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SECURITIES AND EXCHANGE COMMISSION

Commission File Number 000-19424

EZCORP, INC.

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

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. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [X]

The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all 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 was $37 million, based on the closing price on the NASDAQ Stock Market on March 31, 2003.

As of November 21, 2003, 10,997,831 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, 2003
INDEX TO FORM 10-K

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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. Interested parties may access the Company’s filings with the Securities and Exchange Commission through a link in the Investor Relations section of the Company’s website at www.ezcorp.com. Also available on the Company’s website is its Code of Conduct and Ethics. References to the Company include the subsidiaries listed in Exhibit 22.1. The Company is primarily engaged in operating pawnshops and payday loan stores which function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise.

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 meets the short-term cash needs of the cash and credit constrained consumer by offering convenient, non-recourse loans collateralized by tangible personal property, commonly known as pawn loans; by offering short-term non-collateralized loans, often referred to as payday loans; and by purchasing customers’ merchandise at its pawnshop locations. As a result of its pawn lending operations and customer purchases, the Company sells used merchandise, primarily forfeited collateral, to consumers looking for good values.

The Company makes pawn loans in its 280 pawnshops. The income earned on this activity is pawn service charge revenue. While allowable service charges vary by state and loan size, a majority of the Company’s pawn loans are in amounts that permit pawn service charges of 20% per month or 240% per annum. The Company’s average pawn loan amount has historically averaged between $70 and $75. In most states in which the Company operates, collateral is held one month with a 60-day grace period, after which the collateral is forfeited. In the twelve-month periods ended September 30, 2001, 2002, and 2003 (“Fiscal 2001”, “Fiscal 2002,” and “Fiscal 2003”), approximately 76% of the pawn loans made by the Company were redeemed in full or were renewed or extended through the payment of accrued pawn service charges.

Also in its pawnshops, the Company acquires inventory for its retail sales primarily through pawn loan forfeitures and, to a lesser extent, through purchases of customers’ merchandise. The realization of gross profit on sales of inventory primarily depends on the Company’s assessment of the resale value at the time the property is either accepted as loan collateral or purchased. Improper assessment of the resale value in either the lending or purchasing function can result in reduced marketability of the property and the realization of a lower margin. During Fiscal 2001, 2002, and 2003, the Company realized gross margins on sales of 39%, 35%, and 36%.

As of September 30, 2003, the Company offered unsecured payday loans in 225 of its pawnshops, in four EZMONEY payday loan stores which offer only payday loans (“Mono-line” stores), and in an Austin, Texas based payday loan call center. Introduced to most of the 225 pawnshops in March 2001, this product continues to mature as the customer base in these stores grows. During Fiscal 2003, the Company opened four Mono-line EZMONEY payday loan stores. Two of these EZMONEY stores adjoin existing EZPAWN store locations but have a different entrance, different signage and different décor. Even though they adjoin an EZPAWN, from the customers’ point of view the EZMONEY store is a separate business. The Company refers to these as “stores within a store”.

Payday loans are made based on a limited review of several factors, including a customer’s employment and check-writing history, and generally are made for periods of less than 30 days, averaging about 16 days. The service charge for these loans generally ranges between $15 and $30 per $100 loaned. The

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average payday loan amount is approximately $325. The profitability of payday loans is highly dependent on the level of initial loan defaults and subsequent collection efforts. When measured as a percentage of loans made, the Company experienced payday loan net default rates (initial loan defaults less loan defaults subsequently collected as a percentage of loans made) of 8.1%, 6.9% and 5.0% during Fiscal 2001, 2002, and 2003, respectively.

The following components comprised the Company’s net revenues (total revenues less cost of goods sold):

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. The Company, with 280 pawn locations, is the second largest operator of pawnshops in the United States; while the three largest pawnshop operators, including the Company, account for less than ten percent of the estimated pawnshops.

The payday loan industry in the United States is less fragmented than the pawnshop industry, with approximately 15,000 locations offering payday loans. These locations are generally Mono-line payday loan stores, or stores offering only payday loans, and other businesses offering payday loans in addition to other products and services, such as check cashing stores and pawnshops. The ten largest companies, of which the Company is the ninth largest, comprise approximately 40% of the total number of locations.

Lending Activities
The Company’s pawnshops primarily make pawn loans, which typically are relatively small, non-recourse loans secured by tangible personal property. As of September 30, 2003, the Company had approximately 675,000 loans outstanding, representing an aggregate principal balance of $48.0 million. 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 2003, pawn service charges accounted for approximately 28% of the Company’s total revenues and 48% of its net 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 collateral, the perceived probability of the loan’s redemption, and the estimated time required to sell the item as a basis for its lending decision. The Company generally lends from 25% 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.

The collateral is held through the term of the loan, which in most locations is one month with an automatic 60-day grace period, unless repaid, renewed, or extended earlier. The Company seeks to maintain a redemption rate (the percent of loans made that are redeemed, renewed, or extended) of between 70% and 80%, and in each of the Company’s last three fiscal periods, the redemption rate was within this range. The redemption rate is maintained through compliance with the Company’s lending guidelines. If a borrower does not repay, extend, or renew a loan, the collateral is forfeited to the Company and becomes inventory available for sale. 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

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collateral. The Company provides an inventory valuation allowance based on the type and age of merchandise as well as recent sales trends and margins.

The table below shows the dollar amount of pawn loan activity by the Company for the fiscal years ended September 30, 2001, 2002 and 2003:

The redemption rate of pawn loans and the gross profit realized on the sale of forfeited collateral are dependent on the appraisal of customer merchandise. Jewelry, which makes up approximately 60% of the value of collateral, can be appraised based on weight, gold content, style, and value of gemstones, if any. The other items pawned typically consist of consumer electronics, tools, sporting goods, 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. During Fiscal 2001, 2002, and 2003, the Company realized gross margins on sales of 39%, 35%, and 36%.

At the time a pawn transaction is made, a pawn loan agreement, commonly referred to as a pawn ticket, is given 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 a driver’s license, military identification or other government issued identification, 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.

Since a majority of the Company’s pawn stores are located in Texas, Texas pawnshop laws and regulations govern most of the Company’s operations. In Texas, pawnshop operations are regulated by the Office of the 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 in the State of Texas are set in accordance with Texas law under the Pawnshop Act and are based on the dollar amount of the loan. Historically, the maximum allowable pawn service charges under Texas law have not changed; however, the loan amounts have periodically been adjusted.

