Property and equipment is recorded at cost and is being depreciated over its
useful life of five to seven years under the straight-line method. Cost and
allowance for depreciation is $49,100 and $(32,180) and $49,100 and $(24,032)
at December 31, 2001 and 2000 respectively.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid
investments with an original maturity of three months or less when purchased
to be cash equivalents.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, and
expenses during the reporting period. Estimates also affect the disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from these estimates.
Inventory
Inventory consists of items for sale in the normal course of business, and is
valued at the lower of cost (first-in, first-out basis) or market. At
December 31, 2001, about 10% of the inventory is new and 90% is used, with
much of the used inventory consisting of collateral converted to inventory
when debtors defaulted on their pawns.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109). Under the liability method, deferred taxes are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. An allowance against
deferred tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
Revenue Recognition
Revenue on retail sales is recognized at the time of sale. Service fee
revenue on pawns is recognized when collected due to the high default rate on
pawns.
Income (Loss) Per Common Share
Basic income (loss) per common share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common
shares outstanding during the periods presented.
F-7
PAWNBROKERS EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 2:INCOME TAXES
At December 31, 2001, the Company has a deferred tax asset in the amount of
$130,500. The amount has been reserved 100% due to the Company's current
losses. There is not sufficient basis for recognition of any net deferred tax
asset at this time. The increase in the valuation account was $19,500 for
2001.
The Company has a net operating loss carryforward which expires as follows:
Federal Utah
Amount Expiration Date Amount Expiration Date
Year ended December 31, 1997 $ 38,041 12/31/2012 $ 37,941 12/31/2012
Year ended December 31, 1998 67,874 12/31/2018 67,774 12/31/2013
Year ended December 31, 1999 71,232 12/31/2019 71,132 12/31/2014
Year ended December 31, 2000 108,621 12/31/2020 108,521 12/31/2015
Year ended December 31, 2001 98,246 12/31/2021 98,046 12/31/2016
$384,014 $383,414
NOTE 3:COMMITMENTS
The Company had a triple net lease thru June 30, 1999 on its facility owned by
a related entity (owned 50% by the Company's President). The Company
exercised its option to renew the lease through June 2001. Monthly lease
payments are $3,000. The lease is now on a month-to-month basis.
NOTE 4:RELATED PARTY TRANSACTIONS
During the year ended December 31, 2001, $36,000 was paid or accrued to a
related party for rent and $27,071 was accrued to related parties for interest
on loans.
During the year ended December 31, 2000, $36,000 was paid or accrued to a
related party for rent and $19,780 was accrued to related parties for interest
on loans.
NOTE 5:GOING CONCERN ITEMS
The financial statements are presented on the basis that the Company is a
going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. At December 31, 2001, the Company has a working capital
deficit of $(209,462), an accumulated deficit of $(383,914), and a loss from
operations for 2001 of $(98,146). The Company only began operations in
December, 1997 and has a substantial need for working capital.
Management fees that loans from related parties will provide sufficient
working capital to allow the Company to continue as a going conern.
NOTE 6:LOAN PAYABLE
In 1999, the Company obtained a $10,000 loan. The demand promissory note
bears interest at 10% per year.
NOTE 7:LOANS PAYABLE - RELATED PARTIES
At December 31, 2001, the Company owes $20,000, $68,000, $30,000 and $12,500
to four related parties ($10,000, $42,000, $30,000 and $10,000 in 2000). The
loans are due on demand and bear interest at 24% per year. Accrued interest
on these loans is $80,601 at December 31, 2001 ($53,530 at December 31, 2000).
F-8
PAWNBROKERS EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 8:SEGMENT INFORMATION
Sales for 2001 included about $28,500 ($35,900 in 2000) of service charge
income collected on pawns. The balance of the sales is from retail sales.
NOTE 9:SUBSEQUENT EVENTS
On March 25, 2002, the Company declared an 8 for 1 dividend on its outstanding
securities that required a mandatory exchange of stock certificates by the
holders to receive the dividend. Immediately prior to the declaration of the
dividend, certain principal stockholders of the Company delivered 1,649,000
pre-dividend shares to the Company for cancellation to satisfy a condition
precedent to the Share Exchange Agreement discussed below; as a result,
following the cancellation of these shares and taking into account the effect
of the dividend, there were 4,000,000 post-dividend outstanding shares of the
Company.
