Registration Number 333-103293
 ================================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q  x
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended:March 31, 2008
  OR  o
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
        to
  Commission file number:333-103293
  Pioneer Financial Services, Inc. (Exact name of Registrant as specified in its charter)  Missouri
(State or other jurisdiction of
incorporation or organization)
        44-0607504
(I.R.S. Employer
Identification No.)
  4700 Belleview Avenue, Suite 300, Kansas City, Missouri
(Address of principal executive office)
        64112
(Zip Code)
  Registrants telephone number, including area code:(816) 756-2020
   (Former name, former address and former fiscal year, if changed since last report)  Indicate by check mark whether the Registrant has (1) filed all documents and 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. YesxNo o  Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o  Non-accelerated filerx
        Accelerated filer o
        Smaller reporting company o
  Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Nox  Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.  Class
        Outstanding as of May 12, 2008
 Common Stock, no par value
        1 share
  As of March 31, 2008, 1 share of the Registrants common stock is outstanding. The registrant is a wholly owned subsidiary of MidCountry Financial Corp.    PIONEER FINANCIAL SERVICES, INC.  FORM 10-Q March 31, 2008  TABLE OF CONTENTS   PART I FINANCIAL INFORMATION  Item No.
        Page1.
        Consolidated Financial Statements
        1Consolidated Balance Sheets at March 31, 2008 and September 30, 2007
        1Consolidated Statements of Income for the three months ended and six months ended March 31, 2008 and 2007
        2Consolidated Statements of Stockholders Equity for the six months ended March 31, 2008, eight months ended May 31, 2007 and years ended September 30, 2007 and 2006
        3Consolidated Statements of Cash Flows for the six months ended March 31, 2008 and 2007
        4Condensed Notes to Consolidated Financial Statements
        52.
        Managements Discussion and Analysis of Financial Condition and Results of Operations
        113.
        Quantitative and Qualitative Disclosures About Market Risk
        244T.
        Controls and Procedures
        24PART II
OTHER INFORMATION1.
        Legal Proceedings
        256.
        Exhibits
        26
       PART I - FINANCIAL INFORMATION  ITEM 1.Consolidated Financial Statements PIONEER FINANCIAL SERVICES, INC. Consolidated Balance Sheets As of March 31, 2008 and September 30, 2007 (unaudited)  ASSETS  March 31,
        
        
        
        September 30,2008
        
        
        
        2007Cash and cash equivalents - restricted
        
        $
        4,309,578
        
        
        
        $
        3,540,231Cash and cash equivalents - non-restricted
        
        
        5,368,538
        
        
        
        
        3,700,823Investments - restricted
        
        
        3,103,559
        
        
        
        
        3,413,564Investments - non-restricted
        
        
        130,000
        
        
        
        
        230,000Net finance receivables
        
        
        241,976,366
        
        
        
        
        236,234,550Furniture and equipment, net
        
        
        672,289
        
        
        
        
        747,342Deferred income tax asset
        
        
        754,756
        
        
        
        
        Prepaid and other assets
        
        
        4,943,302
        
        
        
        
        6,083,591Deferred policy acquisition costs
        
        
        2,627,850
        
        
        
        
        2,727,539Goodwill
        
        
        30,499,248
        
        
        
        
        28,058,432Intangibles - net
        
        
        21,295,400
        
        
        
        
        23,951,000Total assets
        
        $
        315,680,886
        
        
        
        $
        308,687,072LIABILITIES AND STOCKHOLDERS EQUITYRevolving credit line - banks
        
        $
        15,725,000
        
        
        
        $
        15,463,000Accounts payable
        
        
        1,821,897
        
        
        
        
        1,725,005Accrued expenses and other liabilities
        
        
        6,419,968
        
        
        
        
        3,877,235Amortizing term notes
        
        
        170,837,133
        
        
        
        
        168,928,850Investment notes
        
        
        35,328,603
        
        
        
        
        36,073,502Deferred income tax liability
        
        
        
        
        
        
        
        1,048,092Total liabilities
        
        
        230,132,601
        
        
        
        
        227,115,684Contingencies (Note 2)Stockholders equity:Common stock, no par value; 1 share issued and outstanding
        
        
        84,394,200
        
        
        
        
        82,394,200Retained earnings (deficit)
        
        
        1,154,085
        
        
        
        
        (822,812
        )Total stockholders equity
        
        
        85,548,285
        
        
        
        
        81,571,388Total liabilities and stockholders equity
        
        $
        315,680,886
        
        
        
        $
        308,687,072
    See Condensed Notes to Consolidated Financial Statements  1    PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Operations For the three and six months ended March 31, 2008 and March 31, 2007 (unaudited)   Successor
        
        
        Predecessor
        
        
        
        
        Successor
        
        
        PredecessorThree MonthsEnded March 31,
        
        
        Three MonthsEnded March 31,
        
        
        
        
        Six MonthsEnded March 31,
        
        
        Six MonthsEnded March 31,2008
        
        
        2007
        
        
        
        
        2008
        
        
        2007Interest Income and Fees
        
        $
        20,315,027
        
        
        $
        19,524,929
        
        
        
        
        $
        40,559,099
        
        
        $
        39,890,971Interest Expense
        
        
        4,133,452
        
        
        
        4,030,992
        
        
        
        
        
        8,320,441
        
        
        
        7,918,959Net interest income beforeprovision for credit losses
        
        
        16,181,575
        
        
        
        15,493,937
        
        
        
        
        
        32,238,658
        
        
        
        31,972,012Provision for credit losses
        
        
        5,836,614
        
        
        
        7,695,475
        
        
        
        
        
        13,094,160
        
        
        
        15,602,810Net Interest Income
        
        
        10,344,961
        
        
        
        7,798,462
        
        
        
        
        
        19,144,498
        
        
        
        16,369,202Noninterest Income:Insurance premiums andcommissions earned, net
        
        
        953,195
        
        
        
        1,120,351
        
        
        
        
        
        1,973,326
        
        
        
        2,351,684Other
        
        
        190
        
        
        
        332,389
        
        
        
        
        
        (480
        )
        
        
        843,227Total noninterest income
        
        
        953,385
        
        
        
        1,452,740
        
        
        
        
        
        1,972,846
        
        
        
        3,194,911Noninterest Expense:Compensation and benefits
        
        
        142,338
        
        
        
        4,282,691
        
        
        
        
        
        292,104
        
        
        
        9,076,403Management and recordkeeping services fee
        
        
        6,695,742
        
        
        
        
        
        
        
        
        
        13,255,595
        
        
        
        Occupancy and equipment
        
        
        99,279
        
        
        
        948,659
        
        
        
        
        
        189,827
        
        
        
        2,001,485Advertising
        
        
        6,706
        
        
        
        548,166
        
        
        
        
        
        35,212
        
        
        
        1,187,563Professional and regulatory fees
        
        
        534,527
        
        
        
        505,434
        
        
        
        
        
        666,569
        
        
        
        1,230,890Data processing
        
        
        
        
        
        
        55,791
        
        
        
        
        
        
        
        
        
        124,073Amortization of intangibles
        
        
        1,327,800
        
        
        
        
        
        
        
        
        
        2,655,600
        
        
        
        Other operating expenses
        
        
        184,824
        
        
        
        1,297,255
        
        
        
        
        
        271,656
        
        
        
        2,569,374Total noninterest expense
        
        
        8,991,216
        
        
        
        7,637,996
        
        
        
        
        
        17,366,563
        
        
        
        16,189,788Income before income taxes
        
        
        2,307,130
        
        
        
        1,613,206
        
        
        
        
        
        3,750,781
        
        
        
        3,374,325Provision for income taxes
        
        
        938,313
        
        
        
        606,150
        
        
        
        
        
        1,479,557
        
        
        
        1,291,033Net income
        
        $
        1,368,817
        
        
        $
        1,007,056
        
        
        
        
        $
        2,271,224
        
        
        $
        2,083,292Net income per share, basicand diluted
        
        $
        1,368,817
        
        
        $
        58.77
        
        
        
        
        $
        2,271,224
        
        
        $
        121.57
        See Condensed Notes to Consolidated Financial Statements  2    PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Stockholders Equity For the six months ended March 31, 2008, four months ended September 30, 2007 and the eight months ending May 31, 2007 (unaudited)   Total
        
        
        
        CommonStock
        
        
        
        RetainedEarnings(Deficit)PredecessorBalance, September 30, 2006
        
        
        39,010,057
        
        
        
        
        1,713,600
        
        
        
        
        37,296,457Net income
        
        
        3,035,085
        
        
        
        
        
        
        
        
        
        3,035,085Dividend paid ($583.60 per share)
        
        
        (10,000,569
        )
        
        
        
        
        
        
        
        
        (10,000,569
        )Balance, May 31, 2007
        
        $
        32,044,573
        
        
        
        $
        1,713,600
        
        
        
        $
        30,330,973SuccessorBalance, May 31, 2007
        
        $
        
        
        
        
        $
        
        
        
        
        $
        Investment by parent
        
        
        86,229,762
        
        
        
        
        86,229,762
        
        
        
        
        Additional capital contributed
        
        
        7,432,000
        
        
        
        
        7,432,000
        
        
        
        
        Dividend of business operations to MCFC
        
        
        (11,267,562
        )
        
        
        
        (11,267,562
        )
        
        
        
        Net loss
        
        
        (822,812
        )
        
        
        
        
        
        
        
        
        (822,812
        )Balance, September 30, 2007
        
        $
        81,571,388
        
        
        
