UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2007		Commission File No. 000-19424

EZCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		74-2540145 (I.R.S. Employer Identification No.)

1901 Capital Parkway
Austin, Texas 78746
(Address of principal executive offices)

Registrant’s telephone number: (512) 314-3400

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by one record holder who is an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.

As of June 30, 2007, 38,329,337 shares of the registrant’s Class A Non-voting Common Stock, par value $.01 per share and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share were outstanding.

 

 

EZCORP, INC.
INDEX TO FORM 10-Q

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2007, June 30, 2006 and September 30, 2006			1
Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2007 and 2006			2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2007 and 2006			3
Notes to Interim Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Quantitative and Qualitative Disclosures about Market Risk			28
Item 4. Controls and Procedures			29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 6. Exhibits			30
SIGNATURE			31
EXHIBIT INDEX			32
CERTIFICATIONS
First Amendment to Fourth Amended and Restated Credit Agreement
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

		June 30,				June 30,
		2007				2006				September 30,
		(Unaudited)				(Unaudited)				2006
		(In thousands)
Assets:
Current assets:
Cash and cash equivalents		$	31,686			$	22,731			$	29,939
Pawn loans			58,053				48,932				50,304
Payday loans, net			4,514				1,966				2,443
Pawn service charges receivable, net			8,150				7,037				8,234
Signature loan fees receivable, net			5,439				3,708				4,380
Inventory, net			33,641				32,937				35,616
Deferred tax asset			7,344				8,365				7,150
Federal income taxes receivable			—				—				35
Prepaid expenses and other assets			5,197				3,340				3,907
Total current assets			154,024				129,016				142,008
Investment in unconsolidated affiliate			21,250				17,870				19,275
Property and equipment, net			31,895				27,283				29,447
Deferred tax asset, non-current			4,536				3,669				3,749
Goodwill			16,211				631				768
Other assets, net			3,448				2,614				2,611
Total assets		$	231,364			$	181,083			$	197,858
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable and other accrued expenses		$	21,658			$	18,517			$	22,579
Customer layaway deposits			1,888				1,734				1,890
Federal income taxes payable			1,255				752				—
Total current liabilities			24,801				21,003				24,469
Deferred gains and other long-term liabilities			2,977				3,339				3,249
Commitments and contingencies
Stockholders’ equity:
Preferred Stock, par value $.01 per share; Authorized 5 million shares; none issued and outstanding			—				—				—
Class A Non-voting Common Stock, par value $.01 per share; Authorized 50 million shares; 38,356,436 issued and 38,329,337 outstanding at June 30, 2007; 36,735,471 issued and 36,708,372 outstanding at June 30, 2006; 37,542,240 issued and 37,515,141 outstanding at September 30, 2006			383				363				375
Class B Voting Common Stock, convertible, par value $.01 per share; 3 million shares authorized; 2,970,171 issued and outstanding			30				30				30
Additional paid-in capital			130,236				121,070				124,572
Retained earnings			70,692				34,805				43,973
			201,341				156,268				168,950
Treasury stock, at cost (27,099 shares)			(35	)			(35	)			(35	)
Accumulated other comprehensive income			2,280				508				1,225
Total stockholders’ equity			203,586				156,741				170,140
Total liabilities and stockholders’ equity		$	231,364			$	181,083			$	197,858

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

Condensed Consolidated Statements of Operations (Unaudited)

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
		(In thousands, except per share amounts)
Revenues:
Sales		$	42,676			$	40,640			$	141,688			$	130,598
Pawn service charges			16,978				15,021				51,496				46,988
Signature loan fees			27,024				17,821				74,132				49,949
Other			315				304				1,007				962
Total revenues			86,993				73,786				268,323				228,497
Cost of goods sold			25,421				23,698				85,618				77,696
Net revenues			61,572				50,088				182,705				150,801
Operating expenses:
Operations			31,595				27,544				94,087				82,095
Signature loan bad debt			10,142				5,531				19,086				12,062
Administrative			8,033				6,830				23,528				20,347
Depreciation and amortization			2,495				2,143				7,194				6,402
Total operating expenses			52,265				42,048				143,895				120,906
Operating income			9,307				8,040				38,810				29,895
Interest income			(618	)			(193	)			(1,499	)			(283	)
Interest expense			67				43				214				396
Equity in net income of unconsolidated affiliate			(720	)			(557	)			(2,185	)			(1,745	)
Gain on sale / disposal of assets			(155	)			(70	)			(131	)			(62	)
Income before income taxes			10,733				8,817				42,411				31,589
Income tax expense			3,971				3,209				15,692				11,498
Net income		$	6,762			$	5,608			$	26,719			$	20,091
Net income per common share:
Basic		$	0.16			$	0.14			$	0.65			$	0.51
Diluted		$	0.16			$	0.13			$	0.62			$	0.48
Weighted average shares outstanding:
Basic			41,282				39,657				40,943				39,174
Diluted			43,482				42,557				43,393				41,923

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

Condensed Consolidated Statements of Cash Flows (Unaudited)

