10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2011 or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number:000-52015

Western Capital Resources, Inc.

(Exact Name of Registrant as Specified in its Charter)

Minnesota	47-0848102
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

11550 “I” Street, Suite 150, Omaha, Nebraska 68137

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (402) 551-8888

N/A

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

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer  o	Accelerated filer  o
Non-accelerated filer  o	Smaller reporting company  þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS

As of August 12, 2011, the registrant had outstanding 7,446,007 shares of common stock, no par value per share.

Western Capital Resources, Inc.

Index

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 4. Controls and Procedures	18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	19
Item 3. Defaults Upon Senior Securities	19
Item 5. Other Information	19
Item 6. Exhibits	20
SIGNATURES	21

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONTENTS

	Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Income	4
Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6

2

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2011 (Unaudited)			December 31, 2010
ASSETS
CURRENT ASSETS
Cash	$	1,325,243		$	2,092,386
Loans receivable (less allowance for losses of $841,000 and $1,165,000)		4,458,765			4,743,906
Inventory		469,389			502,415
Prepaid expenses and other		306,192			152,736
Deferred income taxes		352,000			467,000
TOTAL CURRENT ASSETS		6,911,589			7,958,443
PROPERTY AND EQUIPMENT		744,151			824,102
GOODWILL		11,458,744			11,458,744
INTANGIBLE ASSETS		205,765			434,413
OTHER		91,875			95,180
TOTAL ASSETS	$	19,412,124		$	20,770,882
LIABILITIES AND  SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	1,256,773		$	1,477,607
Income taxes payable		-			435,670
Note payable – short-term		1,000,000			2,000,000
Current portion long-term debt		752,347			769,330
Preferred dividend payable		2,500,000			1,450,000
Deferred revenue		255,442			320,021
TOTAL CURRENT LIABILITIES		5,764,562			6,452,628
LONG-TERM LIABILITIES
Notes payable – long-term		558,412			905,188
Deferred income taxes		394,000			350,000
TOTAL LONG-TERM LIABILITIES		952,412			1,255,188
TOTAL LIABILITES		6,716,974			7,707,816
SHAREHOLDERS' EQUITY
Series A convertible preferred stock 10% cumulative dividends, $0.01 par value, $2.10 stated value, 10,000,000 shares authorized, issued and outstanding		100,000			100,000
Common stock, no par value, 240,000,000 shares authorized, 7,446,007 shares issued and outstanding		-			-
Additional paid-in capital		18,221,777			18,221,777
Accumulated deficit		(5,626,627	)		(5,258,711	)
TOTAL SHAREHOLDERS’ EQUITY		12,695,150			13,063,066
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	19,412,124		$	20,770,882

See notes to condensed consolidated financial statements.

3

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three months ended						Six months ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
REVENUES
Payday loan fees	$	2,296,022		$	2,541,063		$	4,621,769		$	5,031,288
Phones and accessories		808,948			813,995			2,395,863			2,292,543
Payment processing fees		440,224			324,246			994,920			498,026
Check cashing fees		154,603			164,590			387,145			397,185
Other income and fees		340,285			304,831			679,016			585,685
		4,040,082			4,148,725			9,078,713			8,804,727
STORE EXPENSES
Salaries and benefits		1,033,563			1,148,882			2,145,608			2,379,500
Provisions for loan losses		275,216			331,934			454,089			492,678
Phones and accessories cost of sales		433,344			294,618			1,391,241			722,741
Occupancy		395,934			464,670			813,997			965,626
Advertising		83,287			93,184			164,887			174,499
Depreciation		62,931			70,151			127,024			139,023
Amortization of intangible assets		113,043			129,027			228,648			263,178
Other		512,041			500,211			1,122,018			1,116,522
		2,909,359			3,032,677			6,447,512			6,253,767
INCOME FROM STORES		1,130,723			1,116,048			2,631,201			2,550,960
GENERAL & ADMINISTRATIVE EXPENSES
Salaries and benefits		405,888			378,829			851,815			702,350
Depreciation		5,688			5,389			9,708			9,645
Interest expense		63,573			112,350			156,765			196,004
Other		224,859			327,487			514,829			568,716
		700,008			824,055			1,533,117			1,476,715
INCOME BEFORE INCOME TAXES		430,715			291,993			1,098,084			1,074,245
INCOME TAX EXPENSE		161,000			72,000			416,000			370,000
NET INCOME		269,715			219,993			682,084			704,245
SERIES A CONVERTIBLE PREFERRED STOCK DIVIDENDS (assumes all paid)		(525,000	)		(525,000	)		(1,050,000	)		(1,050,000	)
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$	(255,285	)	$	(305,007	)	$	(367,916	)	$	(345,755	)
NET LOSS PER COMMON SHARE
Basic and diluted	$	(0.03	)	$	(0.04	)	$	(0.05	)	$	(0.04	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
Basic and diluted		7,446,007			7,458,095			7,446,007			7,725,565

See notes to condensed consolidated financial statements.

4

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended
	June 30, 2011			June 30, 2010
OPERATING ACTIVITIES
Net Income	$	682,084		$	704,245
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		136,732			148,668
Amortization		228,648			263,178
Shares retired for reimbursement of expenses		-			(88,000	)
Deferred income taxes		159,000			151,000
Loss on disposal of property and equipment		27,342			14,947
Changes in operating assets and liabilities
Loans receivable		285,141			255,725
Inventory		33,026			197,550
Prepaid expenses and other assets		(150,151	)		46,663
Accounts payable and accrued liabilities		(656,504	)		(386,266	)
Deferred revenue		(64,579	)		(51,149	)
Other liabilities – long-term		-			37,429
Net cash provided by operating activities		680,739			1,293,990
INVESTING ACTIVITIES
Purchase of property and equipment		(84,123	)		(22,340	)
Net cash used by investing activities		(84,123	)		(22,340	)
FINANCING ACTIVITIES
Advances/(payments) from notes payable – short-term		(1,000,000	)		205,628
Payments on notes payable – long-term		(363,759	)		(236,078	)
Dividends		-			(1,250,000	)
Net cash used by financing activities		(1,363,759	)		(1,280,450	)
NET DECREASE IN CASH		(767,143	)		(8,800	)
CASH
Beginning of period		2,092,386			1,526,562
End of period	$	1,325,243		$	1,517,762
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid	$	732,984		$	272,184
Interest paid	$	163,652		$	183,358
Non-cash financing and investing activities
Refinancing of note payable – short-term	$	-		$	1,636,044

See notes to condensed consolidated financial statements.

5

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.         Basis of Presentation, Nature of Business and Summary of Significant Accounting Policies –

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared according to the instructions to Form 10-Q and Section 210.8-03(b) of Regulation S-X of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Form 10-K as of and for the year ended December 31, 2010. The condensed consolidated balance sheet at December 31, 2010, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP.

Nature of Business

Western Capital Resources, Inc. (WCR), through its wholly owned operating subsidiaries, Wyoming Financial Lenders, Inc. (WFL) and PQH Wireless, Inc. (PQH), collectively referred to as the “Company,” provides retail financial services and retail cellular phone sales to individuals primarily in the Midwestern United States.  As of June 30, 2011, the Company operated 51 “payday” stores in nine states (Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming) and operated 29 Cricket wireless retail stores in seven states (Illinois, Indiana, Iowa, Kansas, Missouri, Nebraska and Texas).  The condensed consolidated financial statements include the accounts of WCR, WFL, and PQH. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company, through its “payday” division, provides non-recourse cash advance loans, check cashing and other money services.  The short-term consumer loans, known as cash advance loans or “payday” loans, are in amounts that typically range from $100 to $500. Cash advance loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state based on applicable regulations, and generally ranges from $15 to $22 per each $100 borrowed. To repay the cash advance loans, customers may pay with cash, in which their personal check is returned to them, or by allowing their check to be presented to the bank for collection.

The Company also provides title, installment loan and other ancillary consumer financial products and services that are complementary to its cash advance-lending business, such as check-cashing services, money transfers and money orders.  In our check cashing business, we primarily cash payroll checks, but we also cash government assistance, tax refund and insurance checks or drafts. Our fees for cashing payroll checks average approximately 2.5% of the face amount of the check, subject to local market conditions, and this fee is deducted from the cash given to the customer for the check. We display our check cashing fees in full view of our customers on a menu board in each store and provide a detailed receipt for each transaction. Although we have established guidelines for approving check-cashing transactions, we have no preset limit on the size of the checks we will cash.

Our loans and other related services are subject to state regulations (which vary from state to state), federal regulations and local regulations, where applicable.

The Company also operates a Cricket Wireless Retail division that is a premier dealer for Cricket Communications, Inc. reselling cellular phones and accessories and accepting service payments from Cricket customers.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect certain reported amounts and disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Significant management estimates relate to the allowance for loans receivable losses, allocation of and carrying value of goodwill and intangible assets, and deferred taxes and tax uncertainties.