        $
        82,394,200
        
        
        
        $
        (822,812
        )Net income
        
        
        2,271,224
        
        
        
        
        
        
        
        
        
        2,271,224Capital Contribution by Parent
        
        
        2,000,000
        
        
        
        
        2,000,000Adoption of FIN48 (see note 6)
        
        
        (294,327
        )
        
        
        
        
        
        
        
        
        (294,327
        )Balance, March 31, 2008
        
        $
        85,548,285
        
        
        
        $
        84,394,200
        
        
        
        $
        1,154,085
          See Condensed Notes to Consolidated Financial Statements  3    PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Cash Flows For the six months ended March 31, 2008 and 2007 (unaudited)  Successor
        
        
        
        PredecessorSix Months EndedMarch 31, 2008
        
        
        
        Six Months EndedMarch 31, 2007Cash flows from operating activities:Net income
        
        
        
        $
        2,271,224
        
        
        
        $
        2,083,292Items not requiring (providing) cash:Provision for credit losses on finance receivables
        
        
        
        
        13,094,160
        
        
        
        
        15,602,810Depreciation and amortization
        
        
        
        
        1,873,115
        
        
        
        
        716,094Loss on disposal/donation of equipment
        
        
        
        
        
        
        
        
        
        105,059Changes in deferred fees - net
        
        
        
        
        1,153,877
        
        
        
        
        958,144Changes in unearned premium reserves
        
        
        
        
        (209,543
        )
        
        
        
        2,323,879Fin 48 Reserve
        
        
        
        
        44,298
        
        
        
        
        Deferred income taxes
        
        
        
        
        (1,126,186
        )
        
        
        
        (2,046,568
        )Changes in:Accounts payable and accrued expenses
        
        
        
        
        2,008,418
        
        
        
        
        3,032,700Prepaids and other assets
        
        
        
        
        1,239,978
        
        
        
        
        (1,044,742
        )Net cash provided by operating activities
        
        
        
        
        20,349,341
        
        
        
        
        21,730,668Cash flows from investing activities:Loans originated
        
        
        
        
        
        
        
        
        
        (87,540,427
        )Loans purchased from affiliate
        
        
        
        
        (95,905,928
        )
        
        
        
        Loans purchased
        
        
        
        
        (8,174,873
        )
        
        
        
        (8,699,330
        )Loans repaid
        
        
        
        
        85,398,222
        
        
        
        
        83,021,462Capital expenditures
        
        
        
        
        (52,515
        )
        
        
        
        (279,697
        )Change in restricted cash
        
        
        
        
        (769,347
        )
        
        
        
        (1,495,123
        )Investments purchased - restricted
        
        
        
        
        (1,625,381
        )
        
        
        
        (1,507,564
        )Investments matured - restricted
        
        
        
        
        1,943,276
        
        
        
        
        2,050,000Investments matured - non-restricted
        
        
        
        
        100,000
        
        
        
        
        285,000Net cash used in investing activities
        
        
        
        
        (19,086,546
        )
        
        
        
        (14,165,679
        )Cash flows from financing activities:Net borrowing under lines of credit
        
        
        
        
        262,000
        
        
        
        
        1,256,947Proceeds from borrowings
        
        
        
        
        41,000,000
        
        
        
        
        37,785,224Repayment of borrowings
        
        
        
        
        (40,857,080
        )
        
        
        
        (34,330,174
        )Dividends paid
        
        
        
        
        
        
        
        
        
        (10,000,571
        )Net cash provided by financing activities
        
        
        
        
        404,920
        
        
        
        
        (5,288,574
        )Net increase in cash and equivalents
        
        
        
        
        1,667,715
        
        
        
        
        2,276,415Cash and cash equivalentsBeginning of period
        
        
        
        
        3,700,823
        
        
        
        
        1,609,915Cash and cash equivalentsEnd of period
        
        
        
        $
        5,368,538
        
        
        
        $
        3,886,330Additional cash flow information:Interest paid
        
        
        
        $
        7,224,262
        
        
        
        $
        6,920,786Income taxes paid
        
        
        
        $
        170,060
        
        
        
        $
        1,700,000Noncash financing activities:Capital contribution from parent
        
        
        
        $
        2,000,000
   See Condensed Notes to Consolidated Financial Statements  4    PIONEER FINANCIAL SERVICES, INC.  CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2008 and March 31, 2007 (Unaudited)  NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of Pioneer Financial Services, Inc. and its wholly-owned subsidiaries (collectively we, us, our or the company). All significant intercompany balances and transactions have been eliminated. We were acquired on May 31, 2007 by MidCountry Financial Corp, a Georgia corporation (MCFC) as a wholly-owned subsidiary (the Transaction).  We are now a wholly-owned first-tier subsidiary of MCFC. Our accounting for the Transaction follows the requirements of Staff Accounting Bulletin (SAB) 54, Topic  5-J and Statement of Accounting Standards No. 141, Business Combinations, which require that purchase accounting treatment of the Transaction be pushed down to us resulting in the adjustment of all our net assets to their respective fair values as of the Transaction date. Although we continued as the same legal entity after the Transaction, the application of push down accounting represents the termination of the old accounting entity and the creation of a new one. As a result, the accompanying condensed consolidated financial statements represent two periods: Predecessor, first three and six months of fiscal 2007, and Successor, first three and six months of fiscal 2008. Immediately subsequent to the Transaction, we declared and paid a dividend to MCFC of our business operation and certain assets and liabilities related to the origination and servicing of our finance receivables.  MCFC contributed these operations to MidCountry Bank (MCB) which is a wholly-owned subsidiary of MCFC. MCB formed the Military Banking Division (MBD) which is composed exclusively of the assets and liabilities contributed from MCFC. This transaction is further described in Note 2:  Transaction and Dividend of Operations and Net Assets to MCFC.  As part of the dividend, we entered into a Loan Sale and Master Services Agreement (LSMS Agreement) with MBD. Under the LSMS Agreement, MBD is obligated to originate loans and we are obligated to purchase those loans that meet our business model and underwriting guidelines. Also under the LSMS Agreement, MBD
will provide us with management and record keeping services. As part of the dividend, substantially all of our employees became employees of MBD. We pay fees for loans purchased and originated by MBD and management and record keeping services provided by MBD. The LSMS is further described in Note 7:  Related Party Transactions. There are significant differences in the way we operated in the Predecessor Period to the Successor Period. Certain fees and revenue we earned in the Predecessor Period are not collected in the Successor Period from our loans. Under the LSMS Agreement, in the Successor Period we are outsourcing to MBD (a) origination of loans to US military personnel and US Department of Defense employees (collectively military loans) and (b) servicing of all loans. Our expenses include amortization of our intangible assets in the Successor Period pursuant to SFAS No. 142, Goodwill and Other Intangible Assets.  While comparisons to prior periods are relevant, these changes have an effect on our financial condition, results of operations and cash flow.  Nature of Operations and Concentration We are headquartered in Kansas City, Missouri. Prior to June 1, 2007, we originated finance receivables exclusively to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees. We also purchased finance receivables from retail merchants that sell consumer goods to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees.   We now purchase similar finance receivables from MBD and continue to purchase from retail merchants.   Prior to June 1, 2007, we also sold non-loan related products and services including roadside assistance programs and discount cards. In connection with the Transaction, we discontinued the selling of ancillary products and services as of June 1, 2007.  5    Use of Estimates The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the unaudited condensed consolidated financial statements and in disclosures of contingent assets and liabilities. We use estimates and employ the judgments of management in determining the amount of our allowance for credit losses, insurance claims and policy reserves, deferred loan origination costs, and establishing the fair value of its financial instruments. We also used estimates in assigning fair values to its assets and liabilities after the Transaction.  While the consolidated financial statements and footnotes reflect the best estimates and judgments of management at the time, actual results could differ significantly from those estimates. Information with respect to March 31, 2008 and 2007, and the periods then ended, have not been audited by our independent auditors, but in the opinion of management reflect all adjustments (which include only normal recurring adjustments) necessary for the fair presentation of the financial condition and operations. The results of operations for the three and six months ended March 31, 2008 and 2007 are not necessarily indicative of results to be expected for the entire fiscal year. The condensed consolidated balance sheet as of September 30, 2007 and statements of stockholders equity for the years ended September 30, 2007 and 2006 have been derived from the our audited consolidated balance sheet and statements of stockholders equity. NOTE 2:  TRANSACTION AND DIVIDEND OF OPERATIONS AND NET ASSETS TO MCFC In connection with the Transaction, MCFC paid the shareholders of PFI (the Sellers) approximately $68.8 million in cash and 882,353 shares of MCFCs common stock. Under the related purchase agreement, MCFC is also required to pay the Sellers an additional $5 million in contingent payments, of which $4 million will be contributed to us and $1 million to MBD, if we meet any one of certain financial performance goals which will be evaluated and paid in two installments over the 24 months following the acquisition. These goals pertain to net revenue, net income, finance receivable and the number of customer relationships for the calendar year ending December 31, 2007 and 2008. As of December 31, 2007 we met our performance goals for the calendar year, requiring MCFC to pay the Sellers $2 million. . The Transaction was accounted for using the purchase method in accordance with SFAS 141, Business Combinations.  The components of the purchase price are as follows:  Stock in MCFC Financial Corp.
        