Schedule of Applicable Loan Service Charges for Texas

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Under Texas law, there is a ceiling on the maximum allowable pawn loan. For the year ended June 30, 2003, the loan ceiling was $12,500. From July 1, 2003 to June 30, 2004, the loan ceiling is $12,750. The Company’s average loan amount at the end of Fiscal 2003 was approximately $71.

In addition to pawn loans, the Company offers unsecured payday loans in 225 of its pawnshops, in four EZMONEY payday loan stores offering only payday loans, and in one payday loan call center. In most locations and in the call center, the Company markets and services payday loans made by County Bank of Rehoboth Beach, Delaware (“County Bank”), a federally insured Delaware bank; and in a limited number of locations, the Company makes the loans. The Company may purchase an 85% participation in the loans made by County Bank. The average payday loan amount is approximately $325 and the terms are generally less than 30 days, averaging about 16 days. The service charge per $100 loaned is typically $18 for a seven to 23-day period, but varies in certain locations. The loans and related service charges reported in the Company’s consolidated financial statements reflect only the Company’s participation interest in these loans.

Unlike pawn loans, payday 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 subsequently collected, the Company charges defaulted loan principal to bad debt expense upon default, leaving only active loans in the reported balance. Collections of defaulted loan principal are recorded as a reduction of bad debt in the period received. Accrued service charges related to defaulted loans are deducted from service charge revenue upon loan default, and increase service charge revenue upon collection. The Company provides for a valuation allowance on both the principal and service charges receivable based on recent default and collection experience. At September 30, 2003, the valuation allowance was 5.9% o f the payday loan principal and service charges receivable; the actual payday loan net default rate was 5.0% for the full Fiscal 2003 year. The Company’s payday loan balance represents the principal amount of all active (non-defaulted) loans net of this valuation allowance.

Retail Activities
The Company’s retail activities liquidate inventory acquired through pawn loan forfeitures and the purchase of customer merchandise. 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 in the lending function can result in reduced marketability of the property and the realization of a lower margin. Jewelry sales represent approximately half of the Company’s total 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. During the three most recent fiscal years, sources of inventory additions were:

For Fiscal 2001, 2002, and 2003, retail activities and jewelry scrapping accounted for approximately 69%, 67%, and 65% of the Company’s total revenues, or 46%, 41%, and 41% of the Company’s net revenues, after deducting cost of goods sold.

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 oversee these promotional and merchandising programs, review merchandise pricing decisions, and balance inventory levels within markets.

The Company does not give prospective buyers warranties on merchandise sold through its retail operations. Customers may purchase an item on layaway, whereby a customer will typically pay a minimum layaway deposit of 20% of an item’s sale price. The Company will hold the item for a 60 to 90-

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day period during which the customer is required to pay for the item in full. Layaways are not recorded as sales until the layaway is paid in full. The initial deposit and subsequent payments are recorded as customer layaway deposits. As of September 30, 2003, the Company had $1.8 million in customer layaway deposits.

The Company’s overall inventory is stated at the lower of cost or market. The Company provides an inventory valuation allowance for shrinkage and cost in excess of market value. The Company estimates this valuation allowance through study and analysis of sales trends, inventory turnover, inventory aging, margins achieved on recent sales, and shrinkage. The valuation allowance, including an allowance for shrinkage, amounted to $1.1 million, $1.7 million, and $1.8 million as of September 30, 2001, 2002, and 2003. At September 30, 2003, total inventory on hand was $29.8 million, after deducting the inventory valuation allowance.

Seasonality
Historically, service charge revenues are highest in the Company’s first fiscal quarter (October through December) due to improving loan redemption rates coupled with a higher average loan balance following the summer lending season. Sales generally are highest in the Company’s first and second fiscal quarters (October through March) due to the holiday season and the impact of tax refunds. Sales volume can be heavily influenced by the timing of decisions to scrap excess jewelry inventory, which generally occurs during low jewelry sales periods (May through October). The net effect of these factors is that net revenues and net income typically are highest in the first and second fiscal quarters. The Company’s cash flow is greatest in its second fiscal quarter primarily due to a high level of loan redemptions and sales in the income tax refund season.

Operations
A typical Company pawn store employs five to six full time equivalent employees (“FTEs”) consisting of a manager, an assistant manager, and three to four sales and lending representatives. Each store manager is responsible for ensuring that his or her store is run in accordance with the Company’s policies, procedures, and operating guidelines. Each store manager reports to one of 34 area managers who are responsible for the stores within a specific operating area. Area managers are responsible for the performance of all stores within their area and report to one of four regional directors. Area managers, store managers, and assistant managers receive incentive compensation based on their area or store’s performance in comparison to an operating budget. This incentive compensation typically ranges between 5% and 15% of their total compensation, plus a gain-sharing component for store and area managers whose stores exceed budgeted levels of earnings.

Mono-line payday loan stores employ two to three FTEs per location, consisting of a manager and one to two lending representatives. Each store manager is responsible for ensuring that his or her store is run in accordance with the Company’s policies, procedures, and operating guidelines. As the number of Mono-line stores grows, the Company anticipates building an operating organization similar to its pawn operation, although with a broader span of control and a smaller area and regional management structure.

The Company has a store level point of sale (POS) system that automates the recording of most store-level transactions. Financial summary data from all stores is processed at the corporate office each day and the preceding day’s data are available for management review via the Company’s internal network. The Company’s communications network provides two-way communication and information access between the stores and the corporate office. During 2003, the Company completed the implementation of its new POS system, which provides additional store level functionality, enhances reporting and controls, and provides software and hardware scalability.

The Company has an internal audit staff of approximately 17 employees who monitor the Company’s perpetual inventory system, lending practices, and regulatory compliance. In addition, they ensure consistent compliance with the Company’s policies and procedures.

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As of September 30, 2003, the Company employed approximately 1,900 people. The Company believes that its success is dependent upon its employees’ ability to provide prompt and courteous customer service and to execute the Company’s operating procedures and standards. The Company seeks to hire people who will become long-term, career employees. To achieve the Company’s long-range personnel goals, it strives to develop its employees through a combination of learner-controlled instruction, web-based classes, classroom training, and supervised on-the-job loan and sales training for new employees. All store associates complete competency checks and all new employees complete a learner-controlled instruction program. Managers attend on-going management skills and operations performance training. The Company anticipates that store manager candidates will be promoted from the ranks of existing store employees and hired from outside the Company. 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.