6

Revenue Recognition

The Company recognizes fees on cash advance loans on a constant-yield basis ratably over the loans’ terms. Title and installment loan fees and interest are recognized using the interest method.  Installment loan origination fees are recognized as they become non-refundable and installment loan maintenance fees are recognized when earned.  The Company records revenue from check cashing fees, sales of phones, and accessories and fees from all other services in the period in which the sale or service is completed.  

Loans Receivable / Allowance for Loans Receivable Losses

We maintain a loan loss allowance for anticipated losses for our cash advance, installment and title loans. To estimate the appropriate level of the loan loss allowance, 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 allowance is based on our net write offs, typically expressed as a percentage of loan amounts originated for the last 24 months applied against the principal balance of outstanding loans that we write off. The Company also periodically performs a look-back analysis on its loan loss allowance to verify that the historical allowance established tracks with the actual subsequent loan write-offs and recoveries. The Company is aware that, as conditions change, it may also need to make additional allowances in future periods.

Included in loans receivable are cash advance loans that are currently due or past due and cash advance loans that have not been repaid.  This generally is evidenced where a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons.  Cash advance loans are carried at cost less the allowance for loan receivable losses.  The Company does not specifically reserve for any individual cash advance loan.  The Company aggregates cash advance loans for purposes of estimating the loss allowance using a methodology that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio.  This methodology takes into account several factors, including the maturity of the store location and charge-off and recovery rates.  The Company utilizes a software program to assist with the tracking of its historical portfolio statistics.  As a result of the Company’s collection efforts, it historically writes off approximately 42% of the returned items.  Based on days past the check return date, write-offs of returned items historically have tracked at the following approximate percentages: 1 to 30 days – 42%; 31 to 60 days – 65%; 61 to 90 days – 81%; 91 to 120 days – 86%; and 121 to 180 days – 89%.  All returned items are charged off after 180 days, as collections after that date have not been significant.  The loan loss allowance is reviewed monthly and any adjustment to the loan loss allowance as a result of historical loan performance, current and expected collection patterns and current economic trends is recorded.

A rollforward of the Company’s loans receivable allowance for the three months ended June 30, 2011 and 2010 is as follows:

	Six Months Ended June 30,
	2011			2010
Loans receivable allowance, beginning of period	$	1,165,000		$	1,237,000
Provision for loan losses charged to expense		454,000			493,000
Charge-offs, net		(778,000	)		(808,000	)
Loans receivable allowance, end of period	$	841,000		$	922,000

Net Loss Per Common Share

Basic net loss per common share is computed by dividing the loss available to common shareholders by the weighted average number of common shares outstanding for the year. Diluted net loss per common share is computed by dividing the net loss available to common shareholders by the sum of the weighted average number of common shares outstanding plus potentially dilutive common share equivalents (convertible preferred shares) when dilutive. The 10 million shares of potentially dilutive Series A Convertible Preferred Stock  outstanding at June 30, 2011 and 2010 were anti-dilutive and therefore excluded from the dilutive net loss per share computation.  

Recent Accounting Pronouncements

In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-20 “ Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”   ASU 2010-20 requires extensive new disclosures about financing receivables, including credit risk exposures and the allowance for credit losses.  For public entities, ASU 2010-20 disclosures of period-end balances are effective for interim or annual reporting periods ending on or after June 15, 2011, as updated by ASU 2011-01.  Disclosures related to activity that occurs during the reporting period are required for interim and annual reporting periods beginning on or after December 15, 2010.  The Company adopted this standard with no material impact on its condensed consolidated financial statements.

7

In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04 “Fair Value Measurement (Topic820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.”  ASU 2011-04 results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs.  For public entities, ASU 2011-04 is effective for interim or annual reporting periods ending on or after December 15, 2011.  We are assessing the impact of ASU 2011-04 on our consolidated financial statements.

No other new accounting pronouncement issued or effective during the fiscal quarter has had or is expected to have a material impact on the condensed consolidated financial statements.

2.         Loans Receivable –

At June 30, 2011 and December 31, 2010 our outstanding loans receivable aging was as follows:

	June 30, 2011			December 31, 2010
Current	$	4,302,000		$	4,542,000
1-30		255,000			276,000
31 – 60		188,000			234,000
61 – 90		149,000			209,000
91 - 120		123,000			220,000
121 – 150		129,000			227,000
151 – 180		154,000			201,000
		5,300,000			5,909,000
Allowance for losses		(841,000	)		(1,165,000	)
	$	4,459,000		$	4,744,000

3.         Segment Information –

The Company has grouped its operations into two segments – Payday Operations and Cricket Wireless Retail Operations. The Payday Operations segment provides financial and ancillary services. The Cricket Wireless Retail Operations segment is a dealer for Cricket Communications, Inc., reselling cellular phones and accessories and serving as a payment center for Cricket customers.

Segment information related to the three and six months ended June 30, 2011 and  2010 is set forth below:

	Three Months Ended  June 30, 2011							Three Months Ended June 30, 2010
	Payday		Cricket Wireless			Total		Payday		Cricket Wireless			Total
Revenues from external customers	$	2,603,830	$	1,436,252		$	4,040,082	$	2,883,892	$	1,264,833		$	4,148,725
Net income (loss)	$	335,670	$	(65,955	)	$	269,715	$	504,668	$	(284,675	)	$	219,993

	Six Months Ended  June 30, 2011							Six Months Ended June 30, 2010
	Payday		Cricket Wireless			Total		Payday		Cricket Wireless			Total
Revenues from external customers	$	5,244,827	$	3,833,886		$	9,078,713	$	5,666,799	$	3,137,928		$	8,804,727
Net income (loss)	$	715,238	$	(33,154	)	$	682,084	$	1,013,008	$	(308,763	)	$	704,245
Total segment assets	$	14,500,282	$	4,911,842		$	19,412,124	$	14,871,201	$	5,191,286		$	20,062,487

8

4.         Note Payable – Long-Term

On January 26, 2011, WERCS extended the maturity of the promissory note made by WERCS to WFL, pursuant to the Business Loan Agreement dated April 1, 2010 and an accompanying $2,000,000 promissory note to WFL, to April 1, 2012.  In March, 2011, as required by the terms of the note extension, the Company paid $1,000,000 toward the principal balance on the WERCS promissory note.

5.         Risks Inherent in the Operating Environment –

The Company’s payday or short-term consumer loan activities are highly regulated under numerous local, state, and federal laws and regulations, which are subject to change. New laws or regulations could be enacted that could have a negative impact on the Company’s lending activities. Over the past few years, consumer advocacy groups and certain media reports have advocated governmental and regulatory action to prohibit or severely restrict deferred presentment cash advances.

The Federal Trade Commission has issued an FTC Consumer Alert (Federal Trade Commission, March 2008, Consumer Alert entitled “Payday Loans Equal Very Costly Cash: Consumers Urged to Consider the Alternatives”) that discourages consumers from obtaining payday loans such as the loans we offer, primarily on the basis that the types of loans we offer are very costly and consumers should consider alternatives to accepting a payday loan. For further information, you may obtain a copy of the alert at www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt060.shtm.  The federal government also passed legislation, the 2007 Military Authorization Act, prohibiting us from offering or making our loans to members of the military when the interest and fees calculated as an annual percentage rate exceeds 36%. This limitation effectively prohibits us from utilizing our present business model for cash advance or “payday” lending when dealing with members of the U.S. military, and as a result we do not and do not plan to conduct payday lending business with U.S. military personnel. These facts evidence the widespread belief that our charges relating to our loans are too expensive to be good for consumers. Some consumer advocates and others have characterized payday lending as “predatory.” As a result, there are frequently attempts in the various state legislatures, and occasionally in the U.S. Congress, to limit, restrict or prohibit payday lending. 

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the U.S. Congress and signed into law.  Under the Act, a new Consumer Financial Protection Bureau will consolidate most federal regulation of financial services offered to consumers, and replace the Office of Thrift Supervision’s seat on the FDIC Board. Almost all credit providers, including mortgage lenders, providers of payday loans, other nonbank financial companies, and banks and credit unions with assets over $10 billion, will be subject to new regulations to be passed by the Bureau.  While the Bureau does not appear to have authority to make rules limiting interest rates or fees charged, the scope and extent of the Bureau’s authority will nonetheless be broad, and it is expected that the Bureau will address issues such as rollovers or extensions of payday loans.  Future restrictions on the payday lending industry could have serious consequences for the Company.

Any adverse change in present federal laws or regulations that govern or otherwise affect payday lending could result in our curtailment or cessation of operations in certain jurisdictions or locations.  Furthermore, any failure to comply with any applicable federal laws or regulations could result in fines, litigation, the closure of one or more store locations or negative publicity.  Any such change or failure would have a corresponding impact on our results of operations and financial condition, primarily through a decrease in revenues resulting from the cessation or curtailment of operations, decrease in our operating income through increased legal expenditures or fines, and could also negatively affect our general business prospects as well if we are unable to effectively replace such revenues in a timely and efficient manner or if negative publicity effects our ability to obtain additional financing a needed.