		Nine Months Ended
		June 30,
		2007				2006
		(In thousands)
Operating Activities:
Net income		$	26,719			$	20,091
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			7,194				6,402
Payday loan loss provision			3,316				1,490
Deferred taxes			(787	)			2,512
Net gain on sale or disposal of assets			(131	)			(62	)
Share-based compensation			2,726				1,099
Income from investment in unconsolidated affiliate			(2,185	)			(1,745	)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net			(432	)			2,045
Inventory, net			407				(387	)
Prepaid expenses, other current assets, and other assets, net			(1,160	)			(1,145	)
Accounts payable and accrued expenses			(951	)			(460	)
Customer layaway deposits			(79	)			46
Deferred gains and other long-term liabilities			(272	)			(258	)
Excess tax benefit from stock-based compensation			(895	)			—
Federal income taxes			2,756				138
Net cash provided by operating activities			36,226				29,766
Investing Activities:
Pawn loans made			(150,656	)			(139,049	)
Pawn loans repaid			80,530				76,385
Recovery of pawn loan principal through sale of forfeited collateral			69,824				65,271
Payday loans made			(32,708	)			(16,361	)
Payday loans repaid			27,427				14,538
Additions to property and equipment			(9,234	)			(6,684	)
Acquisitions, net of cash acquired			(23,201	)			(1,590	)
Dividends from unconsolidated affiliate			1,274				969
Proceeds from sale of assets			200				98
Net cash used in investing activities			(36,544	)			(6,423	)
Financing Activities:
Proceeds from exercise of stock options and warrants			1,453				2,220
Excess tax benefit from stock-based compensation			895				—
Debt issuance costs			(283	)			—
Net payments on bank borrowings			—				(7,000	)
Net cash provided by (used in) financing activities			2,065				(4,780	)
Change in cash and equivalents			1,747				18,563
Cash and equivalents at beginning of period			29,939				4,168
Cash and equivalents at end of period		$	31,686			$	22,731
Non-cash Investing and Financing Activities:
Pawn loans forfeited and transferred to inventory		$	66,521			$	66,834
Issuance of common stock to 401(k) plan		$	27			$	44
Foreign currency translation adjustment		$	(1,055	)		$	254

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
June 30, 2007

Note A: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Management has included all adjustments it considers necessary for a fair presentation. These adjustments are of a normal, recurring nature except for those related to acquired businesses (described in Note C). The accompanying financial statements should be read with the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2006. The balance sheet at September 30, 2006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period balances have been reclassified to conform to the current presentation.

Our business is subject to seasonal variations, and operating results for the three and nine-month periods ended June 30, 2007 (the “current quarter” and “current year-to-date period”) are not necessarily indicative of the results of operations for the full fiscal year.

Note B: Significant Accounting Policies

CONSOLIDATION: The consolidated financial statements include the accounts of EZCORP, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. We account for our interest in Albemarle & Bond Holdings, plc using the equity method.

STOCK SPLIT: In November 2006, our Board of Directors approved a three-for-one stock split of our two classes of common stock to shareholders of record as of November 27, 2006. The additional shares were distributed on December 11, 2006. All shares and amounts per share in this report have been adjusted to reflect the split.

PAWN LOAN AND SALES REVENUE RECOGNITION: We record pawn service charges using the interest method for all pawn loans we believe to be collectible. We base our estimate of collectible loans on several factors, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following two to three months. Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our earnings and financial condition. If a pawn loan is not repaid, we value the forfeited collateral (inventory) at the lower of cost (pawn loan principal) or market (net realizable value) of the property. We record sales revenue and the related cost when this inventory is sold.

CREDIT SERVICE REVENUE RECOGNITION: We earn credit service fees when we assist customers in obtaining loans from unaffiliated lenders. We accrue the percentage of credit service fees we expect to collect. Accrued fees related to defaulted loans reduce credit service fee revenue upon loan default, and increase credit service fee revenue upon collection. Credit service revenue is included in “Signature loan fees” on our statements of operations.

CREDIT SERVICE BAD DEBT: We issue letters of credit to enhance the creditworthiness of our credit service customers seeking loans from unaffiliated lenders. The letters of credit assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal and accrued interest owed it by the borrowers plus any insufficient funds fee. Although amounts paid under letters of credit may be collected later, we charge those amounts to signature loan bad debt upon default. We record recoveries under the letters of credit as a reduction of bad debt at the time of collection.

The majority of our credit service customers obtain short-term loans with a single maturity date. These short-term loans, with maturity dates averaging about 17 days, are considered defaulted if they have not been repaid or renewed by the maturity date. Other credit service customers obtain installment loans with a series of payments due over as

much as a five-month period. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire loan is considered defaulted.

CREDIT SERVICE ALLOWANCE FOR LOSSES: We also provide an allowance for losses we expect to incur under letters of credit for loans that have not yet matured. The allowance is based on recent loan default experience adjusted for seasonal variations. It includes all amounts we expect to pay to the unaffiliated lenders upon loan default, including loan principal, accrued interest and insufficient funds fees, net of the amounts we expect to collect from borrowers (“Expected LOC Losses”). Changes in the allowance are charged to signature loan bad debt expense. We include the balance of Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheet. At June 30, 2007, the allowance for Expected LOC Losses was $1.4 million. At that date, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none was collected, was $22.8 million. This amount includes principal, interest and insufficient funds fees. Based on the expected loss and collection percentages, we also provide an allowance for the credit service fees we expect not to collect, and charge changes in this allowance to signature loan fee revenue.

