e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2007


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

For the transition period from to

Commission file number 000-50866

DOLLAR FINANCIAL CORP.

(Exact Name of Registrant as Specified in Its Charter)


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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

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 October 31, 2007, 24,174,042 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DOLLAR FINANCIAL CORP.

INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)


	June 30,			September 30,
	2007			2007
				(unaudited)
ASSETS
Cash and cash equivalents	$	294,518		$	296,979
Restricted cash		1,014			2,178
Loans receivable, net:
Loans receivable		90,552			103,772
Less: Allowance for loan losses		(8,623	)		(10,461	)

Loans receivable, net		81,929			93,311
Other consumer lending receivables		1,056			116
Loans in default, net of an allowance of $18,045 and $20,942		10,311			11,972
Other receivables		10,337			8,124
Prepaid expenses		12,146			12,524
Deferred tax asset, net of valuation allowance of $94,018 and $95,157		4,545			10,245
Property and equipment, net of accumulated depreciation of $81,494 and $87,054		55,031			58,831
Goodwill and other intangibles		341,681			369,071
Debt issuance costs, net of accumulated amortization of $1,244 and $2,154		17,747			17,500
Other		3,304			4,189

	$	833,619		$	885,040


LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	39,808		$	44,100
Income taxes payable		11,293			11,569
Accrued expenses and other liabilities		28,119			29,827
Deferred tax liability		12,713			16,907
Fair value of derivatives		18,793			47,459
Long-term debt		576,910			578,055
Shareholders’ equity:
Common stock, $0.001 par value: 55,500,000 shares authorized; 24,133,800 and 24,171,555 shares issued and outstanding at June 30, 2007 and September 30, 2007, respectively		24			24
Additional paid-in capital		251,460			252,618
Accumulated deficit		(147,123	)		(135,069	)
Accumulated other comprehensive income		41,622			39,550

Total shareholders’ equity		145,983			157,123

	$	833,619		$	885,040

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share and per share amounts)


	Three Months Ended
	September 30,
	2006			2007
Revenues:
Check cashing	$	38,389		$	45,663
Consumer lending:
Fees from consumer lending		48,825			68,509
Provision for loan losses and adjustment to servicing income		(9,572	)		(14,806	)

Consumer lending, net		39,253			53,703
Money transfer fees		4,667			5,960
Franchise fees and royalties		2,453			1,341
Other		6,951			9,383

Total revenues		91,713			116,050

Store and regional expenses:
Salaries and benefits		28,968			35,237
Occupancy		7,652			9,274
Depreciation		2,054			2,809
Returned checks, net and cash shortages		3,632			4,656
Telephone and communications		1,544			1,652
Advertising		2,262			2,103
Bank charges and armored carrier expenses		2,268			3,056
Other		9,346			10,472

Total store and regional expenses		57,726			69,259

Store and regional margin		33,987			46,791


Corporate and other expenses:
Corporate expenses		12,950			17,863
Other depreciation and amortization		830			919
Interest expense, net		6,302			8,089
Loss on extinquishment of debt		7,987			—
Other, net		88			(590	)

Income before income taxes		5,830			20,510
Income tax provision		7,574			8,456

Net (loss) income	$	(1,744	)	$	12,054


Net (loss) income per share:
Basic	$	(0.07	)	$	0.50
Diluted	$	(0.07	)	$	0.49
Weighted average shares outstanding:
Basic		23,300,313			24,054,916
Diluted		23,300,313			24,776,716

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Three Months Ended
	September 30,
	2006			2007
Cash flows from operating activities:
Net (loss) income	$	(1,744	)	$	12,054
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		3,269			4,562
Non-cash stock compensation		335			836
Loss on extinguishment of debt		7,987			—
Provision for loan losses and adjustment to servicing revenue		9,572			14,806
Losses on store closings		149			53
Deferred tax provision		404			1,127
Other, net		—			245
Change in assets and liabilities (net of effect of acquisitions):
Increase in loans and other receivables		(15,010	)		(17,290	)
Increase in income taxes receivable		(524	)		—
Decrease (increase) in prepaid expenses and other		886			(2,921	)
Increase in accounts payable, accrued expenses and other liabilities		2,902			6,414


Net cash provided by operating activities		8,226			19,886

Cash flows from investing activities:
Acquisitions, net of cash acquired		(959	)		(17,747	)
Additions to property and equipment		(4,706	)		(6,300	)


Net cash used in investing activities		(5,665	)		(24,047	)

Cash flows from financing activities:
Decrease (increase) in restricted cash		80,750			(1,164	)
Proceeds from the exercise of stock options		344			321
Other debt payments		(92	)		(1,138	)
Partial prepayment of 9.75% Senior Notes due 2011		(76,825	)		—
Net decrease in revolving credit facilities		(6,300	)		—
Payment of debt issuance costs		(85	)		(114	)

Net cash used in financing activities		(2,208	)		(2,095	)

Effect of exchange rate changes on cash and cash equivalents		(197	)		8,717

Net increase in cash and cash equivalents		156			2,461

Cash and cash equivalents at beginning of period		120,221			294,518

Cash and cash equivalents at end of period	$	120,377		$	296,979

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”). The Company 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, 2007 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. The Company, through its subsidiaries, provides retail financial services and document processing services to the general public through a network of 1,327 locations (of which 953 are company owned) operating primarily as Money Mart^®, The Money Shop, Loan Mart^®, Insta-Cheques^®, the Money Corner and We The People^® in 31 states, the District of Columbia, Canada and the United Kingdom. This network includes 1,219 locations (including 953 company-owned) in 18 states, the District of Columbia, Canada and the United Kingdom 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 108 franchised locations in 24 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 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. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassification

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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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):


	Three Months Ended
	September 30,
	2006			2007
Net income (loss)	$	(1,744	)	$	12,054

Reconciliation of denominator:

Weighted average of common shares outstanding — basic¹		23,300			24,055

Effect of unvested restricted stock and restricted stock unit grants		—			212

Effect of dilutive stock options²		—			510


Weighted average number of common shares outstanding — diluted		23,300			24,777


¹		Excludes 120,221 and 211,719 shares of unvested restricted stock and restricted stock units, which is included in total outstanding common shares as of September 30, 2006 and September 30, 2007, respectively.

²		The effect of dilutive stock options and unvested restricted stock was determined under the treasury stock method. Due to the net loss during the three months ended September 30, 2006 the effect of the dilutive options, unvested restricted stock and restricted stock units were considered to be antidilutive, and therefore were not included in the calculation of diluted earnings per share.

Stock Based Employee Compensation

At September 30, 2007, the Company offered stock incentive plans under which shares of common stock may be awarded to directors, employees or consultants of the Company and OPCO.

In fiscal 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment (“SFAS 123R”). Under SFAS 123R, the Company is required to follow a fair-value approach using an option-pricing model, such as the Black-Scholes option valuation model, at the date of a stock option grant. Effective July 1, 2005, the Company adopted the modified prospective method and has recognized the compensation cost for stock-based awards issued after June 30, 2005 and unvested awards outstanding at the date of adoption, on a straight-line basis (using the graded vesting attribution method) over the requisite service period for the entire award. The additional compensation cost, pursuant to SFAS 123R, included in the statement of operations for the three months ended September 30, 2006 and 2007 was $0.1 million and $0.3 million, net of related tax effects, respectively.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Based Employee Compensation (continued)

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
	September 30,
	2006			2007
Expected volatility		47.6	%		N/A
Expected life (years)		6.0			N/A
Risk-free interest rate		4.72	%		N/A
Expected dividends	None				N/A
Weighted average fair value	$	10.24			N/A

A summary of the status of stock option activity for the three months ended September 30, 2007 follows:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic Value ($
	Options			Price		Term (years)		in millions)
Options outstanding at June 30, 2007		1,297,600		$	15.58		8.1	$	16.8
(1,020,716 shares exercisable)
Granted		—		$	—
Exercised		(30,944	)	$	10.38
Forfeited and expired		—		$	—


Options outstanding at September 30, 2007		1,266,656		$	15.71		7.9	$	16.2


Exercisable at September 30, 2007		1,015,747		$	14.48		7.7	$	14.3

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 September 30, 2007. 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 months ended September 30, 2007 and September 30, 2006 was $0.9 million and $1.0 million, respectively. As of September 30, 2007, the total unrecognized compensation cost over a weighted-average period of 2.4 years, related to stock options, is expected to be $1.8 million. Cash received from stock options exercised for the three months ended September 30, 2007 and 2006 was $0.3 million and $0.3 million, respectively.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Based Employee Compensation (continued)

Restricted stock awards granted under the 2005 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.

Information concerning unvested restricted stock awards is as follows:


				Weighted
				Average
	Restricted			Grant-Date
	Stock Awards			Fair-Value
Outstanding at June 30, 2007		111,151		$	20.02

Granted		—			—
Vested		(13,537	)		19.65
Forfeited		—			—


Outstanding at September 30, 2007		97,614		$	20.01

Restricted Stock Unit awards (RSUs) granted under the 2005 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:


	Restricted			Weighted
	Stock Unit			Average
	Awards			Grant
Oustanding at June 30, 2007		124,438		$	28.53
Granted		—			—
Vested		(10,333	)	$	28.53
Forfeited		—			—


Outstanding at September 30, 2007		114,105		$	28.53

As of September 30, 2007 there was $5.2 million of total unrecognized compensation cost related to nonvested restricted share-based compensation arrangements granted under the plan. That cost is expected to be recognized over a weighted average period of 2.3 years. The total fair value of shares vested during the quarter ended September 30, 2007 was $0.6 million.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements

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 retained earnings for the Company beginning July 1, 2007. The Company adopted the provisions of FIN 48 on July 1, 2007. The implementation of FIN 48 did not result in any adjustment in the Company’s liability for unrecognized income tax benefits. (See Note 8.)