        
        
        $
        15,000,000Cash
        
        
        
        
        68,800,473Direct acquisition costs
        
        
        
        
        492,000Consideration paid
        
        
        
        
        84,292,473Assumption of liabilities
        
        
        
        
        1,937,289Total purchase price
        
        
        
        $
        86,229,762
  Updates to the purchase price allocated to us due to performance goals met and earned by us as of December 31, 2007:  Purchase price as of 09/30/2007
        
        
        
        $
        86,229,762Contingent accrual at 12/31/2007
        
        
        
        
        2,000,000Total purchase price as of 12/31/2007
        
        
        
        $
        88,229,762
  The purchase price as recorded above does not include $2 million in contingent payments for calendar year 2008, which have not been earned or paid.  6    The fair value assigned to intangible assets acquired and assumed liabilities is supported by valuations using estimates and assumptions provided by management. We also retained independent appraisers to assist in these valuations. The primary changes to the balance sheet are preliminary and reflect certain assets and liabilities as follows: 
        The recording of the fair value of our intangibles including customer relationships, agent relationships, vendor relationships and system technology;
 
        The recording of the fair value of goodwill;
 
        Elimination of the accumulated earnings; and
 
        The recording of the fair value of fixed assets, investment notes, senior debt and finance receivables.
 The purchase price was allocated to the estimated fair value of assets acquired and liabilities assumed as follows:  Cash and other current assets
        
        
        
        $
        10,990,773Net finance receivables
        
        
        
        
        238,366,357Equipment and other assets
        
        
        
        
        10,388,206Goodwill
        
        
        
        
        41,639,810Intangible assets
        
        
        
        
        26,200,000Subtotal
        
        
        
        
        327,585,146Liabilities
        
        
        
        
        (230,285,666
        )Deferred income taxes, related to intangibles
        
        
        
        
        (9,069,718
        )Total
        
        
        
        $
        88,229,762
  Immediately subsequent to the Transaction, we declared and paid a dividend to MCFC of its business operations and certain assets and liabilities related to the origination and servicing of finance receivables. MCFC contributed these operations to MCB which is a wholly-owned subsidiary of MCFC. MCB formed the MBD which is composed exclusively of the operation and assets and liabilities from us. Intangible assets were allocated to the operations and assets and liabilities as a dividend to MCFC based on relative fair values. The dividend is summarized as follows:  Cash and cash equivalents
        
        
        
        $
        811,651Property and Equipment
        
        
        
        
        1,391,211Goodwill
        
        
        
        
        11,140,562Intangibles
        
        
        
        
        200,000Due to parent
        
        
        
        
        3,085,682Other assets
        
        
        
        
        687,559Total Assets
        
        
        
        
        17,316,665Accrued expenses and other liabilities
        
        
        
        
        (5,976,103
        )Deferred tax liabilities, net
        
        
        
        
        (73,000
        )Total liabilities
        
        
        
        
        (6,049,103
        )Assets in excess of liabilities
        
        
        
        $
        11,267,562
   7     NOTE 3:  FINANCE RECEIVABLES Finance receivables at March 31, 2008 and September 30, 2007, consisted of the following:  March 31,
        
        
        
        
        
        September 30,2008
        
        
        
        
        
        2007Military receivables/loans
        
        
        
        $
        268,780,687
        
        
        
        
        
        $
        260,539,276Retail installment contracts
        
        
        
        
        18,385,011
        
        
        
        
        
        
        19,238,996Total finance receivables
        
        
        
        
        287,165,698
        
        
        
        
        
        
        279,778,272Purchase adjustment (1)
        
        
        
        
        (651,299
        )
        
        
        
        
        
        (1,749,030
        )Discounts and net deferred loan fees
        
        
        
        
        (14,826,602
        )
        
        
        
        
        
        (13,092,318
        )Unearned insurance premium reserves
        
        
        
        
        (6,445,622
        )
        
        
        
        
        
        (6,718,659
        )Insurance claims and policy reserves
        
        
        
        
        (408,553
        )
        
        
        
        
        
        (345,059
        )Finance receivables - net of unearned fees and premiums
        
        
        
        
        264,833,622
        
        
        
        
        
        
        257,873,206Allowance for credit losses
        
        
        
        
        (22,857,256
        )
        
        
        
        
        
        (21,638,656
        )Finance receivables - net of allowance
        
        
        
        $
        241,976,366
        
        
        
        
        
        $
        236,234,550
   (1) Relates to the fair value adjustments recorded to finance receivables as part of the Transaction. During the second quarter of fiscal 2008, we amortized approximately $483,831 of the purchase adjustment into income. Year to date amortized total equals $1,097,731.  NOTE 4:  GOODWILL AND INTANGIBLES  Due to the Transaction, we recorded goodwill and amortizable intangible assets in the form of customer, agent and vendor relationships, trade name, technology for the lending system and the value of business acquired. Goodwill and intangible assets at March 31, 2008 are as follows:  March 31, 2008
        
        
        
        September 30, 2007GrossCarryingAmount
        
        AccumulatedAmortization
        
        
        NetCarryingValue
        
        
        
        GrossCarryingAmount
        
        AccumulatedAmoritzation
        
        NetCarryingValueCustomer Relationships
        
        $
        11,000,000
        
        $
        (1,854,718
        )
        
        $
        9,145,282
        
        
        
        $
        11,000,000
        
        $
        (710,000
        )
        $
        10,290,000Agent Relationships
        
        
        700,000
        
        
        (99,640
        )
        
        $
        600,360
        
        
        
        
        700,000
        
        
        (38,000
        )
        $
        662,000Vendor Relationships
        
        
        1,700,000
        
        
        (243,936
        )
        
        $
        1,456,064
        
        
        
        
        1,700,000
        
        
        (95,000
        )
        $
        1,605,000Trade Name
        
        
        7,000,000
        
        
        (768,812
        )
        
        $
        6,231,188
        
        
        
        
        7,000,000
        
        
        (317,000
        )
        $
        6,683,000Technology
        
        
        4,000,000
        
        
        (770,724
        )
        
        $
        3,229,276
        
        
        
        
        4,000,000
        
        
        (318,000
        )
        $
        3,682,000Valuation of Business Acquired
        
        
        1,600,000
        
        
        (966,770
        )
        
        $
        633,230
        
        
        
        
        1,600,000
        
        
        (571,000
        )
        $
        1,029,000Total amortizable intangibles
        
        $
        26,000,000
        
        $
        (4,704,600
        )
        
        $
        21,295,400
        
        
        
        $
        26,000,000
        
        $
        (2,049,000
        )
        $
        23,951,000Goodwill
        
        $
        30,499,248
        
        $
        
        
        
        $
        30,499,248
        
        
        