PAYDAY LOAN REVENUE RECOGNITION: We accrue fees on the percentage of payday loans we believe to be collectible using the interest method. Accrued fees related to defaulted loans reduce fee revenue upon loan default, and increase fee revenue upon collection. Payday loan fee revenue is included in “Signature loan fees” on our statements of operations.

PAYDAY LOAN BAD DEBT: We consider a loan defaulted if it has not been repaid or renewed by the maturity date. Although defaulted loans may be collected later, we charge the loan principal to signature loan bad debt upon default, leaving only active loans in the reported balance. We record collections of principal as a reduction of signature loan bad debt when collected.

PAYDAY LOAN ALLOWANCE FOR LOSSES: We also provide an allowance for losses on payday loans that have not yet matured and related fees receivable, based on recent loan default experience adjusted for seasonal variations. We charge any changes in the principal valuation allowance to signature loan bad debt. We record changes in the fee receivable valuation allowance to signature loan fee revenue.

INVENTORY: If a pawn loan is not redeemed, we record the forfeited collateral at cost. We do not record loan loss allowances or charge-offs on the principal portion of pawn loans, as they are fully collateralized. In order to state inventory at the lower of cost (specific identification) or market (net realizable value), we record an allowance for shrinkage and excess, obsolete or slow moving inventory. The allowance is based on the type and age of merchandise and recent sales trends and margins. At June 30, 2007, the inventory valuation allowance was $3.8 million, or 10.2% of gross inventory. We record changes in the inventory valuation allowance as cost of goods sold.

INTANGIBLE ASSETS: Goodwill and other intangible assets having indefinite lives are not subject to amortization. They are tested for impairment each July 1^st, or more frequently if events or changes in circumstances indicate that they might be impaired. We recognized no impairment of our intangible assets in the current or prior year-to-date periods. We amortize intangible assets with definite lives over their estimated useful lives.

PROPERTY AND EQUIPMENT: Property and equipment is shown net of accumulated depreciation of $82.4 million at June 30, 2007.

VALUATION OF TANGIBLE LONG-LIVED ASSETS: We assess the impairment of tangible long-lived assets whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable. The following factors could trigger an impairment review: significant underperformance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy for the overall business; or significant negative industry trends. When we determine that the net recorded amount of tangible long-lived assets may not be recoverable, we measure impairment based on the excess of the assets’ net recorded amount over the estimated fair value. No impairment of tangible long-lived assets was recognized in the current or prior year-to-date periods.

INCOME TAXES: We calculate the provision for federal income taxes based on our estimate of the effective tax rate for the full fiscal year. As part of the process of preparing the financial statements, we estimate income taxes in each jurisdiction in which we operate. This involves estimating the actual current tax liability and assessing

temporary differences in recognition of income for tax and accounting purposes. These differences result in deferred tax assets and liabilities that we include in our balance sheet. We must then assess the likelihood that the deferred tax assets will be recovered from future taxable income. If we determined we would not be able to realize all or part of our net deferred tax assets in the future, an increase to the valuation allowance would be charged to the income tax provision in that period. Likewise, if we determined we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, a decrease to the valuation allowance would decrease the tax provision in that period. We assess the need for a deferred tax asset valuation allowance quarterly. Our valuation allowance was $0.4 million at June 30, 2007.

SHARE-BASED COMPENSATION: We account for share-based compensation in accordance with the fair value recognition provisions of SFAS No. 123(R), “Share-based Payment.” We estimate the grant-date fair value of options using the Black-Scholes-Merton option-pricing model and amortize that fair value to compensation expense on a straight-line basis over the options’ vesting periods.

SEGMENTS: We account for our operations in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Prior to October 1, 2006, we had a single reportable segment. Effective October 1, 2006, we reorganized our operations and internal reporting to manage it as two separate segments. See Note K for further discussion and separate data for each segment.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). To be recognized in the financial statements, FIN 48 requires that a tax position is more-likely-than-not to be sustained in an audit, based on the technical merits of the position. In making the determination of sustainability, we must presume the appropriate taxing authority with full knowledge of all relevant information will audit our tax positions. FIN 48 also prescribes how the benefit should be measured, including the consideration of any penalties and interest. It requires that the new standard be applied to the balances of tax assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of retained earnings. We must adopt FIN 48 in the fiscal year ending September 30, 2008. We do not expect FIN 48 to have a material effect on our financial position or results of operations. It will not impact our cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” Among other requirements, SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure about the use of fair value to measure assets and liabilities. We must adopt SFAS No. 157 in our fiscal year ending September 30, 2009. We are currently evaluating the impact, if any, of SFAS No. 157 on our financial position and results of operations. It will not impact our cash flows.