During the 2010 legislative session in Colorado, House Bill 10-1351 was passed into law.  This bill amended the Colorado Deferred Deposit Loan Act, the existing payday lending law.  The law became effective August 11, 2010 and modified traditional payday lending by changing the single payment advance (with no minimum term) into a single or multiple payment loan with a minimum six month term. It also limited the amount and type of fees that can be charged on these loans, effectively reducing by one-half the fees that can be charged and when the fees may be realized.  At present, the Company continues to operate its sole store in Colorado while the impact to profitability of this new law is being assessed.  Currently, we derive 1.34% of our Payday division revenues from fees in Colorado.

In May 2010, new laws were enacted in Wisconsin that restrict the number of times a consumer may renew (or rollover) a payday loan. Previously, there were no limits to the number of rollovers permitted.  Effective January 1, 2011, consumers in Wisconsin are only allowed to renew a payday loan once, and then lenders are required to offer a 60-day, interest free, payment plan to consumers.  The Company is still assessing the impact of these new Wisconsin laws. Our preliminary projections indicate the changes could reduce revenue in the state by 30% - 40%.  Currently, we derive approximately 4.06% of our Payday division revenues from fees in Wisconsin.

On November 2, 2010, voters in Montana passed Petition Initiative I-164.  Effective January 1, 2011, Petition Initiative I-164 capped fees on payday loans at an imputed interest rate of 36%.  The Company discontinued its operations and closed all four stores in Montana due to this law change.  In 2010, approximately 3.87% of the Company’s Payday division revenues were generated in Montana.

9

The passage of federal or state laws and regulations could, at any point, essentially prohibit the Company from conducting its payday lending business in its current form.  Any such legal or regulatory change would certainly have a material and adverse effect on the Company, its operating results, financial condition and prospects, and perhaps even its viability.

For the six months ended June 30, 2011 and 2010, the Company had significant revenues by state (shown as a percentage of applicable division’s revenue) as follows:

Payday Division							Cricket Wireless Division
	2011 % of Revenues			2010 % of Revenues				2011 % of Revenues			2010 % of Revenues
Nebraska		28	%		27	%	Missouri		28	%		30	%
Wyoming		15	%		14	%	Nebraska		20	%		15	%
North Dakota		18	%		16	%	Texas		14	%		11	%
Iowa		13	%		12	%	Indiana		26	%		28	%

6.         Preferred Stock Dividend –

Reconciliations of the cumulative preferred stock dividend payable are as follows:

	Three Months Ended  June 30,						Six Months Ended June 30,
	2011			2010			2011		2010
Balance due, beginning of the period		$	1,975,000		$	275,000	$	1,450,000	$	1,000,000
Current quarter preferred dividends payable			525,000			525,000		1,050,000		1,050,000
Preferred dividends paid			-			-		-		(1,250,000	)
Balance due, end of the period		$	2,500,000		$	800,000	$	2,500,000	$	800,000

In addition, the Company has $525,000 of second quarter unaccrued cumulative preferred dividends from June 30, 2011 and 2010 that became due and payable July 15, 2011 and 2010, respectively.

7.         Other Expense –

A breakout of other expense is as follows:

	Three Months Ended  June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Store expenses
Bank fees	$	59,519	$	45,897	$	134,848	$	104,787
Collection costs		97,976		92,772		205,930		202,925
Repairs & maintenance		26,171		40,850		73,466		89,956
Supplies		42,938		43,603		77,342		87,279
Telephone		32,910		36,221		66,564		75,450
Utilities and network lines		108,017		112,457		235,441		260,704
Other		144,510		128,411		328,427		295,421
	$	512,041	$	500,211	$	1,122,018	$	1,116,522
General & administrative expenses
Professional fees	$	41,355	$	155,348	$	164,870	$	328,373
Management and consulting fees		117,117		100,000		217,117		100,000
Other		66,387		72,139		132,842		140,343
	$	224,859	$	327,487	$	514,829	$	568,716

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8.         Subsequent Events –

Special Committee of the Board of Directors

In June 2011, the Board of Directors appointed Mr. Ellery Roberts to a special committee of the board.  The appointment was initially made for up to six months.  In consideration for his additional service on the committee, the Company will pay Mr. Roberts $13,000 per month.

Litigation

On July 6, 2011, the U.S. District Court for the District of Minnesota granted the Company’s motion to dismiss the action brought by Messrs. Steven Staehr and David Stueve.  In their action brought on March 26, 2010, the plaintiffs alleged, among other things, that our Board of Directors breached certain of their fiduciary duties primarily in connection with the sale by WERCS of its capital stock in the Company to WCR, LLC.  The lawsuit was dismissed without prejudice.

Additional Cricket Wireless Retail Store Locations

On July 22, 2011, Cricket Communications notified the Company of its acceptance of the Company's bid to purchase the assets of three Cricket retail stores in Oklahoma, two of which are in Oklahoma City, and one of which is in Tulsa.  Each of the retail stores sells mobile phones and related accessories.  The purchase price, after adjustment for working capital and inventory requirements, is expected to be approximately $500,000.  The Company plans to enter into a definitive agreement to purchase the retail stores in August 2011, which the Company expects to be in a form consistent with transactions of a similar nature.

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

Forward-Looking Statements

Some of the statements made in this report are “forward-looking statements,” as that term is defined under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon our current expectations and projections about future events. Whenever used in this report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this report are primarily located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part I, Item 2), Legal Proceedings (Part II, Item 1), and “Risk Factors” (Part II, Item 1A), but are found in other parts of this report as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. We will not necessarily update forward-looking statements even though our situation may change in the future.

Specific factors that might cause actual results to differ from our expectations or may affect the value of the common stock, include, but are not limited to:

· Changes in local, state or federal laws and regulations governing lending practices, or changes in the interpretation of such laws and regulations

· Litigation and regulatory actions directed toward our industry or us, particularly in certain key states and/or nationally;

· Our need for additional financing, and

· Unpredictability or uncertainty in financing markets which could impair our ability to grow our business through acquisitions.

Other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Industry data and other statistical information used in this report are based on independent publications, government publications, reports by market research firms or other published independent sources.  Some data are also based on our good faith estimates, derived from our review of internal surveys and the independent sources listed above.  Although we believe these sources are reliable, we have not independently verified the information.

General Overview

We provide (through Wyoming Financial Lenders, Inc.) retail financial services to individuals primarily in the midwestern and southwestern United States. These services include non-recourse cash advance loans, small unsecured installment loans, check cashing and other money services. As of June 30, 2011, we operated 51 “payday” stores in nine states (Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming).  

We provide short-term consumer loans—known as “payday”, “installment” or “cash advance” loans—in amounts that typically range from $100 to $500. Payday loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s post-dated personal check(s) for the aggregate amount of the cash advanced, plus a fee. The fee varies from state to state based on applicable regulations, and generally ranges from $15 to $22 for each whole or partial increment of $100 borrowed. To repay a payday or installment loan, a customer may pay with cash, in which case their personal check is returned to them, or allow the check to be presented to the bank for collection. All of our payday loans, installment loans and other services are subject to state regulations (which vary from state to state), federal regulations and local regulation, where applicable.

We also operate (through PQH Wireless, Inc.) Cricket Wireless retail stores as an authorized dealer of Cricket Wireless products and services. Authorized dealers are permitted to sell the Cricket line and generally locate their store operations in areas with a strong potential customer base where Cricket does not maintain a corporate storefront. These locations are generally within the urban core or surrounding areas of a community. We are an authorized premier Cricket dealer, and as such, we are only permitted to sell the Cricket line of prepaid cellular phones at our Cricket retail stores. As of June 30, 2011, we operated 29 Cricket wireless retail stores in seven states (Illinois, Indiana, Iowa, Kansas, Missouri, Nebraska and Texas).  

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Our expenses primarily relate to the operations of our various stores.  The most significant expenses include salaries and benefits for our store employees, phones and accessories, provisions for payday loan losses and occupancy expenses for our leased real estate.  Our other significant expenses are general and administrative, which includes compensation of employees, professional fees for compliance, external reporting, audit and legal services, and management / consulting fees.

With respect to our cost structure, salaries and benefits are one of our largest costs and are driven primarily by the number of storefronts operated throughout the year and seasonal fluctuation in sales volumes.  Phone and accessory cost of sales and occupancy costs make up our second and third largest expense items, respectively.  Our provision for losses is also a significant expense.  We have experienced seasonality in our Cricket operations, with the first and fourth quarters typically being our strongest periods as a result of broader economic factors, such as holiday spending habits at the end of each year and income tax refunds during the first quarter.

We evaluate our stores based on revenue growth, gross profit contributions and loss ratio (which is losses as a percentage of payday loan fees), with consideration given to the length of time the branch has been open and its geographic location.  We evaluate changes in comparable branch financial and other measures on a routine basis to assess operating efficiency.  We define comparable branches as those branches that are open during the full periods for which a comparison is being made.  For example, comparable branches for the annual analysis we undertook as of December 31, 2010 have been open at least 24 months on that date.  We monitor newer branches for their progress toward profitability and rate of loan growth, units sold, or payment volume.

