-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TXUqjUjnvu6EMdPBB5B7z1uQKsBi4tmVLcs6JT+g+ZVJ98X/PSRc81swjvZZtGgx 2Ee3c4b9hu5awNVqQPuS0w== 0000893220-06-001090.txt : 20060510 0000893220-06-001090.hdr.sgml : 20060510 20060509200217 ACCESSION NUMBER: 0000893220-06-001090 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060510 DATE AS OF CHANGE: 20060509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOLLAR FINANCIAL GROUP INC CENTRAL INDEX KEY: 0001028643 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 132997911 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-18221 FILM NUMBER: 06822980 BUSINESS ADDRESS: STREET 1: 1436 LANCASTER AVE STREET 2: STE 210 CITY: BERWYN STATE: PA ZIP: 19312-1288 BUSINESS PHONE: 6102963400 MAIL ADDRESS: STREET 1: 1436 LANCASTER AVENUE STREET 2: STE 210 CITY: BERWYN STATE: PA ZIP: 19312-1288 10-Q 1 w20760e10vq.htm FORM 10-Q FOR DOLLAR FINANCIAL GROUP e10vq
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2006
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                      to                     
Commission file number 333-18221
DOLLAR FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
     
NEW YORK   13-2997911
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)
1436 LANCASTER AVENUE,
BERWYN, PENNSYLVANIA 19312

(Address of Principal Executive Offices) (Zip Code)
610-296-3400
(Registrant’s Telephone Number, Including Area Code)
None
(Former name, former address and former fiscal year, if changed since last report)
     THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF DOLLAR FINANCIAL CORP., MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTIONS H(2).
     Indicate by check Ö 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act: (Check one):
         
Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ
Indicate by a check mark whether the registrant is a shell company (as defined) in Rule 12b-2 of the Exchange Act) Yes o No þ
As of April 30, 2006, 100 shares of the registrant’s common stock, par value $1.00 per share, were outstanding.
 
 

 


 

DOLLAR FINANCIAL GROUP, INC.
INDEX
         
    Page No.
       
 
       
       
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    27  
 
       
    37  
 
       
    38  
 
       
       
 
       
    38  
 
       
    42  
 
       
    43  
 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 CERTIFICATION OF PRESIDENT
 CERTIFICATION OF CHIEF FINANCIAL OFFICER
 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 CERTIFICATION OF PRESIDENT
 CERTIFICATION OF CHIEF FINANCIAL OFFICER

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DOLLAR FINANCIAL GROUP, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
                 
    June 30,     March 31,  
    2005     2006  
            (unaudited)  
ASSETS
Cash and cash equivalents
  $ 92,500     $ 110,786  
Loans receivable
               
Loans receivable
    40,226       51,329  
Less: Allowance for loan losses
    (2,747 )     (4,732 )
 
           
Loans receivable, net
    37,479       46,597  
Other consumer lending receivables, net
    9,163       5,370  
Other receivables
    4,123       9,041  
Income taxes receivable
    1,053       1,603  
Prepaid expenses
    6,858       7,355  
Deferred tax asset, net of valuation allowance of $12,035 and $17,691
    71       72  
Due from Parent
    398       412  
Property and equipment, net of accumulated depreciation of $62,555 and $69,986
    35,611       37,921  
Goodwill and other intangibles, net of accumulated amortization of $23,079 and $20,853
    186,190       210,490  
Debt issuance costs, net of accumulated amortization of $2,633 and $4,131
    10,558       9,871  
Other
    3,970       2,146  
 
           
 
  $ 387,974     $ 441,664  
 
           
 
               
LIABILITIES AND SHAREHOLDER’S EQUITY
Accounts payable
  $ 19,256     $ 19,159  
Foreign income taxes payable
    4,648       7,541  
Accrued expenses and other liabilities
    26,904       35,238  
Accrued interest payable
    3,291       9,891  
Deferred tax liabilities
    2,352       4,172  
Revolving credit facilities
          27,500  
9.75% Senior Notes due 2011
    271,764       271,556  
Other long-term debt
          642  
Shareholder’s equity:
               
Common stock, $1.00 par value: 20,000 shares authorized; 100 shares issued and outstanding at June 30, 2005 and March 31, 2006
           
Additional paid-in capital
    21,617       21,617  
Retained earnings
    17,636       22,662  
Accumulated other comprehensive income
    20,506       21,686  
 
           
Total shareholder’s equity
    59,759       65,965  
 
           
 
  $ 387,974     $ 441,664  
 
           
See notes to interim unaudited consolidated financial statements.

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DOLLAR FINANCIAL GROUP, INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,     March 31,     March 31,  
    2005     2006     2005     2006  
Revenues:
                               
Check Cashing
  $ 32,708     $ 36,288     $ 95,803     $ 105,859  
Consumer lending:
                               
Fees from consumer lending
    37,225       41,343       113,970       118,675  
Provision for loan losses and adjustment to servicing income
    (4,308 )     (6,352 )     (22,517 )     (22,873 )
 
                       
Consumer lending, net
    32,917       34,991       91,453       95,802  
Money transfer fees
    3,722       4,460       10,915       12,680  
Franchise fees and royalties
    1,763       2,728       3,977       8,131  
Other
    5,343       7,992       12,844       19,119  
 
                       
Total revenues
    76,453       86,459       214,992       241,591  
 
                               
Store and regional expenses:
                               
Salaries and benefits
    23,775       27,095       67,118       78,290  
Occupancy
    5,834       6,914       16,840       20,384  
Depreciation
    1,777       1,843       5,352       5,510  
Returned checks, net and cash shortages
    2,733       2,697       7,955       9,084  
Telephone and communications
    1,654       1,405       4,604       4,271  
Advertising
    1,988       1,943       7,109       6,765  
Bank charges
    1,022       1,279       2,935       3,523  
Armored carrier expenses
    934       1,069       2,648       3,091  
Other
    7,170       8,701       21,441       24,700  
 
                       
Total store and regional expenses
    46,887       52,946       136,002       155,618  
 
                       
Store and regional margin
    29,566       33,513       78,990       85,973  
 
                       
 
                               
Corporate and other expenses:
                               
Corporate expenses
    9,147       11,453       26,897       31,035  
Other depreciation and amortization
    801       878       2,882       2,689  
Interest expense, net of interest income
    6,619       7,566       19,595       22,245  
Reserve for litigation settlement
          5,800             5,800  
Other
    48       300       (8 )     718  
 
                       
Income before income taxes
    12,951       7,516       29,624       23,486  
Income tax provision
    5,437       7,807       14,045       18,460  
 
                       
Net income
  $ 7,514     $ (291 )   $ 15,579     $ 5,026  
 
                       
See notes to interim unaudited consolidated financial statements.

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DOLLAR FINANCIAL GROUP, INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                 
    Nine Months Ended
    March 31,
    2005   2006
     
Cash flows from operating activities:
               
Net income
  $ 15,579     $ 5,026  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    9,361       9,501  
Reserve for litigation settlement
          5,800  
(Gains) losses on store closings and sales
    (54 )     649  
Foreign currency loss on revaluation of subordinated borrowings
          5  
Foreign currency loss on revaluation of subordinated borrowings
    183        
Deferred tax (benefit) provision
    (132 )     1,801  
Change in assets and liabilities (net of effect of acquisitions):
               
Increase in loans and other receivables
    (1,650 )     (9,853 )
Decrease (increase) in income taxes receivable
    1,254       (550 )
(Increase) decrease in prepaid expenses and other
    (2,135 )     1,238  
Increase in accounts payable, income taxes payable, accrued expenses and other liabilities and accrued interest payable
    9,322       8,506  
     
Net cash provided by operating activities
    31,728       22,123  
 
               
Cash flows from investing activities:
               
Acquisitions, net of cash acquired
    (25,358 )     (19,970 )
Additions to property and equipment
    (9,324 )     (11,899 )
     
Net cash used in investing activities
    (34,682 )     (31,869 )
 
               
Cash flows from financing activities:
               
Other debt (payments) borrowings
    (93 )     642  
Net increase in revolving credit facilities
    11,000       27,500  
Payment of debt issuance costs
    (164 )     (1,218 )
Net decrease (increase) in due from parent
    3,421       (14 )
Net decrease in due to affiliates
    (3,610 )      
     
Net cash provided by financing activities
    10,554       26,910  
Effect of exchange rate changes on cash and cash equivalents
    3,923       1,122  
     
Net increase in cash and cash equivalents
    11,523       18,286  
Cash and cash equivalents at beginning of period
    69,266       92,500  
     
Cash and cash equivalents at end of period
  $ 80,789     $ 110,786  
     
See notes to interim unaudited consolidated financial statements.

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Dollar Financial Group, Inc. (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements in its annual report on Form 10-K (File No. 333-18221) for the fiscal year ended June 30, 2005 filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results of interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
The accompanying consolidated financial statements are those of the Company and its wholly-owned subsidiaries. The Company is a wholly-owned subsidiary of Dollar Financial Corp. (“Corp”). The activities of Dollar Financial Corp. consist primarily of its investment in the Company. Dollar Financial Corp. has no employees or operating activities.
The Company is a New York corporation formed in 1979. The Company operates a store network of 1,269 locations (of which 758 are company-owned) operating as Money Mart® , The Money Shop, Loan Mart®, Insta-Cheques® and We The People® in 35 states, the District of Columbia, Canada and the United Kingdom. This network includes 1,105 locations (including 736 company-owned) in 16 states and the District of Columbia offering financial services including check cashing, short-term consumer loans, sale of money orders, money transfer services and various other related services. Also included in this network is the Company’s newly acquired business, We The People, which offers retail based legal documentation preparation services through a network of 22 company-owned and 142 franchised locations in 31 states.
Corp. is the sole record and beneficial owner of all of the Company’s outstanding common stock.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments including those related to revenue recognition, loss reserves, income taxes and intangible assets. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassification
Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications have no effect on net income or shareholder’s equity.

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
During fiscal 2006, the Company began to market and service bank-funded consumer installment loans in the United States with terms of four months made by First Bank of Delaware (“First Bank”). First Bank is responsible for the application review process and for determining whether to approve an application and fund a loan. As a result, loans are not recorded on the Company’s balance sheet. The Company earns a marketing and servicing fee for each loan that is paid by a borrower to First Bank. The servicing fee is recognized ratably using the effective interest rate method. This fee is reduced by losses incurred by the bank on such loans. The Company maintains a reserve for future servicing fee adjustments based on the bank’s outstanding loan balance. This liability was $617,000 at March 31, 2006 and is included in accrued expenses and other liabilities.
If a First Bank borrower defaults, the Company’s servicing fee is reduced. The Company anticipates that it will collect a portion of the defaulted loans, increasing its earned servicing fee; accordingly, a servicing fee receivable is maintained, along with a corresponding allowance. To estimate the appropriate allowance, the Company considers historical default rates, current and expected collection patterns and current economic trends. The servicing fee receivable, net of a $1.7 million allowance, was $831,000 at March 31, 2006 and is included in other consumer lending receivables, net.
During the quarter ended March 31, 2006, the Company adopted a refinement to its existing policy on allowance for loan losses for its short term consumer loans. This refinement results in a policy consistent with the policy on installment loans. When a short-term consumer loan is originated, the customer receives the cash proceeds in exchange for a post-dated check or a written authorization to initiate a charge to the customer’s bank account on the stated maturity date of the loan. If the check or the debit to the customer’s account is returned from the bank unpaid, the loan is placed in default status and an allowance for this defaulted loan receivable is established and charged against revenue in the period that the loan is placed in default status. Collections on defaulted short-term consumer loans are credited to the allowance in the period they are received. This reserve is reviewed monthly and any additional provision to the loan loss reserve as a result of historical loan performance, current and expected collection patterns and current economic trends is charged against revenues. The receivable for defaulted loans, net of an $11.2 million allowance, was $2.8 million at March 31, 2006 and is reported on our balance sheet in other consumer lending receivables, net.
2. DEBT
On July 8, 2005, the Company entered into a Third Amended and Restated Credit Agreement (“Credit Agreement”) which increased the Company’s senior secured revolving credit facility to $80 million from the previous amount of $55.0 million. The Credit Agreement reduced the rate of interest and fees payable under the credit facility and eliminated the quarterly reductions to the commitment amount. In addition, the Credit Agreement extended the term of the facility for one additional year to November 12, 2009. At the Company’s request, existing lenders and/or additional lenders may agree to increase the maximum amount of the credit facility to $100 million. Under the Credit Agreement, up to $30.0 million may be used in connection with letters of credit. The commitment may be subject to reductions in the event Corp. engages in certain issuances of debt or equity securities or asset disposals. The Company’s borrowing capacity under the facility is limited to the lesser of the total commitment of $80.0 million or 85% of certain liquid assets. At March 31, 2006, the borrowing capacity was $69.3 million which consisted of the $80.0 million commitment less letters of credit totaling $10.7 million issued by Wells Fargo Bank, which guarantees the performance of certain of the Company’s contractual obligations. There was $27.5 million outstanding under the facility at March 31, 2006.
Borrowings under the Credit Agreement bear interest based, at the Company’s option, on: (a) the base rate (as defined therein) plus 2.25% at March 31, 2006; (b) the applicable Eurodollar rate (as defined therein) plus 3.50% at March 31, 2006; or (c) LIBO (as defined therein) plus 3.50% at March 31, 2006. All obligations due under the Credit Agreement will mature on November 12, 2009. Interest expense under the credit facility for the three and nine months ended March 31, 2006 was $590,000 and $1.3 million, respectively.
All borrowings and other obligations under the Credit Agreement are secured by all assets of the Company and are guaranteed by Corp. and the Company and its existing and future direct and indirect domestic subsidiaries. Borrowings are secured by substantially all of the Company’s assets and the assets of the Company’s domestic subsidiaries.

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. SUBSIDIARY GUARANTOR UNAUDITED FINANCIAL INFORMATION
The Company’s payment obligations under its 9.75% Senior Notes due 2011 are jointly and severally guaranteed (the ‘‘Guarantees’’) on a full and unconditional basis by Corp. and by the Company and its existing and future domestic subsidiaries (the ‘‘Guarantors’’). Guarantees of the notes by Guarantors directly owning, now or in the future, capital stock of foreign subsidiaries will be secured by second priority liens on 65% of the capital stock of such foreign subsidiaries. In the event the Company directly owns a foreign subsidiary in the future, the notes will be secured by a second priority lien on 65% of the capital stock of any such foreign subsidiary (the ‘‘Collateral’’). The non-Guarantors consist of the Company’s foreign subsidiaries (“Non-Guarantors”).
The Guarantees of the notes:
    rank equal in right of payment with all existing and future unsubordinated indebtedness of the Guarantors;
 
    rank senior in right of payment to all existing and future subordinated indebtedness of the Guarantors; and
 
    are effectively junior to any indebtedness of the Company, including indebtedness under the Company’s senior secured revolving credit facility, that is either (1) secured by a lien on the Collateral that is senior or prior to the second priority liens securing the Guarantees of the notes or (2) secured by assets that are not part of the Collateral to the extent of the value of the assets securing such indebtedness.
Separate financial statements of each Guarantor that is a subsidiary of the Company have not been presented because management has determined that their presentation would not be material to investors. The accompanying tables set forth the condensed consolidating balance sheets at March 31, 2006 and June 30, 2005, and the condensed consolidating statements of operations and cash flows for the nine-month periods ended March 31, 2006 and 2005 of the Company, the combined Guarantor subsidiaries, the combined Non-Guarantor subsidiaries and the consolidated Company.