Note C: Acquisitions

On June 18, 2007, we completed the acquisition of fifteen pawnshops and one signature loan store from Jumping Jack Cash, a competitor in Colorado for $23.2 million of cash and direct transaction costs. The purchase price was allocated as follows (in thousands):

Current assets:
Pawn loans		$	4,144
Payday loans, net			106
Pawn service charges receivable, net			529
Signature loan fees receivable, net			14
Inventory, net			1,735
Deferred tax asset			194
Prepaid expenses and other assets			217
Total current assets			6,939
Property and equipment			423
Non-compete agreement			500
Goodwill			15,443
Other assets, net			20
Total assets		$	23,325
Liabilities:
Accrued liabilities		$	(47	)
Customer deposits			(77	)
Total liabilities			(124	)
Net assets acquired		$	23,201

We acquired three pawnshops in the fiscal year ended September 30, 2006. One was acquired in December 2005 for $1.6 million, and the other two were acquired in August 2006 for $0.6 million.

The results of all acquired stores have been consolidated with our results since their acquisition. Pro forma results of operations have not been presented because the acquisitions were not material.

Note D: Earnings Per Share

We compute basic earnings per share on the basis of the weighted average number of shares of common stock outstanding during the period. We compute diluted earnings per share on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options, warrants and restricted stock awards.

Components of basic and diluted earnings per share are as follows (in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Net income (A)		$	6,762			$	5,608			$	26,719			$	20,091
Weighted average outstanding shares of common stock (B)			41,282				39,657				40,943				39,174
Dilutive effect of stock options, warrants, and restricted stock			2,200				2,900				2,450				2,749
Weighted average common stock and common stock equivalents (C)			43,482				42,557				43,393				41,923
Basic earnings per share (A/B)		$	0.16			$	0.14			$	0.65			$	0.51
Diluted earnings per share (A/C)		$	0.16			$	0.13			$	0.62			$	0.48

Anti-dilutive options, warrants and restricted stock grants have been excluded from the computation of diluted earnings per share because the assumed proceeds upon exercise, as defined by SFAS No. 123(R), were greater than

the cost to re-acquire the same number of shares at the average market price, and therefore the effect would be anti-dilutive.

Note E: Investment in Unconsolidated Affiliate

At June 30, 2007, we owned 13,276,666 common shares of Albemarle & Bond Holdings, plc (“A&B”), or approximately 28.4% of the total outstanding shares. The investment is accounted for using the equity method. Since A&B’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. A&B files interim and annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our current year-to-date period ended June 30, 2007 represents our percentage interest in the results of A&B’s operations from July 1, 2006 to March 31, 2007.

Below is summarized financial information for A&B’s most recently reported results (using average exchange rates for the periods indicated):

		Six Months Ended December 31,
		2006				2005
		(in thousands)
Turnover (gross revenues)		$	32,853			$	26,391
Gross profit			23,631				18,207
Profit after tax (net income)			5,148				4,134

On July 11, 2007, we purchased 3,022,209 additional shares of A&B’s common stock as part of a private placement of stock by A&B. The purchase increased our ownership percentage to 29.95% of the outstanding shares of A&B. Because we include A&B’s earnings in our financial statements on a three-month lag as described above, our incremental share of A&B’s results of operations will first be reflected in our results in the quarter ending December 31, 2007. For further discussion, see Note L, “Subsequent Event.”

Note F: Contingencies

Currently and from time to time, we are defendants in legal and regulatory actions. While we cannot determine the ultimate outcome of these actions, after consultation with counsel, we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity. However, we cannot give any assurance as to their ultimate outcome.

In May 2007, the State of Texas filed suit against EZCORP, Inc. and its Texas affiliates in state district court in Bexar County alleging violations of the Texas Identity Theft statute, Deceptive Trade Practices Act, and a provision of the Business and Commerce Code by allegedly failing to safeguard and properly dispose of customers’ sensitive personal information. In late May 2007, we voluntarily entered into an Agreed Temporary Injunction regarding the safeguarding and disposal of the information and are in the process of negotiating a resolution. We have reviewed and enhanced our information security polices to address the State’s concerns.

Note G: Comprehensive Income

Comprehensive income includes net income and other revenues, expenses, gains and losses that are excluded from net income but are included as a component of total stockholders’ equity. Comprehensive income for the current quarter and current year-to-date period ended June 30, 2007 was $6.8 million and $27.8 million. For the comparable 2006 periods, comprehensive income was $5.7 million and $19.8 million, respectively. The difference between comprehensive income and net income results from the effect of foreign currency translation adjustments determined in accordance with SFAS No. 52, “Foreign Currency Translation.” At June 30, 2007, the accumulated balance of foreign currency activity excluded from net income was $3.5 million, net of tax of $1.2 million. The net $2.3 million is presented as “Accumulated other comprehensive income” in the current quarter balance sheet.

Note H: Long-term Debt

While we had no debt at June 30, 2007 and 2006, we have a $40.0 million revolving credit facility secured by our assets, which matures October 1, 2009. For any borrowed funds, we may choose a Eurodollar rate plus 100 to 200 basis points (depending on the leverage ratio) or the agent bank’s base rate. On the unused amount of the revolving

facility, we pay a commitment fee of 25 to 30 basis points depending on the leverage ratio calculated at the end of each quarter. Terms of the agreement require, among other things, that we meet certain financial covenants. Payment of dividends and additional debt are allowed but restricted.