In September 2006, 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 will make the measurement for fair value more consistent and comparable and improve disclosures about those measures. The statement does not require any new fair value measurement but will result in increased disclosures. This interpretation is effective for the Company beginning July 1, 2008.

On February 15, 2007, 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 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 will report 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. SFAS 159 is effective for the Company beginning July 1, 2008.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2. GOODWILL AND OTHER INTANGIBLES

The changes in the carrying amount of goodwill and other intangibles by reportable segment for the fiscal year ended June 30, 2007 and the three months ended September 30, 2007 are as follows (in thousands):


	United					United
	States			Canada		Kingdom		Total
Balance at June 30, 2006	$	97,860		$	61,092	$	59,614	$	218,566
Amortization of identifiable intangibles		(58	)		—		—		(58	)
Acquisition		25,126			109,406		2,779		137,311
Impairment loss		(28,469	)		—		—		(28,469	)
Foreign currency translation adjustments		—			9,167		5,164		14,331

Balance at June 30, 2007		94,459			179,665		67,557		341,681
Acquisition		12,526			2,976		1,681		17,183
Foreign currency translation adjustments		—			9,090		1,117		10,207

Balance at September 30, 2007	$	106,985		$	191,731	$	70,355	$	369,071

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


	June 30, 2007		September 30, 2007
	Gross Carrying		Gross Carrying
	Amount⁽¹⁾		Amount⁽¹⁾
Non-amortized intangible assets:
Goodwill	$	293,462	$	317,743
Reacquired franchise rights		48,219		51,328

	$	341,681	$	369,071


⁽¹⁾		The Company reclassified accumulated amortization to goodwill and no longer carries accumulated amortization on its balance sheet. The Company currently has no amortizing intangible assets under SFAS 142.

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, 2007, there was no impairment of goodwill. 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 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.

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 bases 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. 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
	September 30,
	2006			2007
Net (loss) income	$	(1,744	)	$	12,054

Foreign currency translation adjustment		1,123			3,293
Fair value adjustments for cash flow hedges, net ⁽¹⁾ ⁽²⁾		(43	)		(5,365	)


Total comprehensive income (loss)	$	(664	)	$	9,982


⁽¹⁾		Net of $22 thousand and $2.4 million of tax for the three months ended September 30, 2006 and 2007, respectively.

⁽²⁾		Net of $0.1 million and $0.4 million for the three months ended September 30, 2006 and 2007, respectively which was reclassified into earnings.

Accumulated other comprehensive income, net of related tax, consisted of net unrealized losses on put options of $0.4 million and net unrealized losses on cross-currency derivatives used in cash flow hedging transactions of $0.9 million at September 30, 2007 compared to net unrealized losses on put option derivatives of $0.3 million and net unrealized losses on cross-currency derivatives used in cash flow hedging transactions of $4.3 million at September 30, 2006.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. GEOGRAPHIC SEGMENT INFORMATION (continued)


	United						United
	States			Canada			Kingdom			Total

As of and for the three months ended September 30, 2007

Identifiable assets	$	266,438		$	454,332		$	164,270		$	885,040
Goodwill and other intangibles		106,985			191,731			70,355			369,071
Sales to unaffiliated customers:
Check cashing		11,041			20,115			14,507			45,663
Consumer lending:
Fees from consumer lending		15,988			37,971			14,550			68,509
Provision for loan losses and adjustments to servicing revenue		(5,642	)		(6,958	)		(2,206	)		(14,806	)

Consumer lending, net		10,346			31,013			12,344			53,703
Money transfer fees		972			3,688			1,300			5,960
Franchise fees and royalties		724			617			—			1,341
Other		1,267			5,915			2,201			9,383

Total sales to unaffiliated customers		24,350			61,348			30,352			116,050

Interest expense (income), net		980			5,232			1,877			8,089
Depreciation and amortization		1,094			1,430			1,204			3,728
(Loss) income before income taxes		(3,628	)		19,309			4,829			20,510
Income tax (benefit) provision		(431	)		7,414			1,473			8,456

5. 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 aspects of the Company’s operations in the United Kingdom and Canada against 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 September 30, 2007, the Company held put options with an aggregate notional value of C$54.0 million and GBP 8.1 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 June 30, 2008. 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 corporate expenses on the statement of operations. For options designated as hedges, hedge effectiveness is measured by comparing the cumulative change in the hedge contract with the cumulative change in the hedged forecasted transactions, both of which are based on forward rates. There was no ineffectiveness from these cash flow hedges for the three months ended September 30, 2007. As of September 30, 2007, amounts related to these derivatives qualifying as cash flow hedges amounted to a decrease of shareholders’ equity of $0.4 million, net of tax, all of which is expected to be transferred to earnings in the next nine months along with the earnings effects of the related forecasted transactions. The fair market value of the outstanding puts held by the Company at September 30, 2007 was $0.1 million and is included in other assets on the balance sheet.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (continued)

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 Dollar Financial U.K. Limited 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, the Company 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 National Money Mart Company 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 remeasurement 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 September 30, 2007, amounts related to cross-currency interest rate swaps amounted to a decrease in shareholders’ equity of $38.9 million, net of tax. The aggregate fair market value of the cross-currency interest rate swaps at September 30, 2007 is a payable of $47.5 million and is included in fair value of derivatives on the balance sheet. During the three months ended September 30, 2007, the Company recorded $0.2 million in earnings related to the ineffective portion of these cash flow hedges.

6. 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 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. The Company’s Canadian subsidiary’s motion to stay the action on grounds of arbitrability was denied. The 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 arbitrability in the class action context. As a result, the Company’s Canadian subsidiary has brought a new application to stay the action and to decertify it. The plaintiff has responded by bringing a cross-motion for summary judgment on selected issues. These motions will likely be heard in the first half of calendar year 2008. In the meanwhile, the action is presently in the discovery phase and a trial, while not yet scheduled, is not expected before late calendar year 2008.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. CONTINGENT LIABILITIES (continued)

Canadian Legal Proceedings (continued)

On October 21, 2003, another former customer, Kenneth D. Mortillaro, commenced a similar action against the Company’s Canadian subsidiary, but this action has since been stayed on consent because it is a duplicate action. 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 the Company’s Canadian subsidiary 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, the Company’s Canadian subsidiary settled this action, subject to court
approval. On March 3, 2006 just prior to the date scheduled for final court approval of the settlement the plaintiff’s 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, the Company’s Canadian subsidiary 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, the Company’s Canadian subsidiary 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 the Company’s Canadian subsidiary 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 the Company’s Canadian subsidiary and 26 other Canadian lenders on behalf of a purported class of British Columbia residents who, MacKinnon claims, were overcharged in payday-loan transactions. The action, which is pending in the Supreme Court of British Columbia, alleges violations of laws proscribing usury and unconscionable trade practices and seeks restitution and damages, including punitive damages, in an unknown amount. Following initial denial, MacKinnon obtained an order permitting him to re-apply for class certification which was appealed. The Court of Appeal granted MacKinnon the right to apply to the original judge to have her amend her order denying certification. On June 14, 2006, the original judge granted the requested order and the Company’s Canadian subsidiary’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 the Company’s Canadian subsidiary on behalf of another former customer, Louise Parsons. Class certification was granted on March 14, 2007. An appeal from this certification decision will be argued on February 8, 2008. The action is presently in the discovery phase and a trial, while not yet scheduled, is expected in 2008.

Similar purported class actions have been commenced against the Company’s Canadian subsidiary 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 the Company’s Canadian subsidiary 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. CONTINGENT LIABILITIES (continued)

California Legal Proceedings

The Company was the defendant in four lawsuits commenced by the same law firm. Each lawsuit was pled as a class action, and each lawsuit alleged violations of California’s wage-and-hour laws. The named plaintiffs were the Company’s former employees Vernell Woods (commenced August 22, 2000), Juan Castillo (commenced May 1, 2003), Stanley Chin (commenced May 7, 2003) and Kenneth Williams (commenced June 3, 2003). Each of these suits sought an unspecified amount of damages and other relief in connection with allegations that the Company misclassified California store (Woods) and area (Castillo) managers as “exempt” from a state law requiring the payment of overtime compensation, that the Company failed to provide non-management employees with meal and rest breaks required under state law (Chin) and that the Company computed bonuses payable to our store managers using an impermissible profit-sharing formula (Williams). The trial court in Chin denied plaintiff’s motion for class certification and that decision was upheld on appeal. The Company reached a settlement with Chin, resolving all issues for a nominal amount.

In March, 2006, the Company reached a settlement in the Woods, Castillo and Williams actions, and the court granted approval of that settlement in October of 2006. The Company agreed to settle these cases for $5.8 million and a settlement distribution, including payment to the attorneys for fees and costs occurred on January 11, 2007. On October 2, 2007, the court held a final accounting hearing regarding the distribution of the settlement funds. At that hearing, the court dismissed the consolidated cases.

On September 11, 2006, plaintiff Caren Bufil commenced a lawsuit against the Company; the claims in Bufil are substantially similar to the claims in Chin. Bufil seeks class certification of the action against the Company for failure to provide meal and rest periods, failure to provide accurate wage statements and unlawful, unfair and fraudulent business practices 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 Chin 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 has appealed both rulings and her appellate brief is expected to be filed shortly. The Company expected briefing to be completed by the end of October 2007 with a decision on the issues in early 2008, However, Bufil obtained a continuance, and is now expected to file her opening brief in the next two weeks. A decision on the merits should be reached by mid 2008.