The contraction of the payday loan industry has followed, and continues to be significantly affected by, payday lending legislation and regulation in the various states and nationally.  We actively monitor and evaluate legislative and regulatory initiatives in each of the states and nationally, and are involved with the efforts of the various industry lobbying efforts.  To the extent that states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business could be adversely affected.  In Nebraska, legislation was introduced in 2008 (but did not advance) to ban all cash advance or payday loans in Nebraska.  Despite the defeat of this legislation, since we derived approximately 27.55% of our 2010 and 28.28% of our year-to-date 2011 total payday revenues in Nebraska, any subsequent attempts to pass similar legislation in Nebraska, or other legislation that would restrict our ability to make cash advance loans in Nebraska, would pose significant risks to our business.

In an effort to expand our geographic reach, our strategic expansion plans involve the expansion and diversification of our product and service offerings.  For this reason, we have focused, and will continue to focus, a significant amount of time and resources on the development of our Cricket Wireless retail stores.  We believe that successful expansion, both geographically and product- and service-wise, will help to mitigate the regulatory and economic risk inherent in our business by making us less reliant on (i) cash advance lending alone and (ii) any particular aspect of our business that is concentrated geographically.

Discussion of Critical Accounting Policies

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America applied on a consistent basis.  The preparation of these financial statements requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  We evaluate these estimates and assumptions on an ongoing basis.  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 materially from these estimates under different assumptions or conditions.

Our significant accounting policies are discussed in Note 1, “Basis of Presentation, Nature of Business and Summary of Significant Accounting Policies,” of the notes to our condensed consolidated financial statements included in this report.  We believe that the following critical accounting policies affect the more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements.

Allowance for Loans Receivable Losses

We maintain a loan loss allowance for anticipated losses for our cash advance, installment and title loans. To estimate the appropriate level of the loan loss allowance, 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 allowance is based on our net write offs, typically expressed as a percentage of loan amounts originated for the last 24 months applied against the principal balance of outstanding loans that we write off. The Company also periodically performs a look-back analysis on its loan loss allowance to verify that the historical allowance established tracks with the actual subsequent loan write-offs and recoveries. The Company is aware that, as conditions change, it may also need to make additional allowances in future periods.

Included in loans receivable are cash advance loans that are currently due or past due and cash advance loans that have not been repaid.  This generally is evidenced where a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons.  Cash advance loans are carried at cost less the allowance for loans receivable losses.  The Company does not specifically reserve for any individual cash advance loan.  The Company aggregates cash advance loans for purposes of estimating the allowance using a methodology that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio.  This methodology takes into account several factors, including the maturity of the store location and charge-off and recovery rates.  The Company utilizes a software program to assist with the tracking of its historical portfolio statistics.  As a result of the Company’s collection efforts, it historically writes off approximately 42% of the returned items.  Based on days past the check return date, write-offs of returned items historically have tracked at the following approximate percentages: 1 to 30 days – 42%; 31 to 60 days – 65%; 61 to 90 days – 81%; 91 to 120 days – 86%; and 121 to 180 days – 89%.  All returned items are charged off after 180 days, as collections after that date have not been significant.  The loan loss allowance is reviewed monthly and any adjustment to the loan loss allowance as a result of historical loan performance, current and expected collection patterns and current economic trends is recorded.

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A rollforward of the Company’s loans receivable allowance for the six months ended June 30, 2011 and 2010 is as follows:

	Six Months Ended June 30,
	2011			2010
Loans receivable allowance, beginning of period	$	1,165,000		$	1,237,000
Provision for loan losses charged to expense		454,000			493,000
Charge-offs, net		(778,000	)		(808,000	)
Loans receivable allowance, end of period	$	841,000		$	922,000

Valuation of Long-lived and Intangible Assets

The Company assesses the impairment of long-lived and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable; goodwill is tested on an annual basis. Factors that could trigger an impairment review include significant underperformance relative to expected historical or projected future cash flows, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry trends. When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured based on the excess of the assets' carrying value over the estimated fair value.

Results of Operations - Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

For the three-month period ended June 30, 2011, net income was $.27 million compared to net income of $.22 million for the three months ended June 30, 2010. During the three months ended June 30, 2011, income from operations before income taxes was $.43 million compared to $.29 million for the three months ended June 30, 2010. The major components of revenues, store expenses, general and administrative expenses, and income tax expense are discussed below.

Revenues

Revenues totaled $4.04 million for the three months ended June 30, 2011, compared to $4.15 million for the three months ended June 30, 2010. The decrease in total revenues resulted primarily from the closing of our Montana payday operations.  This decrease was partially offset by an increase in Cricket payment processing fees due to a change in the compensation arrangement with Cricket    Loan originations in the 2011 interim period declined  due to the closing of our Montana payday operations.  During the three-month periods ended June 30, 2011 and , 2010, we originated approximately $16.23 million $17.63 million in cash advance loans, respectively.  Our average loan (including fees) totaled approximately $378 and $362 during the three-month periods ended June 30, 2011 and 2010, respectively. Our average fee for the three-month periods ended June 30, 2011 and 2010 was $55 and $53, respectively.

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The following table summarizes our revenues for the three months ended June 30, 2011 and 2010, respectively:

	Three Months Ended  June 30,				Three Months Ended  June 30,
	2011		2010		2011			2010
					(percentage of revenues)
Payday loan fees	$	2,296,022	$	2,541,063		56.9	%		61.2	%
Phones and accessories		808,948		813,995		20.0	%		19.6	%
Payment processing fees		440,224		324,246		10.9	%		7.8	%
Check cashing fees		154,603		164,590		3.8	%		4.0	%
Other income and fees		340,285		304,831		8.4	%		7.4	%
Total	$	4,040,082	$	4,148,725		100.0	%		100.0	%

Store Expenses

Total expenses associated with store operations for the three months ended June 30, 2011 were $2.91 million, compared to $3.03 million for the three months ended June 30, 2010, or a 3.96% decrease for the interim periods.  The major components of these expenses are salaries and benefits for our store employees, provision for loan losses, costs of sales for phones and accessories, occupancy costs relating to our store leaseholds, advertising expenses, depreciation of store equipment and leasehold improvements, amortization of intangible assets and other expenses associated with store operations.

Overall, our most significant decreases in store expenses for the three months ended June 30, 2011 and 2010 related to salaries and benefits for our store employees, occupancy costs and provision for loan losses. Our most significant increase in store expenses over that same period prior year relates to our phones and accessories cost of sales. A discussion and analysis of the various components of our store expenses appears below.

Salaries and Benefits. Payroll and related costs at the store level were $1.03 million compared to $1.15 million for the three-month periods ended June 30, 2011 and 2010, respectively. The decrease in costs is attributed to our operating four fewer payday and two fewer Cricket stores during 2011 and due to the recharacterization of certain employees and their salaries from “store-related” expense to corporate infrastructure expense.

Provisions for Loan Losses. For the three months ended June 30, 2011, our provisions for loan losses were $.28 million compared to $.33 million for the three months ended June 30, 2010. Our provisions for loan losses represented approximately 12.0% and 13.1% of our loan fee revenue for the three months ended June 30, 2011 and 2010, respectively.  Due to our inability to foretell the scope and duration of the current economic recovery, we believe there are currently uncertainties in how significant our total 2011 loan losses may be and how they may differ from 2010.

Phone and Accessories Cost of Sales.  For the three months ended June 30, 2011, our costs of sales were $.43 million compared to $.29 million for the same period in 2010.  The increase in our Cricket Wireless segment phone and accessory costs resulted from the change in dealer compensation structure from Cricket.

Occupancy Costs. Occupancy expenses, comprised mainly of store leases, were $.40 million for the three months ended June 30, 2011 versus $.46 million for the three months ended June 30, 2010.  The decrease in our occupancy costs is primarily a result of operating six fewer storefronts in 2011.

Advertising. Advertising and marketing expenses decreased slightly from $.09 million to $.08 million for the three months ended June 30, 2011 and 2010, respectively.  In general, we expect that our marketing and advertising expenses for 2011 will remain consistent with 2010 levels.

Depreciation. Depreciation, relating to store equipment and leasehold improvements, decreased slightly to $.06 million for the three months ended June 30, 2011 from $.07 million for the three months ended June 30, 2010.

Amortization of Intangible Assets. Amortization of intangible assets decreased from $.13 million for the three months ended June 30, 2010 to $.11 million, or 15.4%, for the three months ended June 30, 2011.

Other Store Expenses. Other expenses increased to $.51 million for the three months ended June 30, 2011 from $.50 million for the three months ended June 30, 2010.

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General and Administrative Expenses

Total general and administrative costs for the three months ended June 30, 2011 were $.70 million compared to $.82 million for the period ended June 30, 2010. For the three months ended June 30, 2011, the major components of these costs were salaries and benefits for our corporate headquarters operations and executive management, interest expense, and other general and administrative expenses. A discussion and analysis of the various components of our general and administrative costs appears below:

Salaries and Benefits. Salaries and benefits expenses for the three months ended June 30, 2011 were $.41 million, a $.03 million increase from the $.38 million in such expenses during period ended June 30, 2010. The increase was due to the recharacterization of certain employees and their salaries from “store-related” expense to corporate infrastructure expense.

