UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to     

DOLLAR FINANCIAL CORP.

Delaware		23-2636866
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1436 LANCASTER AVENUE,
BERWYN, PENNSYLVANIA 19312
(Address of Principal Executive Offices) (Zip Code)

610-296-3400
(Registrant’s Telephone Number, Including Area Code)

None
(Former name, former address and former fiscal year, if changed since last report)

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

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by a check mark whether the registrant is a shell company (as defined) in Rule 12b-2 of the Exchange Act) Yes o No þ

As of January 31, 2009, 24,073,936 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

 

 

DOLLAR FINANCIAL CORP.
INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of June 30, 2008 and December 31, 2008 (unaudited)			3
Interim Unaudited Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2007 and 2008			4
Interim Consolidated Statements of Stockholders’ Equity as of June 30, 2008 and December 31, 2008 (unaudited)			5
Interim Unaudited Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2007 and 2008			6
Notes to Interim Unaudited Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			42
Item 4. Controls and Procedures			43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 4. Submission of Matters to a Vote of Security Holders			46
Item 6. Exhibits			47
Signature			48

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13(a)-14(a)/15d-14a Certification of Executive Vice President and Chief Financial Officer
Rule 13a-14(a)/15d-14(a) Certification of Senior Vice President of Finance and Corporate Controller
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Executive Vice President and Chief Financial Officer
Section 1350 Certification of Senior Vice President of Finance and Corporate Controller

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

DOLLAR FINANCIAL CORP.

		June 30,				December 31,
		2008				2008
						(unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	209,714			$	209,364
Loans receivable, net:
Loans receivable			123,683				100,267
Less: Allowance for loan losses			(8,466	)			(8,412	)
Loans receivable, net			115,217				91,855
Loans in default, net of an allowance of $21,967 and $20,143			11,930				14,368
Other receivables			11,031				11,833
Prepaid expenses and other current assets			18,938				15,871
Current deferred tax asset, net of valuation allowance of $4,335 and $4,335			471				126
Total current assets			367,301				343,417
Deferred tax asset, net of valuation allowance of $93,355 and $95,780			11,720				15,136
Property and equipment, net of accumulated depreciation of $98,302 and $93,309			68,033				55,112
Goodwill and other intangibles			470,731				422,005
Debt issuance costs, net of accumulated amortization of $4,656 and $5,688			15,108				12,273
Fair value of derivatives			—				16,211
Other			10,030				12,210
Total Assets		$	942,923			$	876,364
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	51,054			$	28,888
Income taxes payable			12,194				9,700
Accrued expenses and other liabilities			32,189				26,379
Debt due within one year			9,187				43,584
Current deferred tax liability			—				65
Total current liabilities			104,624				108,616
Fair value of derivatives			37,214				2,981
Long-term deferred tax liability			22,352				20,706
Long-term debt			574,017				566,522
Other non-current liabilities			11,391				10,922
Stockholders’ equity:
Common stock, $.001 par value: 55,500,000 shares authorized; 24,229,178 shares and 24,066,072 shares issued and outstanding at June 30, 2008 and December 31, 2008, respectively			24				24
Additional paid-in capital			255,197				254,634
Accumulated deficit			(95,950	)			(70,919	)
Accumulated other comprehensive income (loss)			34,054				(17,122	)
Total stockholders’ equity			193,325				166,617
Total Liabilities and Stockholders’ Equity		$	942,923			$	876,364

See notes to interim unaudited consolidated financial statements

DOLLAR FINANCIAL CORP.

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2007				2008				2007				2008
Revenues:
Check cashing		$	48,859			$	41,624			$	94,522			$	90,156
Fees from consumer lending			73,594				70,005				142,103				151,503
Money transfer fees			7,079				6,784				13,039				14,394
Franchise fees and royalties			1,162				1,110				2,503				2,287
Other			11,027				12,650				20,410				26,909
Total revenues			141,721				132,173				272,577				285,249
Store and regional expenses:
Salaries and benefits			38,646				36,275				73,883				77,078
Provision for loan losses			16,070				14,899				30,876				30,150
Occupancy			10,157				10,316				19,431				21,640
Depreciation			3,214				3,170				6,023				6,762
Returned checks, net and cash shortages			4,597				4,227				9,253				10,362
Telephone and communications			1,798				1,798				3,450				3,877
Advertising			2,721				2,396				4,824				5,208
Bank charges and armored carrier service			3,287				3,130				6,343				6,763
Other			11,980				11,688				22,452				25,325
Total store and regional expenses			92,470				87,899				176,535				187,165
Store and regional margin			49,251				44,274				96,042				98,084
Corporate and other expenses:
Corporate expenses			17,531				17,594				34,729				37,114
Other depreciation and amortization			890				938				1,809				1,978
Interest expense, net			8,977				8,570				17,066				18,019
Loss on store closings			106				555				193				5,493
Other (income) expense, net			(153	)			(5,412	)			(165	)			(5,160	)
Income before income taxes			21,900				22,029				42,410				40,640
Income tax provision			8,936				10,383				17,392				15,609
Net income		$	12,964			$	11,646			$	25,018			$	25,031
Net income per share:
Basic		$	0.54			$	0.49			$	1.04			$	1.04
Diluted		$	0.53			$	0.49			$	1.02			$	1.04
Weighted average shares outstanding:
Basic			24,087,742				23,941,455				24,071,458				24,058,984
Diluted			24,684,158				23,980,968				24,619,744				24,156,745

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

																		Accumulated
		Common Stock								Additional				Accumulated				Other				Total
		Outstanding								Paid-in				Income				Comprehensive				Stockholders’
		Shares				Amount				Capital				(Deficit)				Income (loss)				Equity
Balance, June 30, 2008 (audited)			24,229,178			$	24			$	255,197			$	(95,950	)		$	34,054			$	193,325
Comprehensive income:
Foreign currency translation																			(36,894	)			(36,894	)
Cash flow hedges																			(14,282	)			(14,282	)
Net income															25,031								25,031
Total comprehensive income																							(26,145	)
Restricted stock grants			138,361
Stock options exercised			251,220								3,257												3,257
Vested portion of granted restricted stock and restricted stock units											2,522												2,522
Purchase and retirement of company shares			(535,799	)							(7,492	)											(7,492	)
Retirement of common stock			(16,888	)
Other stock compensation											1,150												1,150
Balance, December 31, 2008 (unaudited)			24,066,072			$	24			$	254,634			$	(70,919	)		$	(17,122	)		$	166,617

See notes to interim unaduited consolidated financial statements.

DOLLAR FINANCIAL CORP.

		Six Months Ended
		December 31,
		2007				2008
Cash flows from operating activities:
Net income		$	25,018			$	25,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			9,516				10,367
Loss on extinguishment of debt			97				—
Provision for loan losses			30,876				30,150
Non-cash stock compensation			1,359				3,672
Losses on store closings			124				1,813
Deferred tax provision			2,457				2,176
Other, net			341				—
Change in assets and liabilities (net of effect of acquisitions):
Increase in loans and other receivables			(43,745	)			(33,739	)
Increase in prepaid expenses and other			(5,078	)			(2,164	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities			9,873				(20,636	)
Net cash provided by operating activities			30,838				16,670
Cash flows from investing activities:
Acquisitions, net of cash acquired			(135,641	)			(2,041	)
Additions to property and equipment			(14,697	)			(7,715	)
Net cash used in investing activities			(150,338	)			(9,756	)
Cash flows from financing activities:
Decrease in restricted cash			1,014				—
Proceeds from the exercise of stock options			674				3,257
Purchase of company stock			—				(7,492	)
Other debt payments			(4,396	)			(1,834	)
Net increase in revolving credit facilities			—				36,043
Payment of debt issuance and other costs			(432	)			(114	)
Net cash (used in) provided by financing activities			(3,140	)			29,860
Effect of exchange rate changes on cash and cash equivalents			7,350				(37,124	)
Net decrease in cash and cash equivalents			(115,290	)			(350	)
Cash and cash equivalents at beginning of period			290,945				209,714
Cash and cash equivalents at end of period		$	175,655			$	209,364

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements are of Dollar Financial Corp. and its wholly owned subsidiaries (collectively the “Company”). Dollar Financial Corp. is the parent company of Dollar Financial Group, Inc. (“OPCO”) and its wholly owned subsidiaries. The activities of the Company consist primarily of its investment in OPCO. The Company’s unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements in its annual report on Form 10-K (File No. 000-50866) for the fiscal year ended June 30, 2008 filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results of interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

The Company is a Delaware corporation incorporated in April 1990 as DFG Holdings, Inc. The Company operates a store network through OPCO. Through its subsidiaries, the Company provides retail financial services and document processing services to the general public through a network of 1,370 locations (of which 1,078 are company owned) operating primarily as Money Mart^®, The Money Shop, Loan Mart^®, Insta-Cheques^®, The Check Cashing Store, American Payday Loans, American Check Casher, Check Casher, Payday Loans, Cash Advance, Cash Advance USA and We The People^® in 28 states, Canada, the United Kingdom and the Republic of Ireland. This network includes 1,291 locations (including 1,078 company-owned) in 20 states, Canada, the United Kingdom and the Republic of Ireland offering financial services including check cashing, single-payment consumer loans, sale of money orders, money transfer services and various other related services. Also included in this network is the Company’s We The People USA, Inc. (“WTP”) business, acquired in March 2005, which offers retail based legal document processing services through a network of 79 franchised locations in 17 states.

The Company’s common shares are traded on the NASDAQ Global Select Market under the symbol “DLLR”.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, loss reserves, valuation allowance for income taxes and impairment assessment of goodwill and other intangible assets. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Reclassification

Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications have no effect on net income or stockholders’ equity.

Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding, after adjusting for the dilutive effect of stock options. The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share (in thousands):

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Earnings per Share(continued)

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2007				2008				2007				2008
Net income		$	12,964			$	11,646			$	25,018			$	25,031
Reconciliation of denominator:
Weighted average of common shares outstanding — basic 1			24,088				23,941				24,071				24,059
Effect of dilutive stock options 2			548				3				512				53
Effect of unvested restricted stock and restricted stock unit grants			48				37				37				45
Weighted average of common shares outstanding — diluted			24,684				23,981				24,620				24,157

Stock Based Employee Compensation

The Company’s 1999 Stock Incentive Plan (the “1999 Plan”) states that 784,392 shares of its common stock may be awarded to employees of, consultants to or directors of the Company. The awards, at the discretion of the Company’s Board of Directors, may be issued as nonqualified stock options or incentive stock options. Stock appreciation rights (“SARs”) may also be granted in tandem with the non-qualified stock options or the incentive stock options. Exercise of the SARs cancels the option for an equal number of shares and exercise of the non-qualified stock options or incentive stock options cancels the SARs for an equal number of shares. The number of shares issued under the 1999 Plan is subject to adjustment as specified in the 1999 Plan provisions. No options may be granted after February 15, 2009. All options granted under the 1999 Plan became 100% exercisable in conjunction with the Company’s initial public offering on January 28, 2005.