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
March 31, 2006
(In thousands)
                                         
    Dollar             Subsidiary              
    Financial     Subsidiary     Non-              
    Group, Inc.     Guarantors     Guarantors     Eliminations     Consolidated  
    ASSETS
 
                                       
Cash and cash equivalents
  $ 4,475     $ 32,323     $ 73,988     $     $ 110,786  
Loans receivable
                                       
Loans receivable
          8,002       43,327             51,329  
Less: Allowance for loan losses
          (1,036 )     (3,696 )           (4,732 )
 
                             
Loans receivable, net
          6,966       39,631             46,597  
Other consumer lending receivables, net
    1,266             4,104             5,370  
Other receivables
    317       2,377       6,751       (404 )     9,041  
Income taxes receivable
    9,891                   (8,288 )     1,603  
Prepaid expenses
    2,451       671       4,233             7,355  
Deferred tax asset
                72             72  
Due from affiliates
    16,455       43,959             (60,414 )      
Due from parent
    2,412                   (2,000 )     412  
Property and equipment, net
    2,394       9,701       25,826             37,921  
Goodwill and other intangibles, net
          97,880       112,610             210,490  
Debt issuance costs, net
    9,871                         9,871  
Investment in subsidiaries
    333,133                   (333,133 )      
Other
    38       615       1,493             2,146  
 
                             
 
  $ 382,703     $ 194,492     $ 268,708     $ (404,239 )   $ 441,664  
 
                             
 
                                       
    LIABILITIES AND SHAREHOLDER’S EQUITY
 
                                       
Accounts payable
  $ 1,805     $ 7,735     $ 9,619     $     $ 19,159  
Income taxes payable
          8,288             (8,288 )      
Foreign income taxes payable
                7,541             7,541  
Accrued expenses and other liabilities
    4,970       18,219       12,049             35,238  
Accrued interest payable
    9,878       417             (404 )     9,891  
Deferred tax liability
    1,029       1,912       1,231             4,172  
Due to affiliates
                62,414       (62,414 )      
Revolving credit facilities
    27,500                         27,500  
9.75% Senior Notes due 2011
    271,556                         271,556  
Other long-term debt
          642                   642  
 
                             
 
    316,738       37,213       92,854       (71,106 )     375,699  
 
                                       
Shareholder’s equity
                                       
Additional paid-in-capital
    21,617       73,508       20,599       (94,107 )     21,617  
Retained earnings
    22,662       81,049       136,826       (217,875 )     22,662  
Accumulated other comprehensive income
    21,686       2,722       18,429       (21,151 )     21,686  
 
                             
Total shareholder’s equity
    65,965       157,279       175,854       (333,133 )     65,965  
 
                             
 
  $ 382,703     $ 194,492     $ 268,708     $ (404,239 )   $ 441,664  
 
                             

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
June 30, 2005
(In thousands)
                                         
    Dollar             Subsidiary              
    Financial     Subsidiary     Non-              
    Group, Inc.     Guarantors     Guarantors     Eliminations     Consolidated  
    ASSETS
 
                                       
Cash and cash equivalents
  $ 1,771     $ 28,278     $ 62,451     $     $ 92,500  
Loans receivable
                                       
Loans receivable
          5,076       35,150             40,226  
Less: Allowance for loan losses
          (470 )     (2,277 )           (2,747 )
 
                             
Loans receivable, net
          4,606       32,873             37,479  
Other consumer lending receivables, net
    9,163                         9,163  
Other receivables
    92       1,278       2,969       (216 )     4,123  
Income taxes receivable
    1,797                   (744 )     1,053  
Prepaid expenses
    2,258       690       3,910             6,858  
Deferred tax asset
                71             71  
Due from affiliates
    4,455       49,438             (53,893 )      
Due from parent
    2,398                   (2,000 )     398  
Property and equipment, net
    3,625       8,831       23,155             35,611  
Goodwill and other intangibles, net
          87,535       98,655             186,190  
Debt issuance costs, net
    10,558                         10,558  
Investment in subsidiaries
    308,052       9,801       9,660       (327,513 )      
Other
    26       501       3,443             3,970  
 
                             
 
  $ 344,195     $ 190,958     $ 237,187     $ (384,366 )   $ 387,974  
 
                             
 
                                       
    LIABILITIES AND SHAREHOLDER’S EQUITY
 
                                       
Accounts payable
  $ 2,199     $ 5,099     $ 11,958     $     $ 19,256  
Income taxes payable
          744             (744 )      
Foreign income taxes payable
                4,648             4,648  
Accrued expenses and other liabilities
    6,154       8,679       12,071             26,904  
Accrued interest payable
    3,291             216       (216 )     3,291  
Deferred tax liability
    1,028       729       595             2,352  
Due to affiliates
                55,893       (55,893 )      
9.75% Senior Notes due 2011
    271,764                         271,764  
 
                             
 
    284,436       15,251       85,381       (56,853 )     328,215  
 
                                       
Shareholder’s equity:
                                       
Additional paid-in-capital
    21,617       83,309       30,259       (113,568 )     21,617  
Retained earnings
    17,636       88,104       106,410       (194,514 )     17,636  
Accumulated other comprehensive income
    20,506       4,294       15,137       (19,431 )     20,506  
 
                             
Total shareholder’s equity
    59,759       175,707       151,806       (327,513 )     59,759  
 
                             
 
  $ 344,195     $ 190,958     $ 237,187     $ (384,366 )   $ 387,974  
 
                             

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 2006
(In thousands)
                                         
    Dollar             Subsidiary              
    Financial     Subsidiary     Non-              
    Group, Inc.     Guarantors     Guarantors     Eliminations     Consolidated  
Revenues:
                                       
Check cashing
  $     $ 37,000     $ 68,859     $     $ 105,859  
Consumer lending:
                                       
Fees from consumer lending
          44,598       74,077             118,675  
Provision for loan losses and adjustment to servicing income
          (10,492 )     (12,381 )           (22,873 )
 
                             
Consumer lending, net
          34,106       61,696             95,802  
Money transfer fees
          3,471       9,209             12,680  
Franchise fees and royalties
          4,243       3,888             8,131  
Other
          6,091       13,028             19,119  
 
                             
Total revenues
          84,911       156,680             241,591  
 
                                       
Store and regional expenses:
                                       
Salaries and benefits
          38,433       39,857             78,290  
Occupancy
          10,401       9,983             20,384  
Depreciation
          2,482       3,028             5,510  
Returned checks, net and cash shortages
          3,909       5,175             9,084  
Telephone and telecommunication
          2,562       1,709             4,271  
Advertising
          2,593       4,172             6,765  
Bank charges
          1,481       2,042             3,523  
Armored carrier services
          1,201       1,890             3,091  
Other
          12,020       12,680             24,700  
 
                             
Total store and regional expenses
          75,082       80,536             155,618  
 
                             
Store and regional margin
          9,829       76,144             85,973  
 
                             
 
                                       
Corporate and other expenses:
                                       
Corporate expenses
    15,568       5       15,462             31,035  
Management fees
    (9,122 )           9,122              
Other depreciation and amortization
    1,196       73       1,420             2,689  
Interest expense (income)
    20,160       728       1,357             22,245  
Reserve for litigation settlement
          5,800                   5,800  
Losses on store closings and sales
    390       312       16             718  
 
                             
(Loss) income before income taxes
    (28,192 )     2,911       48,767             23,486  
Income tax (benefit) provision
    (9,857 )     9,966       18,351             18,460  
 
                             
(Loss) income before equity in net income of subsidiaires
    (18,335 )     (7,055 )     30,416             5,026  
Equity in net income of subsidiaries
                                       
Domestic subsidiary guarantors
    (7,055 )                 7,055        
Foreign subsidiary non-guarantors
    30,416                   (30,416 )      
 
                             
Net income (loss)
  $ 5,026     $ (7,055 )   $ 30,416     $ (23,361 )   $ 5,026  
 
                             

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 2005
(In thousands)
                                         
    Dollar             Subsidiary              
    Financial     Subsidiary     Non-              
    Group, Inc.     Guarantors     Guarantors     Eliminations     Consolidated  
Revenues:
                                       
Check cashing
  $     $ 35,262     $ 60,541     $     $ 95,803  
Consumer lending, net:
                                       
Fees from consumer lending
          59,338       54,632             113,970  
Provision for loan losses and adjustment to servicing income
          (13,400 )     (9,117 )           (22,517 )
 
                             
Consumer lending, net
          45,938       45,515             91,453  
Money transfer fees
          3,203       7,712             10,915  
Franchise fees and royalties
          805       3,172             3,977  
Other
          2,527       10,317             12,844  
 
                             
Total revenues
          87,735       127,257             214,992  
 
Store and regional expenses:
                                       
Salaries and benefits
          33,555       33,563             67,118  
Occupancy
          8,420       8,420             16,840  
Depreciation
          2,781       2,571             5,352  
Returned checks, net and cash shortages
          3,528       4,427             7,955  
Telephone and telecommunication
          2,949       1,655             4,604  
Advertising
          3,173       3,936             7,109  
Bank charges
          1,454       1,481             2,935  
Armored carrier services
          1,097       1,551             2,648  
Other
          10,198       11,243             21,441  
 
                             
Total store and regional expenses
          67,155       68,847             136,002  
 
                             
Store and regional margin
          20,580       58,410             78,990  
 
                             
 
Corporate and other expenses:
                                       
Corporate expenses
    13,555       183       13,159             26,897  
Management fees
    (6,759 )     5,825       934              
Other depreciation and amortization
    1,631       63       1,188             2,882  
Interest expense (income), net
    17,252       (637 )     2,980             19,595  
(Gain) loss on store closings and sales
    (128 )           120             (8 )
 
                             
(Loss) income before income taxes
    (25,551 )     15,146       40,029             29,624  
Income tax (benefit) provision
    (9,262 )     8,926       14,381             14,045  
 
                             
(Loss) income before equity in net income of subsidiaires
    (16,289 )     6,220       25,648             15,579  
Equity in net income of subsidiaries
                                       
Domestic subsidiary guarantors
    6,220                   (6,220 )      
Foreign subsidiary non-guarantors
    25,648                   (25,648 )      
 
                             
Net income (loss)
  $ 15,579     $ 6,220     $ 25,648     $ (31,868 )   $ 15,579  
 
                             

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2006
(In thousands)
                                         
    Dollar             Subsidiary              
    Financial     Subsidiary     Non-              
    Group, Inc.     Guarantors     Guarantors     Eliminations     Consolidated  
Cash flows from operating activities:
                                       
Net income (loss)
  $ 5,026     $ (7,055 )   $ 30,416     $ (23,361 )   $ 5,026  
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
                                       
Undistributed income of subsidiaries
    (23,361 )                 23,361        
Depreciation and amortization
    2,499       2,554       4,448             9,501  
Reserve for litigation settlement
          5,800                   5,800  
Loss on store closings and sales
          633       16             649  
Foreign currency loss on revaluation of subordinated borrowings
          5                   5  
Deferred tax provision (benefit)
    1       1,183       617             1,801  
Change in assets and liabilities (net of effect of acquisitions):
                                       
Decrease (increase) in loans and other receivables
    6,505       (2,222 )     (14,540 )     404       (9,853 )
(Increase) decrease in income taxes receivable
    (8,094 )                 7,544       (550 )
Increase in prepaid expenses and other
    (205 )     (95 )     1,538             1,238  
Increase in accounts payable, income taxes payable, accrued expense and other liabilities and accrued interest payable
    5,910       10,003       541       (7,948 )     8,506  
 
                             
Net cash (used in) provided by operating activities
    (11,719 )     10,806       23,036             22,123  
 
                                       
Cash flows from investing activities:
                                       
Acquisitions, net of cash acquired
          (5,892 )     (14,078 )           (19,970 )
Additions to property and equipment
    (472 )     (4,234 )     (7,193 )           (11,899 )
Net decrease in due from affiliates
          2,723             (2,723 )      
 
                             
Net cash used in investing activities
    (472 )     (7,403 )     (21,271 )     (2,723 )     (31,869 )
 
                                       
Cash flows from financing activities:
                                       
Other debt borrowings
          642                   642  
Net increase in revolving credit facilities
    27,500                         27,500  
Payment of debt issuance costs
    (1,218 )                       (1,218 )
Net decrease in due from parent
    (14 )                       (14 )
Net decrease in due to affiliates
    (11,373 )           8,650       2,723        
 
                             
Net cash provided by (used in) financing activities
    14,895       642       8,650       2,723       26,910  
 
                                       
Effect of exchange rate changes on cash and cash equivalents
                1,122             1,122  
 
                             
Net increase (decrease) in cash and cash equivalents
    2,704       4,045       11,537             18,286  
Cash and cash equivalents at beginning of period
    1,771       28,278       62,451             92,500  
 
                             
Cash and cash equivalents at end of period
  $ 4,475     $ 32,323     $ 73,988     $     $ 110,786  
 
                             

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2005
(In thousands)
                                         
    Dollar             Subsidiary              
    Financial     Subsidiary     Non-              
    Group, Inc.     Guarantors     Guarantors     Eliminations     Consolidated  
     
Cash flows from operating activities:
                                       
Net income
  $ 15,579     $ 7,291     $ 25,648     $ (32,939 )   $ 15,579  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
                                       
Undistributed income of subsidiaries
    (32,939 )                 32,939        
Depreciation and amortization
    2,784       2,816       3,761             9,361  
(Gain) loss on store closings and sales
          (175 )     121             (54 )
Foreign currency loss on revaluation of
                                     
subordinated borrowings
          183                   183  
Deferred tax asset
                (132 )           (132 )
Change in assets and liabilities (net of effect of acquisitions):
                                       
Decrease (increase) in loans and other receivables
    3,267       387       (5,275 )     (29 )     (1,650 )
Decrease in income taxes receivable
    40,858             1,196       (40,800 )     1,254  
(Increase) decrease in prepaid expenses and other
    (2,210 )     (395 )     470             (2,135 )
Increase (decrease) in accounts payable, income taxes payable, accrued expenses and other liabilities and accrued interest payable
    6,852       (40,240 )     1,881       40,829       9,322  
     
Net cash provided by (used in) operating activities
    34,191       (30,133 )     27,670             31,728  
 
