10QSB 1 v042339_10qsb.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,2006

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _____________ to ______________

Commission file number __________________________________

FREEDOM FINANCIAL GROUP, INC.

(Exact name of small business issuer as specified in its charter)

43-1647559	Delaware
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3058 East Elm Street, Springfield, Missouri 65802

(Address of principal executive offices)

(417) 886-6600

(Issuer's Telephone Number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No o

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes x No o

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:

As of May 5, 2006, 10,928,252 shares of Common Stock, $0.0001 par value were outstanding.

Transitional Small Business Disclosure Format: Yes o No x

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		3

ITEM 1.	Financial Statements	3

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

ITEM 3.	Controls and Procedures	28


PART II. – OTHER INFORMATION		29

ITEM 1.	Legal Proceedings	29

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

ITEM 3.	Defaults Upon Senior Securities	29

ITEM 4.	Submission of Matters to a Vote of Security Holders	29

ITEM 5.	Other Information	29

ITEM 6.	Exhibits and Reports on Form 8-K	30

INDEX TO EXHIBITS		30

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

Freedom Financial Group, Inc.

Springfield, Missouri

We have reviewed the accompanying condensed consolidated balance sheet of Freedom Financial Group, Inc. as of March 31, 2006 and the related condensed consolidated statements of operations, stockholders’ equity and cash flows for the three-month periods ended March 31, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2005 and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated January 20, 2006 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ BKD, LLP

Springfield, Missouri

April 20, 2006

FREEDOM FINANCIAL GROUP, INC.

Consolidated Balance Sheets

	Unaudited March 31, 2006		December 31, 2005

Assets

Cash and cash equivalents	$	1,602,249	$	2,192,075
Finance receivables, net		10,053,374		9,756,170
Notes receivable, net		11,725		11,725
Repossessed assets		142,315		191,911
Property and equipment, net		298,881		308,777
Other assets		207,582		159,017

Total assets	$	12,316,126	$	12,619,675


Liabilities and Stockholders’ Equity

Liabilities
Accounts payable	$	126,127		$	40,090
Accrued expenses		101,731			80,102
Accrued compensation costs		50,143			52,949
Dealer holdbacks		94,808			106,539
Dealer reserves		38,710			39,963

Total liabilities		411,519			319,643

Commitments and Contingencies

Stockholders’ Equity
Redeemable convertible preferred stock, $0.0001 par value; 8,994,357 shares authorized, issued and outstanding		13,798,817			13,798,817
Common stock, $0.0001 par value; 36,000,000 shares authorized; 10,928,252 and 9,965,759 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively		1,093			997
Additional paid-in-capital		4,716			—
Retained earnings (deficit)		(2,827,675	)		(2,446,970	)
Accumulated other comprehensive income		927,656			947,188

Total stockholders’ equity		11,904,607			12,300,032

Total liabilities and stockholders’ equity	$	12,316,126		$	12,619,675

See Notes to Condensed Consolidated Financial Statements.

FREEDOM FINANCIAL GROUP, INC.

Consolidated Statements of Operations

Unaudited

	Three Months Ended

	March 31,			March 31,
	2006			2005
Revenues
Interest income	$	656,221		$	451,976
Recovery of charged-off finance receivables		12,498			28,046
Other income		26,357			29,051

Total revenues		695,076			509,073

Provision for Credit Losses		297,488			75,617

Net Revenues After Provision for Credit Losses		397,588			433,456

Operating Expenses		778,293			722,947

Operating Loss		(380,705	)		(289,491	)

Nonoperating Income
Other		—			1,149

Loss Before Income Taxes		(380,705	)		(288,342	)

Provision for Income Taxes		—			—

Net Loss	$	(380,705	)	$	(288,342	)


Basic Loss Per Share	$	(0.04	)	$	(0.03	)


Diluted Loss Per Share	$	(0.04	)	$	(0.03	)

See Notes to Condensed Consolidated Financial Statements.

FREEDOM FINANCIAL GROUP, INC.

Consolidated Statements of Stockholders’ Equity

Unaudited

	Redeemable											Accumulated
	Convertible						Additional					Other
	Preferred		Common Stock				Paid-in		Retained			Comprehensive
	Stock		Shares		Amount		Capital		Earnings			Income			Total
Balance, December 31, 2005	$	13,798,817		9,965,759	$	997	$	0	$	(2,446,970	)	$	947,188		$	12,300,032

Net loss		—		—		—		—		(380,705	)		—			(380,705	)

Foreign currency
translation
adjustment		—		—		—		—		—			(19,532	)		(19,532	)

Comprehensive loss		—		—		—		—		—			—			(400,237	)

Stock grant		—		962,493		96		4,716		—			—			4,812

Balance, March 31, 2006	$	13,798,817		10,928,252	$	1,093	$	4,716	$	(2,827,675	)	$	927,656		$	11,904,607

Balance, December 31, 2004	$	13,798,817		9,965,759	$	997	$	0	$	(1,731,382	)	$	803,244		$	12,871,676

Net loss		—		—		—		—		(288,342	)		—			(288,342	)

Foreign currency
translation
adjustment		—		—		—		—		—			(16,662	)		(16,662	)

Comprehensive loss		—		—		—		—		—			—			(305,004	)

Balance, March 31, 2005	$	13,798,817		9,965,759	$	997	$	0	$	(2,019,724	)	$	786,582		$	12,566,672

See Notes to Condensed Consolidated Financial Statements.

FREEDOM FINANCIAL GROUP, INC.