        $
        28,058,432
        
        $
        
        
        $
        28,058,432
   8    Intangible assets other than goodwill, which are determined to have finite lives, are amortized on a straight-line or accelerated bases over their estimated useful lives between three and ten years. Management evaluated goodwill at September 30, 2007, in accordance with SFAS No. 142 and determined that there was no impairment. Management also evaluates amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairments of amortizable intangible assets, as of September 30, 2007, and no events or changes in circumstances that indicate the carrying amount of an asset may not be recoverable. NOTE 5: NET INCOME PER SHARE Net income per share is computed based upon the weighted-average common shares outstanding of 1 for the first three months and six months of fiscal year 2008 and 17,136 for the first three months and six months of fiscal year 2007. There are no potentially dilutive securities issued and outstanding. NOTE 6: INCOME TAXES The Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48,) dated June 2006. FIN 48 requires companies to recognize the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained assuming examination by tax authorities. The amount recognized represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized. A liability is recognized for any benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) on the excess. We adopted the provisions of FIN 48 on October 1, 2007. As a result, we recorded a charge of approximately $294,000 to the October 1, 2007, retained deficit. As of the adoption date, we had a gross unrecognized tax benefit (FIN48 liability) of approximately $1,020,000. Approximately $468,000, if recognized, would favorably affect our effective tax rate. The FIN 48 liability is carried in other liabilities in the consolidated balance sheet as of March 31, 2008. Interest and penalties recognized are recorded as a component of income tax expense. Accrued interest and penalties were approximately $339,000 as of October 1, 2007 and $409,500 as of March 31, 2008.  NOTE 7: RELATED PARTY TRANSACTIONS  Due to the Transaction, we entered into a LSMS Agreement with MBD. Under the LSMS agreement, we buy certain military loans that MBD originates and receive management and record keeping services. During the second quarter of fiscal 2008, the total loans, net of deferred fees, we purchased from MBD pursuant to the LSMS agreement were $40.0 million, bringing the year to date fiscal 2008 total to $95.9 million. PFS has paid $6.7 million to MBD for services receive for management and record keeping services pursuant to the LSMS agreement for the second quarter of 2008. Management fee expense paid to MBD for the first six months of 2008 totals $13.3 million.  NOTE 8: NEW ACCOUNTING PRONOUNCEMENTS In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements(SFAS No. 157), which enhances existing guidance for measuring assets and liabilities using fair values. SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. We are currently evaluating the impact of SFAS No. 157 on our consolidated financial condition and results of operations.  In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities(SFAS No. 159), which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The provision of SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS No. 159 on our consolidated financial condition and results of operations.  9     In March 2008 FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB statement No. 133(SFAS 161). SFAS 161 expands the disclosure requirements in Statement 133 about an entitys derivative instruments and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51(SFAS 160). SFAS 160 changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parents equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS 160 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, except for the presentation and disclosure requirements, which will apply retrospectively. Adoption of SFAS 160 will not have a material impact to our consolidated results of operations and financial condition. In December 2007, the FASB issued SFAS No. 141 (Revised 2007),Business Combinations(SFAS 141R). SFAS 141R replaces SFAS No. 141. SFAS 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. SFAS 141R also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will apply SFAS 141R prospectively to business combinations completed on or after
that date. There will be no impact upon adoption to our current consolidated results of operations and financial condition.  10    ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations  Forward-Looking Statements The discussion set forth below, in the quarterly report of Pioneer Financial Services, Inc. (PFS), with its wholly-owned subsidiaries (collectively we, us, our or the company), contains forward-looking statements within the meaning of federal securities law. Words such as may, will, expect, anticipate, believe, estimate, continue, predict, or other similar words, identify forward-looking statements. Forward-looking statements include statements regarding our managements intent, belief or current expectation about, among other things, trends affecting the markets in which we operate, our business, financial condition and growth strategies. Although we believe that the expectations reflected in these forward-looking statements are
based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those predicted in the forward-looking statements as a result of various factors, including, but not limited to, those risk factors set forth in our annual report on Form 10-K for the period ended September 30, 2007 (annual report) under Item 1ARisk Factors. Other factors not identified herein could also have such an effect. If any of these risk factors occur, they could have an adverse effect on our business, financial condition and results of operation. When considering forward-looking statements keep these risk factors in mind. These forward-looking statements are made as of the date of this filing. You should not place undue reliance on any forward-looking statement. We are not obligated to update forward-looking statements and will not update any forward-looking statements in this
Quarterly Report to reflect future events or developments. Overview We are a wholly-owned subsidiary of MidCountry Financial Corp., a Georgia corporation (MCFC). Prior to May 31, 2007, we were a wholly-owned subsidiary of Pioneer Financial Industries, Inc., a Nevada corporation (PFI). On May 31, 2007, MCFC acquired 100% of PFIs common stock (the Transaction). The Transaction resulted in a change in control effective May 31, 2007. Pursuant to the Transaction, MCFC reorganized our operations. Prior to June 1, 2007, we originated loans exclusively to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees. In connection with the Transaction, activities related to the origination and servicing of loans are now being conducted by our affiliate, the Military Banking Division of MidCountry Bank (a wholly-owned subsidiary of MCFC and referred to throughout as MBD). In
addition, generally all of our former employees work for MBD. We purchase consumer loans, on a worldwide basis, made exclusively to active-duty or retired career U.S. military personnel or U.S. Department of Defense employees. We purchase primarily from two different types of sources. Our largest source of military loans is MBD, an affiliate who originates military loans through a network of loan production offices and via the Internet. Military families use these loan proceeds to purchase goods and services. We also purchase retail installment contracts from retail merchants that sell consumer goods to active-duty or retired career U.S. military personnel or U.S. Department of Defense employees. We plan to hold these military loans and retail installment contracts until repaid. We have entered into a Loan Sale and Master Services Agreement (LSMS) with MBD which outlines the terms of the sale and servicing of these loans. Finance receivables, whether originated or purchased, are effectively unsecured and consist of loans originated by us or purchased from MBD and retail merchants. All finance receivables have fixed interest rates and typically have a maturity of less than 48 months. During the second quarter of fiscal 2008, the size of the average finance receivable at acquisition was approximately $3,153. A large portion of our customers are unable to obtain financing from traditional sources due to factors such as their age, frequent relocations and lack of credit history, which may not allow them to build relationships with these sources. Improvement of our profitability is dependent upon the growth in amount of finance receivables we are able to acquire from MBD and retail merchants and the maintenance of loan quality.  11     Lending and Servicing Operations Primary Supplier of Loans We have retained MBD as a primary supplier of loans. Under the LSMS Agreement, MBD is obligated to use our underwriting criteria (which was developed from our past customer credit repayment experience and is periodically revalidated based on current portfolio performance). This criterion primarily requires the following: 
        All borrowers must be U.S. military personnel and U.S. defense department employees.
 
        All potential borrowers must complete standardized credit applications either in person at one of MBDs loan production offices or online via the Internet.
 
        A thorough review must be conducted on all applicants military service history. This includes verification of status including rank and credit history using major credit reporting. Other review procedures may be conducted as deemed necessary.
 
        Loan repayment terms must generally be structured to repay the entire loan prior to the customers estimated separation from the military.
  To the extent MBD originates loans under these standards, MBD is obligated to sell such loans, net of deferred loan fees, to us and we are obligated to purchase such loans. Loans purchased from MBD and those previously originated by us prior to the transaction are referred to as military loans.  See our annual report under Item 1A. Risk FactorsMBD may modify underwriting and servicing standards and does not have to lend to the traditional customers who meet our business model and lending guidelines. Each of these may materially adversely affect our business operations, cash flow, results of operations, financial condition and profitability.  Loan Purchasing Generally.We have 20+ years experience underwriting, originating, monitoring and servicing consumer loans to the military market and have developed a deep understanding of the military and the military lifestyle. Through this extensive knowledge of our customer base, we had developed a proprietary scoring model that focuses on the unique characteristics of the military market, as well as traditional credit scoring variables which are currently utilized by MBD when originating loans in this market.  We incorporated these proprietary underwriting guidelines and scoring model into our loan origination system to facilitate auto-decisioning and risk-based pricing on our loans. For the loans we purchase, MBD now uses our proprietary underwriting guidelines and scoring model when it originates loans. Under these guidelines, in evaluating the creditworthiness of potential customers, MBD primarily examines the individuals debt to income ratio, discretionary income, military rank, time served in the military and prior credit experience. Loans are limited to amounts that the customer could reasonably be expected to repay from that discretionary income. Loan repayment terms are generally structured to repay the entire loan prior to the customers estimated separation from the military. However, when we purchase loans from MBD, we can not predict when or whether a customer may unexpectedly leave the military or when or whether other events could occur which result in not being repaid prior to a customers departure from the military. We only purchase loans made to consumers who fit our business model and underwriting guidelines. When we purchase loans from MBD, we use our standard underwriting guidelines to predict the relative likelihood of credit applicants repaying their obligation to us. In general, each finance receivable we own is under $10,000 repayable in equal monthly installments and has terms no longer than 48 months. A risk in all consumer lending and retail sales financing transactions is the customers unwillingness or inability to repay obligations. Unwillingness to repay is usually evidenced by a consumers historical credit repayment record. An inability to repay occurs after initial credit evaluation and funding and usually results from lower income due to early separation from the military or reduction in rank, major medical expenses, or divorce. Occasionally, these types of events are so economically severe that the customer files for protection under the bankruptcy laws. Standard underwriting guidelines are used at the time the customer applies for a loan to help minimize the risk of unwillingness or inability to repay. These guidelines were developed from past customer credit repayment experience and are periodically revalidated based on current portfolio performance. We use these
guidelines to predict the relative likelihood of credit applicants repaying their obligation to us. We purchase loans made to consumers who fit our underwriting guidelines. The amount and interest rate of the military loan or retail sales finance transaction purchased are set by MBD or the retail merchant based upon our underwriting guidelines considering the estimated credit risk assumed. As a customer service, we consider purchasing a new loan from MBD if an existing borrower has demonstrated a positive payment history with us and where the transaction created an economic benefit to the  12    customer after fully underwriting the new loan request to ensure proper debt ratio, credit history and payment performance. We will not purchase refinancings made to cure delinquency nor for the sole purpose of creating fee income. Generally, we purchase refinancing of existing loans when a portion of the new loan proceeds is used to repay the balance of the existing loan and the remaining portion is advanced to the customer. Approximately 28.1% of the amount of all military loans originated or purchased were refinancings from outstanding loans. Military Loans Purchased from MBD.We purchase military loans from MBD if they meet our lending guidelines. In connection with the Transaction, MBD was provided the rights to our lending guidelines and extensive experience with lending to the military marketplace. Pursuant to the LSMS, we transferred our underwriting model and system to MBD. However, we retained ownership of this model and the lending system. MBD now originates these loans directly through its loan production offices and over the Internet. Prior to June 1, 2007, we originated loans through our retail network of 19 offices located in 13 states. Retail Installment Contracts.We also purchase retail installment contracts, which meet our quality standards and return on investment objectives from approximately 90 retail merchants. Retail installment contracts are finance receivable notes generated during the purchase of consumer goods by active-duty or retired career U.S. military personnel or U.S. Department of Defense employees. These customers have demonstrated an apparent need to finance a retail purchase and a willingness to use credit. We generally acquire these contracts without recourse to the originating merchant. However, some retail merchant reserve agreements allow us to withhold funds from the merchants proceeds to create reserves to be used in the event a customer defaults and the loan is deemed uncollectible. Retail installment contracts generally have maximum terms of 48 months. Management and Record Keeping Services We have retained MBD to provide management and record keeping services pursuant to the LSMS. MBD will service our finance receivables in the same manner as we did prior to the Transaction. For these management and record keeping services, we pay MBD a monthly fee in an amount equal to .67% (8% annually) of the outstanding principal balance of the military loans and retail installment contracts serviced as of the last day of each month. The fee will be adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index. Also, as part of its compensation for performing these management and recording keeping services, MBD retains all ancillary revenue, including late charges and NSF fees, associated with these loans and retail installment contracts. For these services, we also pay MBD an annual fee of $32.00 for each military loan and retail installment
contract owned by us at the end of the prior fiscal year. The annual fee will be paid in monthly installments. This fee will be adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index.   The LSMS may be terminated by either party with 180 days written notice and expires on May 13, 2012. To facilitate MBDs servicing of the military loans and retail installment contracts, we have granted MBD (i) the non-exclusive rights to use certain intellectual properties, including our trade names and service marks, and (ii) the right to use our Daybreak system and related hardware and software. We have also granted MBD non-exclusive rights to market additional products and services to our U.S. military borrowers. We retain all other borrower relationships. Sources of Income We obtain revenues primarily from interest earned on the military loans purchased from MBD, loans previously originated by us and retail installment contracts purchased. We also earn revenues from credit reinsurance premiums. For purposes of the following discussion, revenues means the sum of our finance income and reinsurance premiums. In the first quarter of fiscal 2008, our revenues and resulting income came primarily from interest income derived from direct consumer lending and retail installment contracts and credit reinsurance premiums.  13     Finance Receivables Our finance receivables are comprised of military loans and retail installment contracts. The following table sets forth certain information about the components of our finance receivables as of the end of the periods presented:  Successor
        