                                       
Cash flows from investing activities:
                                       
Acquisitions, net of cash acquired
          (21,633 )     (3,725 )           (25,358 )
Additions to property and equipment
    (169 )     (2,663 )     (6,492 )           (9,324 )
Net decrease in due from affiliates
          57,773             (57,773 )      
     
Net cash (used in) provided by investing activities
    (169 )     33,477       (10,217 )     (57,773 )     (34,682 )
 
                                       
Cash flows from financing activities:
                                       
Other debt payments
    (77 )           (16 )           (93 )
Net increase in revolving credit facilities
    11,000                         11,000  
Payment of debt issuance costs
    (164 )                       (164 )
Net increase in due from parent
    3,421                         3,421  
Dividend paid to parent
    (44,390 )           (13,383 )     57,773        
Net decrease in due to affiliates
    (3,610 )                       (3,610 )
     
Net cash provided by (used in) financing activities
    (33,820 )           (13,399 )     57,773       10,554  
 
                                       
Effect of exchange rate changes on cash and cash equivalents
                3,923             3,923  
     
Net increase in cash and cash equivalents
    202       3,344       7,977             11,523  
Cash and cash equivalents at beginning of period
    4,942       22,182       42,142             69,266  
     
Cash and cash equivalents at end of period
  $ 5,144     $ 25,526     $ 50,119     $     $ 80,789  
     

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. GOODWILL AND OTHER INTANGIBLES
In accordance with the adoption provisions of SFAS No. 142, the Company is required to perform goodwill impairment tests on at least an annual basis. The Company performs its annual impairment test as of June 30. There can be no assurance that future goodwill impairment tests will not result in a charge to earnings. A portion of the consideration for the We The People acquisitions was allocated to franchise agreements and territory rights. Territory rights are deemed to have an indefinite useful life and are expected to be available for sale when certain indemnification claims have been resolved as discussed in Note 9. Franchise agreements are deemed to have a definite life and are amortized on a straight-line basis over the estimated useful lives of the agreements which are generally 10 years. A portion of the consideration for the 11 stores acquired on March 9, 2006 was allocated to reacquired franchise rights. Reacquired franchise rights are deemed to have an indefinite useful life. These identifiable intangible assets have been included as other intangibles on the Consolidated Balance Sheets. Amortization for franchise agreements for the nine months ended March 31, 2006 was $73,000. The amortization expense for the franchise agreements will be as follows:
       
Fiscal Year Ending   Amount
June 30,   (in thousands)
2006
  $ 94.0
2007
    84.7
2008
    84.7
2009
    84.7
2010
    84.7
Thereafter
    395.1
 
   
 
  $ 827.9
 
   
The changes in the carrying amount of goodwill and other intangibles by reportable segment for the fiscal year ended June 30, 2005 and the nine months ended March 31, 2006 are as follows (in thousands):
                                 
    United             United        
    States     Canada     Kingdom     Total  
Balance at June 30, 2004
  $ 56,514     $ 38,821     $ 53,783     $ 149,118  
Amortization of other intangibles
    (56 )                 (56 )
Acquisitions
    31,077             3,223       34,300  
Foreign currency translation adjustments
          3,638       (810 )     2,828  
 
                       
Balance at June 30, 2005
    87,535       42,459       56,196       186,190  
 
                       
Amortization of other intangibles
    (73 )                 (73 )
Acquisitions
    10,418       13,339       18       23,775  
Foreign currency translation adjustments
          2,299       (1,701 )     598  
 
                       
Balance at March 31, 2006
  $ 97,880     $ 58,098     $ 54,513     $ 210,490  
 
                       

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. GOODWILL AND OTHER INTANGIBLES (continued)
The following table reflects the components of intangible assets (in thousands):
                                 
    June 30, 2005     March 31, 2006  
    Gross Carrying     Accumulated     Gross Carrying     Accumulated  
    Amount     Amortization     Amount     Amortization  
Non-amortized intangible assets:
                               
Cost in excess of net assets acquired
  $ 205,572     $ 20,532     $ 228,983     $ 20,757  
Territory rights
                181        
Reacquired franchise rights
                1,424        
 
                       
 
  $ 205,572     $ 20,532     $ 230,588     $ 20,757  
 
                       
 
                               
Amortized intangible assets:
                               
Covenants not to compete
  $ 2,510     $ 2,510     $     $  
Franchise agreements
    1,187       37       755       96  
 
                       
 
  $ 3,697     $ 2,547     $ 755     $ 96  
 
                       
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is the change in equity from transactions and other events and circumstances from non-owner sources, which includes foreign currency translation and fair value adjustments for cash flow hedges. The following shows the comprehensive income (loss) for the periods stated (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2005     2006     2005     2006  
Net income (loss)
  $ 7,514     $ (291 )   $ 15,579     $ 5,026  
 
                               
Foreign currency translation adjustment
    (2,271 )     37       12,573       1,189  
Fair value adjustments for cash flow hedges
    161       39       (159 )     (9 )
 
                       
 
                               
Total comprehensive income (loss)
  $ 5,404     $ (215 )   $ 27,993     $ 6,206  
 
                       

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. GEOGRAPHIC SEGMENT INFORMATION
All operations for which geographic data is presented below are in one principal industry (check cashing, consumer lending and ancillary services) (in thousands):
                                 
As of and for the three months   United             United        
ended March 31, 2005   States     Canada     Kingdom     Total  
     
Identifiable assets
  $ 152,437     $ 107,917     $ 111,748     $ 372,102  
Goodwill and other intangibles, net
    83,282       42,734       59,178       185,194  
Sales to unaffiliated customers:
                               
Check cashing
    13,497       10,141       9,070       32,708  
Consumer lending:
                               
Fees from consumer lending
    18,970       11,581       6,674       37,225  
Provision for loan losses and adjustments to servicing income
    (2,116 )     (661 )     (1,531 )     (4,308 )
     
Consumer lending, net
    16,854       10,920       5,143       32,917  
Money transfer fees
    1,126       1,702       894       3,722  
Franchise fees and royalties
    689       1,074             1,763  
Other
    1,105       3,540       698       5,343  
     
Total sales to unaffiliated customers
    33,271       27,377       15,805       76,453  
 
                               
Interest expense, net
    5,715       134       770       6,619  
Depreciation and amortization
    1,379       790       409       2,578  
(Loss) income before income taxes
    64       9,122       3,765       12,951  
Income tax provision
    494       3,839       1,104       5,437  
                                 
For the nine months   United             United        
ended March 31, 2005   States     Canada     Kingdom     Total  
     
Sales to unaffiliated customers:
                               
Check cashing
  $ 35,262     $ 32,286     $ 28,255     $ 95,803  
Consumer lending:
                               
Fees from consumer lending
    59,337       35,600       19,033       113,970  
Provision for loan losses and adjustments to servicing income
    (13,399 )     (4,530 )     (4,588 )     (22,517 )
     
Consumer lending, net
    45,938       31,070       14,445       91,453  
Money transfer fees
    3,202       5,058       2,655       10,915  
Franchise fees and royalties
    805       3,172             3,977  
Other
    2,524       8,092       2,228       12,844  
     
Total sales to unaffiliated customers
    87,731       79,678       47,583       214,992  
 
                               
Interest expense, net
    16,615       726       2,254       19,595  
Depreciation and amortization
    4,474       2,280       1,480       8,234  
(Loss) income before income taxes
    (10,406 )     28,360       11,670       29,624  
Income tax provision
    (335 )     10,928       3,452       14,045  

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. GEOGRAPHIC SEGMENT INFORMATION (continued)
                                 
As of and for the three months   United             United        
ended March 31, 2006   States     Canada     Kingdom     Total  
     
Identifiable assets
  $ 172,956     $ 151,505     $ 117,203     $ 441,664  
Goodwill and other intangible assets, net
    97,880       58,097       54,513       210,490  
Sales to unaffiliated customers:
                               
Check cashing
    13,984       12,633       9,671       36,288  
Consumer lending:
                               
Fees from consumer lending
    14,838       17,909       8,596       41,343  
Provision for loan losses and adjustments to servicing income
    (2,610 )     (1,314 )     (2,428 )     (6,352 )
     
Consumer lending, net
    12,228       16,595       6,168       34,991  
Money transfer fees
    1,427       2,013       1,020       4,460  
Franchise fees and royalties
    1,316       1,412             2,728  
Other
    2,157       4,942       893       7,992  
     
Total sales to unaffiliated customers
    31,112       37,595       17,752       86,459  
 
                               
Interest expense, net
    7,101       (243 )     708       7,566  
Depreciation and amortization
    1,145       896       680       2,721  
(Loss) income before income taxes
    (11,213 )     16,332       2,397       7,516  
Income tax provision
    487       6,341       979       7,807  
                                 
For the nine months   United             United        
ended March 31, 2006   States     Canada     Kingdom     Total  
     
Sales to unaffiliated customers:
                               
Check cashing
  $ 36,999     $ 37,724     $ 31,136     $ 105,859  
Consumer lending:
                               
Fees from consumer lending
    44,598       50,385       23,692       118,675  
Provision for loan losses and adjustments to servicing income
    (10,492 )     (6,776 )     (5,605 )     (22,873 )
     
Consumer lending, net
    34,106       43,609       18,087       95,802  
Money transfer fees
    3,471       6,046       3,163       12,680  
Franchise fees and royalties
    4,243       3,888             8,131  
Other
    6,092       10,248       2,779       19,119  
     
Total sales to unaffiliated customers
    84,911       101,515       55,165       241,591  
 
                               
Interest expense (income), net
    20,888       (774 )     2,131       22,245  
Depreciation and amortization
    3,751       2,544       1,904       8,199  
(Loss) income before income taxes
    (25,281 )     40,587       8,180       23,486  
Income tax provision
    109       15,724       2,627       18,460  

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Operations in the United Kingdom and Canada have exposed the Company to shifts in currency valuations. From time to time, the Company may elect to purchase put options in order to protect earnings in the United Kingdom and Canada against foreign currency fluctuations. Out of the money put options may be purchased because they cost less than completely averting risk, and the maximum downside is limited to the difference between the strike price and exchange rate at the date of purchase and the price of the contracts. At March 31, 2006, the Company held put options with an aggregate notional value of $(CAN) 52.5 million and £(GBP) 3.3 million to protect the currency exposure in Canada through December 31, 2006 and the United Kingdom through June 30, 2006. Subsequent to the quarter ended March 31, 2006, the Company purchased additional put options with aggregate notional value of $(CAN) 39.0 million and £(GBP) 14.4 million to protect the currency exposure in Canada and the United Kingdom through June 30, 2007. The Company uses purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted earnings denominated in currencies other than the U.S. dollar. The Company’s cash flow hedges have a duration of less than twelve months. For derivative instruments that are designated and qualify as cash flow hedges, the effective portions of the gain or loss on the derivative instrument are initially recorded in accumulated other comprehensive income as a separate component of shareholder’s equity and subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the gain or loss is reported in corporate expenses on the statement of operations. For options designated as hedges, hedge effectiveness is measured by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. As of March 31, 2006, no amounts were excluded from the assessment of hedge effectiveness. There was no ineffectiveness in the Company’s cash flow hedges for the three or nine months ended March 31, 2006. As of March 31, 2006, amounts related to derivatives qualifying as cash flow hedges amounted to a decrease of shareholder’s equity of $9,000, all of which is expected to be transferred to earnings in the next nine months along with the earnings effects of the related forecasted transactions. The fair market value of the outstanding puts held by the Company at March 31, 2006 was $366,000 and is included in other assets on the balance sheet.
Although the Company’s revolving credit facility and Canadian overdraft credit facility carry variable rates of interest, most of the Company’s average outstanding indebtedness carries a fixed rate of interest. A change in interest rates is not expected to have a material impact on the consolidated financial position, results of operations or cash flows of the Company.
8. CONTINGENT LIABILITIES
In addition to the legal proceedings discussed below, which the Company is defending vigorously, the Company is involved in routine litigation and administrative proceedings arising in the ordinary course of business. Although the Company believes that the resolution of these proceedings will not materially adversely impact its business, there can be no assurances in that regard.
Canadian Legal Proceedings
On August 19, 2003, a former customer in Ontario, Canada, Margaret Smith, commenced an action against the Company and its Canadian subsidiary on behalf of a purported class of Canadian borrowers (except those residing in British Columbia) who, Smith claims, were subjected to usurious charges in payday-loan transactions. The action, which is pending in the Ontario Superior Court of Justice, alleges violations of a Canadian federal law proscribing usury and seeks restitution and damages, including punitive damages. The Company’s Canadian subsidiary’s motions to stay the action on grounds of arbitrability and lack of jurisdiction were denied.
On October 21, 2003, another former customer, Kenneth D. Mortillaro, commenced a similar action against the Company’s Canadian subsidiary, but this action has since been stayed on consent because it is a duplicate action.
On November 6, 2003, Gareth Young, a former customer, commenced a purported class action in the Court of Queen’s Bench of Alberta, Canada on behalf of a class of consumers who obtained short-term loans from the Company’s Canadian subsidiary in Alberta, alleging, among other things, that the charge to borrowers in connection with such loans is usurious. On December 9, 2005, the Company’s Canadian subsidiary settled this action, subject to court approval.

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. CONTINGENT LIABILITIES (continued)
Canadian Legal Proceedings (continued)
On March 3, 2006 just prior to the date scheduled for final court approval of the settlement the Plaintiff’s lawyer advised they would not proceed with the settlement and indicated their intention to join the purported national class action.
On January 29, 2003, a former customer, Kurt MacKinnon, commenced an action against the Company’s Canadian subsidiary and 26 other Canadian lenders on behalf of a purported class of British Columbia residents who, MacKinnon claims, were overcharged in payday-loan transactions. The action, which is pending in the Supreme Court of British Columbia, alleges violations of laws proscribing usury and unconscionable trade practices and seeks restitution and damages, including punitive damages, in an unknown amount. Following initial denial, MacKinnon obtained an order permitting him to re-apply for class certification which was appealed. The Court of Appeal has granted MacKinnon the right to apply to the original judge to have her amend her order denying certification.
On April 15, 2005, the solicitor acting for MacKinnon commenced a proposed class action against the Company’s Canadian subsidiary on behalf of another former customer, Louise Parsons. The certification motion in this action is scheduled to proceed in November 2006, but likely will not proceed if MacKinnon obtains an order allowing him to re-apply for class certification.
Similar purported class actions have been commenced against the Company’s Canadian subsidiary in Manitoba, New Brunswick, Nova Scotia and Newfoundland. The Company is named as a defendant in the actions commenced in Nova Scotia and Newfoundland but it has not been served with the statements of claim in these actions to date. The claims in these additional actions are substantially similar to those of the Ontario actions referred to above.
At this time it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, of these matters.
California Legal Proceedings
The Company is the defendant in four lawsuits commenced by the same law firm. Each lawsuit is pled as a class action, and each lawsuit alleges violations of California’s wage-and-hour laws. The named plaintiffs are the Company’s former employees Vernell Woods (commenced August 22, 2000), Juan Castillo (commenced May 1, 2003), Stanley Chin (commenced May 7, 2003) and Kenneth Williams (commenced June 3, 2003). Each of these suits seeks an unspecified amount of damages and other relief in connection with allegations that the Company misclassified California store (Woods) and area (Castillo) managers as “exempt” from a state law requiring the payment of overtime compensation, that the Company failed to provide non-management employees with meal and rest breaks required under state law (Chin) and that the Company computed bonuses payable to its store managers using an impermissible profit-sharing formula (Williams). The trial court in Chin denied plaintiff’s motion for class certification. Plaintiffs have appealed the ruling. On March 15, 2006, the Company agreed in principle to settle the Woods, Castillo and Williams actions, and the Company memorialized that understanding on April 21, 2006. The Company agreed to settle Woods for $4,000,000, Castillo for $1,100,000 and Williams for $700,000. The settlement is subject to court approval, which the Company anticipates in early 2007; although the Company expects such approval, there can be no assurance that such approval will be forthcoming. The Company accrued $5.8 million during the quarter ended March 31, 2006 related to the Woods, Castillo and Williams cases. At March 31, 2006, this amount is included in other accrued expenses and other liabilities.
At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, resulting from the Chin case.
We The People Legal Proceedings
The Company’s business model for its legal document preparation services business is being challenged in the courts, as described below, which could result in the Company’s discontinuation of these services in any one or more jurisdictions.