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, San Francisco City Attorney filed a complaint in the name of the People of the State of California in the Superior Court of the State of California, County of San Francisco, two subsidiaries of OPCO. The complaint alleges that the Company’s subsidiaries have engaged in unlawful and deceptive business practices in violation of California Business and Professions Code section 17200 by either making or brokering installment loans 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. The Company’s businesses answered the complaint on May 25, 2007. On May 29, 2007, all defendants removed the case to the United States Court for the Northern District of California. On August 20, 2007, that Court issued an order remanding the case to state court. The Company is unable to state whether an outcome unfavorable to us is either probable or remote, nor are we able to estimate the amount or range of loss in the event of an unfavorable outcome.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. CONTINGENT LIABILITIES (continued)

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. These actions, which are pending in Ohio, Kansas and Oregon state courts, allege violations of the unauthorized practice of law (“UPL”) statutes and various consumer protection statutes of those states. There are presently three stores operated by franchisees in these three states. These cases seek damages and/or injunctive relief, which could prevent the Company and/or its franchisees from processing legal documents in accordance with the Company’s present business model. The Oregon Bar case was commenced against WTP’s local franchisee in March 2006 and was amended to include WTP as a party in August 2006. The parties have agreed to the terms of a stipulated injunction that needs to be approved and signed by the Court. The Ohio State Bar Association case has been pending since February 2006; in April 2007, WTP reached a settlement by agreeing to pay $20 thousand in civil penalties for two counts of UPL by its franchisee. Prosecution costs could be assessed against WTP. The Ohio stipulation must be reviewed and accepted by the Ohio Supreme Court and that review is expected in the next three to six months. In Kansas, the U.S. Bankruptcy Trustee has filed seven lawsuits on behalf of seven WTP customers, alleging that WTP and certain franchisees violated previous stipulations and seeking an injunction against WTP from preparing any further bankruptcy petitions. WTP is engaged in finalizing a settlement to resolve these cases that will permit WTP to offer bankruptcy petition services in Kansas but at a fee lower than in many other states.

On July 6, 2006, New Millennium Corporation (“NMC”) filed a complaint against the Company and certain of its subsidiaries, including WTP, and others, including the Former WTP. This case involves a franchise agreement between the Former WTP and NMC dated April 7, 2004 and certain addenda to the agreement. NMC alleged numerous acts of wrongdoing by the Former WTP and persons associated with the Former WTP, including breach of agreement, fraud and violation of the California Franchise Investment Law and essentially alleged that the Company and its subsidiaries were liable as successors in interest. NMC sought unspecified restitution, compensatory damages and exemplary damages. In response, the Company filed a petition to compel arbitration, which has been granted, and the parties are in the process of preparing for an arbitration scheduled for February 2008. 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.

On July 24, 2006, Glen Tiorum Moors (“GTM”) filed a complaint against WTP, the Former WTP, and others. The case involved an agreement between GTM and the Former WTP relating to the ownership and management of a WTP location in Orange County, California. The complaint asserted a number of claims against all the defendants, including breach of contract and contractual interference claims against WTP. GTM sought various forms of relief from all defendants, including compensatory damages of $250 thousand and unspecified punitive damages. The parties have stipulated to submit all of their disputes to arbitration, and the parties are in the process of preparing for that arbitration. The Company believes that the material allegations against WTP are without merit and intends to defend the matter vigorously.

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 has been granted, and the parties are in the process of preparing for that arbitration. 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. CONTINGENT LIABILITIES (continued)

We The People Legal Proceedings (continued)

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 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 is in the process of seeking an order compelling arbitration of the dispute. 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 March 27, 2007 Daryl Buchanan, Daniel Buchanan and Paul Lieberman filed a complaint against WTP in the United States District Court in Connecticut alleging that WTP breached their franchise agreement by failing to refund their franchise fee of approximately $0.2 million. The parties have agreed to submit this dispute to arbitration. The Company believes the material allegations in the complaint to be 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 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 May 8, 2007, WTP’s legal department 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 AG’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 AG’s Office hold the former New York City WTP owners liable for the alleged misconduct. The parties are presently negotiating the final terms of the AOD.

On May 10, 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. WTP and the Company deny the allegations and have filed a motion to compel arbitration.

On May 28, 2007, the United States Trustee for the Eastern District of Missouri filed a complaint against the WTP franchisee in St. Louis, Missouri and WTP. The complaint alleges that defendants engaged in the unauthorized practice of law and charged unreasonable fees for bankruptcy petition preparation services in violation of Section 110 of the Bankruptcy Code. The franchisee and WTP deny the allegations and intend to defend the action vigorously.

On September 19, 2007, plaintiff commenced a lawsuit against the Company in California Superior Court for Alameda County. Also named as defendants; We the People Forms and Services Centers USA, Inc. (the former We The People franchisor) and Lawrence Golkin, Esq., a California licensed supervising attorney involved in We The People. Plaintiff seeks class action status. The suit alleges that from 2003 to 2007, We The People engaged in violations of various California consumer, elder protection and competition statutes and laws by advertising and selling living trusts and wills to California residents over the age of 65. Plaintiff, Jacqueline Fitzgibbons, alleges that she purchased a living trust product from a We The People store in Palo Alto, California in September 2003. Plaintiff claims, among other things, that the Company, the We The People franchisees, and the supervising attorneys improperly and fraudulently conspired to provide her legal advice, mislead her as to what, if any, legitimate service We The People provided in preparing documents, and mislead her on the supervising attorneys’ role in preparing documents. For these claims, she seeks damages for herself on behalf of the class, which she alleges contains up to 3,000 customers/members. The Company intends to vigorously defend these allegation and believes that plaintiff’s claims and her attempt to obtain class action status are without merit. It is too early to determine the likelihood of a favorable or unfavorable outcome or the ultimate liability, if any, of this matter.

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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. CONTINGENT LIABILITIES (continued)

We The People Legal Proceedings (continued)

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

While the Company believes there is no legal basis for liability in any of the aforementioned cases, due to the uncertainty surrounding the litigation process, the Company is unable to reasonably estimate a range of loss, if any, at this time. While the outcome of these matters is currently not determinable, the Company does not expect that the ultimate cost to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

7. ACQUISITIONS

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

On October 31, 2006, National Money Mart Company completed the acquisition of substantially all of the assets of 82 retail stores owned and operated by five existing National Money Mart Company franchisees (the “Canadian Acquisition”). The Canadian Acquisition was affected pursuant to five purchase agreements each dated October 31, 2006 by and among National Money Mart Company and the five existing National Money Mart Company franchisees. The total aggregate purchase price for the Canadian Acquisition was approximately $124.2 million cash. The Company allocated a portion of the purchase price to reacquired franchise rights for $41.8 million, loans receivable for $5.9 million, cash in stores for $3.3 million and other assets for $4.1 million. The Company’s Canadian Term Facility was used to fund the purchase. The excess of the purchase price over the preliminary fair value of identifiable assets acquired was $69.1 million.

On November 12, 2006, the Company purchased substantially all of the assets of Money Corner, Inc., consisting of 23 financial services stores, predominately located in southwest Florida (the “Money Corner Acquisition”). The total aggregate purchase price for this acquisition was $29.0 million cash. An additional $1.0 million was paid into an escrow account to secure certain indemnification liabilities of the former owner of the Money Corner. The Company allocated a portion of the purchase price to loans receivable for $2.4 million, cash in stores for $1.0 million and other assets for $0.8 million. The Company’s U.S. Revolving Facility was used to fund the purchase. The excess of the purchase price over the preliminary fair value of identifiable assets acquired was $24.8 million.

During the year ended June 30, 2007, the Company completed various other acquisitions resulting in an aggregate increase in goodwill of $2.2 million.

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”). The aggregate purchase price was approximately $27 million cash of which $2 million cash will be held in escrow for 24 month to secure certain indemnification claims. The agreement also includes a maximum revenue-based earn out of up to $3 million which is payable in February 2009. 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 of the aforementioned 45 stores, all of which are located in Iowa. The Company intends to complete the acquisition of the remaining 19 stores upon obtaining certain business licenses in the respective jurisdictions. The total aggregate purchase price for the 26 stores that were acquired during the three months ended September 30, 2007 was $17.2 million cash, including $1.2 million, which is included in restricted cash on the Company’s balance sheet at September 30, 2007, to be held in escrow for indemnification claims. The Company allocated a portion of the purchase price to loans receivable for $3.0 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 acquisition. The excess purchase price over the preliminary fair value of identifiable assets acquired was $12.6 million.

During the three months ended September 30, 2007, the Company completed various smaller acquisitions in Canada and the United Kingdom resulting in an aggregate increase in goodwill of $1.8 million.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7. ACQUISITIONS (continued)

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


Balance at June 30, 2006	$	230.7
Acquisitions:
82 Store Canadian Acquisition		69.3
Money Corner Acquisition		24.8
Other		2.2
Impairment loss — WTP		(22.5	)
Foreign currency adjustment		10.7

Balance at June 30, 2007		315.2

Acquisitions:
APL		12.6
Other		1.8
Purchase adjustments:
82 Store Canadian Acquisition		(0.2	)
Foreign currency adjustment		10.6

Balance at September 30, 2007	$	340.0

The following unaudited pro forma information for the three months ended September 30, 2006 and 2007 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 acquisition. 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
	September 30,
	2006			2007
	(Unaudited in thousands
	except per share amounts)
Revenue	$	93,809		$	117,496
Net income	$	(987	)	$	12,651
Net income per common share — basic	$	(0.04	)	$	0.53
Net income per common share — diluted	$	(0.04	)	$	0.51

8. ADOPTION OF FASB INTERPRETATION NO. 48

The Company adopted the provisions of FIN 48 on July 1, 2007. The implementation of FIN 48 did not result in any adjustment in the Company’s liability for unrecognized income tax benefits. At the adoption date of July 1, 2007, the Company had unrecognized tax benefit reserves related to uncertain tax positions of $7.6 million. Of this amount, $7.6 million represents the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate. At September 30, 2007 the Company had $8.9 million of unrecognized tax benefits, which if recognized, would affect the effective tax rate.