The Company’s 2005 Stock Incentive Plan (the “2005 Plan”) states that 1,718,695 shares of its common stock may be awarded to employees or consultants of the Company. The awards, at the discretion of the Company’s Board of Directors, may be issued as nonqualified stock options, incentive stock options or restricted stock awards. The number of shares issued under the 2005 Plan is subject to adjustment as specified in the 2005 Plan provisions. No options may be granted after January 24, 2015.

On November 15, 2007, the stockholders adopted the Company’s 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan provides for the grant of stock options, stock appreciation rights, stock awards, restricted stock unit awards and performance awards (collectively, the “Awards”) to officers, employees, non-employee members of the Board, independent consultants and contractors of the Company and any parent or subsidiary of the Company. The maximum aggregate number of shares of the Company’s common stock that may be issued pursuant to Awards granted under the 2007 Plan is 2,500,000; provided, however, that no more than 1,250,000 shares may be awarded as restricted stock or restricted stock unit awards. The shares that may be issued under the 2007 Plan may be authorized, but unissued or reacquired shares of Common Stock. No grantee may receive an Award relating to more than 500,000 shares in the aggregate per fiscal year under the 2007 Plan.

Stock options and stock appreciation rights granted under the aforementioned plans have an exercise price equal to the closing price of the Company’s common stock on the date of grant. To date no stock appreciation rights have been granted.

Compensation expense related to share-based compensation included in the statement of operations for the three months ended December 31, 2007 and 2008 was $0.4 million and $1.0 million, net of related tax effects, respectively and $1.1 million and

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Stock Based Employee Compensation (continued)

$1.8 million, net of related tax effects, for the six months ended December 31, 2007 and 2008, respectively.

The weighted average fair value of each employee option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in the periods presented:

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2007				2008				2007				2008
Expected volatility			49.0	%			49.7	%			49.0	%			49.4	%
Expected life (years)			6.0				5.8				6.0				5.8
Risk-free interest rate			3.96	%			2.47	%			3.96	%			2.52	%
Expected dividends		None				None				None				None
Weighted average fair value		$	15.03			$	3.51			$	15.03			$	3.73

A summary of the status of stock option activity for the six months ended December 31, 2008 follows:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic Value
		Options				Price				Term (years)				($ in millions)
Options outstanding at June 30, 2008 (1,028,778 shares exercisable)			1,542,363			$	16.25				7.8			$	1.6
Granted			423,659			$	8.64
Exercised			(251,220	)		$	12.97
Forfeited and expired			(136,982	)		$	16.41
Options outstanding at December 31, 2008			1,577,820			$	14.72				8.2			$	0.9
Exercisable at December 31, 2008			777,175			$	16.21				6.9			$	—

The aggregate intrinsic value in the above table reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on December 31, 2008. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s stock. The total intrinsic value of options exercised for the three and six months ended December 31, 2008 was zero and $1.5 million, respectively and was $0.3 million and $0.9 million for the three and six months ended December 31, 2007, respectively. As of December 31, 2008, the total unrecognized compensation cost over a weighted-average period of 2.2 years, related to stock options, is expected to be $3.6 million. There was no cash received from stock options exercised for the three months ended December 31, 2008. Cash received from stock options exercised for the six months ended December 31, 2008 was $3.3 million. Cash received from stock options exercised for the three and six months ended December 31, 2007 was $0.4 million and $0.7 million, respectively.

Restricted stock awards granted under the 2005 Plan and 2007 Plan become vested (i) upon the Company attaining certain annual pre-tax earnings targets (“performance-based”) and, (ii) after a designated period of time (“time-based”), which is generally three years. Compensation expense is recorded ratably over the requisite service period based upon an estimate of the likelihood of achieving the performance goals. Compensation expense related to restricted stock awards is measured based on the fair value using the closing market price of the Company’s common stock on the date of the grant.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Stock Based Employee Compensation (continued)

Information concerning unvested restricted stock awards is as follows:

						Weighted
						Average
		Restricted				Grant-Date
		Stock Awards				Fair-Value
Outstanding at June 30, 2008			52,305			$	21.90
Granted			96,752			$	9.38
Vested			(22,751	)		$	21.34
Forfeited			(2,619	)		$	18.51
Outstanding at December 31, 2008			123,687			$	12.28

Restricted Stock Unit awards (RSUs) granted under the 2005 Plan and 2007 Plan become vested after a designated period of time (“time-based”), which is generally on a quarterly basis over three years. Compensation expense is recorded ratably over the requisite service period. Compensation expense related to RSUs is measured based on the fair value using the closing market price of the Company’s common stock on the date of the grant.

Information concerning unvested restricted stock unit awards is as follows:

						Weighted
		Restricted				Average
		Stock Unit				Grant-Date
		Awards				Fair-Value
Outstanding at June 30, 2008			226,802			$	21.32
Granted			295,518			$	7.88
Vested			(56,729	)		$	23.10
Forfeited			(9,718	)		$	22.02
Outstanding at December 31, 2008			455,873			$	12.37

As of December 31, 2008, there was $6.3 million of total unrecognized compensation cost related to unvested restricted share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted average period of 1.7 years. The total fair value of shares vested during the three and six months ended December 31, 2008 was $1.2 million and $1.8 million, respectively.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which addresses how companies should measure fair value when they are required to use a fair value measurement for recognition or disclosure purposes under generally accepted accounting principles. As a result of SFAS 157, there is now a common definition of fair value to be used throughout U.S. GAAP. This new standard makes the measurement for fair value more consistent and comparable and improves disclosures about those measures. The Company adopted the provisions of SFAS 157 on July 1, 2008. The credit valuation adjustments required by SFAS 157 did not impact the effectiveness assessments or materially impact the Company’s accounting for its cash flow hedging relationships.

On February 15, 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions in FAS 159 are elective; however, the amendment to Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

Equity Securities , applies to all entities with available-for-sale and trading securities. The fair value option established by SFAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity reports unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. The provisions of SFAS 159 became effective for the Company on July 1, 2008. The Company did not elect the fair value measurement option under SFAS 159 for any of its financial assets or liabilities and, as a result, there was no impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (a revision of Statement No. 141), (“SFAS 141R”). This Statement applies to all transactions or other events in which an entity obtains control of one or more businesses, including those combinations achieved without the transfer of consideration. This Statement retains the fundamental requirements in Statement No. 141 that the acquisition method of accounting be used for all business combinations. This Statement expands the scope to include all business combinations and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values as of the acquisition date. Additionally, SFAS 141R changes the way entities account for business combinations achieved in stages by requiring the identifiable assets and liabilities to be measured at their full fair values. Additionally, contractual contingencies and contingent consideration are to be measured at fair value at the acquisition date. This Statement is effective on a prospective basis for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which is July 1, 2009 for the Company. However, the provisions of this Statement that amend FASB Statement No. 109 and Interpretation No. 48, which will be applied prospectively as of the adoption date and will apply to business combinations with acquisition dates before the effective date of SFAS 141R.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No.51 (“SFAS 160”). This Statement amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Additionally, this Statement requires that consolidated net income include the amounts attributable to both the parent and the noncontrolling interest. SFAS 160 is effective for the Company beginning July 1, 2009. The Company does not believe this statement will have any impact on the Company’s consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 applies to all derivative instruments and related hedged items accounted for under Statement of Financial Accounting Standards No. 133. SFAS 161 requires (1) qualitative disclosures about objectives for using derivatives by primary underlying risk exposure and by purpose or strategy, (2) information about the volume of derivative activity in a flexible format that the preparer believes is the most relevant and practicable, (3) tabular disclosures about balance sheet location and gross fair value amounts of derivative instruments, income statement and other comprehensive income location and amounts of gains and losses on derivative instruments by type of contract and (4) disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for the Company beginning January 1, 2009.

In May 2008, the FASB issued FASB Staff Position APB 14-a, Accounting for Convertible Debt Instruments That May Be Settled Upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-a”). FSP APB 14-a, requires the initial proceeds from convertible debt that may be settled in cash to be bifurcated between a liability component and an equity component. The objective of the guidance is to require the liability and equity components of convertible debt to be separately accounted for in a manner such that the interest expense recorded on the convertible debt would not equal the contractual rate of interest on the convertible debt but instead would be recorded at a rate that would reflect the issuer’s conventional debt borrowing rate. This is accomplished through the creation of a discount on the debt that would be accreted using the effective interest method as additional non-cash interest expense over the period the debt is expected to remain outstanding. The provisions of FSP APB 14-a, are effective for the Company beginning July 1, 2009 and will be required to be applied retroactively to all periods presented. The Company believes that FSP APB 14-a, will impact the accounting for its 2.875% Senior Convertible Notes due 2027 and will result in additional interest expense of approximately $2.0 million and $2.2 million for the three months ended December 31, 2007 and 2008, respectively, and approximately $4.1 million and $4.5 million for the

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

six months ended December 31, 2007 and 2008, respectively, applied retrospectively beginning July 1, 2009.

2. Acquisitions

The following acquisitions have been accounted for under the purchase method of accounting.

On August 30, 2007, the Company entered into a purchase agreement to acquire substantially all of the assets of 45 retail stores, operating as Check Casher, American Check Casher, Cash Advance, American Payday Loans, Cash Advance USA and Payday Loans (collectively, “American Payday Loans” or “APL Acquisition”). The purchase price was $29.3 million in cash including $2.0 million in cash that will be held in escrow for 24 months to secure certain indemnification claims. In addition, the agreement includes a maximum revenue-based earn-out of up to $3.0 million which is payable in February 2009 if the earn-out provisions are met. This potential earnout is not included in the aforementioned purchase price. On August 30, 2007, the Company consummated the acquisition of 22 of the stores, which are located in Missouri, Oklahoma, Arizona and Hawaii. On September 19, 2007, the Company consummated the acquisition of an additional four stores, all of which are located in Iowa. On October 17, 2007, the Company consummated the acquisition of an additional 16 stores, which are located in Kansas and South Carolina. The Company completed the acquisition of the remaining three stores in Nebraska on March 11, 2008. The Company allocated a portion of the purchase price to loans receivable for $4.7 million and other assets for $2.6 million. A portion of the proceeds from the $200.0 million senior convertible note offering on June 27, 2007 were utilized to pay for the APL Acquisition. The excess purchase price over the preliminary fair value of identifiable assets acquired was $22.0 million and was recorded to goodwill.