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. CONTINGENT LIABILITIES (continued)
We The People Legal Proceedings (continued)
The company from which the Company bought the assets of its We The People business, We The People Forms and Service Centers USA, Inc. (the “Former WTP”), and/or certain of the Company’s franchisees are defendants in various lawsuits. These actions, which are pending in North Carolina, Illinois, Florida, Ohio and Georgia state courts, allege violations of the unauthorized practice of law statute and various consumer protection statutes of those states. There are presently fourteen stores operated by franchisees in these five states. These cases seek damages and/or injunctive relief, which could prevent the Company and/or its franchisees from preparing legal documents in accordance with the Company’s present business model. The Illinois case has been pending since March 2001. The Georgia case was commenced against the Company’s local franchisee in May 2005. The North Carolina case has been pending since the summer of 2003. The Florida case and Ohio case have been pending since February 2006.
On February 9, 2006, We The People and the TN Department of Consumer Affairs (“the Department”) reached a mutual agreement to end a lawsuit filed by the Department against We The People and its two Tennessee franchisees that had alleged violations of the Tennessee unauthorized practice of law statutes and the Tennessee Consumer Protection Act. The agreement, which was confirmed by the court, allows We The People to continue its operations in Tennessee, however, We The People agreed to make some adjustments to its services and advertisements. Additionally, as part of the resolution of the dispute, We The People has made a payment of $160,000 to the State that will be available to be distributed as refunds to eligible consumers. We The People had denied any liability or any wrongdoing, and no wrongdoing was found by either the court or the Department.
The state bar association in Mississippi had commenced an investigation regarding the Company’s and its local franchisee’s legal document preparation activities within that state in February 2005. The franchisee operated one store in Mississippi at that time. The Mississippi store closed in the Fall of 2005 and the Mississippi Bar Association terminated their investigation.
The Former WTP and/or certain of the Company’s franchisees were defendants in adversary proceedings commenced by various United States Bankruptcy trustees in bankruptcy courts in the District of Colorado, Eastern District of New York, the District of Maryland, District of Connecticut, the Northern District of Illinois, the Middle District of Tennessee, the Eastern District of Tennessee, the Eastern District of Oklahoma, the Middle District of North Carolina, the District of Idaho, the District of Oregon, the Eastern District of Michigan and the District of Delaware. The actions in Connecticut, Colorado, Illinois, New York, Connecticut, Maryland, Delaware, Michigan and Oklahoma have recently been settled by Consent Order and Stipulation. The cases in Tennessee, Idaho and North Carolina have been adjudicated by the courts and limits have been placed on the We The People model and price for services in those states. A case was filed recently in the Central District of Texas. In each of these adversary proceedings, the United States Bankruptcy trustee alleged that the defendants violated certain requirements of Section 110 of the United States Bankruptcy Code, which governs the preparation of bankruptcy petitions by non-attorneys, and engaged in fraudulent, unfair and deceptive conduct which constitutes the unauthorized practice of law.
In March 2003, the Former WTP, on behalf of its local franchisee, filed an appeal from a decision of the United States District Court for the District of Idaho which had reduced the fee that the Former WTP franchisee could charge for its bankruptcy petition preparation services and ruled that the Former WTP’s In March 2003, the Former WTP, on behalf of its local franchisee, filed an appeal from a decision of the business model for the preparation of bankruptcy petitions was deceptive or unfair, resulted in the charging of excessive fees and constituted the unauthorized practice of law. On June 17, 2005, the United States Court of Appeals for the Ninth Circuit affirmed this decision, without reaching the issues related to unauthorized practice of law.
On May 10, 2005, the Company, the Former WTP and certain of the Company’s local franchisees temporarily settled two of the bankruptcy adversary proceedings pending in the District of Connecticut and in the Southern District of New York by entering into stipulated preliminary injunctions regarding preparation of bankruptcy petitions within these judicial districts pending the final resolution of these proceedings. Each of the adversary proceedings temporarily settled was referred to mediation, together with certain other matters currently

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. CONTINGENT LIABILITIES (continued)
We The People Legal Proceedings (continued)
pending in the Southern District of New York and in the Eastern District of New York against the Former WTP and certain of the Company’s franchisees, in an effort to develop a protocol for the Company and its franchisees located within all Federal judicial districts in New York, Vermont and Connecticut to comply with Section 110 of the Bankruptcy Code. Subsequently, through mediation, this preliminary injunction with several modifications, was the basis for a Stipulated Final Judgment permitting the We The People model protocol within the Southern and Eastern Districts of New York, Vermont and Connecticut.
In December 2004, the Former WTP entered into a stipulated judgment based on an alleged violation of the Federal Trade Commission’s Franchise Rule. Under the terms of the judgment, the Former WTP paid a $286,000 fine and is permanently enjoined from violating the Federal Trade Commission Act and the Franchise Rule and is required to comply with certain compliance training, monitoring and reporting and recordkeeping obligations. The Company has requested the Federal Trade Commission to confirm that it agrees with the Company’s interpretation that these obligations are applicable only to the Company’s legal document preparation services business.
On August 11, 2005, Sally S. Attia and two other attorneys, purporting to sue on behalf of a nationwide class of all U.S. bankruptcy attorneys, commenced an antitrust action against the Company in the United States District Court for the Southern District of New York. They allege that the Company and the Former WTP have unlawfully restrained competition in the market for bankruptcy services through the Company’s advertising and other practices, and they seek class-action status, damages in an indeterminate amount (including punitive and treble damages under the Sherman and Clayton Acts) and other relief. On August 12, 2005, the court denied plaintiffs’ request for expedited or ex parte injunctive relief. The Company’s motion to dismiss this action was submitted on October 7, 2005, and the Company is presently awaiting a decision.
On October 21, 2005, the Company filed an action against IDLD, Inc., Ira Distenfield and Linda Distenfield in the Court of Common Pleas of Chester County, Pennsylvania, alleging that the sellers of the We The People business deliberately concealed certain franchise sales from the Company. The Company also assert breaches of representations and warranties made by the sellers with respect to undisclosed liabilities and other matters arising out of the acquisition. On March 13, 2006, the sellers and We The People Hollywood Florida, Inc. filed suit against the Company in the United States District Court for the Central District of California. Their complaint alleges that the Company deprived plaintiffs of the benefits of the purchase agreement, improperly terminated the employment contracts that Ira and Linda Distenfield had with the Company, and other claims. On April 7, 2006, the parties agreed to stay both the Pennsylvania and California litigations and to have all disputes resolved by arbitration. The parties are now selecting arbitrators. The arbitration proceedings are expected to begin after June 15, 2006.
At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, of any of the aforementioned matters.

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. CONTINGENT LIABILITIES (continued)
We The People Legal Proceedings (continued)
In addition to the matters described above, the Company continues to respond to inquiries it receives from state bar associations and state regulatory authorities from time to time as a routine part of its business regarding its legal document preparation services business and its franchisees.
While the Company believes there is no legal basis for liability in any of the aforementioned cases, due to the uncertainty surrounding the litigation process, the Company is unable to reasonably estimate a range of loss, if any, at this time. While the outcome of these matters is currently not determinable, the Company does not expect that the ultimate cost to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
9. ACQUISITIONS
The following acquisitions have been accounted for under the purchase method of accounting.
On January 31, 2005, the Company entered into an agreement to acquire substantially all of the assets of Alexandria financial Services, LLC, Alexandria Acquisition, LLC, American Check Cashers of Lafayette, LLC, ACC of Lake Charles, LLC and Southern Financial Services of Louisiana, LLC (collectively, “American”). The aggregate purchase price for this acquisition was $11.9 million in cash. This includes a $2.0 million revenue-based earn out which became payable on January 31, 2006. At March 31, 2006, this amount is included in accrued expenses and other liabilities. The Company’s revolving credit facility was used to fund the purchase. The excess of the purchase price over the fair value of the identifiable assets acquired was $11.1 million.
On March 7, 2005, the Company entered into an agreement to acquire substantially all of the assets of We The People Forms and Service Centers USA, Inc. (“WTP”) relating to WTP’s retail-based legal document preparation services business. The aggregate purchase price for this acquisition was $14.0 million, consisting of $10.5 million in cash paid at closing, $2.0 million in unregistered shares of Corp.’s common stock and $1.5 million paid at closing to an escrow account to secure certain indemnification liabilities of WTP. In May 2005, $250,000 of the escrow amount was distributed to the seller and 25% of the remaining escrow amount was scheduled to be distributed on each of December 31, 2005, March 31, 2006, June 30, 2006 and September 30, 2006, assuming no indemnification claims at such times. In addition, the Company assumed $750,000 in liabilities and assumed approximately $7.6 million in refundable deposits related to certain franchise agreements. The Company allocated a portion of the purchase price to purchased franchise agreements for $1.2 million and other assets for $1.1 million, with the remainder allocated to goodwill. The agreement also includes a maximum revenue-based earn out of up to $3.0 million which is payable over a two-year period.
The Company is pursuing indemnification claims against the former shareholders of WTP on account of asserted breaches of representations and warranties with respect to both undisclosed liabilities and other matters arising out of the acquisition and has instituted a related lawsuit. Pending the resolution of these claims, the Company has determined to withhold the escrow distributions described above. The Company has terminated the employment of Ira and Linda Distenfield, the former shareholders of WTP. At this time, it is too early to determine the outcome of these claims and lawsuit and the impact on the Company of the undisclosed liabilities.
The Company’s revolving credit facility and unregistered shares of the Company’s common stock were used to fund the purchase. The excess of the purchase price over the fair value of net identifiable assets acquired was $21.5 million. The Company believes that due to the revenues generated from the network of 170 locations and the potential to sell additional franchises, the allocation of a portion of the purchase price to goodwill is appropriate.

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DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. ACQUISITIONS (continued)
Following is the allocation of the purchase price for the WTP acquisition (in millions):
         
    WTP  
Purchase price
  $ 14.0  
Net assets acquired:
       
Purchased franchise agreements
    (1.2 )
Refundable deposits
    7.6  
Other (assets) and liabilities
    1.1  
 
     
Goodwill
  $ 21.5  
 
     
In July 2005, the Company purchased 26 We The People franchisee-owned stores, converting them to company-owned and -operated stores and related franchise territory for future development. The aggregate purchase price for these acquisitions was $4.9 million and was funded through excess internal cash. The excess of the purchase price over the fair value of identifiable assets acquired was $4.5 million. The Company believes that due to the earnings potential from the 26 acquired stores, and from franchising opportunities in the acquired territories, the allocation of a portion of the purchase price to goodwill is appropriate.
In October 2005, the Company purchased three We The People franchisee-owned stores, converting them to company-owned and –operated stores, and related franchise territories for future development. In addition, the Company acquired three undeveloped territories from franchisees for future development. The aggregate purchase price for these acquisitions was $1.6 million, consisting of $833,000 in cash paid at closing and a $733,000 note payable. The Company allocated $181,000 of the purchase price to territory rights. The excess of the purchase price over the fair value of identifiable assets acquired was $1.1 million. The Company believes that due to the earnings potential from the acquired stores and territory rights and from the franchising opportunities in the acquired territories, the allocation of a portion of the purchase price to goodwill is appropriate.
On March 9, 2006, the Company entered into an agreement to purchase substantially all of the assets of thirteen franchised stores in Canada in a series of transactions. Eleven stores were acquired in March 2006 and two stores will be acquired contingent upon the successful attainment of required loan licenses. The acquired stores were controlled by a franchisee of the Company’s Canadian subsidiary, and the Company also had a minority ownership interest in seven of these stores. The total aggregate purchase price for the eleven stores was approximately $14.7 million cash. An additional $3.6 million is being held in escrow for the remaining two stores. The Company allocated a portion of the purchase price to repurchased franchise rights for $1.4 million and other assets for $1.4 million. The Company’s revolving credit facility was used to fund the purchase. The excess of the purchase price over the preliminary fair value of identifiable assets acquired was $11.9 million.
10. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash transactions: On November 15, 2004, Dollar Financial Corp. elected to capitalize $6.5 million of interest on its 16.0% Senior Notes due 2012 and its 13.95% Senior Subordinated Notes due 2012. On February 2, 2005, Dollar Financial Corp. wrote-off $1.5 million of unamortized original issue discount related to the redemption of the 16.0% Senior Notes and $1.5 million of unamortized original issue discount related to the 13.95% Senior Subordinated Notes. Additionally, Dollar Financial Corp. forgave $2.5 million of accrued interest under the management loans and accepted certain of the management individuals’ exchange of shares of its common stock held by them in satisfaction of $6.7 million principal amount of such loans. On March 7, 2005, the Company, as part of the consideration for the acquisition of WTP, issued $2.0 million in unregistered shares of its common stock (141,935 shares). As of March 31, 2006, the Company had accrued $2.0 million for a revenue-based earn out related to the January 31, 2005 American acquisition (see Note 9).
11. SUBSEQUENT EVENT
On April 3, 2006, the Company entered into an asset purchase agreement to acquire six stores from a franchisee of the Company’s wholly owned U.K. subsidiary. The aggregate purchase price for the acquisition was approximately $1.7 million in cash. The Company’s revolving credit facility was used to fund the purchase.