Note I: Goodwill and Other Intangible Assets

The following table presents the balance of each major class of indefinite-lived intangible asset at the specified dates:

		June 30, 2007				June 30, 2006				September 30, 2006
		(In thousands)
Pawn licenses		$	1,549			$	1,549			$	1,549
Goodwill			16,211				631				768
Total		$	17,760			$	2,180			$	2,317

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:

		June 30, 2007								June 30, 2006								September 30, 2006
		Carrying				Accumulated				Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization				Amount				Amortization
		(In thousands)
License application fees		$	345			$	(281	)		$	345			$	(250	)		$	345			$	(257	)
Real estate finders’ fees			556				(323	)			556				(306	)			556				(311	)
Non-compete agreements			898				(293	)			388				(272	)			398				(277	)
Customer list			20				—				—				—				—				—
Total		$	1,819			$	(897	)		$	1,289			$	(828	)		$	1,299			$	(845	)

Total amortization expense from definite-lived intangible assets for the current quarter and year-to-date periods ended June 30, 2007 was approximately $17,000 and $52,000. For the comparable 2006 periods, amortization expense was approximately $17,000 and $51,000. We estimate amortization expense will be $62,000 in the remaining three months of fiscal 2007. The expected increase from prior quarters is primarily due to the amortization of intangible assets acquired from Jumping Jack Cash. The following table presents our estimate of amortization expense for definite-lived intangible assets for the next four full fiscal years (in thousands):

Fiscal Year		Amortization Expense
2008		$	168
2009		$	159
2010		$	144
2011		$	138

As acquisitions and dispositions occur in the future, amortization expense may vary from these estimates.

Note J: Common Stock, Warrants, Options, and Share-based Compensation

Our income includes the following share-based compensation expense, determined in accordance with the fair value provisions of SFAS No. 123(R):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
		(in thousands)
Gross compensation cost		$	1,061			$	206			$	2,726			$	1,099
Income tax benefit			(322	)			(7	)			(858	)			(116	)
Share-based compensation cost, net of tax benefit		$	739			$	199			$	1,868			$	983

Stock option and warrant exercises resulted in the issuance of 49,846 shares of Class A Non-voting Common Stock in the current quarter for total proceeds of $0.2 million. For the current year-to-date period, 812,347 shares of Common Stock were issued for total proceeds of $1.5 million.

In September 2006, the Compensation Committee of our Board of Directors approved an award of 675,000 shares of restricted stock to our Chairman of the Board, and 945,000 shares of restricted stock to our Chief Executive Officer. The award was effective October 2, 2006. The cumulative market value of the two grants on the award date was $21 million, and 20% of the shares will vest every two years for a ten-year period if certain company performance requirements are achieved. If the bi-annual performance requirements are not met, the unvested shares will be added to subsequent vesting dates. In the event that the performance requirements for vesting are not achieved for any vesting date by the end of our fiscal year ending September 30, 2016, all unvested shares will be forfeited and cancelled.

In September 2006, the Compensation Committee of our Board of Directors approved an award of 137,250 shares of restricted stock to key individuals. The award was effective October 2, 2006. The shares will vest October 2, 2010, and the market value of the restricted stock on the award date was $1.8 million.

In November 2006, our Board of Directors approved a three-for-one stock split of our two classes of common stock to shareholders of record as of November 27, 2006. The additional shares were distributed on December 11, 2006. Shares and amounts per share in this report have been adjusted retroactively to reflect the split.

On June 1, 2007, the Compensation Committee of our Board of Directors granted to a new independent board member a non-qualified option to acquire 1,666 shares of our Class A Non-voting Common Stock. The option vests in one year and has an exercise price of $15.05 per share.

Note K: Operating Segment Information

Prior to October 1, 2006, we had a single reportable segment. Effective October 1, 2006, we reorganized our business and internal reporting to manage it as two reportable segments with operating results reported separately for each segment. The two reportable segments are:

	•		EZPAWN Operations: This segment offers pawn loans and related sales in all 298 of our pawn stores and offers signature loans in seven EZMONEY stores and 80 of our pawn stores.
	•		EZMONEY Operations: This segment offers signature loans in 383 of our EZMONEY stores.

There are no inter-segment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements. The following tables present operating segment information:

		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
		(in thousands)
Three Months Ended June 30, 2007:
Revenues:
Sales		$	42,676			$	—			$	42,676
Pawn service charges			16,978				—				16,978
Signature loan fees			808				26,216				27,024
Other			315				—				315
Total revenues			60,777				26,216				86,993
Cost of goods sold			25,421				—				25,421
Net revenues			35,356				26,216				61,572
Store operating expenses:
Operations expense			21,613				9,982				31,595
Signature loan bad debt			570				9,572				10,142
Total store operating expenses			22,183				19,554				41,737
Store operating income		$	13,173			$	6,662			$	19,835
Three Months Ended June 30, 2006:
Revenues:
Sales		$	40,640			$	—			$	40,640
Pawn service charges			15,021				—				15,021
Signature loan fees			838				16,983				17,821
Other			304				—				304
Total revenues			56,803				16,983				73,786
Cost of goods sold			23,698				—				23,698
Net revenues			33,105				16,983				50,088
Store operating expenses:
Operations expense			20,747				6,797				27,544
Signature loan bad debt			406				5,125				5,531
Total store operating expenses			21,153				11,922				33,075
Store operating income		$	11,952			$	5,061			$	17,013