Consolidated Statements of Cash Flows

Unaudited

	Three Months Ended

	March 31, 2006			March 31, 2005
Operating Activities
Net loss	$	(380,705	)	$	(288,342	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		10,144			15,149
Provision for credit losses		297,488			75,617
Deferred discount income		(151,313	)		(157,573	)
Recovery of charged-off finance receivables		136,281			37,634
Gain on disposal of property and equipment		—			(1,149	)
Stock grant expense		4,812			—
Changes in
Other assets		(5,698	)		(63,144	)
Accounts payable and accrued expenses		105,045			(166,598	)
Reorganization costs payable		—			(5,000	)
Net cash provided by (used in) operating activities		16,054			(553,406	)

Investing Activities
Purchase of finance receivables		(2,121,332	)		(2,666,938	)
Principal collected on finance receivables		1,595,865			1,190,407
Payments of dealer reserves		(4,618	)		(5,908	)
Payments of dealer holdbacks		(45,906	)		(43,871	)
Principal collected on notes receivable		—			12,624
Purchase of property and equipment		(1,308	)		(16,007	)
Proceeds from sale of property and equipment		—			2,000
Net cash used in investing activities		(577,299	)		(1,527,693	)

Financing Activities
Payment of deferred financing fees		(25,532	)		—
Net cash used in financing activities		(25,532	)		—


Effect of Exchange Rate Changes on Cash and Cash Equivalents		(3,049	)		(1,523	)

Net Decrease in Cash and Cash Equivalents		(589,826	)		(2,082,622	)

Cash and Cash Equivalents, Beginning of Period		2,192,075			8,779,211

Cash and Cash Equivalents, End of Period	$	1,602,249		$	6,696,589

See Notes to Condensed Consolidated Financial Statements.

FREEDOM FINANCIAL GROUP, INC.

Notes to Condensed Consolidated Financial Statements

Unaudited

Note 1:

General

The accompanying unaudited condensed consolidated financial statements of Freedom Financial Group, Inc. (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-QSB. Accordingly, certain information and footnotes required by generally accepted accounting principles for complete financial statements have been omitted. These interim statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2005 and notes thereto included in the Company’s Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2006. The condensed consolidated balance sheet of the Company as of December 31, 2005 has been derived from the audited consolidated balance sheet of the Company as of that date.

The information contained herein reflects all normal and recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of operations, cash flows and financial position. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Note 2:

Basis of Presentation

The consolidated financial statements include the accounts of Freedom Financial Group, Inc. (FFG), successor by merger to Stevens Financial Group, Inc. (SFG) and SFG’s wholly owned subsidiaries, SFC Funding Corporation (SFC) and SFC Automobile Receivables Trust 2000A (SFC Trust) and FFG’s wholly owned Canadian subsidiary, T.C.G. - The Credit Group Inc. (TCG), formerly Sinclair Credit Group Co., all of which collectively comprise a single reporting segment, the “Company.” All significant intercompany transactions have been eliminated in consolidation.

In accordance with the American Institute of Certified Public Accountants’ Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP 90-7), the Company adopted fresh start reporting as of January 1, 2003, the effective date of the Plan of Reorganization.

FREEDOM FINANCIAL GROUP, INC.

Notes to Condensed Consolidated Financial Statements

Unaudited

Note 3:

Finance Receivables and Allowance for Credit Losses

Finance receivables consist of the following at March 31, 2006 and December 31, 2005, respectively:

	2006		2005
Automobiles	$	8,883,052	$	8,456,981
Bulk food		771,297		863,167
Equipment leases		574,812		704,484
Other		812,957		742,534
Total finance receivables		11,042,118		10,767,166

Less
Unearned discount		557,375		598,768
Allowance for credit losses		431,369		412,228
		988,744		1,010,996
Net finance receivables	$	10,053,374		9,756,170

Approximately 35% and 37% of the above finance receivables as of March 31, 2006 and December 31, 2005 respectively, are Canadian in origin.

Amounts contractually receivable (including principal and interest) under our finance receivables at March 31, 2006, were as shown in the following table. The Company expects our actual collections to differ significantly from the amounts presented below as a result of prepayments, delinquent payments, partial payments and nonpayments.

2006	$	4,830,463
2007		4,596,039
2008		3,358,572
2009		1,496,306
2010		216,203
Total	$	14,497,583

Activity in the allowance for credit losses related to finance receivables for the three months ended March 31, 2006 and 2005, respectively, was as follows:

	2006			2005

Balance, beginning of period	$	412,228		$	302,462
Provision charged to expense		297,488			75,617
Losses charged off		(362,817	)		(90,355	)
Recoveries of previously charged off amounts		86,685			31,405
Effect of foreign currency translation		(2,215	)		(80	)
Balance, end of period	$	431,369		$	319,049

The Company’s nonearning finance receivables totaled $183,217 at March 31, 2006. The Company provided an allowance for credit losses related to these receivables of $164,896.

FREEDOM FINANCIAL GROUP, INC.

Notes to Condensed Consolidated Financial Statements

Unaudited

Note 4:

Commitments

The Company had outstanding commitments to purchase finance receivables totaling approximately $1,804,578 as of March 31, 2006. These commitments generally expire between 20 and 30 days after they are issued if unused. Typically the Company funds between 30% and 50% of its outstanding commitments.

On October 10, 2005, the Company entered into an agency agreement with an investment banking firm to act as the Company’s exclusive placement agent in connection with raising debt and/or equity financing. The agreement calls for the Company to pay nonrefundable advisory fees totaling $60,000, $20,000 of which remains unpaid as of March 31, 2006.

The Company is also obligated under certain noncancelable operating leases for premises and equipment with terms ranging up to three years. Future minimum payments under these noncancelable operating leases as of March 31, 2006 are:


2006	$	35,553
2007		27,935
Total	$	63,488

The Company had no other commitments as of March 31, 2006.

Note 5:

Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. Since the effect of converting the shares of redeemable preferred stock would be antidilutive for the three months ended March 31, 2006 and 2005 (due to the net losses for those periods), basic and diluted loss per share amounts for those periods are based on the weighted average number of common shares outstanding.

So long as any preferred stock is outstanding, no dividend or distribution shall be declared or paid on any shares of common stock.

Loss per share for the three months ended March 31, 2006, was computed as follows:

				Weighted
				Average		Per Share
	Loss			Shares		Amount

Net loss	$	(380,705	)		10,832,003
Basic and diluted loss per share						$	(0.04	)

FREEDOM FINANCIAL GROUP, INC.