On March 22, 2002, the Company filed a "doing business as" Form with the
Department of Commerce of State of Utah under the name "Defense Industries
International, Inc.," also in contemplation of completing the Share Exchange
Agreement discussed below.
On March 25, 2002, the Company, Export Erez USA, Inc., a Delaware corporation
("Export Erez") that is a "reporting issuer" under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and all of the Export Erez
stockholders entered into a Share Exchange Agreement pursuant to which the
Company acquired 100% of the outstanding securities of Export Erez, and the
stockholders of Export Erez became the controlling stockholders of the
Company, owning approximately 84% of its post-Share Exchange Agreement
outstanding voting securities. Prior to the closing of the Share Exchange
Agreement and the declaration of the aforesaid dividend, certain principal
stockholders of the Company contributed for cancellation 1,649,000 pre-
dividend shares of common stock that were owned by them as a condition to the
closing of the Share Exchange Agreement. Following the closing, in
consideration of the assumption and indemnification of the Company and Export
Erez from and against any and all liabilities of the Company, Michael
Vardakis, who was then the Company's President, was assigned all of the
Company's right, title and interest in all of the outstanding securities of
its wholly-owned subsidiary, Pawnbrokers No. One.
F-9
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
---------------------
Smith & Company, a Professional Corporation of Certified Public
Accountants ("Smith & Company"), 10 West 100 South, Suite 700, Salt Lake City,
Utah 84101-1554, has reported upon the Company's Consolidated Balance Sheets
as of December 31, 2001 and 2000, and the related Consolidated Statements of
Operations, Consolidated Statements of Changes in Shareholders' Equity
(Deficit) and Consolidated Statements of Cash Flows for the years ended
December 31, 2001 and 2000, and for the period from inception (July 9, 1997)
to December 31, 2001. There has been no change in the Company's independent
accountant during the period commencing with the Company's retention of Smith
& Company through the date hereof.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
Identification of Directors and Executive Officers.
---------------------------------------------------
The following table sets forth the names of all current directors and
executive officers of the Company. These persons will serve until the next
annual meeting of the stockholders or until their successors are elected or
appointed and qualified, or their prior resignation or termination.
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
---- ---- ----------- --------------
Michael Vardakis President *
Director *
Terry S. Pantelakis Vice President *
Director *
Angelo Vardakis Secretary, *
Treasurer *
Director *
Vincent C. Lombardi Director of Marketing *
Shareholder Relations *
Director *
* These persons presently serve in the capacities indicated.
Business Experience.
--------------------
Michael Vardakis, age 37, has served as the President and a director of
the Company since its organization on July 9, 1997. Since 1991, he has been
employed as a salesman, and served as the Secretary, for AAA Jewelry & Loan,
Inc. ("AAA Jewelry & Loan"), of Salt Lake City, Utah, a closely-held pawn
brokerage business managed and co-owned by Terry S. Pantelakis, the Vice
President and a director of the Company and Mr. Vardakis' father-in-law. Since
1994, Mr. Vardakis has served as an executive officer, a director and a
controlling shareholder of Michael Angelo Jewelers, Inc. ("Michael Angelo
Jewelers"), Salt Lake City, Utah, a closely-held retail jewelry business that
he founded together with Angelo Vardakis, his brother and the
Secretary/Treasurer and a director of the Company. He has been a manager and
a 50% owner of M.N.V. Holdings, LLC, Salt Lake City, Utah, a real estate
holding company from which the Company rents office space for its executive
offices and pawnshop, since August 1996. Since November 1997, Mr. Vardakis
has been a manager and a member of M.H.A., LLC, Salt Lake City, Utah, a
closely-held investment company co-owned together with his brother, Angelo
Vardakis, among others. Since June 1996, Mr. Vardakis has served as a
director and a controlling shareholder of TMV Holdings, Inc. ("TMV Holdings"),
Sparks, Nevada, an investment company that he co-owns with Mr. Lombardi, a
director of PEI and the President and a director of TMV Holdings. He has been
a manager and a member of two Salt Lake City, Utah, real estate holding
companies, V Financial, LLC, and BNO, LLC, since December 1999 and January
1997, respectively. He attended the University of Utah, Salt Lake City, Utah,
from 1983 through 1984.