On December 15, 2007, the Company consummated the acquisition of substantially all of the assets of 81 financial services stores and one corporate office in southeast Florida (the “CCS Acquisition”) from CCS Financial Services, Inc. d/b/a/ The Check Cashing Store (“CCS”). The acquisition was effected pursuant to the terms of an asset purchase agreement dated October 11, 2007. The aggregate purchase price for the acquisition was $102.1 million cash, including $6.0 million in cash to be held in escrow for 24 months to secure certain indemnification claims. The Company allocated a portion of the purchase price to loans receivable for $7.6 million, cash in stores for $2.1 million, fixed assets for $3.9 million and other assets for $0.5 million. A portion of the proceeds from the $200 million senior convertible note offering on June 27, 2007 was utilized to pay for the CCS Acquisition. The excess of the purchase price over the fair value of the identifiable assets acquired was $88.0 million and was recorded as goodwill.

On December 19, 2007, the Company entered into a share purchase agreement to acquire all of the shares of Cash Your Cheque, Ltd, a U.K. entity, which operates seven check cashing and single-payment consumer lending stores. The aggregate purchase price for the acquisition was approximately $4.2 million in cash, including $0.4 million to be held in escrow for 12 months to secure certain indemnification claims. The Company used excess cash to fund the acquisition. The Company allocated approximately $0.6 million to net assets acquired. The excess purchase price over the preliminary fair value of the identifiable assets acquired was $3.6 million and was recorded as goodwill.

On February 26, 2008, the Company entered into a purchase agreement to acquire substantially all of the assets of 10 financial stores in Ontario, Canada operating under the name Unicash. The aggregate purchase price for the acquisition was $1.4 million cash. The Company used excess cash to fund the acquisition. The Company allocated approximately $0.2 million to the net assets acquired. The excess purchase price over the preliminary fair value of the identifiable assets acquired was $1.2 million and was recorded as goodwill.

During fiscal 2008, the Company completed various smaller acquisitions in Canada and the United Kingdom; resulting in an aggregate increase in goodwill of $4.7 million.

On October 17, 2008 the Company entered in a series of purchase agreements to acquire substantially all of the assets of six franchised stores from a franchisee of the Company’s wholly owned United Kingdom subsidiary. The aggregate purchase price for the acquisitions was approximately $3.3 million in cash. The Company used excess cash to fund the acquisition. The company allocated a portion of the purchase price to identifiable intangible assets, reacquired franchise rights, in the amount of $2.6 million and other assets in the amount of $0.7 million. There was no excess purchase price over the preliminary fair value of identifiable assets acquired.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2. Acquisitions (continued)

During the six months ended December 31, 2008, the Company completed various smaller acquisitions in the United States and the
United Kingdom; resulting in an aggregate increase in goodwill of $0.7 million.

The following reflects the change in goodwill during the periods presented (in millions):

Balance at June 30, 2008		$	419.4
Acquisitions:
Various small acquisitions			0.7
Foreign currency adjustment			(43.4	)
Balance at December 31, 2008		$	376.7

The following unaudited pro forma information for the three and six months ended December 31, 2007 and 2008 presents the results of operations as if the acquisitions had occurred as of the beginning of the periods presented. The pro forma operating results include the results of these acquisitions for the indicated periods and reflect the increased interest expense on acquisition debt and the income tax impact as of the respective purchase dates of the APL and CCS acquisitions. Pro forma results of operations are not necessarily indicative of the results of operations that would have occurred had the purchase been made on the date above or the results which may occur in the future.

		Three months ended								Six months ended
		December 31,								December 31,
		2007				2008				2007				2008
		(Unaudited in thousands								(Unaudited in thousands
		except per share amounts)								except per share amounts)
Revenue		$	151,918			$	132,173			$	297,821			$	285,249
Net income		$	14,252			$	11,646			$	28,603			$	25,031
Net income per common share — basic		$	0.59			$	0.49			$	1.19			$	1.04
Net income per common share — diluted		$	0.58			$	0.49			$	1.16			$	1.04

3. Goodwill and Other Intangibles

The changes in the carrying amount of goodwill and other intangibles by reportable segment for the six months ended December 31, 2008 are as follows (in thousands):

		United								United
		States				Canada				Kingdom				Total
Balance at June 30, 2008		$	205,506			$	189,429			$	75,796			$	470,731
Acquisition			519				—				3,131				3,650
Foreign currency translation adjustments			—				(31,858	)			(20,518	)			(52,376	)
Balance at December 31, 2008		$	206,025			$	157,571			$	58,409			$	422,005

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Goodwill and Other Intangibles (continued)

The following table reflects the components of intangible assets (in thousands):

		June 30,				December 31,
		2008				2008
		Gross Carrying				Gross Carrying
		Amount				Amount
Non-amortized intangible assets:
Goodwill		$	419,351			$	376,692
Reacquired franchise rights			51,380				45,313
		$	470,731			$	422,005

The Company accounts for goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Goodwill is the excess of cost over the fair value of the net assets of the business acquired. Intangible assets consist of reacquired franchise rights, which are deemed to have an indefinite useful life and are not amortized.

Goodwill is tested for impairment annually as of June 30, or whenever events or changes in business circumstances indicate that an asset might be impaired. As of June 30, 2008, there was no impairment of goodwill. At December 31, 2008, we did not identify any indicators that we believe would cause our goodwill to be more likely than not impaired. However, if market conditions continue to worsen or there is significant regulatory action that negatively affects our business, there can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

The Company performs its impairment tests utilizing the two steps as outlined in SFAS 142. If the carrying amount of a reporting unit exceeds its implied fair value, an impairment loss would be recognized in an amount equal to the excess of the implied fair value of the reporting unit’s goodwill over its carrying value, not to exceed the carrying amount of the goodwill.

Nonamortizable intangibles with indefinite lives are tested for impairment annually as of December 31, or whenever events or changes in business circumstances indicate that an asset may be impaired. If the estimated fair value is less than the carrying amount of the intangible assets with indefinite lives, then an impairment charge would be recognized to reduce the asset to its estimated fair value. As of December 31, 2008, there was no impairment of reacquired franchise rights. There can be no assurance that future impairment tests will not result in a charge to earnings.

The fair value of the Company’s goodwill and indefinite-lived intangible assets are estimated based upon a present value technique using discounted future cash flows. The Company uses management business plans and projections as the basis for expected future cash flows. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes every effort to forecast its future cash flows as accurately as possible at the time the forecast is developed. However, changes in assumptions and estimates may affect the implied fair value of goodwill and indefinite-lived intangible assets and could result in additional impairment charges in future periods.

4. Contingent Liabilities

In addition to the legal proceedings discussed below, which the Company is defending vigorously, the Company is involved in routine litigation and administrative proceedings arising in the ordinary course of business. Although the Company believes that the resolution of these proceedings will not materially adversely impact its business, there can be no assurances in that regard.

Canadian Legal Proceedings

On August 19, 2003, a former customer in Ontario, Canada, Margaret Smith commenced an action against OPCO and the Company’s Canadian subsidiary, Money Mart, on behalf of a purported class of Ontario borrowers who, Smith claims, were subjected to usurious charges in payday-loan transactions. The action, which is pending in the Ontario Superior Court of Justice, alleges violations of a Canadian federal law proscribing usury, seeks restitution and damages, including punitive damages, and seeks injunctive relief prohibiting further alleged usurious charges. Money Mart’s motion to stay the action on grounds of arbitrability was denied. The

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities (continued)

Canadian Legal Proceedings (continued)

Company’s motion to stay the action for lack of jurisdiction was denied and the related appeal was dismissed. The plaintiff’s motion for class certification was granted on January 5, 2007 and leave to appeal from the decision was refused. In July 2007, the Supreme Court of Canada released two decisions regarding interplay between arbitration clauses and class actions. As a result, Money Mart brought a new application to stay the action and to decertify it. The plaintiff responded by bringing a cross-motion for summary judgment on selected issues. Both the application and the cross-motion were dismissed in June 2008. Money Mart brought an appeal in respect of the application; the appeal was heard on October 17, 2008 and was dismissed. On December 23, 2008, the Company and Money Mart filed an application for leave to appeal with the Supreme Court of Canada in respect of the dismissal. The application is under consideration by the Court. The trial is scheduled to commence at the end of April 2009.

On October 21, 2003, another former customer, Kenneth D. Mortillaro, commenced a similar action against Money Mart, but this action has since been stayed on consent because it is a duplicate action. The allegations, putative class and relief sought in the Mortillaro action are substantially the same as those in the Smith action.

On November 6, 2003, Gareth Young, a former customer, commenced a purported class action in the Court of Queen’s Bench of Alberta, Canada on behalf of a class of consumers who obtained short-term loans from Money Mart in Alberta, alleging, among other things, that the charge to borrowers in connection with such loans is usurious. The action seeks restitution and damages, including punitive damages. On December 9, 2005, Money Mart settled this action, subject to court approval. On March 3, 2006 just prior to the date scheduled for final court approval of the settlement the plaintiff’s lawyers advised that they would not proceed with the settlement and indicated their intention to join a purported national class action. No steps have been taken in the action since March 2006. Subsequently, Money Mart commenced an action against the plaintiff and the plaintiff’s lawyer for breach of contract. That action has not proceeded past the pleadings stage.

On March 5, 2007, a former customer, H. Craig Day, commenced an action against OPCO, Money Mart and several of the Company’s franchisees in the Court of Queen’s Bench of Alberta, Canada on behalf of a putative class of consumers who obtained short-term loans from Money Mart in Alberta. The allegations, putative class and relief sought in the Day action are substantially the same as those in the Young action but relate to a claim period that commences before and ends after the claim period in the Young action and excludes the claim period described in that action.

On January 29, 2003, a former customer, Kurt MacKinnon, commenced an action against Money Mart and 26 other Canadian lenders on behalf of a purported class of British Columbia residents who, MacKinnon claims were overcharged in payday-loan transactions. The action, which is pending in the Supreme Court of British Columbia, alleges violations of laws proscribing usury and unconscionable trade practices and seeks restitution and damages, including punitive damages, in an unknown amount. Following initial denial, MacKinnon obtained an order permitting him to re-apply for class certification of the action against Money Mart alone, which was appealed. The Court of Appeal granted MacKinnon the right to apply to the original judge to have her amend her order denying class certification. On June 14, 2006, the original judge granted the requested order and Money Mart’s request for leave to appeal the order was dismissed. The certification motion in this action proceeded in conjunction with the certification motion in the Parsons action described below.