Notes to Condensed Consolidated Financial Statements

Unaudited

Loss per share for the three months ended March 31, 2005, was computed as follows:

				Weighted
				Average		Per Share
	Income			Shares		Amount

Net loss	$	(288,342	)		9,965,759
Basic and diluted loss per share						$	(0.03	)

Note 6:

Operating Expenses

The components of operating expenses for the three months ended March 31, 2006 and 2005, respectively, are as follows:

	2006		2005

Salaries and benefits	$	411,576	$	396,500
Professional fees		214,951		171,540
Other		151,766		154,907

	$	778,293	$	722,947

Note 7:

Stock-Based Compensation

On January 9, 2006, in anticipation of the potential conversion of the Company’s outstanding preferred stock into common stock and to address the anti-dilution rights granted to certain officers of the Company with respect to common stock issued to them under the terms of the February 2003 Stock Bonus Plan, the Company entered into a Stock Grant Agreement (the “Agreement”) pursuant to which the officers were granted a total of 962,493 restricted shares of common stock (the “Grant Shares”). As a condition to receiving the Grant Shares under the Agreement, the officers agreed to waive their rights to receive bonuses of additional common stock resulting from any future conversion of the Company’s preferred stock into common stock. Additionally, the Agreement places various conditions and restrictions on both the Grant Shares and on their currently owned shares (the “Existing Shares”):

The Grant Shares are subject to forfeiture if (i) all of the Company’s outstanding preferred stock has not been converted into common stock within 18 months; (ii) the Company has not raised $10,000,000 in debt and/or equity financing within 36 months. Additionally, each officer must forfeit his Grant Shares if his employment with the Company is terminated for any reason before the conditions in (i) and (ii) have been satisfied.

The officers relinquish any rights to receive dividends or proceeds from the liquidation of the Company until the Company has raised debt and/or equity financing of not less than $10,000,000.

The officers may not sell any Existing Shares or Grant Shares until (i) all of the Company’s outstanding preferred stock has been converted into common stock and (ii) the Company has raised debt and/or equity financing of at least $10,000,000. When both of these conditions are met, but no sooner than six months after raising debt and/or equity financing of at least $10,000,000, the officers may sell all of their Existing Shares and up to half of their Grant Shares. They may sell the remainder of their Grant Shares only if the Company has raised debt and/or equity financing of at least $15,000,000.

FREEDOM FINANCIAL GROUP, INC.

Notes to Condensed Consolidated Financial Statements

Unaudited

Notwithstanding the above restrictions, the officers’ Existing Shares and Grant Shares may be sold upon their death or permanent disability, or if there is a change in control of the Company.

The Company has accounted for the Stock Grant Agreement under the provisions of FASB Statement No. 123(R), Share Based Payment, and determined the fair value of the Grant Shares to be $4,812 on the date they were granted. The fair value of the Grant Shares was estimated using several methods including discounted cash flow analysis, liquidation analysis and comparison to recent sales prices of the Company’s preferred stock and unrestricted common stock. As a result of this Stock Grant Agreement the Company recognized compensation expense of $4,812 in its statement of operations for the three months ended March 31, 2006.

Note 8:

Foreign Operations

The Company’s foreign operations, all of which are in Canada, are conducted through its wholly owned subsidiary, T.C.G. - The Credit Group Inc. based in Winnipeg, Manitoba. Total assets, net of valuation allowances, associated with foreign operations were $4,255,690 at March 31, 2006.

Total revenues, loss before income taxes and net loss from foreign operations for the three months ended March 31, 2006 and 2005, respectively, were as shown below. Loss before income taxes and net loss reflect interest charges on amounts due to FFG of $92,678 and $61,647 for the three months ended March 31, 2006 and 2005, respectively. Loss before income taxes and net loss also reflect management and accounting fees charged to TCG by FFG for certain administrative services performed by FFG on TCG’s behalf of $24,000 for each of the three month periods ended March 31, 2006 and 2005. These interest charges and management and accounting fees eliminate in consolidation.

	2006			2005

Total revenues	$	282,466		$	232,462

Loss before income taxes		(36,457	)		(26,746	)

Net loss		(36,457	)		(26,746	)

FREEDOM FINANCIAL GROUP, INC.

Notes to Condensed Consolidated Financial Statements

Unaudited

Note 9:

Comprehensive Loss

The components of comprehensive loss for the three months ended March 31, 2006 and 2005 are as follows:

	2006			2005

Net loss	$	(380,705	)	$	(288,342	)
Foreign currency translation adjustment		(19,532	)		(16,662	)

Comprehensive loss	$	(400,237	)	$	(305,004	)

Note 10:

Additional Cash Flow Information

The Company made no cash payments for interest or income taxes during the three months ended March 31, 2006 and 2005, respectively.

Note 11:

Change in Accounting Principle

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123(R), Share Based Payment. FASB Statement No. 123(R) revised previously issued FASB Statement No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends FASB Statement No. 95, Statement of Cash Flows. FASB Statement No. 123(R) established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, including transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments. The Company adopted FASB Statement No. 123(R) on January 1, 2006. Initial adoption of this Statement had no impact on the financial position and operating results of the Company.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “intend,” “anticipate,” “believe,” “estimate,” “plan,” and “expect,” and variations of these words and similar expressions are intended to identify these forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are considered to be forward-looking statements. We express our expectations, beliefs or projections in good faith and believe our expectations reflected in these forward-looking statements are based on reasonable assumptions; however, we cannot assure you that these expectations, beliefs or projections will prove to have been correct. Risks, uncertainties and assumptions that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, among other things: (i) the risks associated with business expansion; (ii) the ability to obtain sufficient outside debt and/or equity financing on terms acceptable to us in order to meet our cash requirements over the coming 12 months; (iii) our ability to compete successfully against competitors with significantly greater financial, marketing and advertising resources than the Company; and (iv) the risk of adverse economic conditions lessening demand for our products.

Readers are referred to the caption “Risk Factors” appearing at the end of ITEM 1, Description of Business in our annual report on Form 10-KSB, filed on March 30, 2006, for additional factors that may affect our forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-QSB might not occur. We undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the related notes thereto and other information included or incorporated by reference herein.