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DOLLAR FINANCIAL GROUP, INC.
SUPPLEMENTAL STATISTICAL DATA
                 
    March 31,
    2005   2006
Company Operating Data:
               
 
               
Stores in operation:
               
Company-owned
    700       758  
Franchised stores and check cashing merchants
    642       511  
 
               
 
               
Total
    1,342       1,269  
 
               
                                 
    Three Months Ended   Nine Months Ended
    March 31,   March 31,
    2005   2006   2005   2006
Check Cashing Data:
                               
 
                               
Face amount of checks cashed (in millions)
  $ 843     $ 946     $ 2,542     $ 2,804  
Face amount of average check
  $ 437     $ 461     $ 419     $ 447  
Face amount of average check (excluding Canada and the United Kingdom)
  $ 432     $ 455     $ 389     $ 412  
Average fee per check
  $ 16.94     $ 17.69     $ 15.80     $ 16.87  
Number of checks cashed (in thousands)
    1,930       2,051       6,065       6,274  
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2005     2006     2005     2006  
Check Cashing Collections Data:
                               
 
                               
Face amount of returned checks (in thousands)
  $ 7,815     $ 9,617     $ 23,311     $ 29,463  
Collections (in thousands)
    (5,762 )     (7,576 )     (16,618 )     (21,802 )
 
                       
Net write-offs (in thousands)
  $ 2,053     $ 2,041     $ 6,693     $ 7,661  
 
                       
 
                               
Collections as a percentage of returned checks
    73.7 %     78.8 %     71.3 %     74.0 %
Net write-offs as a percentage of check cashing revenues
    6.28 %     5.62 %     6.99 %     7.24 %
Net write-offs as a percentage of the face amount of checks cashed
    0.24 %     0.22 %     0.26 %     0.27 %

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The following chart presents a summary of our consumer lending operations, including loan originations, which include loan extensions, and revenues for the following periods (in thousands):
                                 
    For the three months ended March 31,   For the nine months ended March 31,
    2005   2006   2005   2006
         
U.S. company funded consumer loan originations (1)(3)
  $ 15,956     $ 51,120     $ 53,025     $ 180,716  
Canadian company funded consumer loan originations (2)
    107,346       132,116       332,514       405,189  
U.K. company funded consumer loan originations (2)
    46,245       48,431       136,356       149,393  
         
Total company funded consumer loan originations
  $ 169,547     $ 231,667     $ 521,895     $ 735,298  
         
 
                               
U.S. servicing revenues (3)
  $ 16,288     $ 6,350     $ 51,171     $ 15,855  
U.S. company funded consumer loan revenues (3)
    2,682       8,489       8,166       28,743  
Canadian company funded consumer loan revenues
    11,581       17,908       35,600       50,384  
U.K. company funded consumer loan revenues
    6,674       8,596       19,033       23,693  
Provision for loan losses and adjustment to servicing income
    (4,308 )     (6,352 )     (22,517 )     (22,873 )
         
Total consumer lending revenues, net
  $ 32,917     $ 34,991     $ 91,453     $ 95,802  
         
 
                               
Gross charge-offs of company funded consumer loans (3)
  $ 15,492     $ 26,231     $ 48,046     $ 77,751  
Recoveries of company funded consumer loans (3)
    13,871       21,591       37,251       61,992  
         
Net charge-offs on company funded consumer loans
  $ 1,621     $ 4,640     $ 10,795     $ 15,759  
         
 
                               
Gross charge-offs of company funded consumer loans as a percentage of total company funded consumer loan originations
    9.1 %     11.3 %     9.2 %     10.6 %
Recoveries of company funded consumer loans as a percentage of total company funded consumer loan originations
    8.1 %     9.3 %     7.1 %     8.4 %
Net charge-offs on company funded consumer loans as a percentage of total company funded consumer loan originations
    1.0 %     2.0 %     2.1 %     2.2 %
 
(1)   Our company operated stores and document transmitter locations in the United States originate company funded and bank funded short-term consumer loans.
 
(2)   All consumer loans originated in Canada and the United Kingdom are company funded.
 
(3)   The variance between the two periods is primarily related to our transition in the United States for short-term consumer loans from the bank-funded to the company funded model.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of the financial condition and results of operations for Dollar Financial Group, Inc. for the three and nine months period ended March 31, 2006 and 2005. References in this section to “we,” “our,” “ours,” or “us” are to Dollar Financial Group, Inc. and its wholly owned subsidiaries, except as the context otherwise requires. References to “Corp.” are to our parent company, Dollar Financial Corp. For a separate discussion and analysis of the financial condition and results of operations of Corp., see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Corp.’s’ quarterly report on Form 10-Q (File No. 000-50866) for the period ended March 31, 2006.
Executive Summary
Dollar Financial Corp. is the parent company of Dollar Financial Group, Inc. and its wholly-owned subsidiaries. We have historically derived our revenues primarily from providing check cashing services, consumer lending and other consumer financial products and services, including money orders, money transfers and bill payment. For our check cashing services, we charge our customers fees that are usually equal to a percentage of the amount of the check being cashed and are deducted from the cash provided to the customer. For our consumer loans, we receive origination and servicing fees from the banks providing the loans or, if we fund the loans directly, interest and fees on the loans. With respect to our We The People (“WTP”) company-operated stores, we charge customers for legal document preparation services. With respect to our WTP franchised locations, we receive initial franchise fees upon the initial sale of a franchise. Processing fees from our franchisees are earned for processing customers’ legal documents.
On June 16, 2005, we announced that we were transitioning the majority of our United States financial services stores from the bank-funded consumer loan model to the company-funded consumer loan model. This transition was in response to the implementation of the March 2, 2005 revisions to the Federal Deposit Insurance Corporation, or FDIC, guidelines for payday lending, which became effective on July 1, 2005 (as revised, the “Payday Lending Guidance”). As of March 31, 2006, all of our retail financial service locations, with the exception of those located in Pennsylvania and Texas, have transitioned to the company-funded consumer loan model. We currently offer bank funded payday loans in seventeen stores in Pennsylvania and six stores in Texas. In February, 2006, we were advised by our bank partner, First Bank of Delaware, that the Bank received a letter from the FDIC that communicated certain concerns with payday and installment loan products. As a result, the Bank recently advised us that it intends to cease offering payday loans on June 30, 2006. In Pennsylvania, the cessation of bank funded payday loans would effectively eliminate payday lending in the state as the Pennsylvania legislature did not pass legislation enabling the payday loan product as we hoped they would. Concerning our six Texas stores, we are currently developing plans to implement the Credit Services Organization (CSO) model by the beginning of fiscal year 2007. With respect to our domestic installment lending product, First Bank of Delaware, who is responsible for managing and funding our CustomCash™ installment loan program, is also working to address concerns raised by the FDIC with respect to this product. We have been responsive to the Bank’s requests and inquiries, but do not have a new update to report at this time. We also announced on June 16, 2005 that we were discontinuing our operations as a marketing and servicing agent for consumer loans that are fulfilled through document transmitter locations. We expect this to result in a loss of approximately $5.1 million of revenues for the twelve-month period ending June 30, 2006 (“fiscal 2006”) with a nominal impact on income before income taxes. We will continue to offer loans directly to borrowers through other channels of distribution.
On March 9, 2006, we entered into an agreement to purchase substantially all of the assets of thirteen franchised stores in Canada in a series of transactions. Eleven stores were acquired in March 2006 and two stores will be acquired contingent upon the successful attainment of required loan licenses. The acquired stores were controlled by a franchisee of our Canadian subsidiary, and the Company also had a minority ownership interest in seven of these stores. The total aggregate purchase price for the eleven stores was approximately $14.7 million in cash. An additional $3.6 million is being held in escrow for the remaining two stores.
On April 3, 2005, we entered into an asset purchase agreement to acquire six stores from a franchisee of our wholly-owned U.K. subsidiary. The aggregate purchase price for the acquisitions was approximately $1.7 million in cash.
Our expenses primarily relate to the operations of our store network, including salaries and benefits for our employees, occupancy expense for our leased real estate, depreciation of our assets and corporate and other expenses, including costs related to opening and closing stores.
In each foreign country in which we operate, local currency is used for both revenues and expenses. Therefore, we record the impact of foreign currency exchange rate fluctuations related to our foreign net income.
In our discussion of our financial condition and results of operations, we refer to stores and franchises that were open for 21 consecutive months ending March 31, 2006 as comparable stores and franchises.
Impact of Hurricanes Katrina and Rita on our Operations.
At the start of fiscal 2006 we operated 29 financial service stores in the State of Louisiana. Five of these stores are in New Orleans and were directly impacted by Hurricane Katrina; and four of which are located in the Lake Charles area and were directly impacted by Hurricane Rita. By mid-October, all of the stores in the Lake Charles area and one store in New Orleans had reopened. Although several of the stores outside of New Orleans and Lake Charles were briefly closed for a few

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days after the storms, the financial impact on those stores was immaterial. We have assessed the extent of the damage to the New Orleans stores and have elected to close two of the stores permanently and have developed a timetable for reopening the remaining stores. We anticipate that the four remaining stores in New Orleans may reopen early in our fiscal fourth quarter, or early in our next fiscal year, subject to the status of the reconstruction of the devastated areas of New Orleans and the re-establishment of its local population. The Company has insurance for the impacted stores, which covers property damage and business interruption due to wind and hail, as well as acts of crime.
The impact of the hurricanes to income before income taxes for the quarter ended March 31, 2006 was nominal but approximately $800,000 for the nine months ended March 31, 2006, due primarily to higher loan losses and reduced revenue from the impacted store locations. At this time, we believe that the negative impact from the disruption of operations resulting from the hurricanes for fiscal year 2006 will likely range from $900,000 to $1.2 million of income before income taxes.
Discussion of Critical Accounting Policies
     In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. We evaluate these estimates on an ongoing basis, including those related to revenue recognition, loss reserves, income taxes and intangible assets. We base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results could vary from these estimates under different assumptions or conditions.
     We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements:
Revenue Recognition
With respect to company-operated stores, revenues from our check cashing, money order sales, money transfer and bill payment services and other miscellaneous services reported in other revenues on our statement of operations are all recognized when the transactions are completed at the point-of-sale in the store.
With respect to our franchised locations, we recognize initial franchise fees upon fulfillment of all significant obligations to the franchisee. Royalty payments and processing fees from our franchisees are recognized as earned.
For short-term consumer loans that we make directly (company-funded loans), which have terms ranging from 1 to 37 days, revenues are recognized using the interest method. Loan origination fees are recognized as an adjustment to the yield on the related loan. Our reserve policy regarding these loans is summarized below in ‘‘Company-Funded Consumer Loan Loss Reserves Policy.’’
In addition to the short-term consumer loans originated and funded by us, we also have historically had domestic relationships with two banks, County Bank of Rehoboth Beach, Delaware (“County Bank”) and First Bank of Delaware (“First Bank”). Pursuant to these relationships, we marketed and serviced short-term consumer loans domestically, which had terms ranging from 7 to 23 days, which were funded by the banks. The banks were responsible for the application review process and determining whether to approve an application and fund a loan. As a result, the banks’ loans are not recorded on our balance sheet. We earned a marketing and servicing fee for each loan that was paid by borrowers to the banks. In connection with our transition to the company-funded consumer loan model in June 2005, we terminated our relationship with County Bank and amended our relationship with First Bank. Currently, we only market and service short-term consumer loans for First Bank in Pennsylvania and Texas representing 23 stores. In the third quarter, First Bank announced that as of June 30, 2006, it would no longer originate short-term consumer loans .
For domestic loans funded by First Bank, we recognize net servicing fee income ratably over the life of the related loan. In addition, the bank has established a target loss rate for the loans marketed and serviced by us. Servicing fees payable to us are reduced by the amount the actual losses exceed this target loss rate. If actual losses are below the target loss rate, the difference is paid to us as a servicing fee. The measurement of the actual loss rate and settlement of servicing fees occurs twice every month.
Because our domestic servicing fees are reduced by loan losses incurred by the banks, we have established a reserve for servicing fee adjustments. To estimate the appropriate reserve for servicing fee adjustments, we consider the amount of outstanding loans owed to the banks, historical loans charged off, current and expected collection patterns and current economic trends. The reserve is then based on net charge-offs, expressed as a percentage of loans originated on behalf

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of the banks applied against the total amount of the banks’ outstanding loans. This reserve is reported in accrued expenses and other liabilities on our balance sheet and was $17 thousand at March 31, 2006 and $1.3 million at June 30, 2005.
During fiscal 2006, we began to market and service bank-funded consumer installment loans in the United States with terms of four months made by First Bank of Delaware. First Bank is responsible for the application review process and for determining whether to approve an application and fund a loan. As a result, loans are not recorded on our balance sheet. We earn a marketing and servicing fee for each loan that is paid by a borrower to First Bank. The servicing fee is recognized ratably using the effective interest rate method. This fee is reduced by losses incurred by the bank on such loans. We maintain a reserve for future servicing fee adjustments based on the bank’s outstanding loan balance. This liability was $617,000 at March 31, 2006 and is included in accrued expenses and other liabilities.
If a First Bank installment loan borrower defaults and the loan is not subsequently repaid, our servicing fee is reduced. We anticipate that we will collect a portion of the defaulted loans based on historical default rates, current and expected collection patterns and current economic trends. As a result, when a First Bank installment loan borrower defaults, we establish a servicing fee receivable and an allowance against this receivable based on factors described previously. The establishment of this allowance is charged against revenue during the period that the First Bank borrower initially defaults on the loan. If a loan remains in a defaulted status for an extended period of time, an allowance for the entire amount of the servicing fee adjustments is recorded and the receivable is ultimately charged off. Collections recovered on the banks defaulted loans are credited to the allowance in the period they are received. The servicing fee receivable, net of the allowance for servicing fees due from the bank, is reported on our balance sheet in other consumer lending receivables, net and was $831,000 at March 31, 2006.
The total amount of monies owed to the banks decreased significantly at March 31, 2006 compared to March 31, 2005 as a result of the transition in the United States from the bank-funded to the company-funded model for short-term consumer loans. As a result, we decreased our reserve for servicing fee adjustments and increased our allowance for loan losses on company-funded loans. We serviced $49.0 million of loans for First Bank during the first nine months of fiscal 2006 compared to $229.9 million during the first nine months of fiscal 2005. At March 31, 2006, there was $6.5 million in outstanding loans for First Bank and an aggregate of $14.2 million for County Bank and First Bank at March 31, 2005.
Company-Funded Consumer Loan Loss Reserves Policy
We maintain a loan loss reserve for anticipated losses for consumer loans we make directly through our company-operated locations. To estimate the appropriate level of loan loss reserves, we consider the amount of outstanding loans owed to us, historical loans charged off, current and expected collection patterns and current economic trends. Our current loan loss reserve is based on our net write-offs, typically expressed as a percentage of loan amounts originated for the last twelve months applied against the total amount of outstanding loans that we make directly. As these conditions change, we may need to make additional allowances in future periods. As a result of our transition away from the domestic bank-funded consumer loan model to the company-funded consumer loan model, we expect our future domestic loan loss reserve will increase.
When a loan is originated, the customer receives the cash proceeds in exchange for a post-dated check or a written authorization to initiate a charge to the customer’s bank account on the stated maturity date of the loan. If the check or the debit to the customer’s account is returned from the bank unpaid, the loan is placed in default status and an allowance for this defaulted loan receivable is established and charged against revenue in the period that the loan is placed in default status. Collections on defaulted short-term consumer loans are credited to the allowance in the period they are received. This reserve is reviewed monthly and any additional provision to the loan loss reserve as a result of historical loan performance, current and expected collection patterns and current economic trends is charged against revenues.
The receivable for defaulted loans, net of the allowance, is reported on our balance sheet in other consumer lending receivables, net and was $2.8 million at March 31, 2006.
Check Cashing Returned Item Policy
We charge operating expense for losses on returned checks during the period in which such checks are returned. Recoveries on returned checks are credited to operating expense during the period in which recovery is made. This direct method for recording returned check losses and recoveries eliminates the need for an allowance for returned checks. These net losses are charged to store and regional expenses in the consolidated statements of operations.