On April 15, 2005, the solicitor acting for MacKinnon commenced a proposed class action against Money Mart on behalf of another former customer, Louise Parsons. Class certification of the consolidated MacKinnon and Parsons actions was granted on March 14, 2007. An appeal from this certification decision was to be argued on February 8, 2008. As a result of recently released decisions of the Supreme Court of Canada regarding the interplay between arbitration clauses and class actions, Money Mart raised the issue of its arbitration clauses as a ground for appeal. The Court of Appeal responded by adjourning the appeal and remanding the matter to the motions judge to hear argument on Money Mart’s motion for a stay. That motion was argued on April 28 and 29, 2008 and was dismissed on May 13, 2008. Money Mart appealed from that decision. The appeal was heard in January 2009 together with the certification appeal that had previously been adjourned and the appeals brought by OPCO described below. The action is presently in the discovery phase and a trial, while not yet scheduled, is expected in 2010.

In December 2007 the plaintiffs filed a motion to add OPCO as a defendant in this action. In March 2008 an order was granted adding OPCO as a defendant. On July 14, 2008 the plaintiffs’ motion to certify the action against OPCO and OPCO’s motion for a stay of the action were argued. On July 25, 2008, the plaintiffs’ motion to certify the action against OPCO was granted and OPCO’s motion to stay

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities (continued)

Canadian Legal Proceedings (continued)

the action was dismissed. OPCO appealed the certification decision and obtained leave to appeal the dismissal of its motion for a stay. These appeals were heard together with the Money Mart appeals in January, 2009. The court has reserved its decisions in all of these appeals.

Similar purported class actions have been commenced against Money Mart in Manitoba, New Brunswick, Nova Scotia and Newfoundland. OPCO is named as a defendant in the actions commenced in Nova Scotia and Newfoundland. The claims in these additional actions are substantially similar to those of the Ontario actions referred to above.

On April 26, and August 3, 2006, two former employees, Peggy White and Kelly Arseneau, commenced companion actions against Money Mart and OPCO. The actions, which are pending in the Superior Court of Ontario, allege negligence on the part of the defendants in security training procedures and breach of fiduciary duty to employees in violation of applicable statutes. The companion lawsuits seek combined damages of C$5.0 million plus interest and costs. These claims have been submitted to the respective insurance carriers. The Company intends to defend these actions vigorously.

At this time it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, of these matters.

California Legal Proceedings

On September 11, 2006, Caren Bufil commenced a lawsuit against the Company; the claims in Bufil are substantially similar to the claims in a previously dismissed case. Bufil seeks class certification of the action alleging that the Company had failed to provide non-management employees with meal and rest breaks required under California law. The suit seeks an unspecified amount of damages and other relief. The Company filed a motion for judgment on the pleadings, arguing that the Bufil case is duplicative of the previous case and should be dismissed. Plaintiff filed her motion for class certification. The Company’s motion was granted, and Bufil’s motion was denied. Bufil appealed both rulings. On April 17, 2008, the Court of Appeal reversed the trial court’s ruling. The Company filed a petition for review of that decision with the California Supreme Court, but on July 30, 2008 the Court denied the petition. Accordingly, the case has been remitted to the trial court and a hearing to consider the certification of the class has been scheduled for March 2009. At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, resulting from the Bufil case.

On April 26, 2007, the San Francisco City Attorney (“City Attorney”) filed a complaint alleging that OPCO’s subsidiaries engaged in unlawful and deceptive business practices in violation of California Business and Professions Code Section 17200 by either themselves making installment loans under the guise of marketing and servicing for co-defendant First Bank of Delaware (the “Bank”) or by brokering installment loans made by the Bank in California in violation of the prohibition on usury contained in the California Constitution and the California Finance Lenders Law and that they have otherwise violated the California Finance Lenders Law and the California Deferred Deposit Transaction Law. The complaint seeks broad injunctive relief as well as civil penalties. The Company denies the allegations of the complaint. Discovery is proceeding in state court and no trial date has been set. On January 5, 2009, the City Attorney filed a First Amended Complaint, adding OPCO as a defendant and adding a claim that short-term deferred deposit loans made by the Bank, which were marketed and serviced by OPCO and/or its subsidiaries violated the California Deferred Deposit Transaction law. OPCO and its subsidiaries plans to file a motion to dismiss this claim and the Court is scheduled to hear this motion on February 25, 2009. At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, resulting from this case.

We The People Legal Proceedings

The Company’s business model for its legal document processing services business is being challenged in certain courts, as described below, which could result in the Company’s discontinuation of these services in any one or more jurisdictions. The principal litigation for the WTP business unit is as follows:

The company from which the Company bought the assets of its WTP business, We The People Forms and Service Centers USA, Inc. (the “Former WTP”), certain of its franchisees and/or WTP are defendants in various lawsuits.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities (continued)

We The People Legal Proceedings (continued)

On January 17, 2007, a lawsuit was filed in the Los Angeles County Superior Court in California by six We The People franchisees against the Company, WTP, the Former WTP, and certain other defendants. The complaint alleges, among other causes of action, that defendants breached their franchise agreements with plaintiffs, engaged in fraud and conspiracy to defeat plaintiff’s rights, violated certain statutes relating to antitrust, securities and unfair competition, breached fiduciary duties owed to plaintiffs, and engaged in conduct which resulted in the intentional and negligent infliction of emotional distress on plaintiffs. The lawsuit seeks an unspecified amount of compensatory and punitive damages. In response, the Company removed the case to the United States District Court for the Central District of California. The Company also filed a petition to compel arbitration, which was granted. The Company believes the material allegations in the complaint with respect to the Company and its subsidiaries are without merit and intends to defend the matter vigorously. The parties have filed motions for summary adjudication with respect to certain claims and parties. Those motions are pending. An arbitration hearing has been set to commence on March 24, 2009.

On or about February 8, 2007, a lawsuit was filed by We The People of Mecklenburg County, LLC, George Hunt and Mary Hunt in the Superior Court of Mecklenburg County, North Carolina against Ira and Linda Distenfield and the Former WTP (the “IDLD Parties”), as well as the Company and WTP, as successors in interest. The complaint alleges, among other causes of action, that defendants breached the franchise agreement and that the IDLD Parties committed fraud and violated the North Carolina business opportunity statute. The complaint seeks unspecified compensatory and punitive damages and recovery of legal fees. The Company removed the case to the federal court and was granted an order compelling arbitration of the dispute. The plaintiffs have yet to file their arbitration demand. The Company believes the material allegations in the complaint with respect to the Company and WTP are without merit and intends to defend the matter vigorously.

On or about April 6, 2007, a lawsuit was filed by Martha and Marty Wasserman, former WTP franchisees, in the U.S. District Court for the Northern District of Texas against the IDLD Parties, as well as the Company and WTP, as successors in interest. The complaint alleges, among other causes of action, that defendants breached the franchise agreement and that the IDLD Parties committed fraud and deceptive trade practices and violated the Texas business opportunity statute. The Court granted WTP’s motion to compel arbitration. The complaint seeks unspecified compensatory and punitive damages, restitution and recovery of legal fees. The plaintiffs have yet to file their arbitration demand. The Company believes the material allegations in the complaint with respect to the Company and WTP are without merit and intends to defend the matter vigorously.

In May 2007, WTP met with the New York State Attorney General’s Office, Consumer Affairs Division, which had been investigating WTP operation in the New York City area for over three years. The Attorney General’s Office alleged that WTP engaged in unfair business practices, including deceptive advertising, that harmed New York consumers. The Attorney General’s Office demanded that WTP enter into an Agreed Order of Discontinuance (“AOD”) and demanded WTP pay a fine of approximately $0.3 million, plus investigation costs. WTP denied the allegations and requested that the Attorney General’s Office hold the former New York City WTP owners liable for the alleged misconduct. The terms of the AOD are in negotiation.

In May 2007, WTP franchisee Roseann Pennisi and her company, We The People of Westchester Square, New York, Inc., sued the Company, Ira and Linda Distenfield, IDLD, and WTP in the Supreme Court of the State of New York, Bronx County. The complaint alleges breach of franchise agreement, tortious interference with franchise agreement, breach of the covenant of good faith and fair dealing, unfair competition against defendants and breach of contract and deception and misrepresentation, unjust enrichment, fraudulent concealment of material facts against the Distenfields and IDLD, Inc. and seeks over $9.0 million in damages. Following a successful motion by WTP to compel arbitration of the plaintiffs’ claims, in October 2008, the plaintiff filed a request to arbitrate with relief requested in the amount of $0.4 million.

In September 2007, Jacqueline Fitzgibbons, who claims to be a former customer of a WTP store, commenced a lawsuit against the Company and others in California Superior Court for Alameda County. The suit alleges on behalf of a putative class of consumers and senior citizens that, from 2003 to 2007, We The People violated California law by advertising and selling living trusts and wills to certain California residents. Fitzgibbons claims, among other things, that the Company and others improperly conspired to provide her with legal advice, misled her as to what, if any, legitimate service We The People provided in preparing documents, and misled her regarding the supervising attorneys’ role in preparing documents. The plaintiff is seeking class certification, prohibition of the Company’s alleged unlawful business practices, and damages on behalf of the class in the form of disgorgement of all monies and profits obtained from unlawful business practices, general and special damages, attorneys’ fees and costs of the suit, statutory and

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities (continued)

We The People Legal Proceedings (continued)

tremble damages pursuant to various California business, elder abuse, and consumer protection codes. The complaint has been amended several times to add new parties and additional claims. The Court granted, in part, the Company’s motion to dismiss certain claims alleged by the plaintiffs. In January 2009, an individual named Robert Blau replaced Fitzgibbons as lead plaintiff. The Company intends to defend these allegations vigorously and believes that the claims and the assertion of class status are without merit.

In March 2008, an arbitration case was filed by Beth Stubenrauch and Scrivener Enterprises, a former WTP franchisee in Boston, Massachusetts, against We The People USA, Inc., OPCO, and Ira and Linda Distenfield, alleging that the respondents breached the franchise agreement, committed fraud and deceptive trade practices, and violated various California and Massachusetts business statutes by failing to comply with franchise offering disclosure laws in 2005. The complainants seek over $0.3 million in damages plus interest and attorneys’ fees. The Company believes the material allegations in the statement of claim with respect to the Company and WTP are without merit and intends to defend the matter vigorously.