Overview

We are a consumer finance company specializing in the acquisition, collection and servicing of sub-prime automobile loans purchased from independent used car dealers. We invest significant amounts of cash to acquire Installment Contracts. (As used herein, the term “Installment Contract” includes all motor vehicle installment contracts, consumer installment contracts and small ticket leases acquired by the Company.) We generate cash over the terms of those Installment Contracts in the form of interest and principal payments we collect.

Our primary source of revenue is interest income generated from our portfolio of Installment Contracts.

The Company’s predecessor, SFG, filed for Chapter 11 bankruptcy on March 19, 2001. See PART I, ITEM 1, under the heading Reorganization of Predecessor Under Chapter 11 in the Company’s registration statement on Form 10-SB/A, filed on September 28, 2005.

As a result of the Company’s reorganization, the Company’s U.S. operations were suspended between March 19, 2001 and January 1, 2003. From January 1, 2003 through October of 2004, the Company engaged in limited operations. Due to this lengthy period of suspended or limited operations, when the Company fully re-entered the U.S. marketplace in October of 2004 it was essentially as a “start-up” organization. We consider ourselves to be a “growth” company, in that our primary focus is on increasing the size of our Installment Contracts portfolio. Our goal is to grow our portfolio to a size such that the interest income generated from the portfolio is sufficient to provide consistent operating profits.

The Company’s primary focus is on acquiring sub-prime automobile loans from independent used car dealers. In addition, the Company’s Canadian subsidiary, TCG, has in the past acquired a variety of consumer Installment Contracts, including small ticket leases, loans secured by home appliances and other consumer goods, and loans for bulk food purchases. While TCG will continue to acquire these types of Installment Contracts, TCG’s primary focus is on acquiring sub-prime automobile loans from independent used car dealers. On a consolidated basis, the Company’s portfolio of outstanding Installment Contracts has been increasingly comprised of sub-prime automobile loans. The trend in the percentage of the Company’s Installment Contracts secured by automobiles is as follows:

December 31, 2003	17	%
December 31, 2004	45	%
December 31, 2005	79	%
March 31, 2006	80	%

The Company is devoting the majority of its marketing resources and efforts to acquiring sub-prime automobile loans, and anticipates that this trend will continue over the coming twelve months.

Over the course of the next year, in addition to closely monitoring this trend, the Company’s management will be focused on the following:

(1)

Consistently acquiring an increasing volume of sub-prime automobile-secured Installment Contracts, through our point-of-sale programs, that meet the Company’s underwriting guidelines;

(2)

Obtaining additional outside debt and/or equity financing to meet the Company’s future cash requirements;

(3)

Minimizing the credit losses in the Installment Contracts portfolio; and

(4)

Monitoring key performance measures, including cost per loan acquired, book-to-look ratio (computed as the number of contracts acquired compared to the number of credit applications received/reviewed), turnaround time for responding to credit applications submitted by dealers, and turnaround time for funding a loan package submitted by a dealer.

Recent Developments

The Company needs to raise an additional $5 - $10 million in debt and/or equity financing in order to allow the Company to meet its targets for the purchase of Installment Contracts throughout 2006. In connection therewith, on October 10, 2005, the Company hired an investment banking firm to act as the Company’s exclusive placement agent in connection with raising additional debt and/or equity capital. The work performed by the investment banking firm on our behalf during the fourth quarter of 2005 led the Company to reach several conclusions:

Relying solely on debt financing to meet the Company’s future cash requirements would be too expensive;

A combination of debt and equity financing would give the Company its best chance for obtaining the amount of capital it will require over the next several years at the most competitive pricing; and

Equity financing is not available to the Company so long as the Company’s preferred stock remains outstanding.

Given these conclusions, the Company’s Board of Directors determined that it was in the best interest of the Company and its stockholders to convert all of the Company’s outstanding preferred stock into common stock. To that end, the Board of Directors requested that the Trust Supervision Committee of the Freedom Financial Group I Statutory Trust (which holds all of the Company’s outstanding preferred stock) to consider taking steps to convert the Company’s outstanding preferred stock into common stock. The Trust Supervision Committee, without participation from Mr. Fenstermaker (who recused himself to remove any appearance of impropriety), considered the issue and agreed that conversion of the preferred stock would be in the best interests of the Trust’s beneficial owners.

On January 25, 2006 the Trust Supervision Committee filed a Motion to Reopen Case with the United States Bankruptcy Court for the District of Arizona. Concurrently therewith, the Trust Supervision Committee filed a Motion for Declaratory Relief seeking the Court’s Declaratory Judgment resolving any ambiguity which may exist under the court approved Plan of Reorganization (and other operative documents) regarding conversion of the Company’s preferred stock. On March 27, 2006, the Bankruptcy Court issued an order on the Motion for Declaratory Relief. In its Order, although noting that it makes “compelling economic sense” to convert the Company’s outstanding preferred stock into common stock, the Bankruptcy Court determined that the Trust Supervision Committee lacks the power to convert the Company’s outstanding preferred stock into common stock without a majority vote of the Trust’s beneficiaries (the Trust Certificate holders).

In light of the Bankruptcy Court’s Order, the Trust’s beneficiaries will be asked to vote in favor of converting the Company’s outstanding preferred stock into common stock at the Company’s 2006 Annual Meeting of Stockholders. It is contemplated that the 2006 Annual Meeting of Stockholders will take place in Springfield, Missouri on June 23, 2006.

The Company’s Board of Directors believes that conversion of the Company’s outstanding preferred stock into common stock is critical to the Company’s long-term viability.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

The Company considers the determination of the allowance for credit losses to involve a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining an allowance for credit losses that management believes is adequate to absorb reasonably estimable probable losses in the Company’s portfolio of Installment Contracts. Management’s determination of the adequacy of the allowance for credit losses is based on periodic evaluations of the Company’s portfolio of Installment Contracts and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, value of collateral, the amount and timing of expected future cash flows on delinquent loans, estimated losses and general amounts for historical loss experience. The process also considers prevailing and expected future economic conditions, uncertainties in estimating losses and inherent risks in the Installment Contracts portfolio. All of these factors may be subject to significant change. To the extent actual outcomes differ from management estimates, additional provisions for credit losses may be required that would adversely impact our earnings in future periods.