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Goodwill
We have significant goodwill on our balance sheet. We evaluate the carrying value of goodwill and identified intangibles not subject to amortization in the fourth quarter of each fiscal year. As part of the evaluation, we compare the fair value of business reporting units to their carrying value, including assigned goodwill. If projected future cash flows indicate that the unamortized intangible asset balances will not be recovered, an adjustment is made to reduce the intangible asset to an amount consistent with projected future cash flows discounted at our weighted average cost of capital. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. As of March 31, 2006, we do not believe any impairment of goodwill has occurred. However, changes in business conditions may require future adjustments to asset valuations.
Income Taxes
As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. An assessment is then made of the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance.
Results of Operations
Revenue Analysis
                                                                 
    Three Months Ended March 31,     Nine Months Ended March 31,  
                    (Percentage of                     (Percentage of total  
    ($ in thousands)     total revenue)     ($ in thousands)     revenue)  
    2005     2006     2005     2006     2005     2006     2005     2006  
Check cashing
  $ 32,708     $ 36,288       42.8 %     42.0 %   $ 95,803     $ 105,859       44.6 %     43.8 %
Consumer lending revenue, net
    32,917       34,991       43.0 %     40.5 %     91,453       95,802       42.5 %     39.7 %
Money transfer fees
    3,722       4,460       4.9 %     5.1 %     10,915       12,680       5.1 %     5.2 %
Franchise fees and royalties
    1,763       2,728       2.3 %     3.2 %     3,977       8,131       1.8 %     3.4 %
Other revenue
    5,343       7,992       7.0 %     9.2 %     12,844       19,119       6.0 %     7.9 %
 
                                               
Total revenue
  $ 76,453     $ 86,459       100.0 %     100.0 %   $ 214,992     $ 241,591       100.0 %     100.0 %
 
                                               
The Three Months Ended March 31, 2006 compared to the Three Months Ended March 31, 2005
Total revenues were $86.5 million for the three months ended March 31, 2006 compared to $76.5 million for the three months ended March 31, 2005, an increase of $10.0 million or 13.1%. Comparable retail store and franchised store sales for the entire period increased $8.6 million or 12.0%. New store openings accounted for an increase of $1.6 million and new store acquisitions accounted for an increase of $2.5 million. These increases were partially offset by a decrease of $1.8 million in revenues due to our discontinued services as a marketing and servicing agent for consumer loans that were fulfilled through document transmitter locations and $455,000 in revenues from closed stores.
Revenues in the United Kingdom for the quarter increased $3.1 million on a constant dollar basis, primarily related to revenues from check cashing and consumer loan products. Revenues from our Canadian operations for the quarter increased $8.5 million on a constant dollar basis. This growth in our Canadian operations is due to a $5.0 million increase from consumer loan products as a result of a recent criteria change, pricing adjustments in the third quarter of Fiscal 2006 and an overall increase in our Canadian customer average outstanding loan balance. In addition, Canadian check cashing revenue increased $1.9 million in the third quarter of fiscal 2006, as compared to the same period in the prior year. Additional revenue generated by the eleven newly acquired Canadian stores on March 9, 2006 was $612,000. Revenues from franchise fees and royalties increased by $965,000 primarily due to the franchise fees earned from the We The People business operations.

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The Nine Months Ended March 31, 2006 compared to the Nine Months Ended March 31, 2005
Total revenues were $241.6 million for the nine months ended March 31, 2006 compared to $215.0 million for the nine months ended March 31, 2005, an increase of $26.6 million or 12.4%. Comparable retail store and franchised store sales for the entire period increased $16.0 million or 7.9%. New store openings accounted for an increase of $6.2 million and new store acquisitions accounted for an increase of $11.3 million. These increases were partially offset by a decrease of $4.7 million in revenues due to our discontinued services as a marketing and servicing agent for consumer loans that were fulfilled through document transmitter locations and $1.8 million in revenues from closed stores.
A stronger Canadian dollar, partially offset by a weaker British pound, positively impacted revenue by $2.6 million for the nine months ended March 31, 2005. Revenues in the United Kingdom for the nine months increased by $10.0 million, on a constant dollar basis, primarily related to revenues from check cashing and consumer loan products. Revenues from our Canadian operations for the nine months increased $16.7 million on a constant dollar basis. The growth in our Canadian operations is due to a $10.6 million increase from consumer loan products as a result of a recent criteria change, pricing adjustments in the third quarter of fiscal 2006 and an overall increase in our Canadian customer average outstanding loan balance. In addition, Canadian check cashing revenue increased $3.4 million in the first nine months of fiscal 2006 compared to the same period in the prior year. Additional revenue generated by the eleven newly acquired Canadian stores on March 9, 2006 was $612,000. Revenues from franchise fees and royalties accounted for an increase of $4.2 million for the nine months ended March 31, 2006, primarily due to the franchise fees earned from the We The People business operations.
Store and Regional Expense Analysis
                                                                 
    Three Months Ended March 31,   Nine Months Ended March 31,
                    (Percentage of                   (Percentage of
    ($ in thousands)   total revenue)   ($ in thousands)   total revenue)
    2005   2006   2005   2006   2005   2006   2005   2006
Salaries and benefits
    23,775       27,095       31.1 %     31.3 %     67,118       78,290       31.2 %     32.4 %
Occupancy
    5,834       6,914       7.6 %     8.0 %     16,840       20,384       7.8 %     8.4 %
Depreciation
    1,777       1,843       2.3 %     2.1 %     5,352       5,510       2.5 %     2.3 %
Returned checks, net and cash shortages
    2,733       2,697       3.6 %     3.1 %     7,955       9,084       3.7 %     3.8 %
Telephone and communications
    1,654       1,405       2.2 %     1.6 %     4,604       4,271       2.1 %     1.8 %
Advertising
    1,988       1,943       2.6 %     2.2 %     7,109       6,765       3.3 %     2.8 %
Bank Charges
    1,022       1,279       1.3 %     1.5 %     2,935       3,523       1.4 %     1.5 %
Armored carrier expenses
    934       1,069       1.2 %     1.2 %     2,648       3,091       1.2 %     1.3 %
Other
    7,170       8,701       9.4 %     10.1 %     21,441       24,700       10.0 %     10.2 %
 
                                                               
Total store and regional expenses
    46,887       52,946       61.3 %     61.1 %     136,002       155,618       63.2 %     64.5 %
 
                                                               
The Three Months Ended March 31, 2006 compared to the Three Months Ended March 31, 2005
Store and regional expenses were $52.9 million for the three months ended March 31, 2006 compared to $46.9 million for the three months ended March 31, 2005, an increase of $6.0 million or 12.9%. New store openings accounted for an increase of $1.5 million and new store acquisitions accounted for an increase of $3.1 million while comparable retail store and franchised store expenses for the entire period increased $2.7 million. Partially offsetting these increases was a decrease of $1.0 million due to our discontinued services as a marketing and servicing agent for consumer loans that were fulfilled through document transmitter locations and $339,000 from closed stores. On a consistent currency basis, store and regional expenses increased $1.6 million in Canada, $2.1 million in the United Kingdom and $2.2 million in the United States. The increase in Canada was primarily due to increases in salaries associated with the growth in that operation. Similarly, in the United Kingdom, the increase is primarily related to increases in salaries, returned checks and cash shortages, occupancy and other costs commensurate with the growth in that country. In the U.S., the increase is primarily due to salaries and occupancy as a result of the incremental costs associated with the acquisition of We The People stores.
The Nine Months Ended March 31, 2006 compared to the Nine Months Ended March 31, 2005
Store and regional expenses were $155.6 million for the nine months ended March 31, 2006 compared to $136.0 million for the nine months ended March 31, 2005, an increase of $19.6 million or 14.4%. The impact of foreign currencies

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accounted for $1.1 million of the increase. New store openings accounted for an increase of $4.9 million and new store acquisitions accounted for an increase of $13.2 million while comparable retail store and franchised store expenses for the entire period increased $6.3 million. Partially offsetting these increases was a decrease of $3.7 million due to our discontinued operations as a marketing and servicing agent for consumer loans that were fulfilled through document transmitter locations and $1.3 million from closed stores. For the nine months ended March 31, 2006 total store and regional expenses increased to 64.5% of total revenue compared to 63.2% of total revenue for the nine months ended March 31, 2005. On a consistent currency basis, store and regional expenses increased $4.0 million in Canada, $6.6 million in the United Kingdom and $7.9 million in the U.S. The increase in Canada was primarily due to increases in salaries, advertising and occupancy expenses, all of which are commensurate with the overall growth in Canadian revenues. Similarly, in the United Kingdom, the increase is primarily related to increases in salaries, returned checks and cash shortages, occupancy and other costs commensurate with the growth in that country. In the U.S., the increase is primarily due to salaries, occupancy and other as a result of the incremental costs associated with the acquisition of We The People stores.
Corporate and Other Expense Analysis
                                                                 
    Three Months Ended March 31,   Nine Months Ended March 31,
                    (Percentage of total                   (Percentage of
    ($ in thousands)   revenue)   ($ in thousands)   total revenue)
    2005   2006   2005   2006   2005   2006   2005   2006
Corporate expenses
  $ 9,147     $ 11,453       12.0 %     13.2 %   $ 26,897     $ 31,035       12.5 %     12.8 %
Other depreciation and amortization
    801       878       1.0 %     1.0 %     2,882       2,689       1.3 %     1.1 %
Interest expense
    6,619       7,566       8.7 %     8.8 %     19,595       22,245       9.1 %     9.2 %
Reserve for litigation settlement
          5,800       0.0 %     6.7 %           5,800       0.0 %     2.4 %
Other
    48       300       0.1 %     0.3 %     (8 )     718       0.0 %     0.3 %
Income tax provision
    5,437       7,807       7.1 %     9.0 %     14,045       18,460       6.5 %     7.6 %
The Three Months Ended March 31, 2006 compared to the Three Months Ended March 31, 2005
Corporate Expenses
Corporate expenses were $11.5 million for the three months ended March 31, 2006 compared to $9.1 million for the three months ended March 31, 2005. The $2.4 million increase is primarily due to additional compensation and other costs associated with the substantial growth of the Company’s international operations, as well as additional positions to support and manage the continued rapid expansion of the global store base and breadth of product offerings. In addition, the Company incurred additional legal costs this quarter associated with the Canadian class action litigation and the long-standing California wage-and-hour litigation, for which an agreement in principle to settle the California litigation has been reached, as more fully discussed in Note 8.
Other Depreciation and Amortization
Other depreciation and amortization expenses remained relatively unchanged and were $878,000 for the three months ended March 31, 2006 compared to $801,000 for the three months ended March 31, 2005.
Interest Expense
Interest expense remained relatively unchanged and was $7.6 million for the three months ended March 31, 2006 compared to $7.8 million for the three months ended March 31, 2005. On February 2, 2005, the Company used the majority of the proceeds from its initial public offering to redeem all of its 16.0% senior notes due 2012 and 13.95% senior subordinated notes due 2012. As a result, interest expense related to these notes declined $1.1 million for the three months ended March 31, 2006 compared to the same period in the prior year. Partially offsetting this decline was an increase of $731,000 related to the additional offering of $30 million principal amount of 9.75% senior notes due 2011 on June 23, 2005 and an increase of $166,000 related to a higher outstanding revolving credit facility balance for the three months ended March 31, 2006 compared to the prior year.

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Income Tax Provision
The provision for income taxes was $7.8 million for the three months ended March 31, 2006 compared to a provision of $5.4 million for the three months ended March 31, 2005. Our effective tax rate differs from the federal statutory rate of 35% due to foreign taxes and a valuation allowance on US deferred tax assets. Our effective tax rate was 103.9% for the three months ended March 31, 2006 compared to 42.0% for the three months ended March 31, 2005. Due to the restructuring of our debt in fiscal 2004, significant deferred tax assets were generated and recorded in accordance with SFAS 109. The interest expense on our senior notes issued in the United States results in U.S. tax losses, thus generating deferred tax assets. Because realization is not assured all U.S. deferred tax assets recorded were reduced by a valuation allowance of $17.7 million at March 31, 2006 of which $1.6 million was provided for in the three months ended March 31, 2006. The accrual for settlement of the California class action litigation increased the U.S. loss for the three months ended March 31, 2006. These items necessitated an increase in the valuation allowance resulting in an increase in the effective tax rate for the three months ended March 31, 2006. Following our refinancing in November, 2003, we no longer accrue U.S. tax on foreign earnings.
The Nine Months Ended March 31, 2006 compared to the Nine Months Ended March 31, 2005
Corporate Expenses
Corporate expenses were $31.0 million for the nine months ended March 31, 2006 compared to $26.9 million for the nine months ended March 31, 2005. The $4.1 million increase is primarily due to additional compensation and other costs associated with the substantial growth of the Company’s international operations, as well as additional positions to support and manage the continued rapid expansion of the global store base and breadth of product offerings. In addition, the Company incurred additional legal costs this quarter associated with the Canadian class action litigation and the long-standing California wage-and-hour litigation, for which an agreement in principle to settle the California litigation has been reached, as more fully discussed in Note 8.
Other Depreciation and Amortization
Other depreciation and amortization expenses remained relatively unchanged and were $2.7 million for the nine months ended March 31, 2006 compared to $2.9 million for the nine months ended March 31, 2005.
Interest Expense
Interest expense was $22.2 million for the nine months ended March 31, 2006 compared to $27.2 million for the nine months ended March 31, 2005, an increase of $5.0 million or 18.0%. On February 2, 2005, the Company used the majority of the proceeds from its initial public offering to redeem all of its 16.0% senior notes due 2012 and 13.95% senior subordinated notes due 2012. As a result, interest expense related to these notes declined $7.8 million for the nine months ended March 31, 2006 compared to the same period in the prior year. Partially offsetting this decline was an increase of $2.2 million related to the additional offering of $30 million principal amount of 9.75% senior notes due 2011 on June 23, 2005 and an increase of $348,000 related to a higher outstanding revolving credit facility balance for the nine months ended March 31, 2006 compared to the same period in the prior year.
Income Tax Provision
The provision for income taxes was $18.5 million for the nine months ended March 31, 2006 compared to a provision of $14.0 million for the nine months ended March 31, 2005. Our effective tax rate differs from the federal statutory rate of 35% due to foreign taxes and a valuation allowance. Our effective tax rate was 78.6% for the nine months ended March 31, 2006 and 47.4% for the nine months ended March 31, 2005. Due to the restructuring of our debt in fiscal 2004, significant deferred tax assets were generated and recorded in accordance with SFAS 109. The interest expense on our senior notes issued in the United States results in U.S. tax losses, thus generating deferred tax assets. Because realization is not assured all U.S. deferred tax assets recorded were reduced by a valuation allowance of $17.7 million at March 31, 2006 of which $5.7 million was provided for in the nine months ended March 31, 2006. The accrual for settlement of the California class action litigation increased the U.S. loss for the nine months ended March 31, 2006. These items necessitated an increase in the valuation allowance resulting in an increase in the effective tax rate for the nine months ended March 31, 2006. Following our refinancing in November, 2003, we no longer accrue U.S. tax on foreign earnings.
Changes in Financial Condition
Cash and cash equivalent balances and the revolving credit facilities balances fluctuate significantly as a result of seasonal, monthly and day-to-day requirements for funding check cashing, consumer loans and other operating activities. For the nine