        
        
        
        PredecessorSix Months EndedMarch 31, 2008
        
        
        
        
        Six Months EndedMarch 31, 2007(dollars in thousands, except for average note balance)Finance Receivables:Total Finance receivables balance
        
        
        
        $
        287,166
        
        
        
        
        $
        278,993Average note balance
        
        
        
        $
        2,637
        
        
        
        
        $
        2,690Total interest income and fees
        
        
        
        $
        40,559
        
        
        
        
        $
        39,891Total number of notes
        
        
        
        
        108,897
        
        
        
        
        
        103,717Military Loans:Total military receivables
        
        
        
        $
        268,781
        
        
        
        
        $
        257,258Percent of total finance receivables
        
        
        
        
        93.60
        %
        
        
        
        
        92.21
        %Average note balance
        
        
        
        $
        2,707
        
        
        
        
        $
        2,785Number of notes
        
        
        
        
        99,303
        
        
        
        
        
        92,384Retail Installment Contracts:Total retail installment contract receivables
        
        
        
        $
        18,385
        
        
        
        
        $
        21,735Percent of total finance receivables
        
        
        
        
        6.40
        %
        
        
        
        
        7.79
        %Average note balance
        
        
        
        $
        1,916
        
        
        
        
        $
        1,918Number of notes
        
        
        
        
        9,594
        
        
        
        
        
        11,333
   Net Interest Margin The principal component of our profitability is net interest margin, which is the difference between the interest earned on our finance receivables and the interest paid on borrowed funds. Some states and federal statutes regulate the interest rates that may be charged to our customers. In addition, competitive market conditions also impact the interest rates.  14    Our interest expense is sensitive to general market interest rate fluctuations. These general market fluctuations directly impact our cost of funds. General inability to increase the interest rates earned on new and existing finance receivables restricts our ability to react to increases in cost of funds. Accordingly, increases in market interest rates generally will narrow interest rate spreads and lower profitability, while decreases in market interest rates generally will widen interest rate spreads and increase profitability. The following table presents important data relating to our net interest margin as of the ends of the periods presented:  Successor
        
        
        Predecessor
        
        
        
        
        Successor
        
        
        PredecessorThree MonthsEnded March 31,2008
        
        
        Three MonthsEnded March 31,2007
        
        
        
        
        Six MonthsEnded March 31,2008
        
        
        Six MonthsEnded March 31,2007(dollars in thousands)Total finance receivables balance
        
        $
        287,166
        
        
        $
        278,993
        
        
        
        
        $
        287,166
        
        
        $
        278,993Average total finance receivables  (1)
        
        $
        288,684
        
        
        $
        282,692
        
        
        
        
        $
        288,497
        
        
        $
        284,226Average interest bearing liabilities (1)
        
        $
        221,940
        
        
        $
        223,606
        
        
        
        
        $
        224,446
        
        
        $
        222,924Total interest income and fees
        
        $
        20,315
        
        
        $
        19,525
        
        
        
        
        $
        40,559
        
        
        $
        39,891Total interest expense
        
        $
        4,133
        
        
        $
        4,031
        
        
        
        
        $
        8,320
        
        
        $
        7,919
  _____________________________________ (1)  Averages are computed using month-end balances.  15    Results of Operations Our accounting for the Transaction follows the requirements of Staff Accounting Bulletin (SAB) 54, Topic 5-J, and Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, which require that purchase accounting treatment of the Transaction be pushed down, resulting in the adjustment of all of our net assets to their respective fair values as of the Transaction date. Although we continued as the same legal entity after the Transaction, the application of push down accounting represents the termination of the old accounting entity and the creation of a new one. As a result, our consolidated financial statements are presented for two periods:  Predecessor and Successor, which relate to the period preceding the Transaction, the six months ended March 31, 2007, and the period succeeding the Transaction, the six
months ended March 31, 2008, respectively. There are significant differences in the way we operated in the Predecessor Period to the Successor Period. Certain fees and revenue we earned in the Predecessor Period are not collected in the Successor Period. We are outsourcing origination of military loans and servicing of all loans and pay a fee to MBD in the Successor Period for these activities. Our expenses include amortization of our intangible assets in the Successor Period pursuant to SFAS No. 142, Goodwill and Other Intangible Assets. Comparisons to prior periods are relevant, and changes have a material effect on our financial condition, results of operations and cash flow. All ratios are based on rounded financial results in the following sections. Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007  Total Finance Receivables.Our aggregate finance receivables increased 2.9% to $287.2 million on March 31, 2008 from $279.0 million on March 31, 2007. Our aggregate finance receivables decreased 2.0% during the second quarter of fiscal 2008 to $287.2 million on March 31, 2008 from $293.2 on December 31, 2007 compared to a 4.1% decrease during the second quarter of fiscal 2007 to $279.0 million on March 31, 2007 from $290.9 million on December 31, 2006. Our primary supplier of loans, MBD, typically experiences the lowest period of originations in the second quarter which generally results in a decline of our finance receivables attributable in part to the cyclical drop in demand for new loans and a higher number of payoffs due to customers who use tax refunds to pay off our loans. Interest Income and Fees. Interest income and fees, which were 95.5% of our total revenue, for the second quarter of fiscal 2008 increased to $20.3 million from $19.5 million for the second quarter of fiscal 2007, an increase of $0.8 million or 4.1%. The increase in average finance receivables resulted in an increase in revenue of approximately $2.5 million. As part of the Transaction, MBD now retains certain fees related to military loans. These fees amounted to approximately $1.7 million in the second quarter of fiscal 2007. This loss of fees attributed to the reduction in revenues. This reduction was mostly offset by the increase in average finance receivables. Interest Expense.Interest expense in the second quarter of fiscal 2008 increased to $4.1 million from $4.0 million in the second quarter of fiscal 2007, an increase of $.1 million or 2.5%. Our average interest bearing liabilities for the three months ended March 31, 2008 decreased by $1.7 million or .7% compared to the three months ended March 31, 2007. The weighted average interest rate increased to 7.6% in the second quarter of fiscal 2008 from 7.0% in the second quarter of fiscal 2007. This increase is primarily due to the maturity of amortizing notes. The average rate being paid on amortizing notes maturing in the second quarter of fiscal 2008 was 5.5%, compared to an average rate of 6.0% paid for replacement amortizing notes during the same time period. Provision for Credit Losses.The provision for credit losses in the second quarter of fiscal 2008 decreased to $5.8 million from $7.7 million in the second quarter of fiscal 2007, a decrease of $1.9 million or 24.7%. During second quarter 2007, we began experiencing an increase in our net charge-offs, from 6.73% of our average finance receivables in first quarter 2007 to 7.54% in second quarter 2007. This increase was due in part to the more frequent and longer term deployments of our military customers, as well as other economic conditions at that time. As a result, management increased the allowance for credit losses during both first and second quarter 2007. During the second quarter of fiscal 2008 we are seeing a decline in our net charge offs, from 8.39% in first quarter 2008 to 8.09% in second quarter 2008, resulting in a lower
provision for credit losses, due to this improving trend. See further discussion in Allowance for Credit Losses section.  16     Noninterest Income. Total noninterest income in the second quarter of fiscal 2008 decreased to $1.0 million from $1.5 million in the second quarter of fiscal 2007, a decrease of $.5 million or 33.3%. Prior to June 1, 2007, we sold non-loan related products and services, including roadside assistance programs and discount cards. Our revenues from the sale of these products and services consisted of commissions paid by an unaffiliated company. We discontinued the selling of ancillary products and services as of June 1, 2007. Noninterest Expenses. Noninterest expenses in the second quarter of fiscal 2008 increased to $9.0 million from $7.6 million in the second quarter of fiscal 2007, an increase of $1.4 million or 18.4%. Included in second quarter fiscal 2008 are $1.3 million of amortizing intangibles that are not applicable to the second quarter of 2007. As a result of the Transaction, we now pay MBD a management and record keeping fee to reimburse for services now performed after the reorganization of our business operations. For the second quarter of fiscal 2008 this expense was $6.7 million. Net Income.Income before taxes in the second quarter of fiscal 2008 was $2.3 million and net income was $1.4 million compared to income before taxes of $1.6 million and net income of $1.0 million during the second quarter of fiscal 2007.  Six Months Ended March 31, 2008 Compared to Six Months Ended March 31, 2007  Finance Receivables.Our aggregate finance receivables increased 2.6% during the first six months of fiscal 2008 to $287.2 million from $279.8 million on September 30, 2007, compared to a .7% increase during the first six months of fiscal 2007 to $279.0 million from $276.8 million on September 30, 2006. Our primary supplier of loans, MBD, saw an increase in its originations of military loans during the first six months of fiscal 2008 over the same period in fiscal 2007, thus increasing our ability to acquire more loans. Our average finance receivables also increased during this period to $288.5 million in the first six months of fiscal 2008 from $284.2 million in the first six months of fiscal 2007. Interest Income and Fees.Interest income and fees for the first six months of fiscal 2008 increased to $40.6 million from $39.9 million for the first six months of fiscal 2007, an increase of $.7 million or 1.7%. The increase in average finance receivables resulted in an increase in revenue of approximately $4.6 million. As part of the Transaction, MBD now retains certain fees related to military loans. These fees amounted to approximately $3.7 million for the first six months of fiscal 2007. This loss of fees attributed to the reduction in revenues. This reduction was offset by the increase in average finance receivables. Interest Expense.Interest expense in the first six months of fiscal 2008 increased to $8.3 million from $7.9 million in the first six months of fiscal 2007, an increase of $.4 million or 5.1%. The weighted average interest rate increased to 7.4% in the first six months of fiscal 2008 from 7.1% in the first six months of fiscal 2007. This increase is primarily due to a reduction in lower cost amortizing notes placed in previous years which have now reached maturity. The average rate being paid on amortizing notes maturing in second quarter of fiscal 2008 was 5.5%, compared to an average rate of 6.7% paid for replacement amortizing notes during the same time period. Provision for Credit Losses.The provision for credit losses in the first six months of fiscal 2008 decreased to $13.1 million from $15.6 million in the first six months of fiscal 2007, a decrease of $2.5 million or 16.0%. This decrease is primarily due to positive trends in net-charge offs and delinquency during the first six months of fiscal year 2008. During the first six months of fiscal year 2007, we began experiencing an increase in our net charge-offs, from 5.95% of our average finance receivables during fiscal 2006 to 7.14% in the six months ending March 31, 2007. This increase was due in part to the more frequent and longer term deployments of our military customers, as well as other economic conditions at that time. As a result, management increased the allowance for credit losses during both first and second quarter 2007.
During the first six months of fiscal year 2008, we are seeing a decline in our net charge offs, from 9.62% in fiscal 2007 to 8.23% in the six months ending March 31, 2008. Therefore, the increase in our allowance has not been as substantial due to this improving trend. Loans that are 60 days or more delinquent have also decreased to $8.1 million at March 31, 2008 from $11.7 million at September 30, 2007, a decrease of $3.6 million or 30.8%. See further discussion in Allowance for Credit Losses section.  Noninterest Income. Total noninterest income in the first six months of fiscal 2008 decreased to $2.0 million from $3.2 million in the first six months of fiscal 2007, a decrease of $1.2 million or 37.5%. Prior to June 1,  17    2007, we sold non-loan related products and services, including roadside assistance programs and discount cards. Our revenues from the sale of these products and services consisted of commissions paid by an unaffiliated company. We discontinued the selling of ancillary products and services as of June 1, 2007. Noninterest Expenses.Noninterest expenses in the first six months of fiscal 2008 increased to $17.4 million from $16.2 million in the first six months of fiscal 2007, an increase of $1.2 million or 7.4%. Included in the first six months of fiscal 2008 are $2.7 million of amortizing intangibles that are not applicable to the first six months of fiscal 2007. As a result of the Transaction, we now pay MBD a management and record keeping fee to reimburse for services now performed after the reorganization of our business operations. For the first six months of fiscal 2008 this expense was $13.3 million. Net Income.Income before taxes in the first six months of fiscal 2008 was $3.8 million and net income was $2.3 million compared to income before taxes of $3.4 million and net income of $2.1 million during the first six months of fiscal 2007.  Delinquency Experience Our customers are required to make monthly payments of interest and principal.  Our servicer, MBD, under our supervision, analyzes our delinquencies on a recency delinquency basis utilizing our guidelines. A loan is delinquent under the recency method when a full payment (95% or more of the contracted payment amount) has not been received for 30 days after the last full payment. We rarely grant extensions or deferments, or allow account revision, rewriting, renewal or rescheduling in order to bring otherwise delinquent accounts current. For the second quarter of fiscal 2007, finance receivables were charged-off when management deemed them to be uncollectible through normal collection procedures or before they become 270 days past due. In connection with the Transaction, we changed our charge-off methodology to coordinate it with MCFCs charge-off methodology.  Accordingly, we now charge-off finance receivables at 180 days past due or earlier if management deems it appropriate.  As ofMarch 31,2008
        