Interest.  Interest expense for the three months ended June 30, 2011 was $.06 million compared to $.11 million for the three months ended June 30, 2010.  Interest expense related to the WERCS loan and notes payable for store acquisitions made during prior periods.

Other General and Administrative Expenses. Other general and administrative expenses, such as professional fees, management and consulting fees, utilities, office supplies, and other minor costs associated with corporate headquarters activities, decreased $.11 million or 33%, to $.22 million for the three months ended June 30, 2011 compared to $.33 million from the three months ended June 30, 2010. The decrease in these expenses is mainly attributable to lower professional fees related to litigation incurred in 2010 compared to 2011.

Income Tax Expense

Income tax expense for the three months ended June 30, 2011 was $.16 million compared to income tax expense of $.07 million for the three months ended June 30, 2010, an effective rate of 37% and 25%,  respectively.  The effective rate for the interim period 2010 was lower as a result of receiving non-taxable income in that period.

Results of Operations - Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

For the six-month period ended June 30, 2011, net income was $.68 million compared to net income of $.70 million for the six months ended June 30, 2010. During the six months ended June 30, 2011, income from operations before income taxes was $1.10 million compared to $1.07 million for the six months ended June 30, 2010. The major components of revenues, store expenses, general and administrative expenses, and income tax expense are discussed below.

Revenues

Revenues totaled $9.08 million for the six months ended June 30, 2011, compared to $8.80 million for the six months ended June 30, 2010. The increase in total revenues resulted primarily from an increase in payment processing fees due to a change in the compensation arrangement with Cricket year over year.  This increase was partially offset by a reduction in payday loan fees due to the closing of our Montana operations.

Loan originations in the 2011 interim period declined slightly.  During the six-month periods ended June 30, 2011 and June 30, 2010, we originated approximately $31.45 million and $33.77 million in cash advance loans, respectively.  Our average loan (including fees) totaled approximately $378 and $366 during the six-month periods ended June 30, 2011 and 2010, respectively. Our average fee for the six-month periods ended June 30, 2011 and 2010 was $55 and $54, respectively.

The following table summarizes our revenues for the six months ended June 30, 2011 and 2010, respectively:

	Six Months Ended  June 30,				Six Months Ended  June 30,
	2011		2010		2011			2010
					(percentage of revenues)
Payday loan fees	$	4,621,769	$	5,031,288		50.9	%		57.1	%
Phones and accessories		2,395,863		2,292,543		26.4	%		26.1	%
Payment processing fees		994,920		498,026		10.9	%		5.7	%
Check cashing fees		387,145		397,185		4.3	%		4.5	%
Other income and fees		679,016		585,685		7.5	%		6.6	%
Total	$	9,078,713	$	8,804,727		100.0	%		100.0	%

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Store Expenses

Total expenses associated with store operations for the six months ended June 30, 2011 were $6.45 million, compared to $6.25 million for the six months ended June 30, 2010, or a 3.2% increase for the interim periods.  The major components of these expenses are salaries and benefits for our store employees, provision for loan losses, costs of sales for phones and accessories, occupancy costs relating to our store leaseholds, advertising expenses, depreciation of store equipment and leasehold improvements, amortization of intangible assets and other expenses associated with store operations.

Overall, our most significant decreases in store expenses for the six months ended June 30, 2011 and 2010 related to salaries and benefits for our store employees and occupancy costs. Our most significant increase in store expenses over that same period prior year relates to our phones and accessories cost of sales. A discussion and analysis of the various components of our store expenses appears below.

Salaries and Benefits. Payroll and related costs at the store level were $2.15 million compared to $2.38 million for the periods ended June 30, 2011 and 2010, respectively. The decrease in costs is attributed to our operating four fewer payday and two fewer Cricket stores during 2011 and due to the recharacterization of certain employees and their salaries from “store-related” expense to corporate infrastructure expense.

Provisions for Loan Losses. For the six months ended June 30, 2011, our provisions for loan losses were $.45 million compared to $.49 million for the six months ended June 30, 2010. Our provisions for loan losses represented approximately 9.8% of our loan fee revenue for each of the six month periods ended June 30, 2011 and 2010.  Due to our inability to foretell the scope and duration of the current economic recovery, we believe there are currently uncertainties in how significant our total 2011 loan losses may be and how they may differ from 2010.

Phone and Accessories Cost of Sales.  For the six months ended June 30, 2011, our costs of sales were $1.39 million compared to $.72 million for the same period in 2010.  The increase in our Cricket Wireless segment phone and accessory costs resulted from the change in dealer compensation structure from Cricket.

Occupancy Costs. Occupancy expenses, comprised mainly of store leases, were $.81 million for the six months ended June 30, 2011 versus $.97 million for the six months ended June 30, 2010.  The decrease in our occupancy costs is primarily a result of operating six fewer storefronts in 2011.

Advertising. Advertising and marketing expenses remained consistent at $.16 million and .17 million for the the six months ended June 30, 2011 and 2010, respectively.  In general, we expect that our marketing and advertising expenses for 2011 will remain consistent with 2010 levels.

Depreciation. Depreciation, relating to store equipment and leasehold improvements, decreased slightly to $.13 million for the six months ended June 30, 2011 from $.14 million for the six months ended June 30, 2010.

Amortization of Intangible Assets. Amortization of intangible assets decreased from $.26 million for the six months ended June 30, 2010 to $.23 million, or 11.5%, for the six months ended June 30, 2011.

Other Store Expenses. Other expenses were $1.1 million for each six month period ended June 30, 2011 and 2010.

General and Administrative Expenses

Total general and administrative costs for the six months ended June 30, 2011 were $1.53 million compared to $1.48 million for the period ended June 30, 2010. For the six months ended June 30, 2011, the major components of these costs were salaries and benefits for our corporate headquarters operations and executive management, interest expense, and other general and administrative expenses. A discussion and analysis of the various components of our general and administrative costs appears below:

17

Salaries and Benefits. Salaries and benefits expenses for the six months ended June 30, 2011 were $.85 million, a $.15 million increase from the $.70 million in such expenses during period ended June 30, 2010. The increase was due to the accrual of expense for the annual management bonus pool and the recharacterization of certain employees and their salaries from “store-related” expense to corporate infrastructure expense.

Interest.  Interest expense for the six months ended June 30, 2011 was $.16 million compared to $.20 million for the six months ended June 30, 2010.  Interest expense related to the WERCS loan and notes payable for store acquisitions made during prior periods.

Other General and Administrative Expenses. Other general and administrative expenses, such as professional fees, management and consulting fees, utilities, office supplies, and other minor costs associated with corporate headquarters activities, decreased $.06 million or 10.5%, to $.51 million for the six months ended June 30, 2011 compared to $.57 million from the six months ended June 30, 2010. The net decrease in these expenses is mainly attributable to a decrease in professional fees related to litigation partially offset by higher 2011 management and consulting fees, which we began incurring after April 1, 2010.

Income Tax Expense

Income tax expense for the six months ended June 30, 2011 was $.42 million compared to income tax expense of $.37 million for the six months ended June 30, 2010, an effective rate of 38% and 34%, respectively.

Liquidity and Capital Resources

Summary cash flow data is as follows:

	Six Months Ended June 30,
	2011				2010
Cash flows provided (used) by :
Operating activities		$	680,739			$	1,293,990
Investing activities			(84,123	)			(22,340	)
Financing activities			(1,363,759	)			(1,280,450	)
Net decrease in cash			(767,143	)			(8,800	)
Cash, beginning of period			2,092,386				1,526,562
Cash, end of period		$	1,325,243			$	1,517,762

At June 30, 2011, we had cash of $1.33 million compared to cash of $2.09 million on December 31, 2010.  The net decrease results mainly from repayment of debt, including the $1 million of short-term debt, offset by cash flows provided by operating activities.  We believe that our available cash, combined with expected cash flows from operations will be sufficient to fund our liquidity and capital expenditure requirements through June 30, 2012. Our expected short-term uses of available cash include the funding of operating activities (including anticipated increases in payday loans), the financing of expansion activities, including new store openings or store acquisitions and the repayment of long and short-term debt.

Because of the constant threat of regulatory changes to the payday lending industry, we believe it will be difficult for us to obtain debt financing from traditional financial institutions.  Financing we may obtain from alternate sources is likely to involve higher interest rates.

Off-Balance Sheet Arrangements  

The Company had no off-balance sheet arrangements as of June 30, 2011.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.