		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
		(in thousands)
Nine Months Ended June 30, 2007:
Revenues:
Sales		$	141,688			$	—			$	141,688
Pawn service charges			51,496				—				51,496
Signature loan fees			2,554				71,578				74,132
Other			1,007				—				1,007
Total revenues			196,745				71,578				268,323
Cost of goods sold			85,618				—				85,618
Net revenues			111,127				71,578				182,705
Store operating expenses:
Operations expense			64,926				29,161				94,087
Signature loan bad debt			1,070				18,016				19,086
Total store operating expenses			65,996				47,177				113,173
Store operating income		$	45,131			$	24,401			$	69,532
Nine Months Ended June 30, 2006:
Revenues:
Sales		$	130,598			$	—			$	130,598
Pawn service charges			46,988				—				46,988
Signature loan fees			2,237				47,712				49,949
Other			962				—				962
Total revenues			180,785				47,712				228,497
Cost of goods sold			77,696				—				77,696
Net revenues			103,089				47,712				150,801
Store operating expenses:
Operations expense			63,401				18,694				82,095
Signature loan bad debt			920				11,142				12,062
Total store operating expenses			64,321				29,836				94,157
Store operating income		$	38,768			$	17,876			$	56,644

The following table reconciles store operating income, as shown above, to our consolidated income before income taxes:

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
		(in thousands)
Consolidated store operating income		$	19,835			$	17,013			$	69,532			$	56,644
Administrative expenses			8,033				6,830				23,528				20,347
Depreciation and amortization			2,495				2,143				7,194				6,402
Interest income			(618	)			(193	)			(1,499	)			(283	)
Interest expense			67				43				214				396
Equity in net income of unconsolidated affiliate			(720	)			(557	)			(2,185	)			(1,745	)
Gain on sale / disposal of assets			(155	)			(70	)			(131	)			(62	)
Consolidated income before income taxes		$	10,733			$	8,817			$	42,411			$	31,589

The following table presents separately identified segment assets:

		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
		(in thousands)
Assets at June 30, 2007:
Pawn loans		$	58,053			$	—			$	58,053
Payday loans, net			487				4,027				4,514
Inventory, net			33,641				—				33,641
Total separately identified recorded segment assets		$	92,181			$	4,027			$	96,208
Brokered loans outstanding from unaffiliated lenders		$	486			$	21,023			$	21,509
Assets at June 30, 2006:
Pawn loans		$	48,932			$	—			$	48,932
Payday loans, net			487				1,479				1,966
Inventory, net			32,937				—				32,937
Total separately identified recorded segment assets		$	82,356			$	1,479			$	83,835
Brokered loans outstanding from unaffiliated lenders		$	508			$	15,396			$	15,904
Assets at September 30, 2006:
Pawn loans		$	50,304			$	—			$	50,304
Payday loans, net			489				1,954				2,443
Inventory, net			35,616				—				35,616
Total separately identified recorded segment assets		$	86,409			$	1,954			$	88,363
Brokered loans outstanding from unaffiliated lenders		$	553			$	17,657			$	18,210

Brokered loans are not recorded as an asset on our balance sheet, as we do not own a participation in the loans made by independent lenders. We monitor the principal balance of these loans, as our credit service fees and bad debt are directly related to their volume due to the letters of credit we issue on these loans. The balance shown above is the gross principal balance of the loans outstanding.

Note L: Subsequent Event

On July 11 2007, Albemarle & Bond announced its acquisition of a 26-store competitor in the United Kingdom. In conjunction with that transaction, Albemarle & Bond issued to the seller and sold in a private placement a total of 7,346,335 newly issued shares of its common stock. On July 11, 2007, we purchased 3,022,209 of those additional shares for $13.4 million. The purchase increased our ownership percentage to 29.95% of A&B’s outstanding shares. Because we include A&B’s earnings in our financial statements on a three-month lag as described in Note E, “Investment in Unconsolidated Affiliate,” our incremental share of A&B’s results of operations will first be reflected in our results in the quarter ending December 31, 2007.

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

The discussion in this section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in this section and throughout this report.