The Company’s management evaluates the adequacy of the allowance for credit losses on a regular basis. This evaluation is based on a review of various quantitative and qualitative analyses. Quantitative analyses include the review of all loans charged-off by asset class, static pool analysis by month of acquisition and by dealer, review of delinquency trends, and analysis of the historical cumulative losses in the portfolio. Other quantitative analyses include a review of the current delinquency ratios and an analysis of the relative size of each asset class in relation to historical amounts. Qualitative analyses include an assessment of prevailing and anticipated economic conditions, trends in deficiency balance collections, trends in the number of loan modifications and extensions, trends in average borrower credit scores and trends in the percentage of balances recovered through sale of collateral. The analysis of the adequacy of the allowance for credit losses is dependent upon effective quantitative and qualitative analyses, some of which are inherently subjective as they require estimates that are susceptible to significant revision as more information becomes available.

Selected Financial Data

The following table presents selected unaudited summary information regarding our results of operations for the three months ended March 31, 2006 and 2005. This table should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto, included herein.


	Three Months Ended March 31,
	2006			2005
Consolidated Summary of Operations:
Interest income	$	656,221		$	451,976
Recovery of charged-off finance receivables		12,498			28,046
Other income		26,357			29,051
Total revenues		695,076			509,073

Provision for credit losses		297,488			75,617

Net revenues after provision for credit losses		397,588			433,456

Operating expenses		778,293			722,947

Operating loss		(380,705	)		(289,491	)

Non-operating income		-			1,149

Loss before income taxes		(380,705	)		(288,342	)

Income taxes		-			-

Net loss	$	(380,705	)	$	(288,342	)

Basic earnings per share	$	(0.04	)	$	(0.03	)
Diluted earnings per share	$	(0.04	)	$	(0.03	)
Other Selected Data:
Installment Contracts acquired during the period (total principal amount)	$	2,290,686		$	2,975,540
Purchase price of Installment Contracts acquired	$	2,157,060		$	2,711,392
Percentage of dollar amount paid to principal balance acquired		94.2	%		91.1	%
Number of Installment Contracts acquired during the period		387			570
Average principal balance acquired	$	5,925		$	5,220
Acquisition cost per acquired Installment Contract (including overhead)	$	804		$	545
Monthly servicing cost per Installment Contract (including overhead)	$	22		$	39

The following table presents selected unaudited summary information regarding our financial condition as of March 31, 2006 and December 31, 2005. This table should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto, included herein.


	March 31, 2006		December 31, 2005
Consolidated Summary of Financial Condition:
Installment Contracts receivable, net	$	10,053,374	$	9,756,170
Total assets	$	12,316,126	$	12,619,675

Total liabilities	$	411,519	$	319,643
Total stockholders' equity	$	11,904,607	$	12,300,032

Results of Operations

Interest Income

Our interest income totaled $656,221 for the three months ended March 31, 2006, compared to $451,976 for the three months ended March 31, 2005.

The following table presents information relative to the average balances and interest rates of our interest earning assets for the three months ended March 31, 2006 and 2005:


	For the Three Months Ended March 31, 2006 and 2005

	2006						2005
	Average		Interest				Average		Interest
	Balance		Income		Yield		Balance		Income		Yield

Installment Contracts	$	10,350,998	$	637,877		24.65%	$	5,151,481	$	405,255		31.47%
Cash and cash equivalents		1,899,416		17,982		3.79%		7,680,429		45,140		2.35%
Notes receivable		11,725		362		12.35%		71,111		1,581		8.89%

Total	$	12,262,139	$	656,221		21.41%	$	12,903,021	$	451,976		14.01%

The decrease in yield on our Installment Contracts is primarily the result of changes in the mix of our portfolio. Throughout 2005 and the first three months of 2006 our portfolio of Installment Contracts has been increasingly comprised of contracts acquired through our point-of-sale automobile financing programs. These contracts typically have lower yields than the other types of contracts in our portfolio, among them, automobile contracts acquired in bulk purchase transactions, small ticket leases, loans secured by home appliances and other consumer goods and loans for bulk food purchases. Our total interest yield has increased as Installment Contracts have comprised a higher percentage of our total interest earning assets.

The following table sets forth the changes in interest income attributable to changes in volume (change in average balance multiplied by the prior period yield) and changes in rate (change in yield multiplied by the prior period average balance). Changes due to the rate/volume variance (the combined effect of change in yield and change in average balance) have been allocated proportionately based on the absolute value of the rate and volume variances.


	For the Three Months Ended March 31, 2006 Compared to the Three Months Ended March 31, 2005

	Volume			Rate			Total
Increase (decrease) in interest income:
Installment Contracts	$	296,198		$	(63,576	)	$	232,622
Cash and cash equivalents		(144,065	)		116,907			(27,158	)
Notes receivable		(2,288	)		1,069			(1,219	)

Total Interest Income	$	149,845		$	54,400		$	204,245

Provision for Credit Losses

Our consolidated provision for credit losses totaled $297,488 for the three months ended March 31, 2006, compared to $75,617 for the three months ended March 31, 2005. This increase is a result of an increase in net charge-offs experienced during the three months ended March 31, 2006 and the increase in the size of our portfolio of Installment Contracts. As the Company continues to acquire Installment Contracts, and our average contracts receivable outstanding increases, we expect the charge to our earnings for credit losses will likewise increase.

Operating Expenses

Our operating expenses totaled $778,293 for the three months ended March 31, 2006, compared to $722,947 for the three months ended March 31, 2005. A summary of these expenses follows:


	Three Months Ended March 31,
	2006		2005		Percent Change

Salaries and benefits	$	411,576	$	396,500		3.8	%
Professional fees		214,951		171,540		25.31	%
Other		151,766		154,907		-2.03	%
Total	$	778,293	$	722,947		7.66	%

Salaries and benefits increased primarily as a result of salary and wage increases consisting of cost of living adjustments and merit raises. As the Company continues to grow we expect our salaries and benefits costs to increase, but anticipate that as a percentage of total revenues these costs will decrease.