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As of June 30, 2011, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of June 30, 2011.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On March 26, 2010, the Company and all of the then-current members of its Board of Directors, among others, were sued by our former Chief Financial Officer and another former member of management, Messrs. Steven Staehr and David Stueve, respectively.  In that lawsuit, the plaintiffs alleged, among other things, that our Board of Directors breached certain of their fiduciary duties primarily in connection with the sale by WERCS of its capital stock in the Company to WCR, LLC.  The complaint sought injunctive and declaratory relief and unspecified money damages.  After the filing of the lawsuit, the Company removed the lawsuit to federal court and the plaintiffs sought to remand the case back to state court.  On October 26, 2010, the plaintiffs’ motion to remand the case to state court was denied by the federal court.  The Company subsequently filed a motion to dismiss the lawsuit, and was required to resubmit such motion based on certain amendments the plaintiffs made to their complaint.  On July 6, 2011, the Company’s motion to dismiss was granted, without prejudice.

Item 3. Defaults upon Senior Securities

As of June 30, 2011, the Company had an outstanding accrued but unpaid and cumulated dividends on its Series A Convertible Preferred Stock aggregating to $2,500,000.  Our Series A Convertible Preferred Stock ranks senior to our common stock.

Item 5. Other Information

On July 22, 2011, Cricket Communications notified the Company of its acceptance of the Company's bid to purchase the assets of three Cricket retail stores in Oklahoma, two of which are in Oklahoma City, and one of which is in Tulsa.  Each of the retail stores sells mobile phones and related accessories.  The purchase price, after adjustment for working capital and inventory requirements, is expected to be approximately $500,000.  The Company plans to enter into a definitive agreement to purchase the retail stores in August 2011, which the Company expects to be in a form consistent with transactions of a similar nature.

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Item 6. Exhibits

Exhibit	Description
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith ).
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Lable Linkbase Document
101.PRE	XBRL Presentation Linkbase Document

20

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 12, 2011	Western Capital Resources, Inc.
	(Registrant)
	By:	/s/ John Quandahl
		John Quandahl
		Chief Executive Officer and Chief Operating Officer
	By:	/s/ Stephen Irlbeck
		Stephen Irlbeck
		Chief Financial Officer

21

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Certification

I, John Quandahl, Chief Executive Officer of Western Capital Resources, Inc. certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Western Capital Resources, 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 officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	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
	(d)	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 officer(s) 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 small business issuer’s internal control over financial reporting.

Dated:  August 12, 2011
	/s/ John Quandahl
	JOHN QUANDAHL Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Certification

 I, Stephen Irlbeck, Chief Financial Officer of Western Capital Resources, Inc. certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Western Capital Resources, 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 officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	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
	(d)	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 officer(s) 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 small business issuer’s internal control over financial reporting.

Dated:  August 12, 2011
	/s/ Stephen Irlbeck
	STEPHEN IRLBECK Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Western Capital Resources, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Quandahl, Chief Executive Officer of the Company and I, Stephen Irlbeck, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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/ John Quandahl

John Quandahl

Chief Executive Officer

August 12, 2011

/s/ Stephen Irlbeck

Stephen Irlbeck

Chief Financial Officer

August 12, 2011

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CONDENSED CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)	Jun. 30, 2011	Dec. 31, 2010
Allowance for losses(in dollars)	$ 841,000	$ 1,165,000
Common stock no par value	$ 0	$ 0
Common stock shares authorized	240,000,000	240,000,000
Common stock shares issued	7,446,007	7,446,007
Common stock shares outstanding	7,446,007	7,446,007
Series A Convertible Preferred Stock
Series A convertible preferred stock shares authorized	10,000,000	10,000,000
Series A convertible preferred stock shares issued	10,000,000	10,000,000
Series A convertible preferred stock shares outstanding	10,000,000	10,000,000
Series A convertible preferred stock cumulative dividends	10.00%	10.00%
Series A convertible preferred stock par value(in dollars per share)	$ 0.01	$ 0.01
Series A convertible preferred stock stated value(in dollars per share)	$ 2.10	$ 2.10

XML



CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
REVENUES
Payday loan fees	$ 2,296,022	$ 2,541,063	$ 4,621,769	$ 5,031,288
Phones and accessories	808,948	813,995	2,395,863	2,292,543
Payment processing fees	440,224	324,246	994,920	498,026
Check cashing fees	154,603	164,590	387,145	397,185
Other income and fees	340,285	304,831	679,016	585,685
Revenues, Total	4,040,082	4,148,725	9,078,713	8,804,727
STORE EXPENSES
Salaries and benefits	1,033,563	1,148,882	2,145,608	2,379,500
Provisions for loan losses	275,216	331,934	454,089	492,678
Phones and accessories cost of sales	433,344	294,618	1,391,241	722,741
Occupancy	395,934	464,670	813,997	965,626
Advertising	83,287	93,184	164,887	174,499
Depreciation	62,931	70,151	127,024	139,023
Amortization of intangible assets	113,043	129,027	228,648	263,178
Other	512,041	500,211	1,122,018	1,116,522
Store Expenses	2,909,359	3,032,677	6,447,512	6,253,767
INCOME FROM STORES	1,130,723	1,116,048	2,631,201	2,550,960
GENERAL & ADMINISTRATIVE EXPENSES
Salaries and benefits	405,888	378,829	851,815	702,350
Depreciation	5,688	5,389	9,708	9,645
Interest expense	63,573	112,350	156,765	196,004
Other	224,859	327,487	514,829	568,716
General and Administrative Expense, Total	700,008	824,055	1,533,117	1,476,715
INCOME BEFORE INCOME TAXES	430,715	291,993	1,098,084	1,074,245
INCOME TAX EXPENSE	161,000	72,000	416,000	370,000
NET INCOME	269,715	219,993	682,084	704,245
SERIES A CONVERTIBLE PREFERRED STOCK DIVIDENDS (assumes all paid)	(525,000)	(525,000)	(1,050,000)	(1,050,000)
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$ (255,285)	$ (305,007)	$ (367,916)	$ (345,755)
NET LOSS PER COMMON SHARE
Basic and diluted (in dollars per share)	$ (0.03)	$ (0.04)	$ (0.05)	$ (0.04)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
Basic and diluted (in shares)	7,446,007	7,458,095	7,446,007	7,725,565

XML



Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 12, 2011
Entity Registrant Name	WESTERN CAPITAL RESOURCES, INC.
Entity Central Index Key	0001363958
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	WCRS.OB
Entity Common Stock, Shares Outstanding		7,446,007
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2011

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Other Expense

6 Months Ended

Jun. 30, 2011

Other Income and Expenses [Abstract]

Other Income and Other Expense Disclosure [Text Block]

7.          Other Expense –

A breakout of other expense is as follows:

	Three Months Ended  June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Store expenses
Bank fees	$	59,519	$	45,897	$	134,848	$	104,787
Collection costs		97,976		92,772		205,930		202,925
Repairs & maintenance		26,171		40,850		73,466		89,956
Supplies		42,938		43,603		77,342		87,279
Telephone		32,910		36,221		66,564		75,450
Utilities and network lines		108,017		112,457		235,441		260,704
Other		144,510		128,411		328,427		295,421
	$	512,041	$	500,211	$	1,122,018	$	1,116,522
General & administrative expenses
Professional fees	$	41,355	$	155,348	$	164,870	$	328,373
Management and consulting fees		117,117		100,000		217,117		100,000
Other		66,387		72,139		132,842		140,343
	$	224,859	$	327,487	$	514,829	$	568,716

XML



Segment Information

6 Months Ended

Jun. 30, 2011

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

3.          Segment Information –

The Company has grouped its operations into two segments – Payday Operations and Cricket Wireless Retail Operations. The Payday Operations segment provides financial and ancillary services. The Cricket Wireless Retail Operations segment is a dealer for Cricket Communications, Inc., reselling cellular phones and accessories and serving as a payment center for Cricket customers.

Segment information related to the three and six months ended June 30, 2011 and  2010 is set forth below:

	Three Months Ended  June 30, 2011							Three Months Ended June 30, 2010
	Payday		Cricket Wireless			Total		Payday		Cricket Wireless			Total
Revenues from external customers	$	2,603,830	$	1,436,252		$	4,040,082	$	2,883,892	$	1,264,833		$	4,148,725
Net income (loss)	$	335,670	$	(65,955	)	$	269,715	$	504,668	$	(284,675	)	$	219,993

	Six Months Ended  June 30, 2011							Six Months Ended June 30, 2010
	Payday		Cricket Wireless			Total		Payday		Cricket Wireless			Total
Revenues from external customers	$	5,244,827	$	3,833,886		$	9,078,713	$	5,666,799	$	3,137,928		$	8,804,727
Net income (loss)	$	715,238	$	(33,154	)	$	682,084	$	1,013,008	$	(308,763	)	$	704,245
Total segment assets	$	14,500,282	$	4,911,842		$	19,412,124	$	14,871,201	$	5,191,286		$	20,062,487

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Subsequent Events

6 Months Ended

Jun. 30, 2011

Subsequent Events [Abstract]

Subsequent Events [Text Block]

8.         Subsequent Events –

Special Committee of the Board of Directors

In June 2011, the Board of Directors appointed Mr. Ellery Roberts to a special committee of the board.  The appointment was initially made for up to six months.  In consideration for his additional service on the committee, the Company will pay Mr. Roberts $13,000 per month.