In August 2008, a group of six former We The People customers commenced a lawsuit in St. Louis County, Missouri against the Company, its subsidiary, We The People USA, Inc. and WTP franchisees offering services to Missouri consumers. The plaintiffs allege, on behalf of a putative class of over 1,000 consumers that, from 2002 to the present, defendants violated Missouri law by engaging in: (i) an unauthorized law business, (ii) the unauthorized practice of law, and (iii) unlawful merchandising practices in the sale of its legal documents. The plaintiffs are seeking class certification, prohibition of the defendants’ unlawful business practices, and damages on behalf of the class in the form of disgorgement of all monies and profits obtained from unlawful business practices, attorney’s fees, statutory and treble damages pursuant to various Missouri consumer protection codes. In November 2008, the original six plaintiffs were dismissed by plaintiffs’ counsel and the complaint was amended to include two new plaintiffs who allege similar claims and seek class certification. The Company intends to defend these allegations and believes that the plaintiffs’ claims and allegations of class status are without merit.

In January 2009, the Company learned that Ira and Linda Distenfield had filed a joint voluntary petition for chapter 7 bankruptcy. In addition to delaying the ultimate resolution of many of the foregoing matters, the economic effect of this filing and, in particular, its effect on the Company’s ability to seek contribution from its co-defendants in connection with any of the foregoing matters, cannot presently be estimated.

It is the Company’s opinion that many of the WTP related litigation matters relate to actions undertaken by the Distenfields, IDLD, Inc. and the Former WTP during the period of time when they owned or managed We The People Forms and Service Centers USA, Inc.; this period of time was prior to the acquisition of the assets of the Former WTP by the Company. However, in many of these actions, the Company and WTP have been included as defendants in these cases as well. At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, of any of the aforementioned matters against WTP or the Company or any other Company litigation as well.

In addition to the matters described above, the Company continues to respond to inquiries it receives from state bar associations and state regulatory authorities from time to time as a routine part of its business regarding its legal document processing services business and its WTP franchisees.

While the outcome of these matters is currently not determinable, the Company does not expect that the ultimate cost to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

5. Capital Stock

On July 21, 2008, the Company announced that its Board of Directors had approved a stock repurchase plan, authorizing the Company to repurchase in the aggregate up to $7.5 million of its outstanding common stock, which is the maximum amount of common stock the Company can repurchase pursuant to the terms of its credit facility.

Under the plan authorized by its Board of Directors, the Company was permitted to repurchase shares in open market purchases or through privately negotiated transactions as permitted under Securities Exchange Act of 1934 Rule 10b-18. The extent to which the Company repurchased its shares and the timing of such repurchases depended upon market conditions and other corporate

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Capital Stock (continued)

considerations, as determined by the Company’s management. The purchases were funded from existing cash balances.

During the six months ended December 31, 2008, the Company repurchased 535,799 shares of its common stock at a cost of approximately $7.5 million, thus completing its stock repurchase plan.

6. Fair Value Measurements

SFAS 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.

Currently, the Company uses foreign currency options and cross currency interest rate swaps to manage its interest rate and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate curves, foreign exchange rates and implied volatilities. To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Fair Value Measurements (continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2008
( in thousands)

		Quoted Prices in
		Active Markets				Significant
		for Identical				Other				Significant				Balance at
		Assets and				Observable				Unobservable				December 31,
		Liabilities (Level 1)				Inputs (Level 2)				Inputs (Level 3)				2008
Assets
Derivative financial instruments		$	—			$	16,819			$	—			$	16,819
Liabilities
Derivative financial instruments		$	—			$	2,981			$	—			$	2,981

The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of December 31, 2008.

7. Loss on Store Closing and Other Restructuring

On June 30, 2008 the Company, as part of a process to rationalize its United States markets, made a determination to close 24 of its unprofitable stores in various United States markets. For all but one of these stores, the cease-use date was July 11, 2008 while one other store had a cease-use date of July 25, 2008. Customers from these stores have been transitioned to other Company stores in close proximity to the stores affected.

In August 2008, the Company identified an additional 29 stores in the United States and 17 stores in Canada that were underperforming or overlapping and which were closed or merged into a geographically proximate store. The cease-use date for 44 of these stores was in September 2008 with the cease-use date of the final two U.S. stores completed in the month of October. Customers from these stores were transitioned to other Company stores in close proximity to the stores affected.

During the six months ended December 31, 2008, the Company recorded costs for severance and other retention benefits of $0.6 million and store closure costs of $4.9 million consisting primarily of lease obligations and leasehold improvement write-offs. These charges were expensed within loss on store closings on the statements of operations. Of the $5.5 million charge, $3.1 million related to the United States geographic segment and $2.4 million for Canadian geographic segment. The closure of the stores in both the United States and Canada did not result in any impairment of goodwill since the store closures will be accretive to cash flow.

Following is a reconciliation of the beginning and ending balances of the restructuring liability (in millions):

		Severance and
		Other				Store Closure
		Retention Benefits				Costs				Total
Balance at June 30, 2008		$	0.2			$	—			$	0.2
Charge recorded in earnings			0.6				4.9				5.5
Amounts paid			(0.7	)			(2.6	)			(3.3	)
Non-cash charges			—				(1.8	)			(1.8	)
Balance at December 31, 2008		$	0.1			$	0.5			$	0.6

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Geographic Segment Information

All operations for which geographic data is presented below are principally in one industry (check cashing, consumer lending and ancillary services) (in thousands):

		United								United
		States				Canada				Kingdom				Total
As of and for the three months ended December 31, 2007
Total assets		$	267,787			$	466,137			$	165,794			$	899,718
Goodwill and other intangibles, net			205,719				194,046				74,859				474,624
Sales to unaffiliated customers:
Check cashing			12,159				21,918				14,782				48,859
Fees from consumer lending			19,724				38,455				15,415				73,594
Money transfer fees			1,350				4,187				1,542				7,079
Franchise fees and royalties			582				580				—				1,162
Other			1,557				6,897				2,573				11,027
Total sales to unaffiliated customers			35,372				72,037				34,312				141,721
Provision for loan losses			7,046				7,604				1,420				16,070
Interest expense, net			1,356				5,638				1,983				8,977
Depreciation and amortization			1,163				1,679				1,262				4,104
Loss on store closings			92				14				—				106
Other (income) expense, net			197				(312	)			(38	)			(153	)
(Loss) income before income taxes			(3,630	)			18,427				7,103				21,900
Income tax provision			11				6,822				2,103				8,936
As of and for the six months ended December 31, 2007
Sales to unaffiliated customers:
Check cashing		$	23,200			$	42,033			$	29,289			$	94,522
Fees from consumer lending			35,712				76,426				29,965				142,103
Money transfer fees			2,322				7,875				2,842				13,039
Franchise fees and royalties			1,306				1,197				—				2,503
Other			2,824				12,812				4,774				20,410
Total sales to unaffiliated customers			65,364				140,343				66,870				272,577
Provision for loan losses			12,688				14,562				3,626				30,876
Interest expense, net			2,336				10,870				3,860				17,066
Depreciation and amortization			2,257				3,110				2,465				7,832
Loss on store closings			144				49				—				193
Other (income) expense, net			209				(347	)			(27	)			(165	)
(Loss) income before income taxes			(7,258	)			37,736				11,932				42,410
Income tax (benefit) provision			(420	)			14,236				3,576				17,392

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Geographic Segment Information (continued)

		United								United
		States				Canada				Kingdom				Total
As of and for the three months ended December 31, 2008
Total assets		$	299,154			$	412,344			$	164,866			$	876,364
Goodwill and other intangibles, net			206,024				157,572				58,409				422,005
Sales to unaffiliated customers:
Check cashing			13,914				17,346				10,364				41,624
Fees from consumer lending			22,188				30,006				17,811				70,005
Money transfer fees			1,526				3,767				1,491				6,784
Franchise fees and royalties			446				664				—				1,110
Other			2,935				6,375				3,340				12,650
Total sales to unaffiliated customers			41,009				58,158				33,006				132,173
Provision for loan losses			6,618				6,197				2,084				14,899
Interest expense, net			2,596				4,323				1,651				8,570
Depreciation and amortization			1,404				1,419				1,285				4,108
Loss on store closings			422				127				6				555
Other (income) expense, net			—				(4,027	)			(1,385	)			(5,412	)
(Loss) income before income taxes(1)			(5,139	)			18,942				8,226				22,029
Income tax provision			24				8,467				1,892				10,383
As of and for the six months ended December 31, 2008
Sales to unaffiliated customers:
Check cashing		$	28,351			$	37,890			$	23,915			$	90,156
Fees from consumer lending			44,991				67,203				39,309				151,503
Money transfer fees			3,118				8,176				3,100				14,394
Franchise fees and royalties			984				1,303				—				2,287
Other			5,795				13,899				7,215				26,909
Total sales to unaffiliated customers			83,239				128,471				73,539				285,249
Provision for loan losses			13,595				12,094				4,461				30,150
Interest expense, net			6,861				7,589				3,569				18,019
Depreciation and amortization			2,862				3,134				2,744				8,740
Loss on store closings			3,070				2,417				6				5,493
Other (income) expense, net			509				(4,207	)			(1,462	)			(5,160	)
(Loss) income before income taxes(1)			(14,006	)			37,592				17,054				40,640
Income tax (benefit) provision			(27	)			11,638				3,998				15,609

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Put Options

Operations in the United Kingdom and Canada have exposed the Company to shifts in currency valuations. From time to time, the Company purchases put options in order to protect certain earnings in the United Kingdom and Canada against the translational impact of foreign currency fluctuations. Out of the money put options are generally used because they cost less than completely averting risk using at the money put options, and the maximum loss is limited to the purchase price of the contracts. At December 31, 2008, the Company held put options with an aggregate notional value of C$18.0 million and GBP 2.7 million to protect the Company’s operations in Canada and the United Kingdom against adverse changes in the CAD-USD and GBP-USD exchange rates, respectively, through March 31, 2009. In January 2009, the Company purchased put options for April expiration with notional amounts of C$ 6.0 million and GBP 0.9 million. The Company has designated the purchased put options as cash flow hedges of the foreign exchange risk associated with the forecasted purchases of foreign-currency-denominated investment securities. These cash flow hedges have a duration of less than twelve months. For derivative instruments that are designated and qualify as cash flow hedges, the effective portions of the gain or loss on the derivative instrument are initially recorded in accumulated other comprehensive income as a separate component of shareholders’ equity and are subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. Any ineffective portion of the gain or loss is reported in other (income) expense, net on the statement of operations. For options designated as hedges, hedge effectiveness is measured by comparing the cumulative change in the hedge contract with the cumulative change in the hedged forecasted transactions, both of which are based on forward rates. There was no ineffectiveness from these cash flow hedges for the three and six months ended December 31, 2008. As of December 31, 2008, amounts related to these derivatives qualifying as cash flow hedges amounted to an increase of shareholders’ equity of $0.1 million, net of tax, all of which is expected to be transferred to earnings in the next three months along with the earnings effects of the related forecasted transactions. The fair market value of the outstanding puts held by the Company at December 31, 2008 was $0.6 and is included in prepaid expenses on the balance sheet.