The tax years ending June 30, 2004 through 2006 remain open to examination by the major taxing jurisdictions to which the Company is subject.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2007, the Company had approximately $0.9 million of accrued interest related to uncertain tax positions of which $0.2 million was accrued during the three months ended September 30, 2007.

9. SUBSEQUENT EVENTS

On October 11, 2007, the Company, through Check Mart of Florida, Inc., an indirect wholly-owned subsidiary, entered into a purchase agreement to acquire substantially all of the assets of CSS Financial Services, Inc., d/b/a The Check Cashing Store, which operates 82

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9. SUBSEQUENT EVENTS (continued)

financial services stores in southeast Florida offering check cashing, payday loans and other ancillary products. The Company intends to utilize a portion of the proceeds from its recent $200 million senior convertible note offering, which was completed on June 27, 2007, to pay for the acquisition.

The purchase price for the acquisition, including the consumer loan portfolio and cash in stores at closing, will consist of cash consideration equal to the sum of (i) $101.0 million; (ii) plus or minus the amount by which the cash on hand in the seller’s stores is greater than or less than, respectively, $1.5 million at the time of consummation of the acquisition and (iii) plus any security deposits relating to the seller’s assets. From the total amount of the purchase price, $95.0 million will be paid upon consummation of the acquisition and $6.0 million will be deposited into an escrow account to secure certain of the seller’s indemnification obligations under the asset purchase agreement.

The consummation of the acquisition is subject to the completion of due diligence, lender consent, receipt of applicable regulatory approvals, including the receipt of state and local business licenses, and the satisfaction of customary closing conditions. The Company expects to complete the acquisition in 45 to 60 days; however, there is no assurance that the acquisition will be consummated at that time or thereafter.

On October 11, 2007, the Company gave notice of its intent to redeem the remaining $2.0 million principal amount of its 9.75% Senior Notes on November 15, 2007 at a redemption price of 104.875%, plus accrued and unpaid interest.

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 months ended September 30, 2007 and 2006. 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., collectively referred to herein as OPCO, and its wholly owned subsidiaries. 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 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 have historically received origination and servicing fees from the banks providing the loans or, where we fund our consumer loans directly, 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.

All of our retail financial service locations, with the exception of those in Pennsylvania and Texas, issue single-payment consumer loans on the company-funded consumer loan model. We no longer offer any consumer lending products in our 16 Pennsylvania stores and we have implemented a credit services organization model for single-payment loans at our six Texas stores under the terms of which, beginning in June 2006, we guarantee, originate and service loans for a non-bank lender that comply with Texas law. In Pennsylvania, the cessation of consumer loan products has not had a material effect on our operations. The lender in our CustomCash^® domestic installment loan program, First Bank of Delaware (“First Bank”), has been working to address certain concerns raised by the FDIC with respect to this program. First Bank advised us that, effective April 2007, it would no longer distribute our longer-term CustomCash^® installment loans through third-party retail locations and instead will distribute such loans only through its own branch offices and the Internet. To date, we have not been authorized by First Bank to distribute the CustomCash^® product over the Internet. Accordingly, we continue to transition our CustomCash^® installment loan product customers to our company-funded short-term single payment loan.

On July 21, 2006, we used the $80.8 million net proceeds from the June 2006 follow-on offering of common stock to redeem $70.0 million principal amount of OPCO’s 9.75% senior notes due 2011,which we refer to as the Notes, pay $6.8 million in redemption premium, pay $1.3 million in accrued interest and used the remaining $2.6 million for working capital and general corporate purposes. On October 30, 2006, we announced the completion of the refinancing of OPCO’s existing credit facilities and entered into a new $475.0 million credit facility, which we refer to as the New Credit Agreement, and completed our cash tender offer and consent solicitation by OPCO for the Notes. We redeemed $198.0 million principal of the Notes and wrote off $7.2 million of unamortized deferred issuance costs related to this redemption. We also incurred a loss on the extinguishment of debt of $31.8 million for the year ended June 30, 2007.

On October 31, 2006, we completed the acquisition of substantially all of the assets of 82 retail stores owned and operated by five existing National Money Mart Company franchisees, which we refer to as the Canadian Acquisition. The Canadian Acquisition was effected pursuant to five purchase agreements each dated October 31, 2006 by and among National Money Mart Company and the five existing National Money Mart Company franchisees, which we refer to as the Purchase Agreements. The total purchase price for the Canadian Acquisition was approximately $124.2 million in cash.

On November 12, 2006, we completed the acquisition of 23 financial services stores, predominantly located in Southwest Florida. The total purchase price for the acquisition was $28.6 million cash.

In December 2006, we completed cross-currency interest rate swap transactions which synthetically converted the $375.0 million U.S. dollar and Euro denominated foreign term loans into local currency denominated loans. These swap transactions also lowered the combined interest rate on the aggregate $375.0 million debt issuance to a blended fixed rate of 7.4% compared to the previously held Notes at a rate of 9.75%.

Also, in December 2006, we announced our restructuring plan for our WTP business. Under the plan, we have closed our remaining twelve company-operated WTP stores. As a result of the restructuring initiatives, in the quarter ended December 31, 2006, we incurred $1.2 million for cash expenses related to the closure of the company-operated stores and other initiatives, $0.4 million of which is included in accrued expenses and other liabilities at September 30, 2007. In addition, we have incurred $23.2 million in one-time non-cash charges, including the write-off of $22.5 million of goodwill and $0.7 million in other tangible and intangible assets, and the write-off deferred fees.

On June 21, 2007, we entered into a purchase agreement relating to the sale of $175.0 million aggregate principal amount of 2.875% Senior Convertible Notes (“Convertible Notes”). Under the terms of the purchase agreement we also granted an option to purchase up to $25.0 million aggregate principal amount of the Convertible Notes to cover over-allotments. At closing on June 27, 2007, the initial purchasers exercised the over-allotment option in full.

On August 30, 2007, we entered into a purchase agreement to acquire substantially all of the assets of 45 retail financial services stores for approximately $27.0 million cash, which includes $2.0 million cash to be held in escrow for 24 months to secure certain indemnification claims. The agreement also includes a maximum revenue-based earn out of up to $3.0 million which is 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 consummate the acquisition of an additional 16 of the stores, all of which are located in Kansas with the exception of one which is located in South Carolina. We will acquire the remaining 3 stores, all of which are located in Nebraska, upon obtaining certain business licenses in the respective jurisdictions. The total aggregate purchase price for the 26 stores that were acquired during the quarter ended September 30, 2007 was $17.2 million cash.

On October 11, 2007, we entered into a purchase agreement to acquire substantially all of the assets of CCS Financial Services, Inc., d/b/a The Check Cashing Store, which operates 82 financial services stores in southeast Florida offering check cashing, payday loans and other ancillary products. The total purchase price for the acquisition, including the consumer loan portfolio and cash in stores at closing, is anticipated to be approximately $100.0 million. We expect to complete the acquisition during the quarter ending December 31, 2007.

On October 11, 2007, we gave notice of our intention to redeem the remaining $2.0 million principal amount of our 9.75% Senior Notes on November 15, 2007 at a redemption price of 104.875%, plus accrued and unpaid interest.

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

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

In our discussion of our financial condition and results of operations, we refer to financial service stores and financial service franchises that were open for 15 consecutive months ending September 30, 2007 as comparable stores and franchises.

Discussion of Critical Accounting Policies

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

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

Revenue Recognition

With respect to company-operated stores, revenues from our check cashing, money order sales, money transfer, 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 must also provide updates to the software, samples of certain advertising and promotional materials and other post-opening assistance that we determine is necessary. Total franchise revenues were $2.5 million and $1.3 million for the three months ending September 30, 2006 and 2007, respectively.

For single-payment consumer loans that we make directly (company-funded loans), which have terms ranging from 1 to 37 days, revenues are recognized using the interest method. Loan origination fees are recognized as an adjustment to the yield on the related loan. Our reserve policy regarding these loans is summarized below in “Company-Funded Consumer Loan Loss Reserves Policy.”

In addition to the single-payment consumer loans originated and funded by us, we also historically had domestic relationship with First Bank. Pursuant to this relationship, we marketed and serviced single-payment consumer loans domestically, which had terms ranging from 7 to 23 days, which were funded by the bank. The bank was responsible for the application review process and determining whether to approve an application and fund a loan. As a result, the bank’s loans were not recorded on our balance sheet. We earned a marketing and servicing fee for each loan that was paid by borrowers to the banks. In the third quarter of fiscal 2006, First Bank announced that as of June 30, 2006, it would no longer originate single payment consumer loans.

For domestic loans funded by First Bank, we recognized net servicing fee income ratably over the life of the related loan. In addition, First Bank established a target loss rate for the loans marketed and serviced by us and servicing fees payable to us were reduced by the amount the actual losses exceeded this target loss rate. If actual losses were below the target loss rate, the difference was paid to us as an additional servicing fee.

During fiscal 2006, we began to market and service bank-funded consumer installment loans in the United States with terms of four months made by First Bank. We refer to this product as CustomCash^®. First Bank was responsible for the application review process and for determining whether to approve an application and fund a loan. As a result, loans were not recorded on our balance sheet. We earned a marketing and servicing fee for each loan that was paid by a borrower to First Bank. The servicing fee was recognized ratably using the effective interest rate method. This fee was reduced by losses incurred by First Bank on such loans. We maintained a reserve for future servicing fee adjustments based on First Bank’s outstanding loan balance. This liability was $0.1 million at June 30, 2007 and $0 at September 30, 2007 and is included in accrued expenses and other liabilities. We discontinued offering the CustomCash^® product in April 2007.