Litigation

On July 6, 2011, the U.S. District Court for the District of Minnesota granted the Company’s motion to dismiss the action brought by Messrs. Steven Staehr and David Stueve.  In their action brought on March 26, 2010, the plaintiffs alleged, among other things, that our Board of Directors breached certain of their fiduciary duties primarily in connection with the sale by WERCS of its capital stock in the Company to WCR, LLC.  The lawsuit was dismissed without prejudice.

Additional Cricket Wireless Retail Store Locations

On July 22, 2011, Cricket Communications notified the Company of its acceptance of the Company's bid to purchase the assets of three Cricket retail stores in Oklahoma, two of which are in Oklahoma City, and one of which is in Tulsa.  Each of the retail stores sells mobile phones and related accessories.  The purchase price, after adjustment for working capital and inventory requirements, is expected to be approximately $500,000.  The Company plans to enter into a definitive agreement to purchase the retail stores in August 2011, which the Company expects to be in a form consistent with transactions of a similar nature.

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Basis of Presentation, Nature of Business and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

1.          Basis of Presentation, Nature of Business and Summary of Significant Accounting Policies –

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared according to the instructions to Form 10-Q and Section 210.8-03(b) of Regulation S-X of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Form 10-K as of and for the year ended December 31, 2010. The condensed consolidated balance sheet at December 31, 2010, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP.

Nature of Business

Western Capital Resources, Inc. (WCR), through its wholly owned operating subsidiaries, Wyoming Financial Lenders, Inc. (WFL) and PQH Wireless, Inc. (PQH), collectively referred to as the “Company,” provides retail financial services and retail cellular phone sales to individuals primarily in the Midwestern United States.  As of June 30, 2011, the Company operated 51 “payday” stores in nine states (Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming) and operated 29 Cricket wireless retail stores in seven states (Illinois, Indiana, Iowa, Kansas, Missouri, Nebraska and Texas).  The condensed consolidated financial statements include the accounts of WCR, WFL, and PQH. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company, through its “payday” division, provides non-recourse cash advance loans, check cashing and other money services.  The short-term consumer loans, known as cash advance loans or “payday” loans, are in amounts that typically range from $100 to $500. Cash advance loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state based on applicable regulations, and generally ranges from $15 to $22 per each $100 borrowed. To repay the cash advance loans, customers may pay with cash, in which their personal check is returned to them, or by allowing their check to be presented to the bank for collection.

The Company also provides title, installment loan and other ancillary consumer financial products and services that are complementary to its cash advance-lending business, such as check-cashing services, money transfers and money orders.  In our check cashing business, we primarily cash payroll checks, but we also cash government assistance, tax refund and insurance checks or drafts. Our fees for cashing payroll checks average approximately 2.5% of the face amount of the check, subject to local market conditions, and this fee is deducted from the cash given to the customer for the check. We display our check cashing fees in full view of our customers on a menu board in each store and provide a detailed receipt for each transaction. Although we have established guidelines for approving check-cashing transactions, we have no preset limit on the size of the checks we will cash.

Our loans and other related services are subject to state regulations (which vary from state to state), federal regulations and local regulations, where applicable.

The Company also operates a Cricket Wireless Retail division that is a premier dealer for Cricket Communications, Inc. reselling cellular phones and accessories and accepting service payments from Cricket customers.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect certain reported amounts and disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Significant management estimates relate to the allowance for loans receivable losses, allocation of and carrying value of goodwill and intangible assets, and deferred taxes and tax uncertainties.

Revenue Recognition

The Company recognizes fees on cash advance loans on a constant-yield basis ratably over the loans’ terms. Title and installment loan fees and interest are recognized using the interest method.  Installment loan origination fees are recognized as they become non-refundable and installment loan maintenance fees are recognized when earned.  The Company records revenue from check cashing fees, sales of phones, and accessories and fees from all other services in the period in which the sale or service is completed.  

Loans Receivable / Allowance for Loans Receivable Losses

We maintain a loan loss allowance for anticipated losses for our cash advance, installment and title loans. To estimate the appropriate level of the loan loss allowance, 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 allowance is based on our net write offs, typically expressed as a percentage of loan amounts originated for the last 24 months applied against the principal balance of outstanding loans that we write off. The Company also periodically performs a look-back analysis on its loan loss allowance to verify that the historical allowance established tracks with the actual subsequent loan write-offs and recoveries. The Company is aware that, as conditions change, it may also need to make additional allowances in future periods.

Included in loans receivable are cash advance loans that are currently due or past due and cash advance loans that have not been repaid.  This generally is evidenced where a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons.  Cash advance loans are carried at cost less the allowance for loan receivable losses.  The Company does not specifically reserve for any individual cash advance loan.  The Company aggregates cash advance loans for purposes of estimating the loss allowance using a methodology that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio.  This methodology takes into account several factors, including the maturity of the store location and charge-off and recovery rates.  The Company utilizes a software program to assist with the tracking of its historical portfolio statistics.  As a result of the Company’s collection efforts, it historically writes off approximately 42% of the returned items.  Based on days past the check return date, write-offs of returned items historically have tracked at the following approximate percentages: 1 to 30 days – 42%; 31 to 60 days – 65%; 61 to 90 days – 81%; 91 to 120 days – 86%; and 121 to 180 days – 89%.  All returned items are charged off after 180 days, as collections after that date have not been significant.  The loan loss allowance is reviewed monthly and any adjustment to the loan loss allowance as a result of historical loan performance, current and expected collection patterns and current economic trends is recorded.

A rollforward of the Company’s loans receivable allowance for the three months ended June 30, 2011 and 2010 is as follows:

	Six Months Ended June 30,
	2011			2010
Loans receivable allowance, beginning of period	$	1,165,000		$	1,237,000
Provision for loan losses charged to expense		454,000			493,000
Charge-offs, net		(778,000	)		(808,000	)
Loans receivable allowance, end of period	$	841,000		$	922,000

Net Loss Per Common Share

Basic net loss per common share is computed by dividing the loss available to common shareholders by the weighted average number of common shares outstanding for the year. Diluted net loss per common share is computed by dividing the net loss available to common shareholders by the sum of the weighted average number of common shares outstanding plus potentially dilutive common share equivalents (convertible preferred shares) when dilutive. The 10 million shares of potentially dilutive Series A Convertible Preferred Stock  outstanding at June 30, 2011 and 2010 were anti-dilutive and therefore excluded from the dilutive net loss per share computation.  

Recent Accounting Pronouncements

In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-20 “ Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”   ASU 2010-20 requires extensive new disclosures about financing receivables, including credit risk exposures and the allowance for credit losses.  For public entities, ASU 2010-20 disclosures of period-end balances are effective for interim or annual reporting periods ending on or after June 15, 2011, as updated by ASU 2011-01.  Disclosures related to activity that occurs during the reporting period are required for interim and annual reporting periods beginning on or after December 15, 2010.   The Company adopted this standard with no material impact on its condensed consolidated financial statements.

In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04 “Fair Value Measurement (Topic820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS .”  ASU 2011-04 results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs.  For public entities, ASU 2011-04 is effective for interim or annual reporting periods ending on or after December 15, 2011.  We are assessing the impact of ASU 2011-04 on our consolidated financial statements.

No other new accounting pronouncement issued or effective during the fiscal quarter has had or is expected to have a material impact on the condensed consolidated financial statements.

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Note Payable Long Term

6 Months Ended

Jun. 30, 2011

Debt Disclosure [Abstract]

Long-term Debt [Text Block]

4.         Note Payable – Long-Term

On January 26, 2011, WERCS extended the maturity of the promissory note made by WERCS to WFL, pursuant to the Business Loan Agreement dated April 1, 2010 and an accompanying $2,000,000 promissory note to WFL, to April 1, 2012.  In March, 2011, as required by the terms of the note extension, the Company paid $1,000,000 toward the principal balance on the WERCS promissory note.

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Risks Inherent in the Operating Environment

6 Months Ended

Jun. 30, 2011

Risks Inherent In The Operating Environment Disclosure [Abstract]

Risks Inherent In The Operating Environment Disclosure [Text Block]

5.         Risks Inherent in the Operating Environment –

The Company’s payday or short-term consumer loan activities are highly regulated under numerous local, state, and federal laws and regulations, which are subject to change. New laws or regulations could be enacted that could have a negative impact on the Company’s lending activities. Over the past few years, consumer advocacy groups and certain media reports have advocated governmental and regulatory action to prohibit or severely restrict deferred presentment cash advances.