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months ended March 31, 2006, cash and cash equivalents increased $12.3 million. Net cash provided by operating activities was $22.1 million for the nine months ended March 31, 2006 compared to $31.7 million for the nine months ended March 31, 2005. The decrease in net cash provided by operations was primarily the result of additional cash used to fund company-funded consumer loans as a result of the recent transition from the bank-funded model to the Company-funded loan model.
Liquidity and Capital Resources
Our principal sources of cash are from operations, borrowings under our credit facilities and issuances of our common stock. We anticipate that our primary uses of cash will be to provide working capital, finance capital expenditures, meet debt service requirements, fund company originated consumer loans, finance acquisitions and new store expansion and finance the expansion of our products and services.
Net cash provided by operating activities was $22.1 for the nine months ended March 31, 2006 compared to cash provided of $31.7 million for the nine months ended March 31, 2005. The decrease in net cash provided by operations was primarily the result of additional cash used to fund company-funded consumer loans as a result of the recent transition from the bank-funded model to the Company-funded loan model.
Net cash used in investing activities for the nine months ended March 31, 2006 was $31.9 million compared to $34.7 million for the nine months ended March 31, 2005. For the nine months ended March 31, 2006, we made capital expenditures of $11.9 million and acquisitions of $20.0 million primarily related to the purchase of eleven stores in Canada on March 9, 2006 in addition to additional We The People franchises and territories acquired earlier in the fiscal year. The actual amount of capital expenditures for the year will depend in part upon the number of new stores acquired or opened and the number of stores remodeled. Our capital expenditures, excluding acquisitions, are currently anticipated to aggregate approximately $14.6 million during our fiscal year ending June 30, 2006, for remodeling and relocation of certain existing stores and for opening additional new stores.
Net cash provided by financing activities for the nine months ended March 31, 2006 was $26.9 million compared to net cash provided of $10.6 million for the nine months ended March 31, 2005. The cash provided in the nine months ended March 31, 2006 and 2005 was primarily a result of an increase in the borrowings under our revolving credit facility primarily associated with the aforementioned acquisitions.
Revolving Credit Facilities. We have two revolving credit facilities: a domestic revolving credit facility and a Canadian overdraft facility.
Domestic Revolving Credit Facility. On November 13, 2003, we repaid, in full, all borrowings outstanding under our previously existing credit facility using a portion of the proceeds from the issuance of $220.0 million principal amount of our 9.75% senior notes due 2011 and simultaneously entered into a new $55.0 million senior secured reducing revolving credit facility. On July 8, 2005, we entered into an amendment and restatement of our credit facility to increase the maximum amount of the facility from $55 million to $80 million. The amendment and restatement reduced the rate of interest and fees payable under the credit facility and eliminated the quarterly reductions to the commitment amount. In addition, the amendment and restatement extended the term of the credit facility for one additional year to November 12, 2009. At our request, existing lenders and/or additional lenders may agree to increase the maximum amount of the credit facility to $100 million. Under the credit facility, up to $30.0 million may be used in connection with letters of credit. The commitment may be subject to reductions in the event we engage in certain issuances of debt or equity securities or asset disposals. Our borrowing capacity under the credit facility is limited to the lesser of the total commitment of $80.0 million or 85% of certain liquid assets. At March 31, 2006, the borrowing capacity was $69.3 million which consisted of the $80.0 million commitment less letters of credit totaling $10.7 million issued by Wells Fargo Bank, which guarantee the performance of certain of the Company’s contractual obligations. There was $27.5 million outstanding under the facility at March 31, 2006.
Canadian Overdraft Facility. Our Canadian operating subsidiary has a Canadian overdraft facility to fund peak working capital needs for our Canadian operations. The Canadian overdraft facility provides for a commitment of up to approximately $10.0 million in Canadian equivalent, of which there was no outstanding balance on March 31, 2006. Amounts outstanding under the Canadian overdraft facility bear interest at a rate of Canadian prime and are secured by a $10.0 million letter of credit issued by Wells Fargo Bank under our domestic revolving credit facility.

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Long-Term Debt. As of March 31, 2006, long term debt consisted of $271.6 million principal amount of OPCO’s 9.75% senior notes due November 15, 2011 and a $642,000 note related to the acquisition of certain We The People territories.
Operating Leases. Operating leases are scheduled payments on existing store and other administrative leases. These leases typically have initial terms of 5 years and may contain provisions for renewal options, additional rental charges based on revenue and payment of real estate taxes and common area charges.
We entered into the commitments described above and other contractual obligations in the ordinary course of business as a source of funds for asset growth and asset/liability management and to meet required capital needs. Our principal future obligations and commitments as of March 31, 2006, excluding periodic interest payments, include the following:
                                         
    Payments Due by Period (in thousands)  
            Less than     1 - 3     4 - 5     After 5  
    Total     1 Year     Years     Years     Years  
Revolving credit facilities
  $ 27,500     $ 27,500     $     $     $  
Long-term debt:
                                       
9.75% Senior Notes due 2011(1)
    271,556                         271,556  
Capital lease obligations
                             
Operating lease obligations
    81,982       20,141       31,972       16,723       13,146  
Purchase obligations
                             
Other long-term liabilities reflected on the registrant’s balance sheet under GAAP
    642       366       276              
 
                             
Total contractual cash obligations
  $ 380,104     $ 47,793     $ 31,731     $ 16,165     $ 284,415  
 
                             
 
(1)   $1,556 is the unamortized premium on the 9.75% Senior Notes due 2011.
We believe that, based on current levels of operations and anticipated improvements in operating results, cash flows from operations and borrowings available under our credit facilities will allow us to fund our liquidity and capital expenditure requirements for the foreseeable future, including payment of interest and principal on our indebtedness. This belief is based upon our historical growth rate and the anticipated benefits we expect from operating efficiencies. We expect additional revenue growth to be generated by increased check cashing revenues, growth in the consumer lending business, the maturity of recently opened stores and the continued expansion of new stores and sale of franchises as a result of our recent acquisition of the We The People system. We also expect operating expenses to increase, although the rate of increase is expected to be less than the rate of revenue growth for existing stores. Furthermore, we do not believe that additional acquisitions or expansion are necessary to cover our fixed expenses, including debt service.
Balance Sheet Variations
March 31, 2006 compared to June 30, 2005
Cash and cash equivalents increased to $110.8 million at March 31, 2006 from $92.5 million at June 30, 2005. Cash and cash equivalent balances fluctuate significantly as a result of seasonal, monthly and day-to-day requirements for funding check cashing, company-funded consumer loans and other operating activities.
Loans receivable, net increased to $46.6 million at March 31, 2006 from $37.5 million at June 30, 2005 due primarily to increases of $4.5 million in company-funded consumer loans resulting from the transition from the bank-funded model to the company-funded model in the U.S. and growth in Canada, as well as $3.0 million in installment loans internationally and $1.6 million in pawn lending in the U.K.
Other consumer lending receivables decreased $4.9 million due to the termination of our relationship with County Bank and the amended relationship with First Bank of Delaware offset by an increase of $2.8 million in the defaulted loans receivable, net of the allowance.
Other receivables increased $4.9 million at March 31, 2006 as compared to June 30, 2005 due to tax-related services receivable, the timing of receipts from the Company’s vendors, as well as insurance claims made related to Hurricanes Katrina and Rita.

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Income taxes receivable increased to $1.6 million at March 31, 2006 from $1.1 million at June 30, 2005 related primarily to the timing of receipts.
Goodwill and other intangibles increased $24.3 million from $186.2 million at June 30, 2005 to $210.5 million at March 31, 2006. Acquisitions in the United States and Canada contributed to $10.7 million and $13.3 million of the increase, respectively. The remaining balance is primarily due to foreign currency translation adjustments.
Foreign income taxes payable increased $2.9 million due to the timing of payments.
Accrued expenses and other liabilities increased to $35.2 million at March 31, 2006 from $26.9 million at June 30, 2005 due primarily to the $5.8 million accrual related to the settlement of the Woods, Castillo and Williams class actions, $2.0 million from the revenue-based earn out related to the American acquisition on January 31, 2005 and the timing of accrued payroll related expenses and other operating expense accruals offset by a decrease of $1.3 million in the reserve for servicing fee adjustments.
Accrued interest payable increased from $3.3 million at June 30, 2005 to $9.9 million at March 31, 2006 due to the timing of interest payments on the 9.75% senior notes due 2011.
Revolving credit facilities and long-term debt increased $27.9 million from $271.8 million at June 30, 2005 to $299.7 million at March 31, 2006. The increase is due to additional borrowings under our credit facility and a note related to the acquisition of certain We The People territories.
Total shareholder’s equity increased $6.2 million to $66.0 million from $59.8 million due primarily to net income of $5.0 million and an increase of $1.2 million in accumulated other comprehensive income as a result of foreign currency translation adjustments.
Seasonality and Quarterly Fluctuations
Our business is seasonal due to the impact of tax-related services, including cashing tax refund checks, making electronic tax filings and processing applications for refund anticipation loans. Historically, we have generally experienced our highest revenues and earnings during our third fiscal quarter ending March 31, when revenues from these tax-related services peak. Due to the seasonality of our business, results of operations for any fiscal quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of revenues and expenses associated with acquisitions and the addition of new stores.
Sarbanes-Oxley Act of 2002: Section 404 Compliance
We are evaluating our internal controls systems in order to allow management to report on, and our registered independent public accounting firm to attest to, our internal controls, as required by Section 404 of the Sarbanes-Oxley Act. We are performing the system and process evaluation and testing required in an effort to comply with the management certification and auditor attestation requirements of Section 404. As a result, we are incurring additional expense. While we anticipate being able to fully comply with the requirements relating to internal controls and all other aspects of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and any needed remediation actions or the impact of the same on our operations because there is no precedent available by which to measure compliance adequacy. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission or NASDAQ. Any such action could adversely affect our financial results and the market price of our common shares.
Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995
This report includes forward-looking statements regarding, among other things, anticipated improvements in operations, our plans, earnings, cash flow and expense estimates, strategies and prospects, both business and financial. All statements other than statements of current or historical fact contained in this prospectus are forward-looking statements. The words ‘‘believe,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘should,’’ ‘‘plan,’’ ‘‘will,’’ ‘‘may,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘potential,’’ ‘‘continue’’ and similar expressions, as they relate to us, are intended to identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events, financial trends, industry regulations, and the myriad of regulatory and governmental agencies which regulate the Company’s products that we believe may affect our financial condition, results of operations, business strategy and financial needs. They can be affected by inaccurate assumptions, including, without limitation, with respect to risks, uncertainties, revenue growth, anticipated operating efficiencies, the ability to market the Company’s products, new business prospects and the rate of expense increases. In light of these risks, uncertainties and assumptions, the forward-looking statements in this

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report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this report as well as those risk factors set forth in the section entitled “Risk Factors” set forth in Corp.’s statement on Form S-1 which was effective on January 27, 2005.
Our forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Generally
In the operations of our subsidiaries and the reporting of our consolidated financial results, we are affected by changes in interest rates and currency exchange rates. The principal risks of loss arising from adverse changes in market rates and prices to which we and our subsidiaries are exposed relate to:
    interest rates on debt; and
 
    foreign exchange rates generating translation gains and losses.
We and our subsidiaries have no market risk sensitive instruments entered into for trading purposes, as defined by GAAP. Information contained in this section relates only to instruments entered into for purposes other than trading.
Interest Rates
Our outstanding indebtedness, and related interest rate risk, is managed centrally by our finance department by implementing the financing strategies approved by our Board of Directors. Although our revolving credit facilities carry variable rates of interest, our debt consists primarily of fixed-rate senior notes. Because most of our average outstanding indebtedness carries a fixed rate of interest, a change in interest rates is not expected to have a significant impact on our consolidated financial position, results of operations or cash flows.
Foreign Exchange Rates
Operations in the United Kingdom and Canada have exposed us to shifts in currency valuations. From time to time, we may elect to purchase put options in order to protect earnings in the United Kingdom and Canada against foreign currency fluctuations. Out of the money put options may be purchased because they cost less than completely averting risk, and the maximum downside is limited to the difference between the strike price and exchange rate at the date of purchase and the price of the contracts. At March 31, 2006, we held put options with an aggregate notional value of $(CAN) 52.5 million and £(GBP) 3.3 million to protect the currency exposure in Canada through December 31, 2006 and the United Kingdom through June 30, 2006. Subsequent to the quarter ended March 31, 2006, we purchased additional put options with an aggregate notional value of $(CAN) 39.0 million and £(GBP) 14.4 million to protect the currency exposure in Canada and the United Kingdom through June 30, 2007. We use purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted earnings denominated in currencies other than the U.S. dollar. Our cash flow hedges have a duration of less than twelve months. For derivative instruments that are designated and qualify as cash flow hedges, the effective portions of the gain or loss on the derivative instrument are initially recorded in accumulated other comprehensive income as a separate component of shareholder’s equity and subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the gain or loss is reported in corporate expenses on the statement of operations. For options designated as hedges, hedge effectiveness is measured by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. As of March 31, 2006 no amounts were excluded from the assessment of hedge effectiveness. There was no ineffectiveness in the Company’s cash flow hedges for the nine months ended March 31, 2006. As of March 31, 2006, amounts related to derivatives qualifying as cash flow hedges amounted to a decrease of shareholder’s equity of $9,000 all of which is expected to be transferred to earnings in the next nine months along with the earnings effects of the related forecasted transactions. The fair market value at March 31, 2006 was $366,000 and is included in other assets on the balance sheet.
Canadian operations accounted for approximately 172.8% of consolidated income before income taxes for the nine months ended March 31, 2006 and 95.7% of consolidated income before income taxes for the nine months ended March 31, 2005. U.K. operations accounted for approximately 34.8% of consolidated income before income taxes for the nine months ended March 31, 2006 and approximately 39.4% of consolidated income before income taxes for the nine months ended March 31, 2005. As currency