If a First Bank installment loan borrower defaulted and the loan was not subsequently repaid, our servicing fee was reduced. We anticipate that we will collect a portion of the defaulted loans based on historical default rates, current and expected collection patterns and current economic trends. As a result, when a First Bank installment loan borrower defaulted, we established a servicing fee receivable and an allowance against this receivable based on factors described previously. The establishment of this allowance was charged against revenue during the period that the First Bank borrower initially defaulted on the loan. If a loan remains in a defaulted status for an extended period of time, an allowance for the entire amount of the servicing fee adjustments is recorded and the receivable is ultimately charged off. Collections recovered on First Bank’s defaulted loans are credited to the allowance in the period they are received. The servicing fee receivable, net of the allowance for servicing fees due from the bank, is reported on our balance sheet in other consumer lending receivables, net and was $0.5 million at June 30, 2007 and $0.1 million at September 30, 2007.

We serviced $17.6 million of installment loans for First Bank (primarily CustomCash^® installment loans) during the three months ended September 30, 2006. We serviced no bank-funded loans during the three months ended September 30, 2007. At September 30, 2007, there were no outstanding CustomCash^® installment loans for First Bank and $0.9 million outstanding at June 30, 2007.

Company-Funded Consumer Loan Loss Reserves Policy

We maintain a loan loss reserve for anticipated losses for single-payment 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.

When a loan is originated, the customer receives the cash proceeds in exchange for a post-dated check or a written authorization to initiate a charge to the customer’s bank account on the stated maturity date of the loan. If the check or the debit to the customer’s account is returned from the bank unpaid, the loan is placed in default status and an allowance for this defaulted loan receivable is established and charged against revenue in the period that the loan is placed in default status. This reserve is reviewed monthly and any additional provision to the loan loss reserve as a result of historical loan performance, current and expected collection patterns and current economic

trends is charged against revenues. The receivable for defaulted single-payment loans, net of the allowance, is reported on our balance sheet in loans in default and was $12.0 million at September 30, 2007 and $10.3 million at June 30, 2007.

Check Cashing Returned Item Policy

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

Goodwill

We account for goodwill and other intangible assets in accordance with SFAS 142, Goodwill and Other Intangible Assets (“SFAS 142”). Goodwill is the excess of cost over the fair value of the net assets of businesses 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. We perform the Company’s 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.

Intangibles with indefinite lives are reviewed for indicators of impairment as of June 30, and are tested annually 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. Intangible assets with finite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

The fair value of our goodwill and indefinite-lived intangible assets are estimated based upon a present value technique using discounted future cash flows. We use 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. We make every effort to forecast our 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.

As of September 30, 2007 and June 30, 2007, we do not believe any impairment of goodwill and intangible assets exist. However, changes in business conditions may require future adjustments to asset valuations.

Income Taxes

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

Results of Operations

Revenue Analysis


Three Months Ended September 30,
					(Percentage of total
	($ in thousands)				revenue)
	2006		2007		2006			2007
Check cashing	$	38,389	$	45,663		41.9	%		39.3	%
Consumer lending revenue, net		39,253		53,703		42.8	%		46.3	%
Money transfer fees		4,667		5,960		5.1	%		5.1	%
Franchise fees and royalties		2,453		1,341		2.7	%		1.2	%
Other revenue		6,951		9,383		7.5	%		8.1	%

Total revenue	$	91,713	$	116,050		100.0	%		100.0	%

The Three Months Ended September 30, 2007 compared to the Three Months Ended September 30, 2006

Total revenues were $116.1 million for the three months ended September 30, 2007 compared to $91.7 million for the three months ended September 30, 2006, an increase of $24.3 million or 26.5%. Comparable store, franchise store and document transmitter revenues for the entire period increased $6.4 million or 7.3%. New store openings accounted for an increase of $3.2 million and new store acquisitions accounted for $15.9 million. Theses increases were partially offset by a decrease of $0.7 million in revenues related to the We The People business and $0.6 million in revenues from closed stores.

Relative to our products, consolidated check cashing revenue increased by 18.9%, or $7.3 million, year-over-year. Our Canadian business segment grew by 36.5%, while our U.K. business realized growth of 15.8%. On a consolidated basis, the face amount of the average check cashed increased 10.3% to $525 for the first quarter of 2008 compared to $476 for the prior year period, and the average fee per check cashed increased by 11.4% to $20.16. Consolidated net consumer lending revenue was $53.7 million for the first quarter, representing an increase of 36.8% or $14.5 million compared to the prior year period. The increase was primarily driven by strong performance in the international businesses as the Canadian market grew 64.7%, while the U.K. business realized growth of 61.9% over the prior year’s quarter. The consolidated loan loss provision for the first quarter, as a percentage of gross consumer lending revenue, was in line with our expectations at 21.6% compared to 21.3% for the fourth quarter of fiscal 2007 and 19.6% for the first quarter of fiscal 2007. Money transfer fees for the quarter increased 27.7% year-over-year, driven by continued strong growth in our international markets. Other revenue, including franchise fees and royalties, increased by 14.0% for the quarter, principally due to the success of our MasterCard® and Visa® branded debit-card sales across our three key markets, as well as growth in the foreign currency product in Canada and the U.K.

Currency rate changes in Canada and the United Kingdom contributed $3.0 million and $1.8 million, respectively, of the increase for the quarter. On a constant currency basis, revenues in the United Kingdom for the quarter increased $5.7 million primarily due to revenues from our consumer loan products and check cashing. Revenues from our Canadian subsidiary for the quarter increased $17.4 million on a constant currency basis. The growth our Canadian operations is due to a $15.6 million increase from consumer loan products as a result of a criteria change and pricing adjustments in the third quarter of fiscal 2007 and an overall increase in our Canadian customer average outstanding balance. Included in this increase is additional revenue generated by the 82 Canadian stores acquired in late October 2006 of $12.4 million. Revenues from franchise fees and royalties decreased by $1.1 million primarily due to the acquisitions of franchise stores.

Store and Regional Expense Analysis


Three Months Ended September 30,
					(Percentage of total
	($ in thousands)				revenue)
	2006		2007		2006			2007
Salaries and benefits	$	28,968	$	35,237		31.6	%		30.4	%
Occupancy		7,652		9,274		8.3	%		8.0	%
Depreciation		2,054		2,809		2.2	%		2.4	%
Returned checks, net and cash shortages		3,632		4,656		4.0	%		4.0	%
Telephone and communications		1,544		1,652		1.7	%		1.4	%
Advertising		2,262		2,103		2.5	%		1.8	%
Bank charges and armored carrier expenses		2,268		3,056		2.5	%		2.6	%
Other		9,346		10,472		10.1	%		9.1	%

Total store and regional expenses	$	57,726	$	69,259		62.9	%		59.7	%

Store and regional expenses were $69.3 million for the three months ended September 30, 2007 compared to $57.7 million for the three months ended September 30, 2006, an increase of $11.5 million or 20.0%. New store openings accounted for an increase of $2.3 million and store acquisitions accounted for an increase of $7.3 million, while comparable retail store and franchise expenses for the period increased $4.5 million. Partially offsetting these increases was a decrease of $1.8 million related to the WTP business and $0.7 million due to store closures.

For the three months ended September 30, 2007, total store and regional expenses decreased to 59.7% of total revenues as compared to 62.9% of total revenues for the three months ended September 30, 2006. Currency rates in Canada and the United Kingdom contributed $2.5 million of the increase for the quarter as compared to the same period in the prior fiscal year. On a constant currency basis, store and regional expenses increased $2.6 million in the United Kingdom and $8.1 million in Canada. This increase was partially offset by a decrease of $1.7 million in the United States for the quarter, due primarily to a reduction in headcount. The increase in Canada was primarily due to increases in salaries, occupancy expenses and other expenses commensurate with the overall growth in Canadian revenues, in addition to the incremental increase related to the 82 store acquisition in late October 2006. Similarly, in the United Kingdom, the increase is primarily related to increases in salaries, occupancy and advertising expenses which are commensurate with the growth in that country.

Corporate and Other Expense Analysis


Three Months Ended September 30,
						(Percentage of total
	($ in thousands)					revenue)
	2006		2007			2006			2007
Corporate expenses	$	12,950	$	17,863			14.1	%		15.4		%
Other depreciation and amortization		830		919			0.9	%			0.8	%
Interest expense		6,302		8,089			6.9	%			7.0	%
Loss on extinguishment of debt		7,987		—			8.7	%			0.0	%
Other		88		(590	)		0.1	%			0.5	%
Income tax provision		7,574		8,456			8.3	%			7.3	%

Corporate Expenses.

Corporate expenses were $17.9 million for the three months ended September 30, 2007 compared to $13.0 million for the three months ended September 30, 2006, an increase of $4.9 million. The increase is primarily due to additional compensation and other costs associated with the substantial growth of our international operations, required recognition of stock option compensation costs in accordance with SFAS 123(R), as well as additional positions to support and manage the continued rapid expansion of the global store base and breadth of product offerings.

Other Depreciation and Amortization.

Other depreciation and amortization remained relatively unchanged and was $0.9 million for the three months ended September 30, 2007 compared to $0.8 million for the three months ended September 30, 2006.

Interest Expense

Interest expense, net was $8.1 million in for the three months ended September 30, 2007 compared to $6.3 million for the same period in the prior year. In July 2006, we used the proceeds from the June 2006 common stock offering to retire $70.0 million of outstanding principal of Notes. Furthermore, in September 2006 we commenced a cash tender offer for any and all of the remaining $200 million aggregate principal amount of our Notes. The total principal amount of the Notes tendered was $198.0 million. On October 30, 2006, we completed the refinancing of our existing credit facilities and entered into the New Credit Agreement which consisted of $375.0 million six year term loans held by our foreign subsidiaries, a $75.0 million revolving credit facility in the U.S. and a $25.0 million revolving credit facility in Canada. On June 27, 2007, we issued $200.0 million aggregate principal amount the Convertible Notes in a private offering for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. As a result of the higher outstanding long term debt during the three months ended September 30, 2007, interest expense increased $5.6 million compared to the three months ended September 30, 2006. Offsetting this increase was $2.0 million in interest income from the short-term investment of the proceeds from the Convertible Notes offering and the overall lower blended interest rate in the new facility compared to the prior year which accounted for a decrease of $1.7 million during the three months ended September 30, 2007 over the same period in the prior year.