The increases in professional fees are attributable to increases in legal fees primarily resulting from services rendered in connection with the Company’s attempt to convert its outstanding preferred stock into common stock. Other operating costs include, among other items, occupancy costs, licenses and taxes, depreciation, insurance, postage, supplies, communications, travel and stockholder relations.

Our growth plan, if achieved, will cause our operating costs to increase over time.

Beginning January 1, 2005 the Company began classifying its operating expenses as either acquisition costs, servicing costs or administrative costs. Acquisition costs include all direct marketing, business development and underwriting expenses, and an allocation of certain overhead costs. Servicing costs include all direct collections and servicing expenses and an allocation of certain overhead costs. Administrative costs include all general administrative expenses and all other costs not specifically identified as, or allocated to, acquisition or servicing costs. Using these classifications the Company began determining its average acquisition cost per acquired Installment Contract and its average monthly servicing cost per serviced Installment Contract.

The Company’s average acquisition cost over the three months ended March 31, 2006 was approximately $804 per acquired Installment Contract compared to $545 per acquired Installment Contract during the three months ended March 31, 2005. This average acquisition cost is significantly impacted by the Company’s book-to-look ratio. For the three months ended March 31, 2006, the Company’s book-to-look ratio was 7.7%. During the three months ended March 31, 2005 the Company’s book-to-look ratio was 12.1%. The decrease in the Company’s book-to-look ratio (and the resulting increase in our average acquisition cost per acquired Installment Contract) resulted from a tightening of our underwriting standards and a decrease of used car sales in our markets leading to increased competition to finance those sales. Management is attempting to increase our book-to-look ratio, and thereby reduce our average acquisition cost, by training our Customers to send the Company only those credit applications that have a high probability of being approved by us. (The Company collectively refers to all automobile dealerships, sales merchants and lease brokers from whom it acquires Installment Contracts as “Customers”.)

The Company’s average monthly servicing cost per serviced Installment Contract during the three months ended March 31, 2006 was $22 per contract compared to $39 per contract during the three months ended March 31, 2005. This decrease is primarily the result of efficiencies gained from the increase in the number of Installment Contracts in our portfolio. Management anticipates that this average servicing cost per contract will decrease as the size of the portfolio of Installment Contracts increases due to efficiency gains and economies of scale. The Company does not pay affiliates to engage in collection efforts.

While the Company does not formally track our response time for responding to credit applications submitted by dealers or our response time for funding a loan package submitted by a dealer, we monitor these on a daily basis. Our goal is reduce these response times to better serve the needs of our Customers. We believe that reducing these response times will also reduce our overall costs of underwriting and funding. The Company is evaluating certain monitoring mechanisms that will allow us to more precisely document and better monitor these times. We anticipate installing such mechanisms sometime during 2006.

Nonoperating Income

During the three months ended March 31, 2005, the Company recognized a $1,149 gain on disposal of fixed assets which is reflected as nonoperating income in the Company’s consolidated statements of operations.

Financial Condition

Installment Contracts Portfolio

The Company acquired Installment Contracts with outstanding principal balances totaling $2,290,686 during the three months ended March 31, 2006. We invested cash of approximately $2,172,000 (including payments of dealer reserves and dealer holdbacks) to acquire these contracts. As a result of these acquisitions, our portfolio of Installment Contracts, net of allowances for credit losses, increased from $9,756,170, net of an allowance for credit losses of $412,228, at December 31, 2005 to $10,053,374, net of an allowance for credit losses of $431,369, at March 31, 2006.

All of the Company’s Installment Contracts are held for investment and are recorded at their outstanding principal balances adjusted for unamortized purchase discounts and an allowance for credit losses. Discounts on purchased Installment Contracts are recognized as income over the respective contractual terms using methods that approximate the interest method. A summary of our Installment Contracts portfolio as of March 31, 2006 and December 31, 2005, respectively, follows:


	March 31, 2006						December 31, 2005
	United States		Canada		Total		United States		Canada		Total
Automobiles	$	7,151,977	$	1,731,075	$	8,883,052	$	6,828,324	$	1,628,657	$	8,456,981
Equipment leases		-		574,812		574,812		-		704,484		704,484
Bulk food		-		771,297		771,297		-		863,167		863,167
Other		-		812,957		812,957		-		742,534		742,534
Total		7,151,977		3,890,141		11,042,118		6,828,324		3,938,842		10,767,166

Less
Unearned discount		362,903		194,472		557,375		390,979		207,789		598,768
Allowance for credit losses		220,716		210,653		431,369		199,558		212,670		412,228
Net	$	6,568,358	$	3,485,016	$	10,053,374	$	6,237,787	$	3,518,383	$	9,756,170

Asset Quality

Substantially all of the Installment Contracts we acquire are considered sub-prime and are subject to a high degree of risk of default by the obligors.

Charge-offs directly impact our earnings and cash flows. To minimize the amount of credit losses we incur, we monitor delinquent accounts, promptly repossess and remarket collateral, attempt to collect deficiency balances, and employ other servicing and collection techniques as we deem appropriate.

We calculate delinquency based on the number of days payments are contractually past due. The following tables set forth information with respect to the delinquency of our portfolio of Installment Contracts as of March 31, 2006 and December 31, 2005, respectively:


	March 31, 2006
	United States				Canada				Total
	Amount		Pct.		Amount		Pct.		Amount		Pct.

Installment Contracts	$	7,151,977		100%	$	3,890,141		100%	$	11,042,118		100%

Period of delinquency:
30 - 59 days	$	463,483		6.48%	$	59,306		1.52%	$	522,789		4.73%
60 - 89 days		161,311		2.26%		31,964		0.82%		193,275		1.75%
90 - 119 days		109,104		1.53%		74,114		1.91%		183,218		1.66%

Total	$	733,898		10.26%	$	165,384		4.25%	$	899,282		8.14%


	December 31, 2005
	United States				Canada				Total
	Amount		Pct.		Amount		Pct.		Amount		Pct.