The Federal Trade Commission has issued an FTC Consumer Alert (Federal Trade Commission, March 2008, Consumer Alert entitled “Payday Loans Equal Very Costly Cash: Consumers Urged to Consider the Alternatives”) that discourages consumers from obtaining payday loans such as the loans we offer, primarily on the basis that the types of loans we offer are very costly and consumers should consider alternatives to accepting a payday loan. For further information, you may obtain a copy of the alert at www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt060.shtm.  The federal government also passed legislation, the 2007 Military Authorization Act, prohibiting us from offering or making our loans to members of the military when the interest and fees calculated as an annual percentage rate exceeds 36%. This limitation effectively prohibits us from utilizing our present business model for cash advance or “payday” lending when dealing with members of the U.S. military, and as a result we do not and do not plan to conduct payday lending business with U.S. military personnel. These facts evidence the widespread belief that our charges relating to our loans are too expensive to be good for consumers. Some consumer advocates and others have characterized payday lending as “predatory.” As a result, there are frequently attempts in the various state legislatures, and occasionally in the U.S. Congress, to limit, restrict or prohibit payday lending. 

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the U.S. Congress and signed into law.  Under the Act, a new Consumer Financial Protection Bureau will consolidate most federal regulation of financial services offered to consumers, and replace the Office of Thrift Supervision’s seat on the FDIC Board. Almost all credit providers, including mortgage lenders, providers of payday loans, other nonbank financial companies, and banks and credit unions with assets over $10 billion, will be subject to new regulations to be passed by the Bureau.  While the Bureau does not appear to have authority to make rules limiting interest rates or fees charged, the scope and extent of the Bureau’s authority will nonetheless be broad, and it is expected that the Bureau will address issues such as rollovers or extensions of payday loans.  Future restrictions on the payday lending industry could have serious consequences for the Company.

Any adverse change in present federal laws or regulations that govern or otherwise affect payday lending could result in our curtailment or cessation of operations in certain jurisdictions or locations.  Furthermore, any failure to comply with any applicable federal laws or regulations could result in fines, litigation, the closure of one or more store locations or negative publicity.  Any such change or failure would have a corresponding impact on our results of operations and financial condition, primarily through a decrease in revenues resulting from the cessation or curtailment of operations, decrease in our operating income through increased legal expenditures or fines, and could also negatively affect our general business prospects as well if we are unable to effectively replace such revenues in a timely and efficient manner or if negative publicity effects our ability to obtain additional financing a needed.

During the 2010 legislative session in Colorado, House Bill 10-1351 was passed into law.  This bill amended the Colorado Deferred Deposit Loan Act, the existing payday lending law.  The law became effective August 11, 2010 and modified traditional payday lending by changing the single payment advance (with no minimum term) into a single or multiple payment loan with a minimum six month term. It also limited the amount and type of fees that can be charged on these loans, effectively reducing by one-half the fees that can be charged and when the fees may be realized.  At present, the Company continues to operate its sole store in Colorado while the impact to profitability of this new law is being assessed.  Currently, we derive 1.34% of our Payday division revenues from fees in Colorado.

In May 2010, new laws were enacted in Wisconsin that restrict the number of times a consumer may renew (or rollover) a payday loan. Previously, there were no limits to the number of rollovers permitted.  Effective January 1, 2011, consumers in Wisconsin are only allowed to renew a payday loan once, and then lenders are required to offer a 60-day, interest free, payment plan to consumers.  The Company is still assessing the impact of these new Wisconsin laws. Our preliminary projections indicate the changes could reduce revenue in the state by 30% - 40%.  Currently, we derive approximately 4.06% of our Payday division revenues from fees in Wisconsin.

On November 2, 2010, voters in Montana passed Petition Initiative I-164.  Effective January 1, 2011, Petition Initiative I-164 capped fees on payday loans at an imputed interest rate of 36%.   The Company discontinued its operations and closed all four stores in Montana due to this law change.  In 2010, approximately 3.87% of the Company’s Payday division revenues were generated in Montana.

The passage of federal or state laws and regulations could, at any point, essentially prohibit the Company from conducting its payday lending business in its current form.  Any such legal or regulatory change would certainly have a material and adverse effect on the Company, its operating results, financial condition and prospects, and perhaps even its viability.

For the six months ended June 30, 2011 and 2010, the Company had significant revenues by state (shown as a percentage of applicable division’s revenue) as follows:

Payday Division							Cricket Wireless Division
	2011 % of Revenues			2010 % of Revenues				2011 % of Revenues			2010 % of Revenues
Nebraska		28	%		27	%	Missouri		28	%		30	%
Wyoming		15	%		14	%	Nebraska		20	%		15	%
North Dakota		18	%		16	%	Texas		14	%		11	%
Iowa		13	%		12	%	Indiana		26	%		28	%

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Preferred Stock Dividend

6 Months Ended

Jun. 30, 2011

Disclosure Text Block Supplement [Abstract]

Preferred Stock [Text Block]

6.          Preferred Stock Dividend –

Reconciliations of the cumulative preferred stock dividend payable are as follows:

	Three Months Ended  June 30,						Six Months Ended June 30,
	2011			2010			2011		2010
Balance due, beginning of the period		$	1,975,000		$	275,000	$	1,450,000	$	1,000,000
Current quarter preferred dividends payable			525,000			525,000		1,050,000		1,050,000
Preferred dividends paid			-			-		-		(1,250,000	)
Balance due, end of the period		$	2,500,000		$	800,000	$	2,500,000	$	800,000

In addition, the Company has $525,000 of second quarter unaccrued cumulative preferred dividends from June 30, 2011 and 2010 that became due and payable July 15, 2011 and 2010, respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
OPERATING ACTIVITIES
Net Income	$ 682,084	$ 704,245
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	136,732	148,668
Amortization	228,648	263,178
Shares retired for reimbursement of expenses	0	(88,000)
Deferred income taxes	159,000	151,000
Loss on disposal of property and equipment	27,342	14,947
Changes in operating assets and liabilities
Loans receivable	285,141	255,725
Inventory	33,026	197,550
Prepaid expenses and other assets	(150,151)	46,663
Accounts payable and accrued liabilities	(656,504)	(386,266)
Deferred revenue	(64,579)	(51,149)
Other liabilities - long-term	0	37,429
Net cash provided by operating activities	680,739	1,293,990
INVESTING ACTIVITIES
Purchase of property and equipment	(84,123)	(22,340)
Net cash used by investing activities	(84,123)	(22,340)
FINANCING ACTIVITIES
Advances/(payments) from notes payable - short-term	(1,000,000)	205,628
Payments on notes payable - long-term	(363,759)	(236,078)
Dividends	0	(1,250,000)
Net cash used by financing activities	(1,363,759)	(1,280,450)
NET DECREASE IN CASH	(767,143)	(8,800)
CASH
Beginning of period	2,092,386	1,526,562
End of period	1,325,243	1,517,762
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid	732,984	272,184
Interest paid	163,652	183,358
Non-cash financing and investing activities
Refinancing of note payable - short-term	$ 0	$ 1,636,044

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Loans Receivable

6 Months Ended

Jun. 30, 2011

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

2.          Loans Receivable –

At June 30, 2011 and December 31, 2010 our outstanding loans receivable aging was as follows:

	June 30, 2011			December 31, 2010
Current	$	4,302,000		$	4,542,000
1-30		255,000			276,000
31 – 60		188,000			234,000
61 – 90		149,000			209,000
91 - 120		123,000			220,000
121 – 150		129,000			227,000
151 – 180		154,000			201,000
		5,300,000			5,909,000
Allowance for losses		(841,000	)		(1,165,000	)
	$	4,459,000		$	4,744,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2011	Dec. 31, 2010
ASSETS
Cash	$ 1,325,243	$ 2,092,386
Loans receivable (less allowance for losses of $841,000 and $1,165,000)	4,458,765	4,743,906
Inventory	469,389	502,415
Prepaid expenses and other	306,192	152,736
Deferred income taxes	352,000	467,000
TOTAL CURRENT ASSETS	6,911,589	7,958,443
PROPERTY AND EQUIPMENT	744,151	824,102
GOODWILL	11,458,744	11,458,744
INTANGIBLE ASSETS	205,765	434,413
OTHER	91,875	95,180
TOTAL ASSETS	19,412,124	20,770,882
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities	1,256,773	1,477,607
Income taxes payable	0	435,670
Note payable - short-term	1,000,000	2,000,000
Current portion long-term debt	752,347	769,330
Preferred dividend payable	2,500,000	1,450,000
Deferred revenue	255,442	320,021
TOTAL CURRENT LIABILITIES	5,764,562	6,452,628
LONG-TERM LIABILITIES
Notes payable - long-term	558,412	905,188
Deferred income taxes	394,000	350,000
TOTAL LONG-TERM LIABILITIES	952,412	1,255,188
TOTAL LIABILITES	6,716,974	7,707,816
SHAREHOLDERS' EQUITY
Common stock, no par value, 240,000,000 shares authorized, 7,446,007 shares issued and outstanding	0	0
Additional paid-in capital	18,221,777	18,221,777
Accumulated deficit	(5,626,627)	(5,258,711)
TOTAL SHAREHOLDERS' EQUITY	12,695,150	13,063,066
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	19,412,124	20,770,882
Series A Convertible Preferred Stock
SHAREHOLDERS' EQUITY
Convertible preferred stock	$ 100,000	$ 100,000