At November 21, 2003, the Company operated its pawnshops under the name “EZPAWN”. The Company has registered with the United States Patent and Trademark Office the names EZPAWN, EZMONEY, EZMONEY Center, and EZCORP, among others. Additionally, the Company operates under the trade names EZMONEY Payday Loans, EZMONEY Payroll Advance, Payroll Advance Express, and EZCORP Collection Center.

Future Expansion
The Company plans to expand the number of locations it operates through the development of new locations and through acquisitions. The Company believes that in the near term the largest growth opportunity is with the EZMONEY payday loan stores. The Company has announced that it plans to open 75 to 85 EZMONEY stores, some of which will be adjoining an EZPAWN store, but with a different entrance. The Company believes this “store within a store” concept offers the potential for accelerated payday loan growth and leveraging of existing occupancy and supervisory costs.

The two new stand-alone EZMONEY payday loan stores opened in Fiscal 2003 required an average property and equipment investment of approximately $25,000 each. The two “store within a store” EZMONEY stores added in Fiscal 2003 required an average investment, including some initial design costs, of approximately $40,000 each. Between October 1, 2003 and December 15, 2003, the Company opened another 13 EZMONEY “stores within a store” for an average property and equipment investment of $23,000 each. The five most recently opened pawn stores required an average gross investment (including inventory, pawn loans, property, 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 pawnshops in Texas counties having a population of 250,000 or more is restricted by Texas law, which provides that applications for new licenses in such counties will be approved only at proposed locations which are not less than two miles from another licensed pawnshop and applications to relocate a licensed pawnshop will be approved only for proposed locations which are not less than one mile from another licensed pawnshop. Any existing Texas pawnshop 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 pawnshops may be adversely affected by such regulation. See “Regulation.”

Competition
The Company encounters significant competition in connection with its lending operation. These competitive conditions may adversely affect the Company’s revenues, profitability, and its ability to expand. In its lending business, the Company competes with other pawnshops, other payday lenders, and other financial institutions, such as consumer finance companies. Other lenders may lend money on an unsecured basis, at interest rates that may be lower than the service charges of the Company, and on other terms that may be more favorable than those offered by the Company. The Company believes that the primary elements of competition are the quality of customer service and relationship management, store location, and the ability to loan competitive amounts at competitive rates. In addition, the Company

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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.

The Company’s competitors for merchandise sales 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.

Strategic Investment
In 1998, the Company acquired 29.5% of the outstanding shares of Albemarle & Bond Holdings plc (“A&B”). The Company’s interest was 28.9% at June 30, 2003, the most recent date for which A&B has published results. As its largest shareholder, the Company and its affiliates hold three seats on A&B’s board of directors. 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, 2003, A&B operated 53 locations in the United Kingdom that offer pawn loans, payday loans, check cashing, and retail jewelry. For A&B’s 2003 fiscal year, which ended June 30, 2003, A&B’s operating profit increased 18% over the prior year to approximately £4.9 million ($7.8 million).

The Company accounts for its investment in A&B under the equity method. In Fiscal 2003, the Company’s interest in A&B’s income was $1,412,000. At November 21, 2003, the market value of the Company’s investment was approximately $20.9 million, based on the closing price and exchange rates on that date while the book value of the Company’s investment in A&B was $14.7 million.

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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. Additionally, in many states in which the Company operates, pawnshops are subject to local regulation at the municipal and county level. The laws of Texas, Colorado, Oklahoma, Indiana, Florida, Alabama, and Nevada govern the majority of the Company’s pawnshop operations. A summary of these states’ pawnshop statutes and regulations governing the Company’s pawnshops are discussed below.

Texas Regulations
The Texas Pawnshop Act and the related Rules of Operation for Pawnshops govern Texas pawnshops. Pawnshop and pawnshop employees are licensed and supervised by the Office of Consumer Credit Commissioner (“OCCC”).

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. Additionally, the pawnshop employee application inquires about individual applicants’ credit history and criminal record.

For a new license application in any Texas county, the OCCC 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. In counties with 250,000 or more people, applications for new licenses are approved only at locations that are not less than two miles from another licensed pawnshop, and applications to relocate a license are approved only for locations that 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 open new stores or relocate existing stores may be adversely affected by these licensing provisions.

The Texas Pawnshop Act also contains provisions related to the operation of pawnshops and authorizes the issuance of administrative rules called the Rules of Operation of Pawnshops (the “Rules”). The Rules regulate the day-to-day management of the Company’s pawnshops including the maximum pawn service charge and principal loan amount.

Pawn service charges vary based on loan amounts. Historically, the maximum allowable pawn service charge rates have not changed; however, the loan amounts have periodically been adjusted. A table of the maximum allowable pawn service charges under the Texas Pawnshop Act for the various loan amounts is presented in “Lending Activities”. Under Texas law, there is a ceiling on the maximum allowable pawn loan. For the period July 1, 2002 through June 30, 2003, the loan ceiling is $12,500. For the period July 1, 2003 through June 30, 2004, the loan ceiling is $12,750. Texas requires pawn transactions to be reported to local authorities.

Under the Texas Pawnshop Act and the Rules, a pawnbroker may not do any of the following: (i) accept a pledge from a person under the age of 18 years; (ii) make any agreement requiring the personal liability of the borrower; (iii) accept any waiver of any right or protection accorded to a pawn customer; (iv) fail to exercise reasonable care to protect pledged goods from loss or damage; (v) fail to return pledged goods to a pawn customer upon payment of the full amount due; (vi) make any charge for insurance in connection with a pawn transaction; (vii) enter into any pawn transaction that has a maturity date of more than one month; (viii) display for sale in storefront windows or sidewalk display cases pistols, swords, canes, blackjacks or similar weapons; (ix) purchase used or second hand personal property unless a record is established containing the name, address, and identification of the seller, a complete description

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of the property, including serial number and a signed statement that the seller has the right to sell the property; or, (x) accept into pawn or purchase stolen goods.