Terry S. Pantelakis, age 61, has served as the Vice President and a
director of the Company since its inception on July 9, 1997. He has served,
since 1992, as the President, a director and a controlling shareholder of AAA
Jewelry & Loan, a closely-held, Salt Lake City, Utah, pawn brokerage business
founded by him, which company employs Messrs. Michael and Angelo Vardakis, the
President and Secretary/Treasurer, respectively, of the Company, as sales
persons. He attended the University of Utah, Salt Lake City, Utah, for a
period of two years from 1958 through 1959.
Angelo Vardakis, age 32 has served as the Secretary/Treasurer and a
director of the Company since its inception on July 9, 1997. He has been
employed as a sales person by AAA Jewelry & Loan, a Salt Lake City, Utah, pawn
brokerage business co-owned and managed by Mr. Pantelakis, the Vice President
and a director of PEI and the father-in-law of his brother, Michael Vardakis,
the President and a director of the Company. Since 1994, Mr. Vardakis has
served as an executive officer, a director and a controlling shareholder of
Michael Angelo Jewelers, the closely-held, Salt Lake City, Utah, jewelry
business founded by him and his brother, Michael Vardakis. He has been a
manager and a member of M.H.A., LLC, a closely-held, Salt Lake City, Utah,
investment company, since November 1997.
Vincent C. Lombardi, age 37, has served as a director and held the
position of Director of Marketing and Shareholder Relations of the Company
since its organization on July 9, 1997. In February 1998, he founded Lombardi
Research Foundation, Inc., a Sparks, Nevada, company engaged in medical
research of which he is the sole owner, the President and a director. Since
November 1993, Mr. Lombardi has served as the President, a director and a
controlling shareholder of Casa Bella Holdings, Inc. ("Casa Bella Holdings"),
a Nevada business consulting firm that he founded. He has served, since June
1996, as the President, a director and a controlling shareholder of TMV
Holdings, Sparks, Nevada, a closely-held investment company of which Michael
Vardakis, the President and an approximate 75% shareholder of the Company,
serves as a director and controlling shareholder. He served, from 1992
through 1994, as the President of Borgen International of Stockholm, a
business consulting firm. Mr. Lombardi received a B.S. degree in science from
Sierra Nevada College in 1995.
Significant Employees.
----------------------
The Company has no employees who are not executive officers,
but who are expected to make a significant contribution to the Company's
business.
Family Relationships.
---------------------
Michael Vardakis, the President and a director of the Company, and
Angelo Vardakis, the Secretary, the Treasurer and a director of PEI, are
brothers. Terry S. Pantelakis, the Vice President and a director of the
Company, is Michael Vardakis' father-in-law.
Involvement in Certain Legal Proceedings.
-----------------------------------------
During the past five years, no director, person nominated to become a
director, executive officer, promoter or control person of the Company:
(1) was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the bankruptcy
or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil action),
the Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
Form 3's were filed for the directors, executive officers and 10%
stockholders on April 26, 2001. These forms were required to be filed with
the Securities and Exchange Commission on or about May 26, 2000.
Form 4's will be filed for the directors, executive officers and 10%
stockholders within 10 days of the filing of this Report.
Item 10. Executive Compensation.
-----------------------
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
Other ities All
Name and Year or Annual Rest- Under- LTIP Other
Principal Period Salary Bonus Compen-rictedlying Pay- Comp-
Position Ended ($) ($) sat'n Stock Optionsouts ensat'n
-----------------------------------------------------------------
Michael
Vardakis 12/31/01 0 0 0 0 0 0 0
President, 12/31/00 0 0 0 0 0 0 0
Director
Terry S.