Third Quarter Ended June 30, 2007 vs. Third Quarter Ended June 30, 2006

The following table presents selected, unaudited, consolidated financial data for our three-month periods ended June 30, 2007 and 2006 (“current quarter” and “prior year quarter”):

		Three Months Ended June 30,								Percentage
		2007				2006				Change
		(Dollars in thousands)
Net revenues:
Sales		$	42,676			$	40,640				5.0	%
Pawn service charges			16,978				15,021				13.0	%
Signature loan fees			27,024				17,821				51.6	%
Other			315				304				3.6	%
Total revenues			86,993				73,786				17.9	%
Cost of goods sold			25,421				23,698				7.3	%
Net revenues		$	61,572			$	50,088				22.9	%
Net income		$	6,762			$	5,608				20.6	%

Nine Months Ended June 30, 2007 vs. Nine Months Ended June 30, 2006

The following table presents selected, unaudited, consolidated financial data for our nine-month periods ended June 30, 2007 and 2006 (“current year-to-date” and “prior year-to-date” periods):

		Nine Months Ended June 30,								Percentage
		2007				2006				Change
		(Dollars in thousands)
Net revenues:
Sales		$	141,688			$	130,598				8.5	%
Pawn service charges			51,496				46,988				9.6	%
Signature loan fees			74,132				49,949				48.4	%
Other			1,007				962				4.7	%
Total revenues			268,323				228,497				17.4	%
Cost of goods sold			85,618				77,696				10.2	%
Net revenues		$	182,705			$	150,801				21.2	%
Net income		$	26,719			$	20,091				33.0	%

Consolidated signature loan data (combined payday loan and credit service activities) are as follows:

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
		(Dollars in thousands)
Fee revenue		$	27,024			$	17,821			$	74,132			$	49,949
Bad debt:
Net defaults, including interest on brokered loans			8,692				4,520				17,353				11,342
Insufficient funds fees, net of collections			318				273				775				790
Change in valuation allowance			1,059				669				758				(198	)
Other related costs			73				69				200				128
Net bad debt			10,142				5,531				19,086				12,062
Fee revenue less bad debt		$	16,882			$	12,290			$	55,046			$	37,887
Average signature loan balance outstanding during period (a)		$	23,779			$	15,845			$	22,222			$	15,299
Signature loan balance at end of period (a)		$	26,023			$	17,870			$	26,023			$	17,870
Participating stores at end of period			470				370				470				370
Signature loan bad debt, as a percent of fee revenue			37.5	%			31.0	%			25.7	%			24.1	%
Net default rate (a)(b)			6.1	%			5.0	%			4.6	%			4.5	%

Overview

We lend or provide credit services to individuals who do not have cash resources or access to credit to meet their short-term cash needs. We offer pawn loans in 295 domestic pawn stores, including fifteen acquired in the current quarter, and three Mexico pawn stores open at June 30, 2007. Pawn loans are non-recourse loans collateralized by tangible personal property. At these stores, we also sell merchandise, primarily collateral forfeited from our pawn lending operations, to customers looking for good value. In 390 EZMONEY stores and 80 of our domestic pawn stores open June 30, 2007, we offer short-term non-collateralized loans, often called payday loans, or fee-based credit services to customers seeking loans (collectively, “signature loans”).

We manage our business as two segments. The EZPAWN Operations segment offers pawn related activities in all 298 pawn stores, and offers signature loans in 80 pawn stores and seven EZMONEY stores. The EZMONEY Operations segment offers signature loans in 383 EZMONEY stores, and accounts for approximately 97% of our consolidated signature loan revenues. The following tables present store data by operating segment:

		Three Months Ended June 30, 2007
		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
Stores in operation:
Beginning of period			289				362				651
New openings			1				20				21
Acquired			15				1				16
Sold, combined, or closed			—				—				—
End of period			305				383				688
Average number of stores during the period			293				369				662

		Nine Months Ended June 30, 2007
		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
Stores in operation:
Beginning of period			287				327				614
New openings			3				57				60
Acquired			15				1				16
Sold, combined, or closed			—				(2	)			(2	)
End of period			305				383				688
Average number of stores during the period			290				348				638
Composition of ending stores:
EZPAWN — United States			295				—				295
EZPAWN — Mexico			3				—				3
EZMONEY signature loan stores adjoining EZPAWNs			7				159				166
EZMONEY signature loan stores — free standing			—				224				224
Total stores in operation			305				383				688
Total stores offering signature loans			87				383				470

		Three Months Ended June 30, 2006
		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
Stores in operation:
Beginning of period			288				256				544
New openings			—				25				25
Acquired			—				—				—
Sold, combined, or closed			(1	)			—				(1	)
End of period			287				281				568
Average number of stores during the period			288				263				550

		Nine Months Ended June 30, 2006
		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
Stores in operation:
Beginning of period			287				227				514
New openings			—				55				55
Acquired			1				—				1
Sold, combined, or closed			(1	)			(1	)			(2	)
End of period			287				281				568
Average number of stores during the period			288				244				532
Composition of ending stores:
EZPAWN — United States			280				—				280
EZPAWN — Mexico			—				—				—
EZMONEY signature loan stores adjoining EZPAWNs			7				158				165
EZMONEY signature loan stores — free standing			—				123				123
Total stores in operation			287				281				568
Total stores offering signature loans			89				281				370

We earn pawn service charge revenue on our pawn lending. While allowable service charges vary by state and loan size, a majority of our pawn loans are in amounts that allow 20% per month, or 240% annually. Our average pawn loan amount typically ranges between $80 and $90 but varies depending on the valuation of each item pawned. The total loan term, consisting of the primary term and grace period, ranges between 60 and 120 days.