Installment Contracts	$	6,828,324		100%	$	3,938,842		100%	$	10,767,166		100%

Period of delinquency:
30 - 59 days	$	499,705		7.32%	$	62,377		1.58%	$	562,082		5.22%
60 - 89 days		155,349		2.28%		42,591		1.08%		197,940		1.84%
90 - 119 days		104,842		1.54%		36,139		0.92%		140,981		1.31%

Total	$	759,896		11.13%	$	141,107		3.58%	$	901,003		8.37%

The following table sets forth information with respect to actual credit loss experience in our portfolio of Installment Contracts for the three months ended March 31, 2006 and 2005:


	Three Months Ended March 31, 2006									Three Months Ended March 31, 2005
	United States			Canada			Total			United States			Canada			Total

Installment Contracts, net of unearned discounts, end of period	$	6,789,074		$	3,695,669		$	10,484,743		$	3,386,911		$	2,574,562		$	5,961,473

Installment Contracts, net of unearned discounts, average during the period (1)	$	6,621,541		$	3,729,458		$	10,350,999		$	2,549,208		$	2,602,273		$	5,151,481

Gross charge-offs	$	277,707		$	85,110		$	362,817		$	48,555		$	41,800		$	90,355
Recoveries		75,060			11,625			86,685			6,885			24,520			31,405

Net charge-offs	$	202,647		$	73,485		$	276,132		$	41,670		$	17,280		$	58,950

Net charge-offs as a % of avg. contracts during the period, annualized		12.24	%		7.88	%		10.67	%		6.54	%		2.66	%		4.57	%

(1) - Average is based on month-end balances

The Company maintains an allowance for credit losses at an amount it believes is adequate to absorb reasonably estimable probable losses in its portfolio of Installment Contracts. The Company’s management evaluates the adequacy of the allowance for credit losses on a regular basis. In performing these periodic evaluations, management follows an appropriately-documented methodology. This methodology requires management to evaluate the adequacy of the allowance for credit losses based on a review of various quantitative and qualitative analyses as described in this ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading Critical Accounting Policies, Judgments and Estimates.

Our allowance for credit losses was $431,369 at March 31, 2006 compared to $412,228 at December 31, 2005. As a percentage of our outstanding net Installment Contracts, our allowance for credit losses was 4.11% at March 31, 2006 and 4.05% at December 31, 2005.

During the three months ended March 31, 2006, our net Installment Contracts increased $316,345. This increase was the result of a $452,288 increase in automobile-secured contracts offset by a $135,943 decrease in all other Installment Contracts. The $452,288 increase in automobile-secured Installment Contracts was comprised of a $586,533 increase in Installment Contracts acquired through our U.S. point-of-sale program and a $100,559 increase in Installment Contracts acquired through our Canadian point-of-sale program, offset by a $234,804 decrease in Installment Contracts acquired through bulk purchases.

As a result of the increases in automobile-secured Installment Contracts in our U.S. and Canadian portfolios from December 31, 2005 to March 31, 2006, we provided for a specific increase to our allowance for credit losses through a charge to earnings.

We made no adjustment to our allowance for credit losses during the three months ended March 31, 2006 as a result of our analysis of delinquencies in our portfolio of Installment Contracts. As of December 31, 2005, delinquent accounts, defined as accounts 30 or more days contractually past due, totaled 8.37% of our outstanding Installment Contracts. As of March 31, 2006, delinquent accounts totaled 8.14% of our outstanding Installment Contracts.

The Company’s loss history in its U.S. portfolio of Installment Contracts and in its Canadian portfolio of automobile-secured Installment Contracts is limited. Due to this limited operating history, using historical loss ratios to predict future probable losses is of limited usefulness. Additionally, uncertainty exists with respect to the accuracy of our estimates of amounts we will recover through the sale of repossessed collateral and with respect to anticipated future economic conditions, both in the U.S. and Canada, and their effect on the performance of our portfolio of Installment Contracts. To account for these limitations and uncertainties, during the three months ended March 31, 2006 we recognized an additional provision for credit losses and further increased our allowance for credit losses.

During the three months ended March 31, 2006, we experienced net charge-offs of $276,132, which represented 10.67% of our average outstanding Installment Contracts during the period. During the three months ended March 31, 2005, we experienced net charge-offs of $58,950, which represented 4.57% of our average outstanding Installment Contracts during the year. To account for this increase in charge-offs, we provided for a specific increase to our allowance for credit losses.

Based on the analyses we performed related to our allowance for credit losses as described above and as described in this ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading Critical Accounting Policies and Judgments, we believe that our allowance for credit losses is adequate to cover probable losses that can be reasonably estimated as of March 31, 2006.

The following table sets forth the activity in the allowance for credit losses for the three months ended March 31, 2006 and 2005, respectively:


	Three Months Ended March 31, 2006									Three Months Ended March 31, 2005
	United States			Canada			Total			United States			Canada			Total

Balance at beginning of period	$	199,558		$	212,670		$	412,228		$	146,149		$	156,313		$	302,462

Charge-offs		(277,707	)		(85,110	)		(362,817	)		(48,555	)		(41,800	)		(90,355	)
Recoveries		75,060			11,625			86,685			6,885			24,520			31,405

Net charge-offs		(202,647	)		(73,485	)		(276,132	)		(41,670	)		(17,280	)		(58,950	)

Provision for credit losses		223,805			73,683			297,488			39,761			35,856			75,617

Effect of foreign currency translation		-			(2,215	)		(2,215	)		-			(80	)		(80	)

Balance at end of period	$	220,716		$	210,653		$	431,369		$	144,240		$	174,809		$	319,049

Liquidity and Capital Resources

We require substantial capital resources and cash to support our business strategy.

The Company’s growth strategy requires the Company to increase its acquisitions of Installment Contracts. We intend to acquire Installment Contracts with principal balances totaling between $15,000,000 and $18,000,000 (roughly, between 2,500 and 3,000 Installment Contracts) during the next twelve months. We expect to pay between 92% and 96% of the outstanding principal balance for these Installment Contracts, or a total of $13,800,000 to $17,280,000. We expect to fund these acquisitions from a combination of internally generated cash flow, bank lines of credit and additional equity capital. We can give no assurance that we will be able to secure such additional financing on terms acceptable to us.