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exchange rates change, translation of the financial results of the Canadian and U.K. operations into U.S. dollars will be impacted. Changes in exchange rates have resulted in cumulative translation adjustments increasing our net assets by $21.7 million.
We estimate that a 10.0% change in foreign exchange rates by itself would have impacted reported income before income taxes from continuing operations by approximately $4.9 million for the nine months ended March 31, 2006 and $4.0 million for the nine months ended March 31, 2005. This impact represents nearly 20.8% of our consolidated foreign income before income taxes for the nine months ended March 31, 2006 and 13.5% of our consolidated foreign income before income taxes for the nine months ended March 31, 2005.
Item 4. Controls and Procedures
Evaluation of Disclosure Control and Procedures
As of the end of the period covered by this report, our management conducted an evaluation, with the participation of our Chief Executive Officer, President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer, President and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer, President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during our fiscal quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
In addition to the legal proceedings discussed below, which we are defending vigorously, we are involved in routine litigation and administrative proceedings arising in the ordinary course of business. Although we believe that the resolution of these proceedings will not materially adversely impact our business, there can be no assurances in that regard.
Canadian Legal Proceedings
On August 19, 2003, a former customer in Ontario, Canada, Margaret Smith, commenced an action against us and our Canadian subsidiary on behalf of a purported class of Canadian borrowers (except those residing in British Columbia) who, Smith claims, were subjected to usurious charges in payday-loan transactions. The action, which is pending in the Ontario Superior Court of Justice, alleges violations of a Canadian federal law proscribing usury and seeks restitution and damages, including punitive damages. The Company’s Canadian subsidiary’s motions to stay the action on grounds of arbitrability and lack of jurisdiction were denied.
On October 21, 2003, another former customer, Kenneth D. Mortillaro, commenced a similar action against our Canadian subsidiary, but this action has since been stayed on consent because it is a duplicate action.
On November 6, 2003, Gareth Young, a former customer, commenced a purported class action in the Court of Queen’s Bench of Alberta, Canada on behalf of a class of consumers who obtained short-term loans from our Canadian subsidiary in Alberta, alleging, among other things, that the charge to borrowers in connection with such loans is usurious. On December 9, 2005, our Canadian subsidiary settled this action, subject to court approval. On March 3, 2006 just prior to the date scheduled for final court approval of the settlement the Plaintiff’s lawyer advised they would not proceed with the settlement and indicated their intention to join the purported national class action.
On January 29, 2003, a former customer, Kurt MacKinnon, commenced an action against our Canadian subsidiary and 26 other Canadian lenders on behalf of a purported class of British Columbia residents who, MacKinnon claims, were

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overcharged in payday-loan transactions. The action, which is pending in the Supreme Court of British Columbia, alleges violations of laws proscribing usury and unconscionable trade practices and seeks restitution and damages, including punitive damages, in an unknown amount. Following initial denial, MacKinnon obtained an order permitting him to re-apply for class certification which was appealed. The Court of Appeal has granted MacKinnon the right to apply to the original judge to have her amend her order denying certification.
On April 15, 2005, the solicitor acting for MacKinnon commenced a proposed class action against our Canadian subsidiary on behalf of another former customer, Louise Parsons. The certification motion in this action is scheduled to proceed in November 2006, but likely will not proceed if MacKinnon obtains an order allowing him to re-apply for class certification.
Similar purported class actions have been commenced against our Canadian subsidiary in Manitoba, New Brunswick, Nova Scotia and Newfoundland. We are named as a defendant in the actions commenced in Nova Scotia and Newfoundland but it has not been served with the statements of claim in these actions to date. The claims in these additional actions are substantially similar to those of the Ontario actions referred to above.
California Legal Proceedings
We are the defendant in four lawsuits commenced by the same law firm. Each is pled as a class action, and each alleges violations of California’s wage-and-hour laws. The named plaintiffs are our former employees Vernell Woods (commenced August 22, 2000), Juan Castillo (commenced May 1, 2003), Stanley Chin (commenced May 7, 2003) and Kenneth Williams (commenced June 3, 2003). Each of these suits seeks an unspecified amount of damages and other relief in connection with allegations that we misclassified California store (Woods) and area (Castillo) managers as “exempt” from a state law requiring the payment of overtime compensation, that we failed to provide non-management employees with meal and rest breaks required under state law (Chin) and that we computed bonuses payable to its store managers using an impermissible profit-sharing formula (Williams). The trial court in Chin denied plaintiff’s motion for class certification. Plaintiffs have appealed the ruling. On March 15, 2006, we agreed in principle to settle the Woods, Castillo and Williams actions, and we memorialized that understanding on April 21, 2006. We agreed to settle Woods for $4,000,000, Castillo for $1,100,000 and Williams for $700,000. The settlement is subject to court approval, which we anticipate in early 2007; although we expect such approval, there can be no assurance that such approval will be forthcoming. We accrued $5.8 million during the quarter ended March 31, 2006 related to the Woods, Castillo and Williams cases. At March 31, 2006, this amount is included in other accrued expenses and other liabilities.
At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, resulting from the Chin case.
We The People Legal Proceedings
Our business model for our legal document preparation services business is being challenged in the courts, as described below, which could result in our discontinuation of these services in any one or more jurisdictions.
The company from which we bought the assets of its We The People business, We The People Forms and Service Centers USA, Inc. (the “Former WTP”), and/or certain of our franchisees are defendants in various lawsuits. These actions, which are pending in North Carolina, Illinois, Florida, Ohio and Georgia state courts, allege violations of the unauthorized practice of law statute and various consumer protection statutes of those states. There are presently fourteen stores operated by franchisees in these five states. These cases seek damages and/or injunctive relief, which could prevent us and/or our franchisees from preparing legal documents in accordance with our present business model. The Illinois case has been pending since March 2001. The Georgia case was commenced against the Company’s local franchisee in May 2005. The North Carolina case has been pending since the summer of 2003. The Florida case and Ohio case have been pending since February 2006.
On February 9, 2006, We The People and the TN Department of Consumer Affairs (“the Department”) reached a mutual agreement to end a lawsuit filed by the Department against We The People and its two Tennessee franchisees that had alleged violations of the Tennessee unauthorized practice of law statutes and the Tennessee Consumer Protection Act. The agreement, which was confirmed by the court, allows We The People to continue its operations in Tennessee, however, We The People agreed to make some adjustments to its services and advertisements. Additionally, as part of the resolution of the dispute, We The People has made a payment of $160,000 to the State that will be available to be distributed as refunds to eligible consumers. WTP had denied any liability or any wrongdoing, and no wrongdoing was found by either the court or the Department.

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The state bar association in Mississippi had commenced an investigation regarding our and our local franchisee’s legal document preparation activities within that state in February 2005. The franchisee operated one store in Mississippi at that time. The Mississippi store closed in the Fall of 2005 and the Mississippi Bar Association terminated their investigation.
The Former WTP and/or certain of our franchisees were defendants in adversary proceedings commenced by various United States Bankruptcy trustees in bankruptcy courts in the District of Colorado, Eastern District of New York, the District of Maryland, District of Connecticut, the Northern District of Illinois, the Middle District of Tennessee, the Eastern District of Tennessee, the Eastern District of Oklahoma, the Middle District of North Carolina, the District of Idaho, the District of Oregon, the Eastern District of Michigan and the District of Delaware. The actions in Connecticut, Colorado, Illinois, New York, Connecticut, Maryland, Delaware, Michigan and Oklahoma have recently been settled by Consent Order and Stipulation. The cases in Tennessee, Idaho and North Carolina have been adjudicated by the courts and limits have been placed on the WTP model and price for services in those states. A case was filed recently in the Central District of Texas. In each of these adversary proceedings, the United States Bankruptcy trustee alleged that the defendants violated certain requirements of Section 110 of the United States Bankruptcy Code, which governs the preparation of bankruptcy petitions by non-attorneys, and engaged in fraudulent, unfair and deceptive conduct which constitutes the unauthorized practice of law.
In March 2003, the Former WTP, on behalf of its local franchisee, filed an appeal from a decision of the United States District Court for the District of Idaho which had reduced the fee that the Former WTP franchisee could charge for its bankruptcy petition preparation services and ruled that the Former WTP’s business model for the preparation of bankruptcy petitions was deceptive or unfair, resulted in the charging of excessive fees and constituted the unauthorized practice of law. On June 17, 2005, the United States Court of Appeals for the Ninth Circuit affirmed this decision, without reaching the issues related to unauthorized practice of law.
On May 10, 2005, we, the Former WTP and certain of the Company’s local franchisees temporarily settled two of the bankruptcy adversary proceedings pending in the District of Connecticut and in the Southern District of New York by entering into stipulated preliminary injunctions regarding preparation of bankruptcy petitions within these judicial districts pending the final resolution of these proceedings. Each of the adversary proceedings temporarily settled was referred to mediation, together with certain other matters currently pending in the Southern District of New York and in the Eastern District of New York against the Former WTP and certain of our franchisees, in an effort to develop a protocol for us and our franchisees located within all Federal judicial districts in New York, Vermont and Connecticut to comply with Section 110 of the Bankruptcy Code. Subsequently, through mediation, this preliminary injunction with several modifications, was the basis for a Stipulated Final Judgment permitting the WTP model protocol within the Southern and Eastern Districts of New York, Vermont and Connecticut.
In December 2004, the Former WTP entered into a stipulated judgment based on an alleged violation of the Federal Trade Commission’s Franchise Rule. Under the terms of the judgment, the Former WTP paid a $286,000 fine and is permanently enjoined from violating the Federal Trade Commission Act and the Franchise Rule and is required to comply with certain compliance training, monitoring and reporting and recordkeeping obligations. We have requested the Federal Trade Commission to confirm that it agrees with our interpretation that these obligations are applicable only to our legal document preparation services business.
On August 11, 2005, Sally S. Attia and two other attorneys, purporting to sue on behalf of a nationwide class of all U.S. bankruptcy attorneys, commenced an antitrust action against us in the United States District Court for the Southern District of New York. They allege that we and the Former WTP have unlawfully restrained competition in the market for bankruptcy services through our advertising and other practices, and they seek class-action status, damages in an indeterminate amount (including punitive and treble damages under the Sherman and Clayton Acts) and other relief. On August 12, 2005, the court denied plaintiffs’ request for expedited or ex parte injunctive relief. Our motion to dismiss this action was submitted on October 7, 2005, and we are presently awaiting a decision.
On October 21, 2005, we filed an action against IDLD, Inc., Ira Distenfield and Linda Distenfield in the Court of Common Pleas of Chester County, Pennsylvania, alleging that the sellers of the We The People business deliberately concealed certain franchise sales from us. We also assert breaches of representations and warranties made by the sellers with respect to undisclosed liabilities and other matters arising out of the acquisition. On March 13, 2006, the sellers and We The People Hollywood Florida, Inc. filed suit against us in the United States District Court for the Central District of California. Their complaint alleges that the we deprived plaintiffs of the benefits of the purchase agreement, improperly terminated the employment contracts that Ira and Linda Distenfield had with us, and other claims. On April 7, 2006, the parties agreed to stay both the Pennsylvania and California litigations and to have all disputes resolved by arbitration. The parties are now selecting arbitrators. The arbitration proceedings are expected to begin after June 15, 2006.

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At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, of any of the aforementioned these matters.
In addition to the matters described above, we continue to respond to inquiries we receives from state bar associations and state regulatory authorities from time to time as a routine part of its business regarding its legal document preparation services business and its franchisees.
While we believe there is no legal basis for liability, in any of the aforementioned cases, due to the uncertainty surrounding the litigation process, we are unable to reasonably estimate a range of loss, if any, at this time. While the outcome of these matters is currently not determinable, we do not expect that the ultimate cost to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

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Item 6. Exhibits
     
Exhibit No.   Description of Document
31.1
  Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2
  Rule 13a-14(a)/15d-14(a) Certification of President
31.3
  Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1
  Section 1350 Certification of Chief Executive Officer
32.2
  Section 1350 Certification of President
32.3
  Section 1350 Certification of Chief Financial Officer

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
                 
    DOLLAR FINANCIAL GROUP, INC.    
 
               
Date: May 9, 2006   *By:   /s/ Randy Underwood    
             
 
               
 
      Name:   Randy Underwood    
 
      Title:   Executive Vice President and    
 
          Chief Financial Officer    
 
          (principal financial and    
 
          chief accounting officer)    
 
*   The signatory hereto is the principal financial and chief accounting officer and has been duly authorized to sign on behalf of the registrant.

43

EX-31.1 2 w20760exv31w1.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER exv31w1
 

Exhibit 31.1
CERTIFICATIONS
I, Jeffrey A. Weiss, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Dollar Financial Group, Inc.;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2006
         
     
  /s/ Jeffrey A. Weiss    
  Jeffrey A. Weiss   
  Chairman of the Board of Directors and
Chief Executive Officer 
 

44

EX-31.2 3 w20760exv31w2.htm CERTIFICATION OF PRESIDENT exv31w2
 

         
Exhibit 31.2
CERTIFICATIONS
I, Donald Gayhardt, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Dollar Financial Group, Inc.;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
  c)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  d)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  e)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  f)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  g)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2006
         
     
  /s/ Donald Gayhardt    
  Donald Gayhardt   
  President   

45

EX-31.3 4 w20760exv31w3.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER exv31w3
 

         
Exhibit 31.3
CERTIFICATIONS
I, Randy Underwood, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Dollar Financial Group, Inc.;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2006
         
     
  /s/ Randy Underwood    
  Randy Underwood   
  Executive Vice President and
Chief Financial Officer 
 

46

EX-32.1 5 w20760exv32w1.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER exv32w1
 

         
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dollar Financial Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
  1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
  2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
/s/ Jeffrey A. Weiss
   
     
Jeffrey A. Weiss
   
Chairman of the Board of Directors
   
and Chief Executive Officer
   
May 9, 2006
   

47

EX-32.2 6 w20760exv32w2.htm CERTIFICATION OF PRESIDENT exv32w2
 

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dollar Financial Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
/s/ Donald Gayhardt
   
     
Donald Gayhardt
   
President
   
May 9, 2006
   

48

EX-32.3 7 w20760exv32w3.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER exv32w3
 

Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dollar Financial Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
/s/ Randy Underwood
   
     
Randy Underwood
   
Executive Vice President and
   
Chief Financial Officer
   
May 9, 2006
   

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