Between August and November 2005, we reduced the total loan term on new pawn loans from 90 days to 60 days in 215 of our pawn stores. Forty-three stores had previously made the change. We estimate this change reduced our pawn portfolio approximately 15% for the loans in these stores that were between 60 and 90 days old, with very little or no impact on pawn service charge revenues. This change also created a one-time doubling of forfeitures in the prior year-to-date period as loans made 90 and 60 days earlier simultaneously forfeited for a 30-day period, resulting in a higher level of inventory available for sale (beginning inventory plus forfeitures and purchases). We experienced this doubling of forfeitures as loans in these 215 stores matured in the first two quarters of fiscal 2006.

In our pawnshops, we acquire inventory for retail sales through pawn loan forfeitures and, to a lesser extent, through purchases of customers’ merchandise. The gross profit on sales of inventory depends primarily on our assessment of the resale value at the time the property is either accepted as loan collateral or purchased. Improper assessment of the resale value in the lending or purchasing process can result in lower margins or reduced marketability of the merchandise.

At June 30, 2007, 254 of our 383 EZMONEY stores and 50 of our 298 pawn stores offered credit services to customers seeking loans from unaffiliated lenders. We do not participate in any of the loans made by the lenders, but earn a fee for helping customers obtain credit and for enhancing customers’ creditworthiness by providing letters of credit. We also offer a free service to all credit service customers to improve or establish their credit histories by reporting their payments to an external credit-reporting agency.

In connection with our credit services, the unaffiliated lenders offer customers two types of loans. In all 254 EZMONEY stores offering credit services, customers can obtain short-term loans, with principal amounts up to $1,500 but averaging $550. Terms of these short-term loans are generally less than 30 days, averaging about 17 days, with due dates corresponding with the customers’ next payday. We typically earn a fee of 20% of the loan amount for our short-term loan credit services. In 13 EZMONEY stores offering credit services, customers can obtain longer-term installment loans from the unaffiliated lenders. The installment loans typically carry terms of about five months with ten equal installment payments due on customers’ paydays. Installment loan principal amounts range from $1,525 to $3,000, but average about $2,000. With each installment payment, we earn a fee of 10% of the initial loan amount. At June 30, 2007, short-term loans comprised 99% of the balance of loans brokered through our credit services, and installment loans comprised the remaining 1%.

We earn payday loan fee revenue on our payday loans. In 166 stores, we make payday loans subject to state law. The average payday loan amount is approximately $440 and the term is generally less than 30 days, averaging about 19 days. We typically charge a fee of 15% to 22% of the loan amount for a 7 to 23-day period. Through December 2005, we also marketed and serviced payday loans made by County Bank of Rehoboth Beach in some of our stores. We could purchase a 90% participation in the County Bank loans we marketed. As of December 31, 2005, County Bank discontinued its payday loan program. Most of our stores previously marketing County Bank loans now provide credit services to customers in obtaining loans from unaffiliated lenders.

On June 18, 2007, we completed the acquisition of fifteen pawnshops and one payday loan store from Jumping Jack Cash, a competitor in Colorado for $23.2 million of cash and direct transaction costs. Results of the acquired stores are included in our consolidated results from the date of acquisition. Because the stores were acquired near the end of the current quarter, their impact on the current quarter and year-to-date operating results were not significant. The acquisition had a more material impact on the balance of assets and liabilities. The purchase price was allocated as presented in Note C, “Acquisitions,” in the Condensed Consolidated Financial Statements filed with this quarterly report.

In the current quarter, the EZPAWN Operations segment contributed $1.2 million greater store operating income compared to the prior year quarter, primarily from an increase in pawn service charges. Our EZMONEY Operations segment contributed $1.6 million greater store operating income, comprised of higher fees net of bad debt, somewhat offset by higher operating costs primarily at new stores. After an increase in administrative expenses and less material changes in other items, our consolidated net income improved to $6.8 million in the current quarter from $5.6 million in the prior year quarter.

Results of Operations

Third Quarter Ended June 30, 2007 vs. Third Quarter Ended June 30, 2006

The following discussion compares our results of operations for the quarter ended June 30, 2007 (the “current quarter”) to the quarter ended June 30, 2006 (the “prior year quarter”). The discussion should be read with the accompanying financial statements and related notes.

EZPAWN Operations Segment

The following table presents selected financial data for the EZPAWN Operations segment:

		Three Months Ended June 30,
		2007				2006
		(Dollars in thousands)
Sales		$	42,676			$	40,640
Pawn service charges			16,978				15,021
Signature loan fees			808				838
Other			315				304
Total revenues			60,777				56,803
Cost of goods sold			25,421				23,698
Net revenues			35,356				33,105
Store operating expenses:
Operations expense			21,613				20,747
Signature loan bad debt			570				406
Total store operating expenses			22,183				21,153
Store operating income		$	13,173			$	11,952
Other data:
Gross margin on sales			40	%			42	%
Annualized inventory turnover			3.4x				3.0x
Average pawn loan balance per pawn store at quarter end		$	195			$	175
Average inventory per pawn store at quarter end		$	113			$	118
Average yield on pawn loan portfolio (a)			136	%			136	%
Pawn loan redemption rate			78	%			77	%
Average signature loan balance per store offering signature loans at quarter end (b)		$	11			$	11