Loss on Extinguishment of Debt.

There was no loss on extinguishment of debt for the three months ended September 30, 2007. Loss on extinguishment of debt was $8.0 million in the three months ended September 30, 2006. On June 16, 2006 the Company announced the pricing of an underwritten offering of 5,000,000 shares of the Company’s common stock at $16.65 per share. On June 21, 2006, the Company received $80.8 million in net proceeds in connection with this offering. The proceeds were used to redeem $70.0 million outstanding principal of the Notes, pay $6.8 million in redemption premium, pay $1.3 million in accrued interest using the remaining $2.7 million for working capital and general corporate purposes. We incurred a loss on the extinguishment of debt consisting of a $6.8 million redemption premium and the write-off of $1.2 million previously capitalized deferred issuance costs.

Income Tax Provision

The provision for income taxes was $8.5 million for the three months ended September 30, 2007 compared to a provision of $7.6 million for the three months ended September 30, 2006. Our effective tax rate was 41.2% for the three months ended September 30, 2007 compared to 129.9% for the three months ended September 30, 2006. 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. The principal reason for the significant difference in the effective tax rate between periods was the reduction in U.S. interest expense during the quarter due to the retirement of public debt and the issuance of convertible debt in the fiscal year ended June 30, 2007. Interest expense in the U.S. results in U.S. tax losses, thus generating deferred tax assets. At September 30, 2007 we maintained deferred tax assets of $105.4 million which is offset by a valuation allowance of $95.2 million of which $1.1 million was provided for in the quarter. The $105.4 in deferred tax assets consists of $55.1 million related to net operating losses and the reversal of temporary differences, $38.6 million related to foreign tax credits and $11.7 million in foreign deferred tax assets. At September 30, 2007, U.S. deferred tax assets related to net operating losses and the reversal of temporary differences were reduced by a valuation allowance of $55.1 million, which reflects an increase of $1.1 million related to current year losses. The net operating loss carryforward at September 30, 2007 was $99.0 million. We believe that our ability to utilize net operating losses in a given year will be limited to $8.9 million under Section 382 of the Internal Revenue Code, which we refer to as 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 $38.6 million. Additionally, we maintain foreign deferred tax assets in the amount of $11.7 million. Of this amount $1.4 million was recorded by our Canadian affiliate during fiscal 2007 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 $1.4 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 the adoption date of July 1, 2007, we had unrecognized tax benefit reserves related to uncertain tax positions of $7.6 million. Of this amount, $7.6 million represents the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate. At September 30, 2007 we had $8.9 million of unrecognized tax benefits, which if recognized, would affect our effective tax rate.

The tax years ending June 30, 2004 through 2006 remain open to examination by the major taxing jurisdictions to which we are subject.

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2007, we had approximately $0.9 million of accrued interest related to uncertain tax positions of which $0.2 million was accrued during the three months ended September 30, 2007.

Changes in Financial Condition

Cash and cash equivalent balances and the revolving credit facilities balances fluctuate significantly as a result of seasonal, monthly and day-to-day requirements for funding check cashing and other operating activities. For the three months ended September 30, 2007, cash and cash equivalents increased $2.5 million. Net cash provided by operating activities was $19.9 million for the three months ended September 30, 2007 compared to $8.2 million for the three months ended September 30, 2006. The increase in net cash provided by operations was primarily the result of improved operating results.

Liquidity and Capital Resources

Our principal sources of cash are from operations, borrowings under our credit facilities and the issuance of our common stock and senior convertible notes. We anticipate that our primary uses of cash will be to provide working capital, finance capital expenditures, meet debt service requirements, fund company originated short-term consumer loans, finance store expansion, finance acquisitions, and finance the expansion of our products and services.

Net cash provided by operating activities was $19.9 million for the three months ended September 30, 2007 compared to $8.2 million for the three months ended September 30, 2006. The increase in net cash provided from operating activities was primarily a result of improved operating results.

Net cash used in investing activities was $24.0 million for the three months ended September 30, 2007 compared $5.7 million for the three months ended September 30, 2006. Our investing activities primarily relate to purchases of property and equipment for our stores, investments in technology and acquisitions. For the three months ended September 30, 2007, we made capital expenditures of $6.3 million and acquisitions of $17.7 million. The actual amount of capital expenditures each year will depend in part upon the number of new stores opened or acquired and the number of stores remodeled. Our capital expenditures, excluding acquisitions, are currently anticipated to aggregate approximately $29.1 million during our fiscal year ending June 30, 2008. The increase in cash used in investing activities during the three months ended September 30, 2007 is primarily related to the acquisition of 26 stores in Missouri, Oklahoma, Arizona, Hawaii and Iowa.

Net cash used in financing activities was $2.1 million for the three months ended September 30, 2007 compared to $2.2 million for the three months ended September 30, 2006. The cash used in financing activities during the three months ended September 30, 2007 was primarily a result of scheduled principal payments on our long term debt obligations.

New Credit Facilities. On October 30, 2006, we completed the refinancing of our existing credit facilities and entered into the New Credit Agreement. The New Credit Agreement is comprised of the following: (i) a senior secured revolving credit facility in an aggregate amount of $75.0 million, which we refer to as the U.S. Revolving Facility, with OPCO as the borrower; (ii) a senior secured term loan facility with an aggregate amount of $295.0 million, which we refer to as the Canadian Term Facility with National Money Mart Company, a wholly-owned Canadian indirect subsidiary of OPCO, as the borrower; (iii) a senior secured term loan facility with Dollar Financial U.K. Limited, a wholly-owned U.K. indirect subsidiary of OPCO, as the borrower, in an aggregate amount of $80.0 million (consisting of a $40.0 million tranche of term loans and another tranche of term loans equivalent to$40.0 million denominated in Euros), which we refer to as the UK Term Facility, and (iv) a senior secured revolving credit facility in an aggregate amount of $25.0 million, which we refer to as the Canadian Revolving Facility, with National Money Mart Company as the borrower. While the term loans contain variable interest rates, in December we entered into cross-currency interest rate swaps to hedge against the change in value of the term loans dominated in a currency other than our foreign subsidiaries’ functional currency and to fix the rate on the term loans entered into by each foreign subsidiary. The blended aggregate fixed interest rate over the life of the term loans as a result of the cross-currency interest rate swaps is 7.4%.

In April 2007, we entered into an amendment and restatement of the New Credit Agreement to, among other things, change the currency of the Canadian Revolving Facility to Canadian dollars, make corresponding modifications to the interest rates applicable and permit secured debt in the United Kingdom not to exceed GBP 5.0 million. On June 20, 2007, we entered into a second amendment of the New Credit Agreement to, among other things, permit the issuance of up to $200 million of unsecured senior convertible debt, make changes to financial covenants and other covenants in connection with the issuance of such debt and to increase the amount of acquisitions permitted under the New Credit Agreement.

Revolving Credit Facilities. We have two revolving credit facilities: the U.S. Revolving Facility and the Canadian Revolving Facility, both components of the New Credit Agreement:

United States Revolving Credit Facility. OPCO is the borrower under the U.S. Revolving Facility which has an interest rate of LIBOR plus 300 basis points, subject to reductions as we reduce our leverage. The facility terminates on October 30, 2011. The facility may be subject to mandatory reduction and the revolving loans subject to mandatory prepayment (after prepayment of the terms loans under the New Credit Agreement), principally in an amount equal to 50% of excess cash flow (as defined in the New Credit Agreement). OPCO’s borrowing capacity under the U.S. Revolving Facility is limited to the lesser of the total commitment of $75.0 million or 85% of certain domestic liquid assets plus $30.0 million. Under this revolving facility, up to $30.0 million may be used domestically in connection with letters of credit. At September 30, 2007, the borrowing capacity was $74.3 million. Under this revolving facility, up to $30.0 million may be used domestically in connection with letters of credit. At September 30, 2007 there was nothing outstanding under the U.S. Revolving Facility and $0.8 million outstanding in letters of credit issued by Wells Fargo Bank, which guarantee the performance of certain of our contractual obligations.

Canadian Revolving Credit Facility. National Money Mart Company, OPCO’s wholly owned indirect Canadian subsidiary, is the borrower under the Canadian Revolving Facility which has an interest rate of CDOR plus 300 basis points, subject to reductions as we reduce our leverage. The facility terminates on October 30, 2011. The facility may be subject to mandatory reduction and the revolving loans subject to mandatory prepayment (after prepayment of the term loans under the New Credit Agreement), principally in an amount equal to 50% of excess cash flow (as defined in the New Credit Agreement). National Money Mart Company’s borrowing capacity under the Canadian Revolving Facility is limited to the lesser of the total commitment of C$28.5 million or 85% of certain combined liquid assets of National Money Mart Company and Dollar Financial U.K. Limited and their respective

subsidiaries. At September 30, 2007, the borrowing capacity was C$28.5 million. There was no outstanding indebtedness under the Canadian facility at September 30, 2007.

Long-Term Debt. As of September 30, 2007, long term debt consisted of $2.0 million principal amount of the Notes, $200.0 million principal amount of Convertible Notes and $376.0 million in term loans due October 30, 2012 under the New Credit Agreement. On October 11, 2007, the Company gave notice of its intent to redeem the remaining $2.0 million principal amount of the Notes on November 15, 2007 at a redemption price of 104.875%, plus accrued and unpaid interest.