The OCCC may, after notice and hearing, suspend or revoke any license for a Texas pawnshop or employee upon finding that: (i) any fees or charges have not been paid; (ii) the licensee has violated (knowingly or unknowingly without due care) any provisions of the Texas Pawnshop Act or any regulation or order; or (iii) any fact or condition exists which, if it had existed at the time the original application was filed for a license, would have justified the OCCC in refusing the license.

Colorado Regulations
Colorado law requires pawnbrokers to be licensed and bonded by local municipalities which subject them to extensive and varied regulation and supervision. Pawn transactions must be reported to local authorities and pawnbrokers must maintain certain bookkeeping records. Under Colorado law, the maximum allowable pawn service charge is 240% annually for pawn loans up to $50, and 120% annually for pawn loans of $50 or more.

Oklahoma Regulations
The Oklahoma Pawnshop Act follows a statutory scheme similar to the Texas Pawnshop Act, requires pawnbrokers to be licensed and bonded, and regulates the day-to-day operation of the Company’s Oklahoma pawnshops. The Oklahoma Administrator of Consumer Credit administers the Oklahoma Pawnshop Act and has broad rule-making authority. Additionally, the Oklahoma Administrator of Consumer Credit is responsible for investigating the general fitness of pawnshop applicants. Each applicant is required to (i) be of good moral character; (ii) have net assets of at least $25,000; (iii) show that the pawnshop will be operated lawfully and fairly; and (iv) not have been convicted of any felony that directly relates to the duties and responsibilities of pawnbrokering. Unlike Texas, Oklahoma pawnshop employees are not individually licensed.

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

The principal amount of an Oklahoma pawn loan may not exceed $25,000 per transaction.

Florida Regulations
Florida pawnshops are governed by the Florida Pawnbrokering Act and accompanying regulations. The Division of Consumer Services of the Department of Agriculture and Consumer Services licenses and regulates pawnshops.

The Florida Pawnbrokering Act and regulations require that the pawnshop complete a Pawnbroker Transaction Form showing the customer name, type of item pawned, 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.

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Pawn loans in Florida typically have a 30-day term. The pawnbroker is entitled to charge two percent (2%) of the amount financed for each 30-day period 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. The pawnbroker may charge a minimum pawn service charge of $5.00 for each 30-day period. Pawn loans may be extended by agreement, with the charge 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.

The Pawnbrokering Act prohibits pawnbrokers from: (i) falsifying or failing to make entries in pawn transaction forms, (ii) refusing to allow appropriate law enforcement officials to inspect their records, (iii) failing to retain records of pawn transactions for at least two years, (iv) making any agreement requiring the personal liability of a pawn customer, (v) failing to return pledged goods upon payment in full of the amount due (unless the pledged goods have been taken into custody by a court or law enforcement officer or otherwise lost or damaged); or, (vi) engaging in title loan transactions at licensed pawnshop locations. Pawnbrokers are also prohibited from entering into pawn transactions with a person who is under the influence of alcohol or controlled substances, a person who is under the age of eighteen, or a person using a name other than his own name or the registered name of his business.

Indiana Regulations
In Indiana, the Pawnbrokering Law governs pawnshops. The Department of Financial Institutions (the “Department”) regulates the Company’s Indiana operations. The Department requires the licensing of all pawnshops and investigates the general fitness of pawn license applicants to determine whether the convenience and needs of the public will be served by granting a pawn license. The Department has broad investigatory and enforcement authority. It may grant, revoke, and suspend licenses. For compliance purposes, pawnshops are required to keep books, accounts, and records to enable the Department to determine if the pawnshop is complying with the statute. Each pawnshop is required to give authorized agents of the Department free access to its books and accounts for these purposes.

The Pawnbrokering Law authorizes pawnbrokers to charge and collect the following annual rates of interest plus pawn service charges: 276% on transactions of $300 or less; 261% on transactions greater than $300 but not exceeding $1,000, and 255% on transactions greater than $1,000. Furthermore, the Pawnbrokering Act provides for a grace period of 60 days after the initial 30-day term of the loan. During the grace period, interest and service fees continue to accrue, subject to proration to the date of loan redemption.

Alabama Regulations
The Alabama Pawnshop Act regulates the licensing and operation of Alabama pawnshops. The Supervisor of the Bureau of Loans of the State Department of Banking is responsible for licensing and investigating the general fitness of pawnshop applicants. 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 personal property actually received. In addition, the pawnbroker may collect an initial set up fee of $5.00. Property received in pledge may not be removed from the pawnshop until after the receipt of such property is reported to the sheriff or chief of police, unless redeemed by the owner.

Local Regulations
At the local level, most of the pawnshops voluntarily or pursuant to state law or municipal ordinance, provide reports of pawn transactions and purchases from customers to the local police department on a regular basis. These 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 customers.

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A record of each transaction is provided to local law enforcement agencies to aid in the investigation of property crimes. Goods held to secure pawn loans or goods purchased which are determined to belong to an individual other than the pawnshop customer 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, the Company’s claims experience is historically less than 0.5% of pawn loans made.

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, financial condition, and the ability to expand its operations.

The above summaries generally describe the regulatory environments affecting the majority of the Company’s pawnshops. Although state pawnshop laws vary considerably, the above summaries are representative of the statutes and regulations in the other states in which the Company operates.

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

The Brady Handgun Violence Prevention Act (the “Brady Act”) and the related ATF rules 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 ATF regulations. 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.

Payday Loan Regulations
The Company’s payday loan operations are subject to extensive state and federal statutes and regulations such as the federal Equal Credit Opportunity Act, the 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 payday loan business, and state statutes and regulations where applicable.

During Fiscal 2003, the Company marketed and serviced payday loans on behalf of County Bank, primarily in Texas, Oklahoma and through a call center. The Delaware Department of Banking and the Federal Deposit Insurance Corporation supervise County Bank. These regulators review all aspects of County Bank’s payday loan program as well as the Company’s operations. In turn, County Bank periodically audits the Company’s marketing and servicing procedures.

Federal and state legislative and lobbying initiatives to prohibit or restrict payday lending have been and continue to be aggressively pursued by opponents to the payday loan product. The initiatives focus on outlawing payday loans entirely, limiting the finance charges, renewals, number of loans a consumer may obtain, and the maximum loan amount and amount outstanding at any one time. County Bank, which makes the loans in the majority of stores where EZPAWN and EZMONEY market and service payday loans, is regulated by the FDIC. The FDIC has adopted guidelines for its member banks to follow with respect to payday loans. The FDIC reviews and monitors County Bank’s activities for compliance. Despite the significant need and consumer demand for the payday loan product, the possibility exists that federal and state legislation and regulations could be enacted which could severely restrict or eliminate the Company’s ability to either make payday loans or market and service payday loans for County Bank or any other financial institution.