Pantelakis 12/31/01 0 0 0 0 0 0 0
Vice 12/31/00 0 0 0 0 0 0 0
President
Director
Angelo
Vardakis 12/31/01 0 0 0 0 0 0 0
Secretary/ 12/31/00 0 0 0 0 0 0 0
Treasurer,
Director
Vincent C.
Lombardi 12/31/01 0 0 0 0 0 0 0
Director 12/31/00 0 0 0 0 0 0 0
Marketing/
Shareholder
Relations,
Director
No cash compensation, deferred compensation or long-term incentive plan
awards were issued or granted to the Company's management during the calendar
years ending December 31, 2001 and 2000.
Compensation of Directors.
--------------------------
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as director. No additional
amounts are payable to the Company's directors for committee participation or
special assignments.
There are no arrangements pursuant to which any of the Company's
directors was compensated during the Company's last completed calendar year
for any service provided as director.
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
-------------------------------
There are no employment contracts, compensatory plans or arrangements,
including payments to be received from the Company, with respect to any
director or executive officer of the Company which would in any way result in
payments to any such person because of his or her resignation, retirement or
other termination of employment with the Company or any subsidiary, any change
in control of the Company, or a change in the person's responsibilities
following a change in control of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
Security Ownership of Certain Beneficial Owners.
------------------------------------------------
The following table sets forth the share holdings of those persons who
beneficially own more than five percent of the Company's common stock as of
the date of this Report, with the computations being based upon 2,149,000
shares of common stock being outstanding.
Number of Shares Percentage
Name and Address Beneficially Owned of Class
---------------- ------------------ --------
Michael Vardakis (2)(3) 1,600,000 74.45%
47 East 400 South
Salt Lake City, Utah 84111
Vincent C. Lombardi (3) 300,000 13.96%
755 East Greg Street, Suite #25
Sparks, Nevada 89431
(1) Represents the number of shares of common stock owned of record and
beneficially by each named person or group, expressed as a percentage of
2,149,000 shares of the Company's common stock outstanding as of December 31,
2001.
(2) Executive officer of the Company.
(3) Member of the Board of Directors of the Company.
Security Ownership of Management.
---------------------------------
The following table sets forth the shareholdings of the Company's
directors and executive officers as of the date of this Report:
Number of Percentage of
Name and Address Shares Beneficially Owned of Class(1)
---------------- ------------------------- --------
Michael Vardakis (2)(3) 1,600,000 74.45%
47 East 400 South
Salt Lake City, Utah 84111
Vincent C. Lombardi (3) 300,000 13.96%
755 East Greg Street, Suite #25
Sparks, Nevada 89431
Terry S. Pantelakis (2)(3) 50,000 2.33%
350 South State Street
Salt Lake City, Utah 84111
Angelo Vardakis (2)(3) 50,000 2.33%
350 South State Street
Salt Lake City, Utah 84111
All executive officers and directors 2,000,000 93.07%
as a group (four persons)
(1) Represents the number of shares of common stock owned of record and
beneficially by each named person or group, expressed as a percentage of
2,149,000 shares of the Company's common stock outstanding as of December 31,
2001.
(2) Executive officer of the Company.
(3) Member of the Board of Directors of the Company.
See Item 9, Part II, for information concerning the offices or other
capacities in which the foregoing persons serve with the Company.
Changes in Control.
-------------------
On March 25, 2002, the Company entered into an exchange agreement which
resulted in a change of control of the Company. Also, the subsidiary and all
of its assets were transferred to the Company's President. An 8-K Current
Report regarding this transaction will be filed by April 9, 2002.
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
On July 9, 1997, the Company issued and sold 1,600,000 shares, 300,000
shares, 50,000 shares and 50,000 shares, of common stock (an aggregate of
2,000,000 shares) to Messrs. Michael Vardakis, Vincent C. Lombardi, Terry S.
Pantelakis and Angelo Vardakis, respectively, in consideration for the payment
by each individual of cash in the amount of $27,820 (approximately $.02 per
share), $20,000 (approximately $.07 per share), $1,200 (approximately $.02 per
share) and $1,000 ($.02 per share), respectively (a total of $50,020). Each
of the foregoing individuals served as a director of PEI until March 25, 2002,
and each said individual, except Mr. Lombardi, was an executive officer of the
Company until that date. Mr. Lombardi is a key employee of the Company
employed in the position of Director of Marketing and Shareholder Relations.