Cross-Currency Interest Rate Swaps

In December 2006, the Company’s U.K. subsidiary, Dollar Financial U.K. Limited, entered into a cross-currency interest rate swap with a notional amount of GBP 21.3 million that matures in October 2012 to protect against changes in cash flows attributable to changes in both the benchmark interest rate and foreign exchange rates on its Euro-denominated variable rate term loan borrowing under the Company’s credit agreement. Under the terms of this swap, Dollar Financial U.K. Limited pays GBP at a rate of 8.45% per annum and receives a rate of the three-month EURIBOR plus 3.00% per annum on EUR 31.5 million. In December 2006, Dollar Financial U.K. Limited also entered into a cross-currency interest rate swap with a notional amount of GBP 20.4 million that matures in October 2012 to protect against changes in cash flows attributable to changes in both the benchmark interest rate and foreign exchange rates on its USD-denominated variable rate term loan borrowing under the Company’s credit agreement. Under the terms of this cross-currency interest rate swap, Dollar Financial U.K. Limited pays GBP at a rate of 8.36% per annum and it receives a rate of the three-month LIBOR plus 3.00% per annum on US$40.0 million.

In December 2006, the Company’s Canadian subsidiary, National Money Mart Company, entered into cross-currency interest rate swaps with aggregate notional amounts of C$339.9 million that mature in October 2012 to protect against changes in cash flows attributable to changes in both the benchmark interest rate and foreign exchange rates on its USD-denominated variable rate term loan borrowing under the Company’s credit agreement. Under the terms of the swaps, National Money Mart Company pays Canadian dollars at a blended rate of 7.12% per annum and receives a rate of the three-month LIBOR plus 2.75% per annum on $295.0 million.

On a quarterly basis, all of the cross-currency interest rate swap agreements call for the exchange of 0.25% of the original notional amounts. Upon maturity, these cross-currency interest rate swap agreements call for the exchange of the remaining notional amounts. The Company has designated these derivative contracts as cash flow hedges for accounting purposes. The Company records foreign exchange re-measurement gains and losses related to the term loans and also records the changes in fair value of the cross-currency swaps each period in corporate expenses in the Company’s consolidated statements of operations. Because these derivatives are designated as cash flow hedges, the Company records the effective portion of the after-tax gain or loss in other comprehensive income, which is subsequently reclassified to earnings in the same period that the hedged transactions affect earnings. As of December 31, 2008, amounts related to cross-currency interest rate swaps amounted to an increase in shareholders’ equity of $12.4 million, net of tax. The aggregate fair market value of the cross-currency interest rate swaps at December 31, 2008 is a net asset of $13.2 million and is included in fair value of derivatives on the balance sheet. There was no hedge ineffectiveness during the three and six months ended December 31, 2008. During the six months ended December 31, 2007, the Company recorded $0.2 million in earnings related to the ineffective portion of these cash flow hedges.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Comprehensive Income (Loss)

Comprehensive income (loss) is the change in equity from transactions and other events and circumstances from non-owner sources, which includes foreign currency translation and fair value adjustments for cash flow hedges. The following shows the comprehensive income (loss) for the periods stated (in thousands):

		Three months ended								Six months ended
		December 31,								December 31,
		2007				2008				2007				2008
Net income		$	12,964			$	11,646			$	25,018			$	25,031
Foreign currency translation adjustment(1)			(3,006	)			(25,698	)			287				(36,894	)
Fair value adjustments for cash flow hedges, net(2)(3)			(757	)			(17,623	)			(6,122	)			(14,282	)
Total comprehensive income (loss)		$	9,201			$	(31,675	)		$	19,183			$	(26,145	)

Accumulated other comprehensive income, net of related tax, consisted of net unrealized losses on put option designated as cash flow hedges of $0.1 million and net unrealized losses on cross-currency interest rate swaps designated as cash flow hedging transactions of $18.0 million at December 31, 2008, compared to net unrealized gains on put option designated as cash flow hedges of $0.1 million and net unrealized losses on cross-currency interest rate swaps designated as cash flow hedging transactions of $2.2 million at December 31, 2007.

11. Income Taxes

The provision for income taxes was $15.6 million for the six months ended December 31, 2008 compared to a provision of $17.4 million for the six months ended December 31, 2007. Our effective tax rate was 38.4% for the six months ended December 31, 2008 and was 41.0% for the six months ended December 31, 2007. Our effective tax rate for the six months ended December 31, 2008 is a combination of an effective rate of 47.1% on continuing operations reduced by the impact of a favorable settlement granted in a competent authority tax proceeding between the United States and Canadian tax authorities related to transfer pricing matters for years 2000 through 2003 combined with an adjustment to our reserve for uncertain tax benefits related to years for which a settlement has not yet been received. The impact to our six months fiscal 2009 provision for income taxes related to these two items was $3.5 million. Our effective tax rate differs from the federal statutory rate of 35% due to foreign taxes, permanent differences and a valuation allowance on U.S. and foreign deferred tax assets and the aforementioned changes to our reserve for uncertain tax positions. Prior to the global debt restructuring in our fiscal year ended June 30, 2007, interest expense in the U.S. resulted in U.S. tax losses, thus generating deferred tax assets. At December 31, 2008 we maintained a deferred tax asset of $115.4 million which is offset by a valuation allowance of $100.1 million of which $2.4 million was provided for in the period. The change for the period in our deferred tax assets and valuation allowances is presented in the table below and more fully described in the paragraphs that follow.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11. Income Taxes (continued)

Change in Deferred Tax Assets and Valuation Allowances (in millions):

		Deferred				Valuation				Net Deferred
		Tax Asset				Allowance				Tax Asset
Balance at June 30, 2008		$	109.9			$	97.7			$	12.2
U.S. increase			2.7				2.7				—
Foreign increase/(decrease)			2.8				(0.3	)			3.1
Balance at December 31, 2008		$	115.4			$	100.1			$	15.3

The $115.4 million in deferred tax assets consists of $53.2 million related to net operating losses and the reversal of temporary differences, $45.7 million related to foreign tax credits and $16.5 million in foreign deferred tax assets. At December 31, 2008, U.S. deferred tax assets related to net operating losses and the reversal of temporary differences were reduced by a valuation allowance of $53.2 million, which reflects an increase of $2.7 million during the period. The net operating loss carry forward at December 31, 2008 was $86.2 million. We believe that our ability to utilize net operating losses in a given year will be limited to $9.0 million under Section 382 of the Internal Revenue Code (the “Code”) because of changes of ownership resulting from our June 2006 follow-on equity offering. In addition, any future debt or equity transactions may reduce our net operating losses or further limit our ability to utilize the net operating losses under the Code. The deferred tax asset related to excess foreign tax credits is also fully offset by a valuation allowance of $45.7 million. Additionally, we maintain foreign deferred tax assets in the amount of $16.5 million. Of this amount $1.5 million was recorded by our Canadian affiliate during fiscal 2008 related to a foreign currency loss sustained in connection with the hedge of its term loan. This deferred tax asset was offset by a full valuation allowance of $1.5 million since the foreign currency loss is capital in nature and at this time we have not identified any potential for capital gains against which to offset the loss.

We adopted the provisions of FIN 48 on July 1, 2007. The implementation of FIN 48 did not result in any adjustment in our liability for unrecognized income tax benefits. At June 30, 2008, we had unrecognized tax benefit reserves related to uncertain tax positions of $9.9 million which, if recognized, would decrease the effective tax rate. At December 31, 2008 we had $8.0 million of unrecognized tax benefits primarily related to transfer pricing matters, which if recognized, would decrease our effective tax rate. The reduction of $1.9 million during the period results primarily from the effects of the Competent Authority settlement discussed above.

The tax years ending June 30, 2004 through 2007 remain open to examination by the taxing authorities in the United States, United Kingdom and Canada.

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2008, we had approximately $0.8 million of accrued interest related to uncertain tax positions which represents an increase of $0.2 million during the six months ended December 31, 2008. The provision for unrecognized tax benefits including accrued interest is included in income taxes payable.

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

The following is a discussion and analysis of the financial condition and results of operations for Dollar Financial Corp. for the three and six months ended December 31, 2008 and 2007. References in this section to “we,” “our,” “ours,” or “us” are to Dollar Financial Corp. and its wholly owned subsidiaries, except as the context otherwise requires. References to “OPCO” are to our wholly owned operating subsidiary, Dollar Financial Group, Inc.

Executive Summary

We are the parent company of Dollar Financial Group, Inc., which, together with its wholly owned subsidiaries, is collectively referred to as OPCO. Historically, we have derived our revenues primarily from providing check cashing services, consumer lending and other consumer financial products and services, including money orders, money transfers, foreign currency exchange, branded debit cards and bill payment. For our check cashing services, we charge our customers fees that are usually equal to a percentage of the amount of the check being cashed and are deducted from the cash provided to the customer. For our consumer loans, we receive interest and fees on the loans. With respect to our We The People (“WTP”) franchised locations, we receive initial franchise fees upon the initial sale of a franchise. Processing fees from our franchisees are earned for processing customers’ legal documents.

Most of our retail financial service locations issue single-payment consumer loans on the company-funded consumer loan model. We operate under a credit services organization (“CSO”) model for single-payment loans at our five Texas stores under the terms of which we guarantee, originate and service loans for a non-bank lender that comply with Texas law. Beginning April 2007, we ceased originating longer-term installment loans under a bank-funded model and transitioned, to the extent possible, those installment loan customers to company-funded short-term single-payment consumer loans. Beginning July 2007, we began offering company-funded CustomCash ^® domestic installment loans in our New Mexico market and began offering this product in our Utah market in January 2008. In August 2007, we launched an internet single-payment loan site for residents of California and, in February 2008, for Arizona residents; and we plan to expand to other locations over time.