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In order to market and service payday loans for County Bank in Texas, the Company’s pawnshops, EZMONEY payday loan stores, and collection center are required to be licensed as a regulated lender by the Texas OCCC. The Company’s ability to market and service payday loans in Texas at current fee levels is dependent upon its continued relationship with County Bank or another similarly situated financial institution. Without a relationship with a federally insured bank domiciled in a state that permits these rates, the Company could offer payday loans at a lower fee level, not in excess of the Texas usury ceiling. Operating under lower fee levels in Texas would have a material adverse effect on the Company’s payday loan revenues.

In October 2003, the Company began marketing and servicing payday loans for County Bank in Florida through the Company’s pawnshops. Florida law does not currently require the Company to obtain a license to engage in its current marketing and servicing responsibilities.

In May 2002, the Company also began marketing payday loans for County Bank through a call center located in Texas. The call center markets and services payday loans in eleven states, but has no physical presence in any of those eleven states. Since the Company is acting on behalf of County Bank, the Company does not believe the marketing and servicing activities of the call center are regulated by state lending regulators.

In Colorado, the Company makes payday loans to customers pursuant to state law and its own underwriting guidelines. Payday loans made 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 Colorado pawnshops 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 pawnshops’ payday loan activities. Under Colorado law, the Company is required to maintain certain records related to its payday loans and include specific information and disclosures in the loan agreement.

The Colorado maximum payday loan amount is $500, exclusive of the service fee. Colorado law provides for a graduated service fee of 20% of the first $300 and 7.5% of the amount over $300. The loan term may not exceed 31 days and customers have the right to rescind the loan within one business day after the date the loan was made. By law, 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. The Company has elected not to offer renewals in Colorado.

As of November 1, 2003, the Company ceased marketing and servicing payday loans for County Bank in Oklahoma and began making payday loans to customers pursuant to state law and its own underwriting guidelines. Payday loans made by the Company in Oklahoma are regulated by the Oklahoma Department of Consumer Credit (the “ODCC”). The Company’s Oklahoma pawnshops have and are required to maintain a deferred deposit lender license issued by the ODCC. The ODCC maintains regulatory and supervisory authority over the pawnshops’ payday loan activities. Under Oklahoma law, the Company is required to maintain certain records related to its payday loans and include specific information and disclosures in the loan agreement.

The Oklahoma maximum loan amount is $500 exclusive of the service fee. Oklahoma law provides for a service fee of 15% of the first $300 and 10% of the amount over $300. The loan term may not exceed 45 days, and customers have the right to rescind the loan within one business day after the date the loan was made. The loan cannot be renewed. The Company must deliver specific disclosures to the customer related to debt management, credit counseling services and the customer’s rights and responsibilities in the payday loan as well as make certain determinations about outstanding or prior payday loans.

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ITEM 2.  PROPERTIES

The typical Company pawnshop is a freestanding building or part of a retail strip center with contiguous parking. 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 pawn store has approximately 1,800 square feet of retail space and approximately 3,200 square feet dedicated to collateral storage. In 2003, the Company began developing Mono-line payday loan stores. A Mono-line store is designed to resemble a bank interior and offers only payday loans. The typical stand-alone Mono-line store is approximately 1,000 square feet and is located in a retail strip center. In some of its pawnshop locations, the Company will create a Mono-line “store within a store” of approximately 500 square feet, which has a different entrance, different signage and different décor. From the customers’ perspective, these will be viewed as a separate business. The Company maintains property and general liability insurance for each of its stores. The Company’s stores are open six or seven days a week, depending on location.

As of November 21, 2003, the Company owned the real estate and building for one of its stores and leased 283. The Company also owns the real estate and building for one non-operating location. Between Fiscal 2001 and 2003, the Company entered into sale-leaseback transactions with unaffiliated parties for 44 of its store locations for periods ranging from 10 to 20 years. During Fiscal 2001, the Company entered into a sale-leaseback transaction with an unaffiliated party for the real estate and building for its Austin, Texas headquarters for a period of 15 years. 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 October 14, 2003 and April 30, 2023, with a small number of leases on month-to-month terms. All leases provide for specified periodic rental payments at market 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 generally is to lease rather than acquire space for its stores unless the Company finds what it believes is a superior location at an attractive price.

Below is a summary of changes in the number of store locations during Fiscal 2001, 2002, and 2003. Included in the new stores opened in 2003 are two “store within a store” Mono-line payday loan stores adjoining existing pawnshop locations:

On an ongoing basis, the Company may close or consolidate under performing store locations as it did in Fiscal 2001 and 2002. In Fiscal 2001 and 2002, the Company sold its seven California operating locations to a California based check cashing chain.

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The following table presents the metropolitan areas or regions (as defined by the Company) generally served by the Company and the number of locations serving each market as of September 30, 2003:

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In addition to its store locations, the Company leases its 27,400 square foot corporate office and 8,100 square foot facility for its jewelry processing center, payday loan call center, and payday loan collections center located in Austin, Texas.

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ITEM 3.  LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation and regulatory actions arising from its normal business operations. Currently, the Company is a defendant in several actions, some of which involve claims for substantial amounts. While the ultimate outcome of these actions cannot be ascertained, after consultation with counsel, the Company believes the resolution of these actions will not have a material adverse effect on the Company’s financial condition, results of operation, or liquidity. There can be no assurance, however, as to the ultimate outcome of these actions.

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

None.

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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 21, 2003, there were 132 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 21, 2003, 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:

On November 21, 2003, the Company’s Class A Common Stock closed at $7.35 per share.

During the past three fiscal years, no dividends have been declared or paid. The Company’s credit agreement, which matures March 31, 2005, prohibits the payment of dividends. Should dividends be paid in the future, the Company’s restated certificate of incorporation provides that cash dividends on common stock, when declared, must be declared and paid at the same per share amounts on the Class A Common Stock and the Class B Common Stock.