        
        
        
        As ofSeptember 30,2007(dollars in thousands)Total finance receivables
        
        
        
        $
        287,166
        
        
        
        
        $
        279,778Total finance receivables balances 60days or more past due
        
        
        
        $
        8,110
        
        
        
        
        $
        11,693Total finance receivables balances 60days or more past due as a percent oftotal finance receivables
        
        
        
        
        2.82
        %
        
        
        
        
        4.18
        %
   18     Credit Loss Experience and Provision for Credit Losses General.The allowance for credit losses is maintained at an amount which management considers sufficient to cover estimated future losses. We utilize a statistical model based on potential credit risk trends incorporating both historical and prospective factors to estimate losses. These results and managements judgment are used to estimate future losses and in establishing the current provision and allowance for credit losses. These estimates are influenced by factors outside our control, such as economic conditions, current or future military deployments and completion of military service prior to repayment of loan. There is uncertainty inherent in these estimates, making it reasonably possible that they could change in the near term. See our annual report Item 1A. Risk Factors  If a customer leaves the military prior to repaying loans,
there is an increased risk loans will not be repaid.  Military Loans.Our charge-off policy is based on an account-by-account review of delinquent receivables on a recency basis. Our primary sources of charge-offs occur when a customer leaves the military prior to repaying the finance receivable or is subject to longer term and more frequent deployments. Generally, loans purchased or originated by us are structured so that the entire amount is repaid prior to a customers estimated separation from the military. When buying loans, however, we cannot predict when or whether a customer may depart from the military early. Accordingly, we cannot implement policies or procedures for MBD to follow to ensure that we will be repaid in full prior to a customer leaving the military. Nor can we predict when a customer may be subject to deployment at a duration or frequency that causes a default on their loans. Another
source of loss is when a customer declares bankruptcy. See our annual report Item 7: Management Discussion and Analysis of Financial Condition and Results of Operations  Nonearning Assets. In connection with the Transaction, we implemented a change in our charge-off methodology to charge-off loans no later than 180 days delinquent from 270 days delinquent. The following table presents net charge-offs on direct loans and net charge-offs as a percentage of direct loans as of the ends of the periods presented:  Successor
        
        
        
        Predecessor
        
        
        
        
        Successor
        
        
        
        PredecessorThree MonthsEnded March 31,2008
        
        
        
        Three MonthsEnded March 31,2007
        
        
        
        
        Six MonthsEnded March 31,2008
        
        
        
        Six MonthsEnded March 31,2007(dollars in thousands)Military Loans:Loans charged-off
        
        $
        6,110
        
        
        
        $
        5,351
        
        
        
        
        $
        12,517
        
        
        
        $
        10,483Less recoveries
        
        
        657
        
        
        
        
        476
        
        
        
        
        
        1,203
        
        
        
        
        849Net charge-offs
        
        $
        5,453
        
        
        
        $
        4,875
        
        
        
        
        $
        11,314
        
        
        
        $
        9,634Average military receivables (1)
        
        $
        270,096
        
        
        
        $
        260,577
        
        
        
        
        $
        269,601
        
        
        
        $
        261,645Percentage of net charge-offs toaverage military receivables
        
        
        8.08
        %
        
        
        
        7.48
        %
        
        
        
        
        8.39
        %
        
        
        
        7.36
        %
  ____________________________________ (1) Averages are computed using month-end balances.    19    Retail Installment Contracts.Under some of our arrangements with retail merchant, we may withhold a percentage (usually between five and ten percent) of the principal amount of the retail installment contract purchased. The amounts withheld from a particular retail merchant are recorded in a specific reserve account. Any losses incurred on the retail installment contracts purchased from that retail merchant are charged against its specific reserve account, as specified in the agreement. Upon the retail merchants request, and no more often than annually, we will pay the retail merchant the amount by which its specific reserve account exceeds 15% of the aggregate outstanding balance on all retail installment contracts purchased from them, less losses we have sustained, or reasonably could sustain, due to debtor defaults, collection expenses,
delinquencies and breaches of our agreement with the retail merchant. Our allowance for credit losses is charged only to the extent that the loss on a retail installment contract exceeds the originating retail merchants specific reserve account at the time of the loss. The following table presents net charge-offs on retail installment contracts and net charge-offs as a percentage of retail installment contracts as of the ends of the periods presented.  Successor
        
        
        
        Predecessor
        
        
        
        
        
        Successor
        
        
        
        PredecessorThree MonthsEnded March 31,2008
        
        
        
        Three MonthsEnded March 31,2007
        
        
        
        
        
        Six MonthsEnded March 31,2008
        
        
        
        Six MonthsEnded March 31,2007(dollars in thousands)Retail Installment Contracts:Contracts charged-off
        
        $
        449
        
        
        
        $
        471
        
        
        
        
        
        $
        651
        
        
        
        $
        545Less recoveries
        
        
        65
        
        
        