On August 30, 2007, we entered into a purchase agreement to acquire substantially all of the assets of 45 retail financial services stores for $29.3 million in cash, which included $2.0 million in cash to be held in escrow for 24 months to secure certain indemnification claims. The agreement also included a maximum revenue-based earn out of up to $3.0 million which would be payable in February 2009. On August 30, 2007, we consummated the acquisition of 22 of the stores, which are located in Missouri, Oklahoma, Arizona and Hawaii. On September 19, 2007, we consummated the acquisition of an additional four of the stores, all of which are located in Iowa. During October 2007, we consummated the acquisition of an additional 16 of the stores, 15 of which are located in Kansas, and one which is located in South Carolina. We acquired the remaining 3 stores, all of which are located in Nebraska, in March 2008. The total aggregate purchase price for the 45 stores that were acquired during fiscal 2008 was $29.3 million in cash.

On November 15, 2007, we redeemed the remaining $2.0 million principal amount of our 9.75% Senior Notes at a redemption price of 104.875%, plus accrued and unpaid interest.

On December 15, 2007, we consummated the purchase of substantially all of the assets of CCS Financial Services, Inc., d/b/a The Check Cashing Store, which operated 81 financial services stores in southeast Florida offering check cashing, single-payment short term consumer loans and other ancillary products. The total purchase price for the acquisition, including the consumer loan portfolio and cash in stores at closing, was $102.1 million in cash.

On June 30, 2008 we, as part of a process to rationalize our United States markets, made a determination to close 24 of our unprofitable stores in various United States markets. For all but one of these stores, the cease-use date was July 11, 2008 while one other store had a cease-use date of July 25, 2008. In August 2008, we identified another 29 stores in the United States and 17 stores in Canada that were underperforming and which were closed or merged into a geographically proximate store. The cease-use date for 44 of these stores was in September 2008 with the disposition of the final two U.S. stores completed in the month of October. Customers from these stores

were transitioned to other Company stores in close proximity to the stores affected. We recorded costs for severance and other retention benefits of $0.6 million and store closure costs of $4.9 million consisting primarily of lease obligations and leasehold improvement write-offs. The closure of stores in the United States and Canada did not result in any impairment of goodwill since the store closures will be accretive to cash flow.

On July 21, 2008, we announced that our Board of Directors had approved a stock repurchase plan, authorizing us to repurchase in the aggregate up to $7.5 million of our outstanding common stock, which is the maximum amount of common stock we can repurchase pursuant to the terms of our credit facility. For the six months ended December 31, 2008, we have repurchased 535,799 shares of our common stock at a cost of approximately $7.5 million, thus completing our stock repurchase plan.

Our expenses primarily relate to the operations of our store network, including the provision for loan losses, salaries and benefits for our employees, occupancy expense for our leased real estate, depreciation of our assets and corporate and other expenses, including costs related to opening and closing stores.

In each foreign country in which we operate, local currency is used for both revenues and expenses. Therefore, we record the impact of foreign currency exchange rate fluctuations related to our foreign net income.

Discussion of Critical Accounting Policies

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. We evaluate these estimates on an ongoing basis, including those related to revenue recognition, loss reserves and intangible assets. We base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results could vary from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements:

Revenue Recognition

With respect to company-operated stores, revenues from our check cashing, money order sales, money transfer, foreign currency exchange, bill payment services and other miscellaneous services reported in other revenues on our statement of operations are all recognized when the transactions are completed at the point-of-sale in the store.

With respect to our franchised locations, we recognize initial franchise fees upon fulfillment of all significant obligations to the franchisee. Royalties from franchisees are recognized as earned. The standard franchise agreements grant to the franchisee the right to develop and operate a store and use the associated trade names, trademarks, and service marks within the standards and guidelines that we established. As part of the franchise agreement, we provide certain pre-opening assistance including site selection and evaluation, design plans, operating manuals, software and training. After the franchised location has opened, we provide updates to the software, samples of certain advertising and promotional materials and other post-opening assistance that we determine is necessary. Franchise/agent revenue for the three months ended December 31, 2007 and 2008 were $ 1.2 million and $ 1.1 million, respectively. Franchise/agent revenues were $ 2.5 million and $ 2.3 million for the six months ending December 31, 2007 and 2008, respectively.

For single-payment consumer loans that we make directly (company-funded loans), which have terms ranging from 1 to 45 days, revenues are recognized using the interest method. Loan origination fees are recognized as an adjustment to the yield on the related loan. Our reserve policy regarding these loans is summarized below in “Company-Funded Consumer Loan Loss Reserves Policy.”

Company-Funded Consumer Loan Loss Reserves Policy

We maintain a loan loss reserve for anticipated losses for single-payment and other consumer loans we make directly through our company-operated locations. To estimate the appropriate level of loan loss reserves, we consider the amount of outstanding loans owed to us, historical loans charged off, current and expected collection patterns and current economic trends. Our current loan loss reserve is based on our net charge-offs, typically expressed as a percentage of loan amounts originated for the last twelve months applied against the total amount of outstanding loans that we make directly. As these conditions change, we may need to make additional allowances in future periods. Despite the economic downturn in the U.S. and the foreign markets in which we operate, we have not experienced any material increase in the defaults on outstanding loans, however we have tightened lending criteria. Accordingly, we have not modified our approach to determining our loan loss reserves.

When a loan is originated, the customer receives the cash proceeds in exchange for a post-dated customer check or a written authorization to initiate a charge to the customer’s bank account on the stated maturity date of the loan. If the check or the debit to the customer’s account is returned from the bank unpaid, the loan is placed in default status and an additional reserve for this defaulted loan receivable is established and charged to store and regional expenses in the period that the loan is placed in default status. This reserve is reviewed monthly and any additional provision to the loan loss reserve as a result of historical loan performance, current and expected collection patterns and current economic trends is charged to store and regional expenses. If the loans remain in defaulted status for 180 days, a reserve for the entire amount of the loan is recorded and the receivable and corresponding reserve is ultimately removed from the balance sheet. The receivable for defaulted single-payment loans, net of the allowance, is reported on our balance sheet in loans in default, net and was $ 14.4 million at December 31, 2008 and $ 11.9 million at June 30, 2008.

Check Cashing Returned Item Policy

We charge operating expense for losses on returned checks during the period in which such checks are returned, which generally is three to five business days after the check is cashed in our store. Recoveries on returned checks are credited to operating expense during the period in which recovery is made. This direct method for recording returned check losses and recoveries eliminates the need for an allowance for returned checks. These net losses are charged to other store and regional expenses in the consolidated statements of operations.

Goodwill and Other Intangibles

We account for goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Goodwill is the excess of cost over the fair value of the net assets of the business acquired. Intangible assets consist of reacquired franchise rights, which are deemed to have an indefinite useful life and are not amortized.

Goodwill is tested for impairment annually as of June 30, or whenever events or changes in business circumstances indicate that an asset might be impaired. As of June 30, 2008, there was no impairment of goodwill. There can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

We perform our impairment tests utilizing the two steps as outlined in SFAS 142. If the carrying amount of a reporting unit exceeds its implied fair value, an impairment loss would be recognized in an amount equal to the excess of the implied fair value of the reporting unit’s goodwill over its carrying value, not to exceed the carrying amount of the goodwill.

Non-amortizable intangibles with indefinite lives are tested for impairment annually as of December 31, or whenever events or changes in business circumstances indicate that an asset may be impaired. If the estimated fair value is less than the carrying amount of the intangible assets with indefinite lives, then an impairment charge would be recognized to reduce the asset to its estimated fair value. As of December 31, 2008, there was no impairment of reacquired franchise rights. There can be no assurance that future impairment tests will not result in a charge to earnings.

The fair value of the Company’s goodwill and indefinite-lived intangible assets are estimated based upon a present value technique using discounted future cash flows. The Company uses management business plans and projections as the basis for expected future cash flows. Assumptions in estimating estimated future cash flows are subject to a high degree of judgment.

The Company makes every effort to forecast its future cash flows as accurately as possible at the time the forecast is developed.

However, changes in assumptions (such as discount rates used) and estimates (such as projections about operating performance in future periods) may affect the implied fair value of goodwill and indefinite-lived intangible assets and could result in charges in future periods.

Income Taxes

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. An assessment is then made of the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance.

In June 2006, the Financial Accounting Standards Board (the “FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes , an interpretation of SFAS 109, Accounting for Income Taxes (“FIN 48”), to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognized threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 requires that a “more-likely-than-not” threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. It requires that the new standard be applied to the balances of assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment, if required, be made to the opening balance of our retained earnings balance beginning July 1, 2007. We adopted the provisions of FIN 48 on July 1, 2007. The implementation of FIN 48 did not result in any adjustment in our liability for unrecognized income tax benefits.

Results of Operations

Revenue Analysis

		Three Months Ended December 31,																Six Months Ended December 31,
										(Percentage of total																(Percentage of total
		($ in thousands)								revenue)								($ in thousands)								revenue)
		2007				2008				2007				2008				2007				2008				2007				2008
Check cashing		$	48,859			$	41,624				34.5	%			31.5	%		$	94,522			$	90,156				34.7	%			31.6	%
Fees from consumer lending			73,594				70,005				51.9	%			53.0	%			142,103				151,503				52.1	%			53.1	%
Money transfer fees			7,079				6,784				5.0	%			5.1	%			13,039				14,394				4.8	%			5.0	%
Franchise fees and royalties			1,162				1,110				0.8	%			0.8	%			2,503				2,287				0.9	%			0.8	%
Other revenue			11,027				12,650				7.8	%			9.6	%			20,410				26,909				7.5	%			9.5	%
Total revenue		$	141,721			$	132,173				100	%			100	%		$	272,577			$	285,249				100	%			100	%

Constant Currency Analysis

We maintain operations primarily in the United States , Canada and United Kingdom. Approximately 70% of our revenues are originated in currencies other than the US Dollar, principally the Canadian Dollar and British Pound Sterling. As a result, changes in our reported revenues and profits include the impacts of changes in foreign currency exchange rates. As additional information to the reader, we provide “constant currency” assessments in the following discussion and analysis to remove and/or quantify the impact of the fluctuation in foreign exchange rates and utilize constant currency results in our analysis of segment performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal year periods. For the three months ended December 31, 2008, the actual average exchange rates used to translate the Canadian and United Kingdom’s results were 0.8263 and 1.5686, respectively. For our constant currency reporting for the same period, the average exchange rates used to translate the Canadian and United Kingdom’s results were 1.0191 and 2.0442, respectively. For the six months ended December 31, 2008, the actual average exchange rates used to translate the Canadian and United Kingdom’s results were 0.8933 and 1.7290, respectively. For our constant currency reporting for the same period, the average exchange rates used to translate the Canadian and United Kingdom’s results were 0.9884 and 2.0327, respectively. Note — all conversion rates are based on the US Dollar equivalent to one Canadian Dollar and one Great British Pound.