Any interested party may request a copy of this Annual Report on Form 10-K or of the Company’s Code of Conduct and Ethics, free of charge by submitting a written request to EZCORP, Inc., Investor Relations, 1901 Capital Parkway, Austin, Texas 78746. The Code of Conduct and Ethics also may be obtained from the Company’s website at www.ezcorp.com.

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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. Prior to Fiscal 2000, the Company accrued 100% of pawn service charges during a pawn loan, and the inventory (and ultimately the cost of goods when the inventory was sold) resulting from forfeited pawn loan collateral was valued at the amount loaned plus accrued pawn service charges. In Fiscal 2000, the Company began accruing only pawn service charges expected to be collected, and inventory (and related costs of goods sold) was valued at only the amount loaned. Service charges, cost of goods sold and inventory before Fiscal 2000 are stated on the historical accounting method, and are not directly comparable to Fiscal 2000, 2001, 2002, and 2003 amounts.

(b)

Beginning in Fiscal 2003, the Company adopted SFAS No. 142, which ceased amortization of certain indefinite lived intangible assets (See Note B to Consolidated Financial Statements). Amortization expense and equity in net income of affiliate before Fiscal 2003 are stated on the historical accounting method, and are not directly comparable to Fiscal 2003 amounts.

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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, 2002, and 2003 (“Fiscal 2001”, “Fiscal 2002”, and “Fiscal 2003”). The discussion should be read in conjunction with, and is qualified in its entirety by, the accompanying consolidated financial statements and related notes.

Summary Financial Data

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General

The Company’s primary lending activity is the making of small, non-recourse loans secured by tangible personal property through its 280 pawnshops. The income earned on this activity is pawn service charge revenue. While allowable service charges vary by state and by amount of the 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. The Company’s average pawn loan amount has historically averaged between $70 and $75. The allowable term of pawn loans also differs by state, but is typically 30 days with an automatic 60-day extension.

The Company sells merchandise acquired primarily through pawn loan forfeitures and, to a lesser extent, through purchases of customers’ merchandise. 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.

The Company also offers unsecured payday loans in 230 of its pawnshops, 17 EZMONEY Mono-line stores, and in its call center as of November 21, 2003. In 199 locations and its call center, the Company markets and services payday loans made by County Bank, a federally insured Delaware bank. After origination of the loans, the Company may purchase an 85% participation in the loans made by County Bank and marketed by the Company. In 48 of its locations, the Company makes payday loans directly, operating under state law. The average payday loan amount is approximately $325 and the terms are generally less than 30 days, averaging about 16 days. The service charge per $100 loaned is typically $18 for a 7 to 23-day period, but varies in certain locations.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventory, allowance for losses on payday loans, long-lived and intangible assets, income taxes, contingencies and litigation. Management bases its estimates on historical experience, observable trends, and various other assumptions that are believed to be reasonable under the circumstances. Management uses this information to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

PAWN LOAN REVENUE RECOGNITION: Pawn service charges are recorded using the interest method for all pawn loans the Company deems to be collectible. The Company bases its estimate of uncollectible loans on several factors, including recent redemption rates, historical trends in redemption rates, and the amount of loans due in the following three months. Unexpected variations in any of these factors could increase or decrease the Company’s estimate of uncollectible loans, affecting the Company’s earnings and financial condition. In Fiscal 2003, 99.7% ($58.0 million) of recorded pawn service charge revenue was collected in cash, and 0.3% ($0.2 million) resulted from an increase in accrued pawn service charges receivable.

PAYDAY LOAN REVENUE RECOGNITION: Payday loans and related service charges reported in the Company’s consolidated financial statements reflect only the Company’s participation interest in these loans. The Company accrues service charges on the percentage of loans the Company deems to be collectible using the interest method. Accrued service charges related to defaulted loans are deducted

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from service charge revenue upon loan default, and increase service charge revenue upon subsequent collection. In Fiscal 2003, 98.0% ($12.3 million) of recorded payday loan service charge revenue was collected in cash, and 2.0% ($0.2 million) resulted from an increase in accrued payday loan service charges receivable.

ALLOWANCE FOR LOSSES ON PAYDAY LOANS: Unlike pawn loans, payday 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 later, the Company charges defaulted loans’ principal to bad debt upon default, leaving only active loans in the reported balance. Subsequent collections of principal are recorded as a reduction of bad debt at the time of collection.

The Company also provides an allowance for losses on active payday loans and related service charges receivable. This estimate is based largely on recent net default rates and expected seasonal fluctuations in default rates. The accuracy of the Company’s allowance estimate is dependent upon several factors, including its ability to predict future default rates based on historical trends and expected future events. Actual loan losses could vary from those estimated due to variance in any of these factors. Changes in the principal valuation allowance are charged to bad debt expense, a component of operations expense in the Company’s statement of operations. Changes in the service charge receivable valuation allowance are charged to payday loan service charge revenue. Increased defaults and credit losses may occur during a national or regional economic downturn, or could occur for other reasons, resulting in the need to increase the allowance. The Company believes it effectively manages these risks through its underwriting criteria, closely monitoring the performance of the portfolio, and participating in loans made by a bank using similar strategies.

INVENTORY: If a pawn loan is not repaid, the forfeited collateral (inventory) is recorded at cost (pawn loan principal). The Company does not record loan loss allowances or charge-offs on the principal portion of pawn loans. In order to state inventory at the lower of cost or market (net realizable value), the Company provides an allowance for shrinkage and excess, obsolete, or slow-moving inventory. The Company’s inventory valuation allowance is based on the type and age of merchandise as well as recent sales trends and margins. At September 30, 2003, this allowance was approximately $1.8 million, or 5.8% of the gross inventory balance. Changes in the inventory valuation allowance are recorded as cost of goods sold. The accuracy of the Company’s inventory allowance is dependent on its ability to predict future events based on historical trends. Unexpected variations in sales margins, inventory turnover, or other factors, including fluctuations in gold prices could increase or decrease the Company’s inventory allowance.

VALUATION OF TANGIBLE LONG-LIVED ASSETS: The Company assesses the impairment of tangible long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors which could trigger an impairment review include the following: significant underperformance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy for the overall business; and significant negative industry trends. When management determines that the carrying value of tangible long-lived assets may not be recoverable, impairment is measured based on the excess of the assets’ carrying value over the estimated fair value. No impairment of tangible long-lived assets was recognized in Fiscal 2001, 2002, or 2003.