        
        17
        
        
        
        
        
        
        90
        
        
        
        
        38Net charge-offs
        
        $
        384
        
        
        
        $
        454
        
        
        
        
        
        $
        561
        
        
        
        $
        507Average retail installment contactreceivables (1)
        
        $
        18,588
        
        
        
        $
        22,115
        
        
        
        
        
        $
        18,896
        
        
        
        $
        22,581Percentage of net charge-offs toretail installment contractreceivables
        
        
        8.26
        %
        
        
        
        8.21
        %
        
        
        
        
        
        5.94
        %
        
        
        
        4.49
        %
  _____________________________________ (1) Averages are computed using month-end balances.   Allowance for Credit Losses.The following table presents our allowance for credit losses on finance receivables as of the ends of the periods presented:  Successor
        
        
        
        Predecessor
        
        
        
        
        
        Successor
        
        
        
        PredecessorThree MonthsEnded March 31,2008
        
        
        
        Three MonthsEnded March 31,2007
        
        
        
        
        
        Six MonthsEnded March 31,2008
        
        
        
        Six MonthsEnded March 31,2007(dollars in thousands)Average total financereceivables (1)
        
        $
        288,684
        
        
        
        $
        282,692
        
        
        
        
        
        $
        288,497
        
        
        
        $
        284,226Provision for credit losses
        
        $
        5,837
        
        
        
        $
        7,695
        
        
        
        
        
        $
        13,094
        
        
        
        $
        15,603Net charge-offs
        
        $
        5,837
        
        
        
        $
        5,329
        
        
        
        
        
        $
        11,875
        
        
        
        $
        10,141Net charge-offs as a percentageof average total financereceivables
        
        
        8.09
        %
        
        
        
        7.54
        %
        
        
        
        
        
        8.23
        %
        
        
        
        7.14
        %Allowance for credit losses
        
        $
        22,858
        
        
        
        $
        21,568
        
        
        
        
        
        $
        22,858
        
        
        
        $
        21,568Allowance as a percentage ofaverage total finance receivables
        
        
        7.92
        %
        
        
        
        7.63
        %
        
        
        
        
        
        7.92
        %
        
        
        
        7.59
        %
  _____________________________________ (1) Averages are computed using month-end balances.   20     We maintain an allowance for credit losses, which represents managements best estimate of probable losses in the outstanding finance receivable portfolio. The allowance for credit losses is reduced by actual credit losses and is increased by the provision for loan losses and recoveries of previous losses. The provision for finance receivable losses are charged to earnings to bring the total allowance to a level considered necessary by management. As the portfolio of finance receivables consists of a large number of relatively small, homogenous accounts, the finance receivables are evaluated for impairment as groups. Management considers numerous factors in estimating losses in our credit portfolio, including the following: 
        Prior credit losses and recovery experience
 
        Current economic conditions
 
        Current finance receivable delinquency trends
 
        Demographics of the current finance receivable portfolio
 In connection with the Transaction, we changed our charge-off methodology to coordinate it with MCFCs charge-off policy. MCFC charges-off delinquent loans when management deems them to be uncollectible or when they become 180 days past due on a recency basis. Prior to the Transaction, we used a maximum of 270 days past due. The following table sets forth changes in the components of our allowance for credit losses on finance receivables as of the ends of the periods presented:  Successor
        
        
        
        
        
        Predecessor
        
        
        
        
        
        Successor
        
        
        
        
        
        PredecessorThree Months
        
        
        
        
        
        Three Months
        
        
        
        
        
        Six Months
        
        
        
        
        
        Six MonthsEndedMarch31,
        
        
        
        EndedMarch31,
        
        
        
        EndedMarch31,
        
        
        
        EndedMarch31,2008
        
        
        
        
        
        2007
        
        
        
        
        
        2008
        
        
        
        
        
        2007(dollars in thousands)Balance, beginning of period
        
        
        
        $
        22,858
        
        
        
        
        
        $
        19,202
        
        
        
        
        
        $
        21,639
        
        
        
        
        
        $
        16,106Charge-offs:Loans charged-off
        
        
        
        
        (6,559
        )
        
        
        
        
        
        (5,822
        )
        
        
        
        
        
        (13,168
        )
        
        
        
        
        
        (11,028
        )Recoveries
        
        
        
        
        722
        
        
        
        
        
        
        493
        
        
        
        
        
        
        1,293
        
        
        
        
        
        
        887Net charge-offs
        
        
        
        
        (5,837
        )
        
        
        
        
        
        (5,329
        )
        
        
        
        
        
        (11,875
        )
        
        
        
        
        
        (10,141
        )Provision for credit losses
        
        
        
        
        5,837
        
        
        
        
        
        
        7,695
        
        
        
        
        
        
        13,094
        
        
        
        
        
        
        15,603Balance, end of period
        
        
        
        $
        22,858
        
        
        
        
        
        $
        21,568
        
        
        
        
        
        $
        22,858
        
        
        
        
        
        $
        21,568
  Changes in the provision for credit losses primarily are a result of changes in net charge-offs, growth in the finance receivables and changes in the trends of our portfolio quality. The decline in our provision for credit losses for second quarter 2008 from the same period in fiscal 2007 are due to an improvement in the trend of our net charge-offs from 8.39% in first quarter 2008 to 8.09% in second quarter 2008, compared to 6.73% in first quarter 2007 to 7.54% in second quarter 2007. Thus we have not had to increase the allowance for credit losses as dramatically this quarter due to these improving trends.  21     Loan Acquisition / Origination Asset growth is the most important factor in determining our future revenues. We are dependent upon MBD and retail merchants to increase their originations for our future growth. Loans purchased from MBD or retail merchants increased for the first six months of fiscal 2008 to $162.2 million from $148.0 million for the first six months of fiscal year 2007, an increase of $14.2 million or 9.6%. See Results of Operations  Six Months Ended March 31, 2008 Compared to the Six Months ended March 31, 2007  Finance Receivables. The following table sets forth our overall loan originations and purchases of military loans and retail installment contracts as of the ends of the periods presented:  Successor
        
        
        
        Predecessor
        
        
        
        
        
        Successor
        
        
        
        PredecessorThree Months
        
        
        
        Three Months
        
        
        
        
        
        Six Months
        
        
        
        Six MonthsEnded March 31,
        
        
        
        Ended March 31,
        
        
        
        
        
        Ended March 31,
        
        
        
        Ended March 31,2008
        
        
        
        2007
        
        
        
        
        
        2008
        
        
        
        2007(dollars in thousands, except for average note amounts)Total Loans Acquired/Originated:Gross balance
        
        $
        66,184
        
        
        
        $
        57,373
        
        
        
        
        
        $
        162,203
        
        
        
        $
        147,984Number of finance receivable notes
        
        
        20,990
        
        
        
        
        16,730
        
        
        
        
        
        
        50,153
        
        
        
        
        42,062Average note amount
        
        $
        3,153
        
        
        
        $
        3,429
        
        
        
        
        
        $
        3,234
        
        
        
        $
        3,518Military Loans:Gross balance
        
        $
        62,226
        
        
        
        $
        53,183
        
        
        
        
        
        $
        153,852
        
        
        
        $
        138,929Number of finance receivable notes
        
        
        19,626
        
        
        
        
        15,288
        
        
        
        
        
        
        47,225
        
        
        
        
        38,990Average note amount
        
        $
        3,171
        
        
        
        $
        3,479
        
        
        
        
        
        $
        3,258
        
        
        
        $
        3,563Retail Installment Contracts:Gross balance
        
        $
        3,958
        
        
        
        $
        4,190
        
        
        
        
        
        $
        8,351
        
        
        
        $
        9,055Number of finance receivable notes
        
        
        1,364
        
        
        
        
        1,442
        
        
        
        
        
        
        2,928
        
        
        
        
        3,072Average note amount
        
        $
        2,902
        
        
        
        $
        2,906
        
        
        
        
        
        $
        2,852
        
        
        
        $
        2,948
   Liquidity and Capital Resources A relatively high ratio of borrowings to invested capital is customary in the consumer finance industry. Our principal use of cash is to purchase military loans and retail installment contracts. We use borrowings to fund the difference, if any, between the cash used to purchase military loans and retail installment contracts and operations, and the cash generated from loan repayments and operations. This amount is generally cash used in investing activities. Cash used in investing activities in the first six months of fiscal year 2008 was approximately $19.1 million, which was funded from operating activities of $20.3 million and $0.4 million from financing activities. Cash used in investing and financing activities in the first six months of fiscal 2007 was approximately $14.2 million and $5.3 million, respectively, which was primarily funded from $21.7 million of cash from operating activities. In the first six months of fiscal 2007, financing activities primarily consisted of borrowings and repayments relating to bank debt, an unsecured revolving credit line from our parent, investment notes and dividends. We have not sold any investment notes since December 31, 2006. In the first six months of fiscal 2008, financing activities primarily consist of borrowing and repayments relating to our Senior Lending Agreement. We anticipate that our cash inflow from operations and borrowings under our Senior Lending Agreement will be adequate to meet our cash outflows to fund anticipated growth in finance receivables, operating expenses, repayment of indebtedness, and planned capital expenditures.  22    On or before March 31st of each year, each bank that is a party to the senior lending agreement is to deliver to us a written indication of whether or not it wishes to participate in future fundings and the amounts that it expects to be willing to fund during the next 12 months. As of March 31, 2008, banks that are a party to our senior lending agreement have indicated in writing their willingness to participate in fundings up to an aggregate of $278.0 million. Senior Indebtedness-Bank Debt.As of March 31, 2008 we had $186.7 million of senior debt outstanding compared to $184.8 million at September 30, 2007, an increase of $1.8 million or 0.9%. Our senior lending agreement is an uncommitted facility which provides common terms and conditions pursuant to which individual banks that are a party to this agreement may choose to make loans to us in the future. Any bank may elect not to participate in any future fundings at any time without penalty. As of March 31, 2008, we could request up to $30.8 million in additional funds and remain in compliance with the terms of our senior lending agreement. No bank, however, has any contractual obligation to lend us these additional funds. As of March 31, 2008, we were in compliance with all loan covenants. Senior Indebtedness-Related Party.We had a revolving line of credit, payable on demand, from our former parent, Pioneer Financial Industries, Inc. Interest on this facility accrued at the prime rate plus 2%. At March 31, 2007, there was $.5 million outstanding under this credit facility with an interest rate of 10.25%. As of March 31, 2008 we had no outstanding line of credit with a related party. Senior Indebtedness Table.As of March 31, 2007 and 2006, the total borrowings and availability under our senior lending agreement and our revolving line of credit from our parent company consisted of the following amounts for the ends of the periods presented:  Successor
        