Operating Leases. Operating leases are scheduled payments on existing store and other administrative leases. These leases typically have initial terms of 5 years and may contain provisions for renewal options, additional rental charges based on revenue and payment of real estate taxes and common area charges.

We entered into the commitments described above and other contractual obligations in the ordinary course of business as a source of funds for asset growth and asset/liability management and to meet required capital needs. Our principal future obligations and commitments as of September 30, 2007, excluding periodic interest payments, include the following:


	Payments Due by Period (in thousands)
			Less than		1 - 3		4 - 5		After 5
	Total		1 Year		Years		Years		Years
Revolving credit facilities	$	—	$	—	$	—	$	—	$	—
Long-term debt:
9.75% Senior Notes due 2011		1,985		—		—		1,985		—
Term loans due 2012		375,978		3,750		7,500		7,500		357,228
2.875% Sr. Convertible Notes due 2027		200,000		—		—		—		200,000
Operating lease obligations		135,362		32,381		48,737		26,964		27,280
Other long-term liabilities reflected on the registrants balance sheet under GAAP		92		92		—		—		—

Total contractual cash obligations	$	713,417	$	36,223	$	56,237	$	36,449	$	584,508

We believe that, based on current levels of operations and anticipated improvements in operating results, cash flows from operations and borrowings available under our credit facilities will allow us to fund our liquidity and capital expenditure requirements for the foreseeable future, including payment of interest and principal on our indebtedness. This belief is based upon our historical growth rate and the anticipated benefits we expect from operating efficiencies. We expect additional revenue growth to be generated by increased check cashing revenues, growth in the consumer lending business, the maturity of recently opened stores and the continued expansion of new stores. We also expect operating expenses to increase, although the rate of increase is expected to be less than the rate of revenue growth for existing stores. Furthermore, we do not believe that additional acquisitions or expansion are necessary to cover our fixed expenses, including debt service.

Balance Sheet Variations

September 30, 2007 compared to June 30, 2007

Restricted cash increased to $2.2 million at September 30, 2007 from $1.0 million at June 30, 2007. The increase is primarily related to the cash held in escrow for the American Payday Lending acquisition completed in September, 2007.

Loans receivable, net increased to $93.3 million at September 30, 2007 from $81.9 million at June 30, 2007. The increase is attributable to growth in the international portfolios for both unsecured short-term consumer loans and longer-term installment loans, as well as increased company-funded consumer loans resulting from the transition from the bank-funded model to the company-funded model in the U.S. This is offset by the increase in the allowance for loan losses due to the growth of the loan portfolio. Currency rate changes in the United Kingdom and Canada contributed $2.7 million of the increase.

Loans in default, net of allowance increased to $12.0 million at September 30, 2007 from $10.3 million at June 30, 2007 primarily as a result of the growth in the international loan portfolios.

Deferred tax assets, net of valuation allowance increased $5.7 million, from $4.5 million at June 30, 2007 to $10.2 million at September 30, 2007. The increase is due primarily to the tax effect of the fair market value of the derivatives related to the cross-currency interest

rate swaps used to hedge our cash flows related to our U.K. and Canadian term loans that are denominated in a currency other than OPCO’s foreign subsidiaries functional currency.

Property and equipment, net of accumulated depreciation increased $3.8 million from $55.0 million at June 30, 2007 to $58.8 million at September 30, 2007. The increase is primarily attributable to new furniture and fixtures and leasehold improvements in relation to new stores and acquired stores in our domestic and foreign operations. The increase is also attributable to the impact of the exchange rates on our foreign subsidiaries.

Goodwill and other intangibles increased $27.4 million, from $341.7 million at June 30, 2007 to $369.1 million at September 30, 2007 due to acquisitions of $13.7 million and foreign currency translation adjustments of $13.7 million.

Accounts payable increased $4.3 million from $39.8 million at June 30, 2007 to $44.1 million at September 30, 2007 primarily due to the timing of settlements with third-party vendors and our franchisees.

The deferred tax liability increased $4.2 million from $12.7 million at June 30, 2007 to $16.9 million at September 30, 2007 as a result of increases in permanent tax differences resulting from increases in goodwill due to acquisitions ant the tax effect of the mark to market adjustment of our Canadian and U.K. term loans that are denominated in a currency other than OPCO’s foreign subsidiaries’ functional currency.

Fair value of cash flow hedges increased $28.7 million from $18.8 million at June 30, 2007 to $47.5 million at September 30, 2007 as a result of the mark to market of the cross currency interest rate swaps. The change in the fair value of these cash flow hedges are primarily a result of the change in the foreign currency exchange rates.

Seasonality and Quarterly Fluctuations

Our business is seasonal due to the impact of tax-related services, including cashing tax refund checks, making electronic tax filings and processing applications for refund anticipation loans. Historically, we have generally experienced our highest revenues and earnings during our third fiscal quarter ending March 31, when revenues from these tax-related services peak. Due to the seasonality of our business, results of operations for any fiscal quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of revenues and expenses associated with acquisitions and the addition of new stores.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (the “FASB”)issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FAS 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 retained earnings for us 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 adjustments in our liability for unrecognized income tax benefits. At the adoption date of July 1, 2007 and September 30, 2007, our balance sheet contains no liability for unrecognized tax benefits.

The tax years ending June 30, 2004 thru 2006 remain open to examination by the major taxing jurisdictions to which we are subject.

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2007, we have approximately $0.9 million of accrued interest related to uncertain tax positions, of which $0.2 million was accrued during the quarter.

In September 2006, FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”), which address 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 will make the measurement for fair value more consistent and comparable and improve disclosures about those measures. The statement does not require any new fair value measurement but will result in increased disclosures. This interpretation is effective for us beginning July 1, 2008.

On February 15, 2007, the FASB issued Statement 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 SFAS 159 are elective; however, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. The fair value option established by FAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report 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. SFAS 159 is effective for us beginning July 1, 2008.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

This report includes forward-looking statements regarding, among other things, anticipated improvements in operations, our plans, earnings, cash flow and expense estimates, strategies and prospects, both business and financial. All statements other than statements of current or historical fact contained in this prospectus are forward-looking statements. The words ''believe,’’ ''expect,’’ ''anticipate,’’ ''should,’’ ''plan,’’ ''will,’’ ''may,’’ ''intend,’’ ''estimate,’’ ''potential,’’ ''continue’’ and similar expressions, as they relate to us, are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events, financial trends and industry regulations that we believe may affect our financial condition, results of operations, business strategy and financial needs. They can be affected by inaccurate assumptions, including, without limitation, with respect to risks, uncertainties, anticipated operating efficiencies, new business prospects and the rate of expense increases. In light of these risks, uncertainties and assumptions, the forward-looking statements in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this report as well as those risk factors set forth in the section entitled “Risk Factors” set forth in the offering memorandum for the issuance of our 2.875% Convertible Notes on June 27, 2007 and our Annual Report on Form 10-K for the fiscal year ended June 30, 2007. Our forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following chart presents a summary of our consumer lending operations, including loan originations, which includes loan extensions and revenues for the following periods (in thousands):


	Three Months Ended
	September 30,
	2006			2007

U.S. company-funded consumer loan originations⁽¹⁾	$	62,234		$	95,950
Canadian company-funded consumer loan originations⁽²⁾		160,298			260,438
U.K. company-funded consumer loan originations⁽²⁾		58,017			80,373

Total company-funded consumer loan originations	$	280,549		$	436,761


U.S. Servicing revenues	$	8,290		$	794
U.S. company-funded consumer loan revenues		10,097			15,194
Canadian company-funded consumer loan revenues		20,851			37,971
U.K. company-funded consumer loan revenues		9,587			14,550
Provision for loan losses and adjustment to servicing revenue		(9,572	)		(14,806	)

Total consumer lending revenues, net	$	39,253		$	53,703


Gross charge-offs of company-funded consumer loans	$	31,888		$	51,757
Recoveries of company-funded consumer loans		(26,751	)		(41,422	)

Net charge-offs on company-funded consumer loans	$	5,137		$	10,335


Gross charge-offs of company-funded consumer loans as a percentage of total company-funded consumer loan originations		11.4	%		11.9	%
Recoveries of company-funded consumer loans as a percentage of total company-funded consumer loan originations		9.6	%		9.5	%
Net charge-offs on company-funded consumer loans as a percentage of total company-funded consumer loan originations		1.8	%		2.4	%


⁽¹⁾		Our company operated stores in the United States originated company-funded and bank-funded single-payment consumer loans during the three months ended September 30, 2006 and during the three months ended September 30, 2007 offer only company-funded single-payment consumer loans in all markets, with the exception of Texas and New Mexico. In Texas, we offer single-payment consumer loans under a credit services organization model and now offer company-funded longer term instrument loans in New Mexico.

⁽²⁾		All consumer loans originated in Canada and the United Kingdom are company funded.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Generally

In the operations of our subsidiaries and the reporting of our consolidated financial results, we are affected by changes in interest rates and currency exchange rates. The principal risks of loss arising from adverse changes in market rates and prices to which we and our subsidiaries are exposed relate to:

	•		interest rates on revolving credit facilities; and

	•		foreign exchange rates generating translation gains and losses.

We and our subsidiaries have no market risk sensitive instruments entered into for trading purposes, as defined by U.S. generally accepted accounting principles or GAAP. Information contained in this section relates only to instruments entered into for purposes other than trading.

Interest Rates

Our outstanding indebtedness, and related interest rate risk, is managed centrally by our finance department by implementing the financing strategies approved by our Board of Directors. While our revolving credit facilities carry variable rates of interest, our debt consists primarily of floating rate term loans which have been synthetically converted to the equivalent of a fixed rate basis. Because most of our average outstanding indebtedness carries a synthetic fixed rate of interest, a change in interest rates is not expected to have a significant impact on our consolidated financial position, results of operations or cash flows. See the section entitled “Cross Currency Interest Rate Swaps”.