The Company began 2006 with $2,192,075 cash on hand and had cash on hand of $1,602,249 at March 31, 2006. Operating activities provided cash of $16,054 during the three month period ended March 31 2006. Operating activities do not include payments made by the Company to acquire Installment Contracts or the collection of principal on these Installment Contracts. We invested cash of approximately $2,172,000 (including payments of dealer reserves and dealer holdbacks) to acquire Installment Contracts during the three month period ended March 31, 2006. We collected principal payments on our Installment Contracts of approximately $1,596,000 during the three month period ended March 31, 2006.

The Company has no material commitments for capital expenditures as of March 31, 2006. However, the Company anticipates making significant investments in its accounting, servicing and underwriting software systems over the next three to twelve months. The Company expects to spend approximately $160,000 upgrading these systems. We believe these investments will serve to strengthen our internal controls, allow us to quicken our response time to our Customers, provide management with improved reporting tools and fulfill our software needs for the foreseeable future.

The Company needs to raise an additional $5 - $10 million in debt and/or equity financing in order to allow the Company to meet its targets for the purchase of Installment Contracts throughout 2006. See the heading Recent Developments, above in this ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of the Company’s efforts to raise additional debt and/or equity capital and convert the Company’s outstanding preferred stock into common stock.

Although we have not yet done so, in addition to funding our growth through internally generated cash flow, debt financing and equity financing, the Company’s long range strategy envisions the occasional sale of Installment Contracts in private placements to investment groups and the securitization of Installment Contracts through the secondary markets. We can give no assurance that we will be successful in these efforts.

Each and every calendar quarter the Company is required to redeem approximately 320,000 outstanding shares of preferred stock, if, at the sole determination of the Company’s Board of Directors, the Company’s funds allow such redemption, taking into account the Company’s current and future cash requirements. Given the Company's anticipated liquidity needs, no preferred stock redemptions have been made to date and none are planned in the near term. Management and the Board of Directors believe that by operating the business and investing available cash in Installment Contracts they can provide a greater long-term return to preferred shareholders than would be available through immediate liquidation of the business and redemption of the preferred shares.

As the Company continues to grow, we will need to recruit and hire additional sales, operating and administrative personnel. We expect to be able to fund the costs of these activities from operating cash flows.

Off-Balance Sheet Arrangements

The Company, in its ordinary course of business, commits to purchase certain Installment Contracts from its Customers. Each commitment is essentially an “offer” by the Company to purchase a specific Installment Contract that the Company has pre-approved, and Customers generally have between 20 and 30 days to “accept” the offer by selling to the Company the pre-approved Installment Contract. The Company had outstanding commitments to acquire Installment Contracts totaling approximately $1,805,000 as of March 31, 2006. Typically, the Company funds between 30% and 50% of its outstanding commitments.

2006	$	35,553
2007		27,935

	$	63,488

The Company had no other off-balance sheet arrangements as of March 31, 2006.

ITEM 3. Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2006.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. - OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is not currently a party to any pending legal proceeding other than routine litigation that is incidental to the Company’s business.

As a consumer finance company, the Company can be subject to various consumer claims and litigation seeking damages and statutory penalties based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, fraud, breach of contract and discriminatory treatment of credit applicants. Some litigation against the Company could take the form of class action complaints by consumers. The Company, as assignee of Installment Contracts originated by dealers, may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The Company is also subject to other litigation common to the automobile finance industry and businesses in general. The damages and penalties claimed by consumers and others in these types of matters can be substantial. The relief typically requested by the plaintiffs varies but can include requests for compensatory, statutory and punitive damages.

Management believes that the Company has taken prudent steps to address the litigation risks associated with the Company’s business. However, there can be no assurance that the Company will be able to successfully defend against all such claims or that the determination of any such claim in a manner adverse to the Company would not have a material adverse effect on the Company’s automobile finance business.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

ITEM 5. Other Information

None.

ITEM 6. Exhibits and Reports on Form 8-K

INDEX TO EXHIBITS


Exhibit
Number		Description

2.1*		Corrected Trustee’s Amended Plan of Reorganization
2.2*		Disclosure Statement for Trustee’s Amended Plan of Reorganization
3.1*		First Amended and Restated Certificate of Incorporation
3.1.1*		Certificate of Amendment to Certificate of Incorporation
3.2*		Bylaws
3.2.1*		Amendment to Bylaws
4.1*		Amended and Restated Trust Agreement of Freedom Financial Group I Statutory Trust
10.1*		Employment Agreement with Jerald L. Fenstermaker
10.2*		Investment Banking Agreement with Milestone Advisors, LLC
10.3*		Unanimous Consent of the Board of Directors Adopting Executive Management Stock Bonus Plan
10.4*		Office Lease - 3058 East Elm
10.5**		Purchase and Sale Agreement, dated April 7, 2003, between Freedom Financial Group, Inc. (as Seller) and The Cadle Company (as Buyer)
10.6**		Commercial Real Estate Purchase Contract, dated May 9, 2003, between Freedom Financial Group, Inc. (as Seller) and New Life Church of God (as Buyer)
10.7**		Real Estate Sale Contract, dated June 4, 2003, between Donald D. Bass and Don W. Bass (as Buyers) and Freedom Financial Group, Inc. (as Seller)
10.8**		Application and Order by Bankruptcy Court Approving Employment of Biltmore Associates
11.1		Statement Re: Computation of Per Share Earnings - See Note 5 to Condensed Consolidated Financial Statements
14.1***		Code of Ethics
31.1		Certification of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certifications of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

* Incorporated by reference to the Company’s registration statement filed on Form 10-SB on May 2, 2005 (File Number 000-51286).

** Incorporated by reference to the Company’s first amended registration statement filed on Form 10-SB/A on July 22, 2005 (File Number 000-51286).

*** Incorporated by reference to the Company’s quarterly report filed on Form 10-QSB on August 15, 2005 (File Number 000-51286).

SIGNATURES

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

		FREEDOM FINANCIAL GROUP, INC.

Date:	May 11, 2006	By:	/s/ Jerald L. Fenstermaker
			Jerald L. Fenstermaker, President and Chief Executive Officer


Date:	May 11, 2006	By:	/s/ Daniel F. Graham
			Daniel F. Graham, Chief Financial Officer