        
        
        
        
        Predecessor
        
        
        
        SuccessorAs ofAs of March 31,
        
        
        
        
        
        As of March 31,
        
        
        
        September 30,2008
        
        
        
        
        
        2007
        
        
        
        2007(dollars in thousands)Revolving Credit Line (1):Total facility
        
        $
        40,000
        
        
        
        
        
        $
        54,667
        
        
        
        $
        45,000Balance at end of period
        
        $
        15,725
        
        
        
        
        
        $
        14,542
        
        
        
        $
        15,463Maximum available credit (3)
        
        $
        24,275
        
        
        
        
        
        $
        40,125
        
        
        
        $
        29,537Term Notes (2):Total facility
        
        $
        238,000
        
        
        
        
        
        $
        270,000
        
        
        
        $
        260,000Balance at end of period
        
        $
        171,015
        
        
        
        
        
        $
        172,619
        
        
        
        $
        169,345Maximum available credit (3)
        
        $
        99,410
        
        
        
        
        
        $
        97,381
        
        
        
        $
        116,100Total Revolving and Term Notes (1) (2):Total facility
        
        $
        278,000
        
        
        
        
        
        $
        324,667
        
        
        
        $
        305,000Balance at end of period
        
        $
        186,740
        
        
        
        
        
        $
        187,161
        
        
        
        $
        184,808Maximum available credit (3)
        
        $
        123,685
        
        
        
        
        
        $
        137,506
        
        
        
        $
        145,637Credit facility available (4)
        
        $
        30,788
        
        
        
        
        
        $
        28,819
        
        
        
        $
        27,558Percent utilization of the total facility
        
        
        67.17
        %
        
        
        
        
        
        57.65
        %
        
        
        
        60.59
        %
  _____________________________________ (1)
        Includes revolving credit line from our parent (from predecessor company only)
 (2)
        Includes 48-month amortizing term notes.
 (3)
        Maximum available credit assuming proceeds in excess of the amounts shown below under Credit Facility Available are used to increase qualifying finance receivables and all terms of the senior lending agreement are met, including maintaining a Senior Indebtedness to Net Receivable Ratio of not more than 80.0%.
 (4)
        Credit facility available based on the existing asset borrowing base and maintaining a Senior Indebtedness to Net Receivable Ratio of not more than 80.0%.
   23    Outstanding Investment Notes.Prior to December 31, 2006, we funded certain capital and financial needs through the sale of investment notes. These notes have varying fixed interest rates and are subordinate to all senior indebtedness. We can redeem these notes at any time upon 30 days written notice. As of March 31, 2008, we had outstanding $34.6 million of these notes at a weighted average interest rate of 9.38%. We do not intend to issue any additional investment notes at this time. As part of the Transaction, we recorded certain liabilities at market value. The table below is a reconciliation of these adjustments as of March 31, 2008.  Amortizing Term Notes
        
        
        
        Investment NotesNotional value
        
        
        
        $
        171,014,590
        
        
        
        $
        34,589,013Purchase adjustment  (1)
        
        
        
        
        (177,457
        )
        
        
        
        739,590Recorded Value
        
        
        
        $
        170,837,133
        
        
        
        $
        35,328,603
  (1) Relates to the fair value adjustment recorded as part of the Transaction.  ITEM 3.Quantitative and Qualitative Disclosures About Market Risk. Our profitability and financial performance are sensitive to changes in the U.S. Treasury yields and the spread between the effective rate of interest we receive on customer loans and the interest rates we pay on our borrowings. Our finance income is generally not sensitive to fluctuations in market interest rates. The primary exposure that we face is changes in interest rates on our borrowings. A substantial and sustained increase in market interest rates could adversely affect our growth and profitability. The overall objective of our interest rate risk management strategy is to mitigate the effects of changing interest rates on our interest expense through the utilization of short-term variable rate debt and medium and long term fixed rate debt. We have not entered into any derivative instruments to manage our interest rate risk. For more information about this item see our annual report
of Form 10-K; Item 7, Liquidity and Capital Resources-Interest Rate Risk Management. The following shows the estimated impact on earnings of changes in interest rates on variable rate debt:  Decrease/increase:
        
        -2%
        
        
        
        -1%
        
        
        
        0%
        
        
        
        +1%
        
        
        
        +2%Revolving credit line
        
        $
        (314,500
        )
        
        
        $
        (157,250
        )
        
        
        $
        
        
        
        
        $
        157,250
        
        
        
        $
        314,500Amortizing term notes
        
        
        (2,046,803
        )
        
        
        
        (1,310,543
        )
        
        
        
        (574,283
        )
        
        
        
        161,977
        
        
        
        
        898,237Total impact on interest expense
        
        $
        (2,361,303
        )
        
        
        $
        (1,467,793
        )
        
        
        $
        (574,283
        )
        
        
        $
        319,227
        
        
        
        $
        1,212,737
  ITEM 4T.Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported as of the end of the period covered by this report (evaluation date), and that such information is accumulated and communicated to our management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of March 31, 2008.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date the evaluation was completed.  24    PART II - OTHER INFORMATION ITEM 1.Legal Proceedings We are currently involved in various litigation matters in the ordinary course of business.  25    ITEM 6.Exhibits Exhibit No.
        Description
 3.1
        Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of our Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission on February 18, 2003 (Commission No. 333-103293) (the Initial Registration Statement).
 3.2
        Certificate of Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of the Initial Registration Statement).
 3.3
        Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.3 of the Initial Registration Statement).
 4.1
        Amended and Restated Indenture dated as of December 15, 2004 (Incorporated by reference to Exhibit 4.1 of the Post Effective Amendment No. 2 to the Registration Statement filed with the Securities and Exchange Commission dated December 17, 2004 (Commission No. 333-103293) (Post Effective Amendment No.2).
 4.2
        Form of investment note certificate (Incorporated by reference to Exhibit 4.2 of the Post Effective Amendment No. 2).
 4.3
        Form of junior subordinated debenture prior to November 1, 2002 (Incorporated by reference to Exhibit 4.3 of the Initial Registration Statement).
 4.9
        Amended and Restated Senior Lending Agreement dated May 31, 2007 among us and various banks named therein. (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K dated May 31, 2007 and filed with the Securities and Exchange Commission on June 6, 2007).
 4.11
        Form of Rate Supplement (Incorporated by reference to Exhibit 4.11 of the Post Effective Amendment No. 2).
 4.12
        Form of IRA Application (Incorporated by reference to Exhibit 4.12 of the Post Effective Amendment No. 2).
 4.13
        Form of Offer to Purchase (Incorporated by reference to Exhibit 4.13 of the Post Effective Amendment No. 2).
 4.14
        Form of IRA Application (Incorporated by reference to Exhibit 4.14 of the Post Effective Amendment No. 3 to the Registration Statement filed with the Securities and Exchange Commission dated January 6, 2006 (Commission No. 333-103293)).
 10.6
        Trademark Licensing Agreement dated October 10, 2000 between us and Pioneer Licensing Services, Inc. (Incorporated by reference to Exhibit 10.6 of the Initial Registration Statement).
 10.11
        Loan Sale and Master Servicing Agreement dated as of June 1, 2007 between us and MBD (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 31, 2007 and filed with the Securities and Exchange Commission on June 6, 2007).
 21
        Subsidiaries (Incorporated by reference to Exhibit 21 Annual Report on Form 10-Q filed with the SEC on April 7, 2008).
 31.1
        Certification of Chief Executive Officer pursuant to Rule 15d-15e.
 31.2
        Certification of Chief Financial Officer pursuant to Rule 15d-15e.
 32.1
        18 U.S.C. Section 1350 Certification of Chief Executive Officer.
 32.2
        18 U.S.C. Section 1350 Certification of Chief Financial Officer.
  26    SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIONEER FINANCIAL SERVICES, INC.   Name
        
        Title
        Date/s/ Thomas H. Holcom
        
        Chief Executive Officer
        May 14, 2008Thomas H. Holcom
        
        and Sole Director(Principal Executive Officer)/s/ Laura V. Stack
        
        Chief Financial Officer,
        May 14, 2008Laura V. Stack
        
        Treasurer and Asst. Secretary(Principal Financial Officerand Principal Accounting Officer)
    27