We believe that our constant currency assessments are a useful measure, indicating the actual growth and profitability of our operations. Earnings from our subsidiaries are not generally repatriated to the US; therefore, we do not incur significant gains or losses on foreign currency transactions with our subsidiaries. As such, changes in foreign currency exchange rates primarily impact only reported earnings and not our actual cash flow.

The Three Months Ended December 31, 2008 compared to the Three Months Ended December 31, 2007

Total revenues for the three months ended December 31, 2008 decreased $9.5 million, or 6.7% as compared to the three months ended December 31, 2007. The impact of foreign currency accounted for approximately $23.4 million of the decrease, offset in part by new store openings and acquisitions of approximately $14.0 million. On a constant currency basis and after eliminating the impact of new stores and acquisitions, total revenues decreased by $0.1 million.

Consolidated check cashing revenue decreased 14.8%, or $7.2 million, year-over-year. There was a decrease of $7.1 million related to foreign exchange rates and increases from new stores and acquisitions of $4.8 million. On a constant currency basis and after eliminating the impact of new stores and acquisitions, check cashing revenues were down $4.9 million or 10.2% for the current three month period. Check cashing revenues from our U.S. business segment, which includes the contributions from the fiscal year 2008 acquisitions in Southeast Florida and the Midwestern states, realized period to period growth of 14.4%, while the Canadian business declined by $0.5 million (based on constant currency reporting) over the previous year’s period. Also on a constant currency basis, check cashing fees in the United Kingdom decreased by 9.1% over the prior year’s period. On a consolidated constant currency basis, the face amount of the average check cashed decreased 0.7% to $534 for the second quarter of fiscal 2009 compared to $538 for the prior year period while the average fee per check cashed decreased by 8.4% to $18.90.

Consolidated fees from consumer lending were $70.0 million for the second quarter of fiscal 2009, representing a decrease of 4.9% or $3.6 million compared to the prior year period. The impact of foreign currency fluctuations accounted for a decrease of approximately $12.4 million that was offset by new stores and acquisitions of $6.4 million. The remaining increase of $2.4 million was primarily provided by our operations in the United Kingdom which increased by 43.2% while the U.S. and Canadian consumer lending business decreased by 10.6% and 5.5%, respectively. Money transfer fees for the quarter decreased in reported amounts by $0.3 million but when adjusted for currency and excluding the impact from new stores and acquisitions, increased by $0.4 million or 5.3% for the three months ended December 31, 2008 as compared to the year earlier period. On a constant currency basis and excluding the impact from new stores and acquisitions, other revenue increased by $2.1 million for the quarter, principally due to the success of the foreign exchange product, the debit card business and other ancillary products.

The Six Months Ended December 31, 2008 compared to the Six Months Ended December 31, 2007

Total revenues for the six months ended December 31, 2008 increased $12.7 million, or 4.6% as compared to the six months ended December 31, 2007. The impact of foreign currency accounted for a decrease of approximately $26.0 million which was offset by new store openings and acquisitions of approximately $34.6 million. On a constant currency basis and after eliminating the impacts of foreign exchange rates and new stores and acquisitions, total revenues increased by $4.1 million or 1.5%.

Relative to our products, consolidated check cashing revenue decreased $4.4 million, 4.6% for the six months ended December 31, 2008 compared to the same period in the prior year. There was a decrease of $7.9 million related to foreign exchange rates and increases from new stores and acquisitions of $11.6 million. The remaining check cashing revenues were down $8.1 million or 8.5% for the current six month period. Check cashing revenues from our U.S. business segment, which includes the contributions from the fiscal year 2008 acquisitions in Southeast Florida and the Midwestern states, realized period to period growth of 22.2%, while the Canadian business remained relatively flat (based on constant currency reporting) over the previous year’s period. Also on a constant currency basis, check cashing fees in the United Kingdom decreased by 4.8% over the prior year’s period. On a consolidated constant currency basis, the face amount of the average check cashed decreased 0.4% to $530 for the six months ended December 31, 2008 compared to $532 for the prior year period while the average fee per check cashed decreased by 5.7% to $19.22.

Consolidated fees from consumer lending were $151.5 million for the six months ended December 31, 2008 compared to $142.1 million for the year earlier period which is an increase of $9.4 million or 6.6%. The impact of foreign currency fluctuations accounted for a decrease of approximately $13.8 million that was offset by new stores and acquisitions of $16.9 million. The remaining increase of $6.3 million was primarily provided by our operations in the United Kingdom which increased by 44.6% while the U.S. and Canadian consumer lending business decreased by 8.5% and 5.3%, respectively. For the six months ended December 31, 2008, money transfer fees increased in reported amounts by $1.4 million over the prior year period and were basically the same when adjusted for currency and new store activity. On a constant currency basis and excluding the impact from new stores and acquisitions, other revenue, increased by $4.5 million, 19.8% for the quarter, principally due to the success of the foreign exchange product, the debit card business and other ancillary products.

		Three Months Ended December 31,																Six Months Ended December 31,
										(Percentage of total																(Percentage of total
		($ in thousands)								revenue)								($ in thousands)								revenue)
		2007				2008				2007				2008				2007				2008				2007				2008
Salaries and benefits		$	38,646			$	36,275				27.3	%			27.4	%		$	73,883			$	77,078				27.1	%			27.0	%
Provision for loan losses			16,070				14,899				11.3	%			11.3	%			30,876				30,150				11.3	%			10.6	%
Occupancy			10,157				10,316				7.2	%			7.8	%			19,431				21,640				7.1	%			7.6	%
Depreciation			3,214				3,170				2.3	%			2.4	%			6,023				6,762				2.2	%			2.4	%
Returned checks, net and cash shortages			4,597				4,227				3.2	%			3.2	%			9,253				10,362				3.4	%			3.6	%
Telephone and communications			1,798				1,798				1.3	%			1.4	%			3,450				3,877				1.3	%			1.4	%
Advertising			2,721				2,396				1.9	%			1.8	%			4,824				5,208				1.8	%			1.8	%
Bank Charges and armored carrier expenses			3,287				3,130				2.3	%			2.4	%			6,343				6,763				2.3	%			2.4	%
Other			11,980				11,688				8.5	%			8.8	%			22,452				25,325				8.3	%			8.8	%
Total store and regional expenses		$	92,470			$	87,899				65.2	%			66.5	%		$	176,535			$	187,165				64.8	%			65.6	%

Store and regional expenses were $87.9 million for the three months ended December 31, 2008 compared to $92.5 million for the three months ended December 31, 2007, a decrease of $4.6 million or 4.9%. The impact of foreign currency accounted for approximately $13.2 million of the decrease which was partially offset by the impact associated with the two acquisitions during the first half of fiscal 2008 of approximately $7.3 million. On a constant currency basis and after eliminating the impact of acquisitions, store expenses increased by $1.3 million. For the current year quarter, total store and regional expenses increased to 66.5% of total revenue compared to 65.2% of total revenue for the year earlier period. After adjusting for constant currency reporting and elimination of acquisitions, the percentage of total store and regional expenses as compared to total revenue drops from the reported amount of 66.5% down to 66.2%.

Relative to our business units, on a constant currency basis and after eliminating the impact of acquisitions, store and regional expenses decreased by $4.2 million and $0.4 million in the US and Canada, respectively. The decreases in these two units are consistent with the closure of approximately 70 US and Canadian stores that was announced earlier in the current fiscal year. The adjusted store and regional expenses in United Kingdom were up approximately $5.9 million for the three months ended December 31, 2008 as compared to the prior year. The United Kingdom increase was primarily attributable to the categories of salary and benefits, occupancy, loan loss provision and advertising which are all commensurate with growth in that country.

Store and regional expenses were $187.2 million for the six months ended December 31, 2008 compared to $176.5 million for the six months ended December 31, 2007, an increase of $10.6 million or 6.0%. The impact of foreign currency accounted for a decrease of approximately $14.7 million which was partially offset by the impact associated with the two acquisitions during the first half of fiscal 2008 of approximately $18.9 million. On a constant currency basis and after eliminating the impact of acquisitions, store expenses increased by $6.4 million. For the current year cumulative period, total store and regional expenses increased to 65.6% of total revenue compared to 64.8% of total revenue for the year earlier period. After adjusting for constant currency reporting and elimination of acquisitions, the percentage of total store and regional expenses as compared to total revenue increased from the reported amount of 65.6% to 66.1%.

Relative to our business units, after excluding the impacts of foreign currency and acquisitions, US store and regional expenses decreased by $5.9 million while Canada’s expenses increased moderately by $1.0 million. The decrease in the US and slight increase in Canada is consistent with the closure of approximately 70 US and Canadian stores that was announced earlier in the current fiscal year. The adjusted store and regional expenses in United Kingdom were up approximately $11.4 million for the six months ended December

31, 2008 as compared to the prior year. The United Kingdom increase was primarily attributable to the categories of salary and benefits, occupancy, loan loss provision and advertising which are all commensurate with growth in that country.

Corporate and Other Expense Analysis

		Three Months Ended December 31,																Six Months Ended December 31,
										(Percentage of total																(Percentage of total
		($ in thousands)								revenue)								($ in thousands)								revenue)
		2007				2008				2007				2008				2007				2008				2007				2008
Corporate expenses		$	17,531			$	17,594				12.4	%			13.3	%		$	34,729			$	37,114				12.7	%			13.0	%
Other depreciation and amortization			890				938				0.6	%			0.7	%			1,809				1,978				0.7	%			0.7	%
Interest expense, net			8,977				8,570				6.3	%			6.5	%			17,066				18,019				6.3	%			6.3	%
Loss on store closings			106				555				0.1	%			0.4	%			193				5,493				0.1	%			1.9	%
Other (income) expense			(153	)			(5,412	)			(0.1	)%			(4.1	)%			(165	)			(5,160	)			(0.1	)%			(1.8	)%
Income tax provision			8,936				10,383				6.3	%			7.9	%			17,392				15,609				6.4	%			5.5	%