The 1,600,000 shares, 300,000 shares, 50,000 shares, and 50,000 shares, of the
Company's common stock owned of record and beneficially by Messrs. Michael
Vardakis, Lombardi, Pantelakis and Angelo Vardakis, respectively, represented
approximately 74.5%, approximately 14%, approximately 2.3% and approximately
2.3%, respectively, of the aggregate 2,149,000 shares of the Company's common
stock that is outstanding as of the date hereof until March 25, 2002. See
Item 4, Part III, of the Company's 10-SB Registration Statement, by reference
to the Exhibit Index, Item 13, Part III.
The Company's executive offices and pawn shop are located at 158 South
State Street, Salt Lake City, Utah 84111. The facility, a storefront location
comprised of approximately 3,500 useable square feet, is leased from M.N.V.
Holdings, LLC, a limited liability company 50% owned by Michael Vardakis,
the President, a director and an approximate 75% shareholder of PEI, pursuant
to a triple net lease at a rental rate of $3,000 per month. The term of the
lease, which commenced on June 19, 1997, and terminated on June 19, 1999, was
renewed for an additional two years through June 19, 2001. During the
Company's fiscal years ended December 31, 2001 and 2000, $36,000 and $36,000
was paid or accrued annually under this lease, respectively. The lease was
assumed by Pawnbrokers No. One on May 8, 2001. The Company believes that the
terms of the lease are comparable to those that could have been obtained from
an unaffiliated third party for comparable office space in the Salt Lake City,
Utah, area. See Item 7, Part I, of the Company's 10-SB Registration Statement,
by reference to the Exhibit Index, Item 13, Part III.
The following related party notes were outstanding at December 31, 2001:
M.N.V. Holdings, $12,500, dated May 6, 1998; Michael Angelo Jewelers, $68,000,
as amended and dated July 16, 1998; Casa Bella Holdings, $30,000, dated April
27, 1998; Brian Armstrong, $10,000, dated May 5, 1999; and Vincent Lombardi,
$20,000, dated January 1, 2000. All notes bear interest at the rate of 24%
per annum. The notes were assumed by Pawnbrokers No. One on May 8, 2001. See
Item 7, Part I, of the Company's 10-SB Registration Statement, by reference to
the Exhibit Index, Item 13, Part III.
Parents of the Issuer.
----------------------
Except to the extent that the majority stockholders could be considered to
be parents, there are no parents.
Transactions with Promoters.
----------------------------
During the calendar years ended December 31, 2001 and 2000, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any promoter or founder, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Item 13. Exhibits and Reports on Form 8-K.
---------------------------------
Reports on Form 8-K
-------------------
None.
Exhibits
--------
Exhibit
Number Description
------ -----------
3 Articles of Incorporation of Pawnbrokers Exchange No. One
10 Distribution Agreement
21 Subsidiary
DOCUMENTS INCORPORATED BY REFERENCE
10-KSB Annual Report for the year ended December 31, 2000.
Registration Statement on Form 10-SB filed with the Securities and
Exchange Commission on March 27, 2000.
Information Statement filed with the Securities and Exchange Commission
on May 11, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PAWNBROKERS EXCHANGE, INC.
Date: As of March 25, 2002 -------------------
By Michael Vardakis
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this Report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated:
PAWNBROKERS EXCHANGE, INC.
Date: As of March 25, 2002 By/s/Michael Vardakis
Michael Vardakis
President and Director
Date: As of March 25, 2002 By/s/Terry S. Pantelakis
Terry S. Pantelakis
Vice President and Director
Date: As of March 25, 2002 By/s/Angelo Vardakis
Angelo Vardakis
Secretary/Treasurer and Director
Date: As of March 25, 2002 By/s/Vincent C. Lombardi
Vincent C. Lombardi
Director of Marketing and
Shareholder Relations and Director