EFFECT OF ADOPTION OF NEW ACCOUNTING PRINCIPLE: The Company adopted the Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” effective October 1, 2002. Under its provisions, goodwill and other intangible assets having indefinite lives are no longer subject to amortization but will be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the assets might be impaired. With the adoption of SFAS No. 142, the Company ceased amortization of goodwill and pawn licenses, which lowered amortization expense approximately $603,000 annually, beginning October 1, 2002. The Company also ceased goodwill amortization related to its equity investment in A&B, resulting in a $453,000 annual increase in “equity in net income of unconsolidated affiliates.” During the quarter ended December 31, 2002, the

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Company completed impairment tests of its goodwill and pawn licenses. The testing estimated enterprise value based on discounted cash flows and market capitalization and indicated no impairment of pawn licenses and implied fair value of goodwill of $0 based on the allocation of enterprise value to all of the Company’s assets and liabilities. This resulted in an $8.0 million, net of tax, impairment charge for goodwill recorded as a cumulative effect of adopting a new accounting principle. The Company assesses its goodwill and indefinite lived intangible assets as of July 1 of each year or more frequently if events or changes in circumstances indicate impairment. Excluding the cumulative adjustment recognizing impairment of the Company’s goodwill, the Company concluded that there was no impairment of its indefinite lived intangible assets in Fiscal 2003.

INCOME TAXES: As part of the process of preparing the consolidated financial statements, the Company is required to estimate income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax liability together with assessing temporary differences in recognition of income for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company’s consolidated balance sheet. Management must then assess the likelihood that the deferred tax assets will be recovered from future taxable income. In the event that the Company was to determine that it would not be able to realize all or part of its net deferred tax assets in the future, a valuation allowance would be charged to the income tax provision in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, a decrease to a valuation allowance would increase income in the period such determination was made.

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. No adjustments were made to the Company’s valuation allowance in Fiscal 2001 or 2002. At September 30, 2003, the Company reversed its $3.7 million valuation allowance on its deferred tax assets, based on management’s estimate of taxable income in the three years following Fiscal 2003. Projected levels of pre-tax earnings over the next three years, primarily attributable to ordinary and recurring operating results, are sufficient to generate the $37 million required amount of taxable income to realize the net deferred tax assets. The Company intends to evaluate the realizability of the deferred tax assets quarterly by assessing the need for a valuation allowance, if any. Uncertainties that might impact the realization of the deferred tax assets include possible declines in revenues and margins.

EQUITY IN NET INCOME OF A&B: The Company accounts for its investment in A&B using the equity method. Since A&B’s fiscal year ends three months prior to the Company’s fiscal year, the income reported by the Company for its investment in A&B is on a three-month lag. In accordance with U.K. securities regulations, A&B files only semi-annual financial reports, for its fiscal periods ending December 31 and June 30. The income reported for the Company’s Fiscal 2003 year represents its percentage interest in the results of A&B’s operations from July 2002 through June 2003.

STOCK-BASED COMPENSATION: The Company accounts for its stock-based compensation plans in accordance with the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In October 1995, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure,” encourages expensing the fair value of employee stock options, but allows an entity to continue to account for stock-based compensation to employees under APB 25 with disclosures of the pro forma effect on net income had the fair value accounting provisions of SFAS No. 123, as amended by SFAS No. 148 been adopted. The Company has calculated the fair value of options granted in these periods using the Black-Scholes option-pricing model and has disclosed the pro forma impact on net income in Note I to the Consolidated Financial Statements.

DISCLOSURE AND INTERNAL CONTROLS: Based on an assessment of the effectiveness of the Company’s disclosure controls and procedures, accounting policies, and the underlying judgments and uncertainties affecting the application of those policies and procedures, management believes that the Company’s consolidated financial statements provide a meaningful and fair perspective of the Company

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in all material respects. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation. Management identified no significant deficiencies or material weaknesses in internal controls. Other risk factors, such as those discussed elsewhere in this annual report as well as changes in business strategies, could adversely impact the consolidated financial position, results of operations, and cash flows in future periods.

Results of Operations

Fiscal 2003 Compared to Fiscal 2002

The Company’s Fiscal 2003 pawn service charge revenue increased 3%, or $1.5 million from Fiscal 2002 to $58.2 million. This represents an increase in same store pawn service charge revenue ($1.6 million) offset by the decrease in pawn service charge revenue from closed stores ($0.1 million). The improvement in same store pawn service charge revenue was due to a three percentage point improvement in loan yields to 126% in Fiscal 2003. Variations in the annualized loan yield, as seen between these periods, are due generally to changes in the statutory fees that can be charged, changes in the level of loan forfeitures and a mix shift between loans with different yields. Excluding the effect of closed stores, the Company’s Fiscal 2003 average balance of pawn loans outstanding was 0.2% higher and ending pawn loans outstanding were 3% lower than in Fiscal 2002.

Fiscal 2003 sales increased $3.5 million from Fiscal 2002 to $134.6 million. The increase was due to an increase in same store sales ($1.8 million) and an increase in jewelry scrapping sales ($1.8 million), offset by a reduction in sales from closed stores ($0.1 million).

Below is a summary of Fiscal 2002 and 2003 sales and margins:

Fiscal 2003 overall gross margins on sales increased 0.8 of a percentage point from Fiscal 2002 to 36.0%. Margins on merchandise sales, excluding jewelry scrapping, decreased 1.2 percentage points as a result of higher loan values on forfeited collateral, more aggressive discounting, and a higher inventory valuation allowance, primarily on aged general merchandise. Improvements in jewelry scrapping margins, due largely to higher gold prices, more than offset the decrease in merchandise sales margins, leading to the improvement in overall margins. Inventory shrinkage, included in cost of goods sold, was 1.9% of merchandise sales in Fiscal 2003 compared to 1.5% in Fiscal 2002.

The higher level of gross profit for jewelry scrapping sales, seen in the table above, is largely due to higher gold prices, which reached historical five-year highs during Fiscal 2003. Future fluctuations in gold prices would have an immediate and direct impact on the sales proceeds, or revenue per gram of gold scrapped. The Company may react to gold price changes by adjusting the amount it would lend on gold jewelry, which may ultimately impact the cost of scrapped gold.