Foreign Exchange Rates

Put Options

Operations in the United Kingdom and Canada have exposed us to shifts in currency valuations. From time to time, we may elect to purchase put options in order to protect certain earnings in the United Kingdom and Canada against foreign currency fluctuations. Out of the money put options may be purchased because they cost less than completely averting risk, and the maximum downside is limited to the difference between the strike price and exchange rate at the date of purchase and the price of the contracts. At September 30, 2007, we held put options with an aggregate notional value of C$54.0 million and GBP 8.1 million to protect certain currency exposure in Canada and the United Kingdom through June 30, 2008. We use purchased options designated as cash flow hedges to protect against certain of the foreign currency exchange rate risks inherent in our forecasted earnings denominated in currencies other than the U.S. dollar. 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 subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the gain or loss is reported in corporate expenses on the statement of operations. For options designated as hedges, hedge effectiveness is measured by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. As of September 30, 2007 no amounts were excluded from the assessment of hedge effectiveness. There was no ineffectiveness from these cash flow hedges for the three months ended September 30, 2007. As of September 30, 2007, amounts related to these derivatives qualifying as cash flow hedges amounted to a decrease of shareholders’ equity of $0.4 million, net of tax all of which is expected to be transferred to earnings in the next nine months along with the earnings effects of the related forecasted transactions. The fair market value at September 30, 2007 was $0.1 million and is included in other assets on the balance sheet.

Canadian operations accounted for approximately 94.1% of consolidated pre-tax earnings for the three months ended September 30, 2007 and 292.7 % of consolidated pre-tax earnings for the three months ended September 30, 2006. U.K. operations accounted for approximately 23.5% of consolidated pre-tax earnings for the three months ended September 30, 2007 and approximately 72.1% of consolidated pre-tax earnings for the three months ended September 30, 2006. As currency exchange rates change, translation of the financial results of the Canadian and U.K. operations into U.S. dollars will be impacted. Changes in exchange rates have resulted in cumulative translation adjustments increasing our net assets by $40.9 million. These gains and losses are included in other comprehensive income.

We estimate that a 10.0% change in foreign exchange rates by itself would have impacted reported pre-tax earnings from continuing operations by approximately $2.4 million for the three months ended September 30, 2007 and $2.1 million for the three months ended September 30, 2006. This impact represents nearly 11.8% of our consolidated foreign pre-tax earnings for the three months ended September, 2007 and 36.5% of our consolidated foreign pre-tax earnings for the three months ended September 30, 2006.

Cross-Currency Interest Rate Swaps

In December 2006, we entered into cross-currency interest rate swaps to hedge against the changes in cash flows of our U.K. and Canadian term loans denominated in a currency other than our foreign subsidiaries’ functional currency.

In December 2006, our 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. Under the terms of this swap, Dollar Financial U.K. Limited pays GBP at a rate of 8.45% per annum and Dollar Financial U.K. Limited 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. Under the terms of this cross-currency interest rate swap, we pay GBP at a rate of 8.36% per annum and we receive a rate of the three-month LIBOR plus 3.00% per annum on US$40.0 million.

In December 2006, our 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. Under the terms of the swaps, National Money Mart Company pays Canadian dollars at a blended rate of 7.12% per annum and National Money Mart Company receives a rate of the three-month LIBOR plus 2.75% per annum on $295.0 million.

On a quarterly basis, the 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. We have designated these derivative contracts as cash flow hedges for accounting purposes. We record foreign exchange re-measurement gains and losses related to these contracts and term loans, which are offsetting, in each period in corporate expenses in our consolidated statements of operations. Because these derivatives are designated as cash flow hedges, we record the effective portion of the net, after tax gain or loss in other comprehensive income and they are reclassified to earnings in the same period that the hedged transaction affects earnings. As of September 30, 2007, amounts related to cross-currency interest rate swaps amounted to a decrease in shareholders’ equity of $38.9 million, net of tax. The aggregate fair market value of the cross-currency interest rate swaps at September 30, 2007 is a payable of $47.5 million and is included in fair value of derivatives on the balance sheet. During the three months ended September 30, 2007, we recorded $0.2 million in earnings related to the ineffective portion of these cash flow hedges. During the three months ended September 30, 2007, we recorded $0.2 million in earnings related to the ineffective portion of these cash flow hedges.

Item 4. Controls and Procedures

Evaluation of Disclosure Control and Procedures

As of the end of the period covered by this report, our management conducted an evaluation, with the participation of our Chief Executive Officer, President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer, President and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer, President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during our fiscal quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is incorporated by reference herein to the section in Part I, Item 1 “Note 6. Contingent Liabilities” of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In the event that our cash flow from operations are not sufficient to meet our future liquidity needs, a portion of the goodwill on our balance sheet could become impaired as the fair value of our goodwill is estimated based upon a present value technique using discounted future cash flows. The balance of our goodwill as of September 30, 2007 of $317.7 million exceeded total shareholders’ equity of $157.1 million. As a result, a decrease to our cash flow from operations could result in a charge that significantly impacts the balance of our total shareholders’ equity.

Item 6. Exhibits

2.6 Purchase agreement, dated as of October 11, 2007, by and among CCS Financial Services, Inc., a Florida corporation; Allen Eager, the Allen Eager Revocable Trust, Paul P. Houser, Barry E. Hershman, and the Barry E. Hershman Revocable Trust; and Check Mart of Florida, Inc., a Delaware corporation.


Exhibit No.		Description of Document
10.1:		Dollar Financial Corp. 2005 Stock Incentive Plan (1)

10.3:		Dollar Financial Corp. Deferred Compensation Plan (1)

10.4:		Dollar Financial Corp. Supplemental Executive Conditional Deferred Award Plan for U.K. Participants (1).

10.5:		Dollar Financial Corp. Supplemental Executive Deferred Award Plan for Canadian Participants (2).

10.6:		Dollar Financial Corp. Special Retention Award Letter to Randy Underwood (2).

10.7:		Dollar Financial Corp. Special Retention Award Letter to Paul Mildenstein (2).

10.8:		Amended and Restated Service Agreement by and between Dollar Financial UK Ltd. And Paul Mildenstein dated September 11, 2007 (3).

10.9:		Employment Agreement by and among Jeffrey Weiss, Dollar Financial Corp. and Dollar Financial Group, Inc., dated October 5, 2007 (4).

(1)		Incorporated by reference to the Current Report on Form 8-K filed by Dollar Financial Corp. on July 5, 2007.

(2)		Incorporated by reference to the Current Report on Form 8-K filed by Dollar Financial Corp. on July 19, 2007.

(3)		Incorporated by reference to the Current Report on Form 8-K filed by Dollar Financial Corp. on September 11, 2007.

(4)		Incorporated by reference to the Current Report on Form 8-K filed by Dollar Financial Corp. on October 9, 2007.


	September 30,
	2006		2007
Company Operating Data:

Stores in operation:
Company-owned		785		953
Franchised stores and check cashing merchants		480		374


Total		1,265		1,327


	Three Months Ended
	September 30,
	2006		2007
Check Cashing Data:

Face amount of checks cashed (in millions)	$	1,010	$	1,190
Face amount of average check	$	476	$	525
Average fee per check	$	18.10	$	20.16
Number of checks cashed (in thousands)		2,120		2,265


	Three Months Ended
	September 30,
	2006			2007
	(in thousands)
Check Cashing Collections Data:

Face amount of returned checks	$	10,822		$	14,571
Collections		(7,712	)		(10,572	)

Net write-offs	$	3,110		$	3,999


Collections as a percentage of returned checks		71.3	%		72.6	%
Net write-offs as a percentage of check cashing revenues		8.1	%		8.8	%
Net write-offs as a percentage of the face amount of checks cashed		0.31	%		0.34	%


	DOLLAR FINANCIAL CORP.
Date: November 8, 2007	*By:	/s/ Randy Underwood
		Name:	Randy Underwood
		Title:	Executive Vice President and Chief Financial Officer (principal financial and chief accounting officer)

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	Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Interim Consolidated Balance Sheets as of June 30, 2007 and September 30, 2007 (unaudited)		3

Interim Unaudited Consolidated Statements of Operations for the Three Months Ended September 30, 2006 and 2007		4

Interim Unaudited Consolidated Statements of Shareholders’ Equity as of September 30, 2007		5

Interim Unaudited Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2006 and 2007		6

Notes to Interim Unaudited Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3. Quantitative and Qualitative Disclosures About Market Risk		37

Item 4. Controls and Procedures		39

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		39

Item 1A. Risk Factors		39

Item 6. Exhibits		40

Signature		41
ASSET PURCHASE AGREEMENT
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION OF PRESIDENT
CERTIFICATION OF CHIEF FINANCIAL OFFICER
SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
SECTION 1350 CERTIFICATION OF PRESIDENT
SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER


											Accumulated
						Additional					Other			Total
	Common Stock					Paid-in		Accumulated			Comprehensive			Shareholders’
	Shares			Amount		Capital		Deficit			Income			Equity
Balance, June 30, 2007		24,133,800			24		251,460		(147,123	)		41,622			145,983

Comprehensive income
Foreign currency translation												3,293			3,293
Cash flow hedges												(5,365	)		(5,365	)
Net income									12,054						12,054

Total comprehensive income															9,982
Restricted stock grants		8,190													—
Restricted stock vested							315								315
Share options exercised		30,944					322								322
Retirement of common stock		(1,379	)												—
Non-cash stock compensation							521								521

Balance, September 30, 2007 (unaudited)		24,171,555		$	24	$	252,618	$	(135,069	)	$	39,550		$	157,123


*		The signatory hereto is the principal financial and chief accounting officer and has been duly authorized to sign on behalf of the registrant.