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During 2003, the Company offered payday loans in 225 of its pawnshop locations and through its Austin, Texas based call center. During the fourth Fiscal 2003 quarter, the Company opened four Mono-line payday loan stores specializing in payday loans, two of which were carved out of existing pawnshop locations. For the locations offering payday loans for the full year, average per store payday loan balances increased 53% to $15,500 per store on September 30, 2003.

Payday loan data are as follows for Fiscal 2002 and 2003:

The contribution to operating income presented above is the incremental contribution only and excludes allocation of other costs such as labor, rent, and overhead.

Payday loan service charge revenue and bad debt expense each increased from Fiscal 2002 primarily due to higher average loan balances. The loan balance increased primarily due to the maturing of the product. The Company’s significant improvement in net defaults was primarily due to continued refinements in the Company’s collection efforts and improvements to its underwriting criteria as it gains more experience with this product.

The Company provides a valuation allowance on both the principal and fees receivable for payday loans. Due to the short-term nature of these loans, the Company uses recent net default rates and anticipated seasonal changes in the rate of defaults as the basis for its valuation allowance, rather than reserving the annual rate. At September 30, 2003, the valuation allowance was 5.9% of the payday loan principal and fee receivable.

In Fiscal 2003, store operating expenses as a percent of net revenues increased 1.1 percentage points to 71.0%. This increase is largely due to a $2.7 million increase in labor, incentive compensation, and benefits and a $1.0 million increase in robberies related primarily to one gang that has been apprehended. Fiscal 2003 operating expenses also reflect a volume-related $0.7 million increase in payday loan bad debt and other direct payday loan transaction expenses, $0.7 million higher rent on computer equipment upgrades, and a $0.4 million increase in rent from the sale-leaseback of previously owned store locations. The incremental sale-leaseback rent expense was largely offset by related decreases in depreciation of the sold locations and lower interest expense from debt retired with the proceeds of the sale-leaseback transactions.

Administrative expenses measured as a percentage of net revenues increased 0.1 of a percentage point from Fiscal 2002 to 14.1%. The increase is due primarily to higher employment related costs and payday loan related costs. Employment cost increases reflect increased benefit costs, general inflation, limited staff additions, and greater incentive compensation related to the Company’s improved overall performance in Fiscal 2003. The increased volume of payday loans in Fiscal 2003 required the increase in payday loan related costs, primarily labor in the debt collection area. Included in administrative expenses are management fees and expense reimbursements paid to a related party totaling $767,000 and $498,000 in Fiscal 2003 and 2002, as more fully discussed in Item 13 of this annual report on Form 10-K.

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Depreciation and amortization expense, when measured as a percentage of net revenue, decreased 1.7 percentage points in Fiscal 2003 to 7.3%. This improvement is primarily due to ceasing amortization of intangibles upon the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” and the reduction in depreciation resulting from the sale-leaseback of previously owned locations.

In Fiscal 2003, interest expense decreased to $2.0 million from $4.8 million in Fiscal 2002. The improvement was driven by lower average debt balances, coupled with lower effective interest rates. At September 30, 2003, the Company’s total debt was $31.0 million compared to $42.2 million at September 30, 2002. Decreases in the debt balance were funded primarily by cash flow from operations.

In Fiscal 2000, the Company invested $1.1 million in an internet related start-up company. Based on the investee’s performance to date, the Company determined at September 30, 2003 that its investment was fully impaired, resulting in a $1.1 million impairment charge recorded in Fiscal 2003.

The Fiscal 2003 income tax benefit was $1.2 million. This amount includes the reversal of a $3.7 million deferred tax asset valuation allowance as the Company projects its future taxable income will be sufficient to fully realize its net deferred tax asset. Excluding the removal of the valuation allowance, the Company’s income tax provision would be $2.5 million (35% of pretax income) compared to an income tax provision of $1.3 million (37% of pretax income) for Fiscal 2002. The decrease in effective tax rate for Fiscal 2003 is due to non-deductible items having a smaller percentage impact on pre-tax earnings.

Operating income for Fiscal 2003 increased $1.1 million over Fiscal 2002 to $9.1 million. The $3.3 million increased contribution from payday loans, $2.4 million improvement in gross profit on sales, and $1.6 million increase in same store pawn service charges account for most of the improvement. Coupled with these is a $0.6 million reduction in amortization resulting from the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” and a $0.7 million reduction in depreciation expense related to the sale-leaseback of store locations. These improvements were partially offset by $7.1 million higher operating and administrative expenses and $0.4 million of rent from the sale-leaseback of store locations.

Income before the cumulative effect of adopting SFAS No. 142 improved to $8.4 million from $2.2 million in Fiscal 2002. This results principally from a $2.8 million decrease in interest expense, and a $3.7 million reduction in the deferred tax asset valuation allowance, partially offset by a $1.1 million impairment of an investment in an internet business. After the non-cash cumulative effect of adopting SFAS No. 142, the Company’s net income was $0.4 million compared to $2.2 million in Fiscal 2002.

Fiscal 2002 Compared to Fiscal 2001

The Company’s Fiscal 2002 pawn service charge revenue increased 4%, or $2.0 million from Fiscal 2001 to $56.7 million. This represents an increase in same store pawn service charge revenue ($2.2 million) offset by the decrease in pawn service charge revenue from closed stores ($0.2 million). Of the $2.2 million improvement in same store pawn service charge revenue, $1.2 million was due to greater average loan balances during the year and $1.0 million was due to a 3 percentage point improvement in loan yields to 123% in Fiscal 2002. Variations in the annualized loan yield, as seen between these periods, are due generally to changes in the statutory fees that can be charged, changes in the level of loan forfeitures and a mix shift between loans with different yields. Excluding the effect of closed stores, the Company’s Fiscal 2002 average balance of pawn loans outstanding was 2% higher and ending pawn loans outstanding were 6% higher than in Fiscal 2001.

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Fiscal 2002 sales increased $2.4 million from Fiscal 2001 to $131.0 million. The increase was primarily due to an increase in jewelry scrapping sales ($5.4 million), offset by a reduction in sales from closed stores ($1.7 million) and lower same store merchandise sales ($1.3 million). Lower merchandise sales occurred mainly in jewelry largely as a result of lower jewelry inventories caused by the higher level of jewelry scrapping. Below is a summary of Fiscal 2001 and 2002 sales and margins: