**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 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: August 31, 2007





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





For
      the
      transition period from ________ to _________





Commission
      File Number:     000-50477





**MANCHESTER
      INC.**


(Exact
      Name of Registrant as specified in its charter)





**NEVADA**
            **98-0380409**(State
                or other jurisdiction of
            (IRS
                Employerincorporation
                or organization)
            Identification
                Number)





**100
      Crescent Court, 7** **th** **Floor**


**Dallas,
      Texas 75201**


(Address
      of principal executive offices)





**(214)
      459-3230**


(Registrant’s
      telephone number, including area code)





**N/A**


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





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


x Yes o No





Indicate
      by check mark whether the registrant is a Large Accelerated Filer, an
      Accelerated Filer, or a Non-Accelerated Filer. See definitions of “Accelerated
      Filer and Large Accelerated Filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
                  Accelerated Filer o
              Accelerated
                  Filer  x
              Non-Accelerated
                  Filer o





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


o Yes x No





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      equity, as of the latest practicable date: 34,280,037 shares of $0.001 par
      value
      common stock outstanding as of October 15, 2007.








**TABLE
                  OF CONTENTS****PART
                  I: FINANCIAL INFORMATION**Item
                  1: Financial Statements
              
              2Item
                  2: Management’s Discussion and Analysis of Financial Conditions and
                  Results of Operations
              
              21Item
                  3: Quantitative and Qualitative Disclosures about Market
                  Risk
              
              32Item
                  4: Control and Procedures
              
              32**PART
                  II: OTHER INFORMATION**Item
                  1: Legal Proceedings
              
              33Item
                  1A: Risk Factors
              
              33Item
                  2: Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              33Item
                  3: Defaults Upon Senior Securities
              
              33Item
                  4: Submission of Matters to a Vote of Security Holders
              
              33Item
                  5: Other Information
              
              33Item
                  6: Exhibits and reports on Form 8-K
              
              33SIGNATURES
              
              35







**PART
      I:****FINANCIAL
      INFORMATION**





**MANCHESTER,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  BALANCE SHEETS****(Stated
                  in U.S. Dollars)**
  **AUGUST
                  31,**
              
              **NOVEMBER
                  30,****2007**
              
              **2006**(unaudited)
              
              See
                  Note 1**ASSETS**Current
                  AssetsCash
                  and cash equivalents
              
              $
              1,061,988
              
              $
              621,609Short
                  term investments and refundable deposits
              
              
              -
              
              
              838,963Accounts
                  and contracts receivable, net
              
              
              83,034,603
              
              
              55,551,304Inventory
              
              
              2,882,611
              
              
              3,394,276Prepaids
                  and other assets
              
              
              1,124,190
              
              
              218,959Property,
                  plant and equipment, net
              
              
              2,213,669
              
              
              914,059Goodwill
              
              
              29,182,873
              
              
              9,479,356Deferred
                  loan costs, net
              
              
              11,730,638
              
              
              14,309,709Deferred
                  state income taxes
              
              
              133,989
              
              
              133,989Other
                  assets
              
              
              217,596
              
              
              -Total
                  Assets
              
              $
              131,582,157
              
              $
              85,462,224**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Accounts
                  payable
              
              $
              1,913,421
              
              $
              627,639Accrued
                  liabilities and expenses
              
              
              3,293,437
              
              
              534,798Revolving
                  lines of credit
              
              
              98,000,948
              
              
              55,419,818Notes
                  payable
              
              
              8,399,241
              
              
              4,619,741Notes
                  payable to stockholders
              
              
              11,406,506
              
              
              9,871,996Deferred
                  warranty revenue
              
              
              651,987
              
              
              -Capital
                  leases payable
              
              
              216,128
              
              
              251,743Total
                  Liabilities
              
              
              123,881,668
              
              
              71,325,734**STOCKHOLDERS’
                  EQUITY**Common
                  StockAuthorized:100,000,000
                  common shares, no par value $0.001 per share,34,280,037
                  and 32,726,500 shares issues and outstanding at
                August
                  31, 2007 and November 30, 2006, respectively
              
              
              34,280
              
              
              32,726Additional
                  paid in capital
              
              
              21,649,332
              
              
              17,615,747Accumulated
                  Deficit
              
              
              (13,983,123
              )
              
              (3,511,983
              )Total
                  Stockholders’ Equity
              
              
              7,700,489
              
              
              14,136,490Total
                  Liabilities and Stockholders Equity
              
              $
              131,582,157
              
              $
              85,462,224




The
      accompanying notes are an integral part of these interim financial
      statements


2


**MANCHESTER,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****(Stated
                  in U.S. Dollars)**
  **Three
                  Months Ended August 31,**
              
              **Nine
                  Months Ended August 31,****2007**
              
              **2006**
              
              **2007**
              
              **2006**(unaudited)
              
              (unaudited)Revenues:Net
                  vehicle sales
              
              $
              31,886,884
              
              $
              -
              
              $
              76,588,271
              
              $
              -Interest
                  income
              
              
              5,625,352
              
              
              -
              
              
              16,220,253
              
              
              -Total
                  income
              
              
              37,512,236
              
              
              -
              
              
              92,808,524
              
              
              -Cost
                  of sales
              
              
              15,784,165
              
              
              -
              
              
              39,333,196
              
              
              -Gross
                  profit
              
              
              21,728,071
              
              
              -
              
              
              53,475,328
              
              
              -Expenses:Selling,
                  general and administrative
              
              
              4,763,134
              
              
              439,440
              
              
              12,368,645
              
              
              847,836Provision
                  for credit losses
              
              
              12,094,378
              
              
              -
              
              
              30,347,790
              
              
              -Interest
                  expense
              
              
              4,110,169
              
              
              27,220
              
              
              10,844,460
              
              
              35,944Depreciation
                  and amortization
              
              
              158,221
              
              
              1,201
              
              
              444,828
              
              
              2,512Financing
                  and other fees
              
              
              370,147
              
              
              -
              
              
              944,497
              
              
              -Total
                  expenses
              
              
              21,496,049
              
              
              467,861
              
              
              54,950,220
              
              
              886,292Operating
                  income (loss)
              
              
              232,022
              
              
              (467,861
              )
              
              (1,474,892
              )
              
              (886,292
              )Other
                  Expense:Amortization
                  of loan costs
              
              
              (1,088,708
              )
              
              -
              
              
              (3,266,125
              )
              
              -Stock
                  option for services
              
              
              -
              
              
              (117,456
              )
              
              (336,459
              )
              
              (117,456
              )Lawsuit
                  Settlement
              
              
              (887,505
              )
              
              
              
              
              (5,393,665
              )Loss
                  before taxes
              
              
              (1,744,191
              )
              
              (585,317
              )
              
              (10,471,141
              )
              
              (1,003,748
              )Income
                  tax provision (benefit)
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              $
              (1,744,191
              )
              $
              (585,317
              )
              $
              (10,471,141
              )
              $
              (1,003,748
              )Net
                  loss per share applicable to common shareholdersBasic
                  and diluted
              
              $
              (0.05
              )
              $
              (0.02
              )
              $
              (0.31
              )
              $
              (0.03
              )Weighted
                  average number of common shares and common share equivalent outstanding
              
              
              34,280,037
              
              
              33,137,500
              
              
              34,107,366
              
              
              33,137,500






The
      accompanying notes are an integral part of these interim financial
      statements





3


**MANCHESTER,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENT OF CASH FLOW**
  **For
                  the Nine Months Ended August 31,****2007**
              
              **2006**(unaudited)Net
                  Loss
              
              $
              (10,471,141
              )
              $
              (1,003,748
              )Adjustments
                  to reconcile net income (loss) tonet
                  cash used in operating activities:Provision
                  for credit losses
              
              
              14,771,499
              
              
              -Depreciation
                  and amortization
              
              
              444,528
              
              
              2,512Amortization
                  cost of deferred financing
              
              
              4,219,050
              
              
              -Stock
                  options and warrants
              
              
              1,035,139
              
              
              -Changes
                  in assets and liabilities:Decrease
                  (increase) in refundable deposits
              
              
              900,000
              
              
              (175,011
              )Increase
                  in accounts and contracts receivable, net
              
              
              (29,368,884
              )
              
              -Decease
                  in inventory
              
              
              1,546,487
              
              
              -Increase
                  in prepaids and other current assets
              
              
              (665,414
              )
              
              (362,418
              )Increase
                  in accounts payable
              
              
              207,608
              
              
              -Increase
                  in accrued interest
              
              
              407,237
              
              
              24,305Increase
                  in accrued expenses and liabilities
              
              
              1,745,504
              
              
              193,254Increase
                  in deferred warranty revenue
              
              
              328,144
              
              
              (1,321,106
              )Net
                  cash used in operating activities
              
              
              (14,900,242
              )
              
              (1,321,106
              )Cash
                  flows from investing activities:Acquisition
                  of business, net of cash acquired
              
              
              -
              
              
              -Purchase
                  of property, plant and equipment
              
              
              (368,188
              )
              
              (14,404
              )Net
                  cash used in investing activities
              
              
              (368,188
              )
              
              (14,404
              )Cash
                  flows from financing activitiesDeferred
                  loan costs incurred
              
              
              (1,639,978
              )
              
              (292,444
              )Payments
                  on notes payable
              
              
              (50,342,292
              )
              
              -Proceeds
                  from loans
              
              
              69,484,029
              
              
              1,544,558Payments
                  on capital leases, net of additions
              
              
              (35,615
              )
              
              -Repayments
                  of stockholder loans
              
              
              (1,757,335
              )
              
              117,400Net
                  cash provided in financing activities
              
              
              15,708,809
              
              
              1,369,514Increase
                  (decrease) in cash and cash equivalents
              
              
              440,379
              
              
              34,004Cash
                  and cash equivalents at beginning of year
              
              
              621,609
              
              
              777Cash
                  and cash equivalents at end of period
              
              $
              1,061,988
              
              $
              34,781Supplemental
                  Disclosure of Cash Flow InformationCash
                  paid during the period for interest
              
              $
              11,710,839
              
              $
              -Cash
                  paid during the period for income taxes
              
              $
              -
              
              $
              -




The
      accompanying notes are an integral part of these financial statements


4


**MANCHESTER,
        INC AND SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENTS OF CASH FLOWS — (Continued)**
  **For
                  the
                  Nine Months Ended August 31,****2007**
              
              **2006**(unaudited)Supplemental
                disclosures of non-cash investing and financing activities:Stock
                  issued to acquire
                  business
              
              $
              3,000,000
              
              $
              -Notes
                  issued to acquire
                  business
              
              $
              3,150,000
              
              $
              -Amortization
                  of common stock warrants
                  beneficial conversion feature
              
              $
              3,266,125
              
              $
              -Relative
                  fair value of common stock
                  options issued for services
              
              $
              336,459
              
              $
              -Warrants
                  issued in
                  settlement
              
              $
              698,680
              
              $
              -Reclassification
                  of goodwill - (Note
                  14)
              
              $
              14,704,113
              
              $
              -





The
      accompanying notes are an integral part of these interim financial
      statements





5


**MANCHESTER,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**August
      31, 2007 (Unaudited)**





**NOTE
                1.  ORGANIZATION, OPERATION AND BASIS OF PRESENTATION**





The
      Company was incorporated on August 27, 2002 under the laws of the state of
      Nevada. The Company commenced business as an exploration stage mining and
      mineral resources company. During that time, the Company had been determined
      to
      be a development stage company under the definition of SFAS 7. The mining
      exploration activities ceased on April 30, 2004 and subsequently the Company
      began seeking an alternative line of business. In 2006 the Company began
      principal operations and ended its status as an exploration stage company.





On
      October 4, 2006, the Company acquired a Buy-Here/Pay-Here used car sales
      enterprise. The transaction consisted of the acquisition of Nice Cars, Inc.,
      car
      sales company and Nice Cars Capital Acceptance Corporation, an affiliate credit
      acceptance company (collectively, the “Nice Cars Acquisition,” and such
      companies, collectively, the “Nice Cars Companies”) by two of the Company’s
      wholly-owned subsidiaries Nice Cars Operations Acquisition Co, Inc. and Nice
      Cars Acceptance Acquisition Co, Inc. (collectively, the “Manchester Nice Cars
      Acquisition Subsidiaries”). Nice Cars, Inc. was incorporated under the laws of
      the state of Georgia on May 21, 1998. Nice Cars Capital Acceptance Corporation
      was incorporated under the laws of the state of Georgia on May 10, 2000. The
      operations for the two months ended November 30, 2006 are included in the
      consolidated statement of income.





The
      Company paid $18,051,054, incurred $9,372,095 in notes payable to the prior
      stockholders and issued 6.25 million shares of the Company’s common stock to
      acquire the Nice Cars Companies. As part of the purchase price, the Company
      also
      agreed to the assumption of certain obligations and liabilities. The Company
      acquired the Nice Cars Companies pursuant to the terms of two share purchase
      and
      exchange agreements.





For
      federal income tax reporting, the company will file consolidated income tax
      returns. For state income and franchise tax reporting, Manchester, Inc. and
      Nice
      Cars are separate legal entities with each company filing separate state tax
      returns.





Nice
      Cars
      has operating locations in Tennessee and Georgia. The Nice Cars corporate and
      administrative offices are located in Fort Oglethorpe, Georgia. The corporate
      and administrative offices of Manchester, Inc. are located in Dallas, Texas.





On
      December 29, 2006, the Company acquired a second Buy-Here/Pay-Here used car
      sales enterprise. The transaction consisted of the acquisition of F.S. English,
      Inc., a Buy-Here/Pay-Here car sales company, and GNAC, Inc., its affiliated
      credit acceptance company, by two special purpose wholly-owned acquisition
      subsidiaries of the Company that were incorporated under the laws of the state
      of Delaware on November 21, 2006. Following the acquisition, F.S. English,
      Inc.
      and GNAC were merged into the Company’s subsidiaries and now operate under the
      names “Freedom Auto Sales” and “Freedom Auto Acceptance” (collectively, the
“Freedom Companies”). The operations of the Freedom Companies for the eight
      months ended August 31, 2007 are included in the consolidated statement of
      operations.





The
      Freedom Companies’ corporate predecessors’ financial statements for the calendar
      years ended December 31, 2005 and 2004, respectively, were audited by Katz,
      Sapper & Miller, LLP, a large audit, accounting and professional services
      firm in Indianapolis, Indiana. Manchester Inc. has engaged its public accounting
      firm of Rodefer Moss & Co, PLLC (“Rodefer Moss”) to perform the audit for
      the year ended December 31, 2006, the results of which will be incorporated
      on
      Form 8-K to be filed upon the completion of such audit. The consolidated
      financial statements of Manchester, Inc. for the nine months ended August 31,
      2007 were prepared on the basis that no material misstatements would result
      from
      the audit of the Freedom Companies corporate predecessors’ financial statements
      for their respective fiscal-year ended December 31, 2006.





On
      July
      25, 2007, Manchester Inc. acquired a third  Buy-Here/Pay-Here
      used car sales enterprise. The transaction consisted of the acquisition of
      substantially all of the assets (including the name) of Royce Motors, Inc.,
      a
      company incorporated under the laws of the state of Indiana on December 20,
      1993. Following the acquisition of such assets, Manchester Inc. now operates
      Royce Motors as a unit of the Freedom Companies. The operations of the Freedom
      Companies for the eight months ended August 31, 2007 (including Royce Motors
      from the date of acquisition through August 31, 2007) are included in the
      consolidated statement of operations.





6


**NOTE
                2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of Manchester, Inc.
      and
      its subsidiaries. The Consolidated Statements of Operations include Manchester,
      Inc and Nice Cars for the nine months ended August 31, 2007 and the operations
      of the Freedom Companies for the eight months ended August 31, 2007. All
      intercompany accounts and transactions have been eliminated.





**Reclassifications**





Certain
      previously reported amounts have been reclassified to conform to the August
      31,
      2007 financial statement presentation.





**Revenue,
      Costs and Expense Recognition**





The
      Company recognizes revenues from vehicle sales, and the related cost of sales,
      upon delivery to the customer.





Interest
      and discount income are recognized using the effective interest method, as
      payments are received on the sales contracts. Interest and discount income
      are
      suspended when a contract is two payment periods (weekly, bi-weekly or monthly)
      delinquent. Recognition of interest and discount income resumes if the contract
      becomes contractually current. Past-due interest and discount income are also
      recognized at that time. In addition, a detailed review of contract receivables
      will cause earlier suspension of recognition of interest and discount income
      if
      collection is doubtful, or if other related facts detrimental to the contracts
      become known.





Contracts
      receivable are reported at their outstanding principal balances, net of amounts
      estimated to be uncollectible, deferred interest on the purchased contracts,
      and
      sales tax due from customers but not payable to the applicable states until
      collected.





Allowance
      for uncollectible contracts is increased by charges to income, and decreased
      by
      charge-offs, net of recoveries. Management’s periodic evaluation of the adequacy
      of the allowance is based upon the Company’s past loss experience, known and
      inherent risk, adverse situations that may affect the customer’s ability to make
      payments as agreed, the estimated fair market value of the underlying
      collateral, and current economic conditions. Contracts receivable are classified
      as delinquent after one missed payment. After two missed payments, repossession
      proceedings of the collateral underlying the contract are commenced. Upon
      repossession of the collateral, the contract is charged off.





**Cash
      and Cash Equivalents**





The
      Company considers all highly liquid investments purchased with a maturity at
      the
      date of purchase of three months or less to be cash equivalents.





**Inventory**





Inventory
      is stated at the lower of cost or market on a specific identification basis.





**Property,
      Plant and Equipment**





Property
      and equipment are recorded at cost. Expenditures for repairs and maintenance
      are
      charged to expense as incurred. Expenditures for additions and improvements
      that
      significantly extend the lives of assets are capitalized. Upon the sale or
      other
      retirement of depreciable property, the cost and accumulated depreciation are
      eliminated from the related accounts and any gain or loss is reflected in
      operations. Depreciation is computed on the straight line and accelerated
      methods over the estimated useful lives of the depreciable assets, which range
      from 3-10 years.





7


**Per
      Share Amounts**





The
      basic
      net income (loss) per common share has been computed based upon the weighted
      average number of shares of Common Stock outstanding. Diluted net income (loss)
      per common share has been computed based upon the weighted average number of
      shares of Common Stock outstanding and shares that would have been outstanding
      assuming the issuance of Common Stock for all potentially dilutive securities
      outstanding. The Company’s outstanding stock options and warrants represent the
      only potentially dilutive securities outstanding. Diluted net loss per common
      share is equal to the basic net loss per common share for the nine months ended
      August 31, 2007 and 2006 as common equivalent shares from stock options and
      stock warrants would have an anti-dilutive effect because of the loss from
      continuing operations. As of August 31, 2007, there were 4,933,333 shares of
      potentially dilutive securities from vested options and warrants.




**Income
      Taxes**





Income
      taxes are accounted for under the liability method. Under this method, deferred
      tax assets and liabilities are determined based on the differences between
      the
      financial reporting and tax basis of the assets and liabilities and are measured
      using the enacted rates expected to apply in the years in which these temporary
      differences are to be recovered or settled.





Income
      taxes are provided for the tax effects of transactions reported in the
      consolidated financial statements and consist of any taxes currently due, plus
      deferred taxes. Deferred taxes are derived primarily from timing differences
      in
      the deductibility of bad debts for financial and income tax reporting, and
      operating losses that are available to offset future state taxable
      income. If it is more likely than not that some portion or all of a
      deferred tax asset will not be realized, a valuation allowance is recognized.
      The Company may be audited by taxing authorities. These audits could result
      in
      proposed assessments of additional taxes. The Company believes that its tax
      positions comply in all material aspects with the applicable tax law. However,
      tax law is subject to interpretation, and interpretations by taxing authorities
      could be different from those of the Company, which could result in the
      imposition of additional taxes.





**Advertising**





The
      Company expenses advertising production and communication costs as they are
      incurred. The total advertising expense for the three and nine months ended
      August 31, 2007 was $171,770 and $418,817, respectively.





**Deferred
      loan costs**





Loan
      and
      debt issuance costs related to financings are stated at cost and are amortized
      over the life of the obligation using the interest method. Upon retirement
      of
      the related debt, any unamortized loan costs are charged to expense.





**Estimates**





The
      preparation of the consolidated financial statements in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities, the disclosure of contingent assets and
      liabilities, and the reported revenues and expenses. Actual results could vary
      from the estimates that were used.





**New
      Accounting Pronouncements**




Statement
      of Financial Accounting Standards No. 151, INVENTORY COSTS, an amendment of
      ARB
      No. 43, Chapter 4 (SFAS 151) was issued in November 2004 and becomes effective
      for inventory costs incurred during fiscal years beginning after June 15, 2006.
      The statement clarifies the accounting for abnormal amounts of idle facility
      expense, freight, handling costs, and wasted material. The adoption of SFAS
      151 did not have any material effect on the
      Company's financial statements.





Statement
      of Financial Accounting Standards No. 154, ACCOUNTING CHANGES AND ERROR
      CORRECTIONS, a replacement of APB Opinion No. 20 and FASB Statement No. 3 ( SFAS
      154)
      was issued in May 2006 and becomes effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2006.
      The Company does not expect that SFAS
      154
      will have any significant effect on future financial statements.





8


Statement
      of Financial Accounting Standards No. 155, ACCOUNTING FOR CERTAIN HYBRID
      FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140, was
      issued in February 2006 and is effective for all financial instruments acquired
      or issued after the beginning of an entity's first fiscal year that begins
      after
      September 15, 2006. Certain parts of this Statement may be applied prior to
      the
      adoption of this Statement. Earlier adoption is permitted as of the beginning
      of
      an entity's fiscal year, provided the entity has not yet issued financial
      statements, including financial statements for any interim period for that
      fiscal year. Provisions of this Statement may be applied to instruments that
      an
      entity holds at the date of adoption on an instrument-by-instrument basis.
      The
      adoption of SFAS 155 did not have any significant effect on the
      Company's financial statements.





In
      February 2007, the FASB issued Statement of Financial Standards No. 159 (“SFAS
      No. 159”), “The Fair Value Option for Financial Assets and Financial
      Liabilities,” which permits entities to choose to measure many financial
      instruments and certain other items at fair value. SFAS No. 159 is effective
      for
      fiscal years beginning after November 15, 2007. The Company is currently
      assessing the impact of SFAS No. 159 on its consolidated financial statements.





In
      March
      2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING OF FINANCIAL ASSETS
      - AN AMENDMENT OF FASB STATEMENT NO. 140, with respect to the accounting for
      separately recognized servicing assets and servicing liabilities. SFAS 156
      permits the choice of the amortization method or the fair value measurement
      method, with changes in fair value recorded in income, for the subsequent
      measurement for each class of separately recognized servicing assets and
      servicing liabilities. The statement is effective for years beginning after
      September 15, 2006, with earlier adoption permitted. The Company is currently
      evaluating the effect that adopting this statement will have on the Company's
      financial position and results of operations




In
      June
      2006, the FASB ratified the consensus reached on EITF Issue No. 06-3, "How
      Taxes
      Collected from Customers and Remitted to Governmental Authorities Should Be
      Presented in the Income Statement (That Is, Gross versus Net Presentation)"
      ("EITF 06-3"). EITF 06-3 requires disclosure of the method of accounting for
      the
      applicable assessed taxes and the amount of assessed taxes that are included
      in
      revenues if they are accounted for under the gross method. EITF 06-3 is
      effective for the first interim or annual reporting period beginning after
      December 15, 2006. No additional disclosures will be required since the Company
      presents revenues net of any taxes collected from customers.




In
      July 2006 the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an
      interpretation of FASB Statement No. 109” (“FIN 48”), which provides
      criteria for the recognition, measurement, presentation and disclosure of
      uncertain tax positions. A tax benefit from an uncertain position may be
      recognized only if it is “more likely than not” that the position is sustainable
      based on its technical merits. The provisions of FIN 48 are effective for fiscal
      years beginning after December 15, 2006. The Company is currently
      evaluating the effects of FIN 48. The Company does not currently recognize
      any
      value for its tax net operating losses.




In
      September 2006 the SEC issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Qualifying
      Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108
      provides guidance on the consideration of effects of the prior year misstatement
      in quantifying current year misstatements for the purpose of a materiality
      assessment. The SEC staff believes registrants must quantify errors using both
      a
      balance sheet and income statement approach and evaluate whether either approach
      results in a material misstatement, when all relevant quantitative and
      qualitative factors are considered. SAB 108 is effective for the first annual
      period ending after November 15, 2006, with early application encouraged.
      The Company has adopted SAB 108 for its fiscal year ending November 30,
      2007. The Company is currently evaluating the effect that adopting this
      statement will have on the Company’s financial
      position and results of operations.




In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial In September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”). SFAS No. 157 defines fair value, establishes a framework and gives
      guidance regarding the methods used for measuring fair value, and expands
      disclosures about fair value measurements. SFAS No. 157 is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. We are currently assessing the
      impact that SFAS No. 157 will have on our results of operations and financial
      position .




9




**NOTE
                3.  ACCOUNTS RECEIVABLE AND CONTRACTS RECEIVABLE**





Contracts
      receivable are recorded at their outstanding principal balances, reduced by
      any
      charge-offs or specific valuation accounts, deferred interest and sales tax
      due
      from customers. The Company finances vehicle sales to selected customers over
      periods ranging from 36 to 60 months, with interest at 26% in Georgia
      and Tennessee and ranging from 16% to 21% in Indiana.





The
      allowance for uncollectible accounts is based upon the Company’s historical loss
      percentage relative to the fair value of the contracts’ underlying collateral





The
      estimated future maturities of contracts receivable at August 31, 2007 using
      forty-two months as the average contract term remaining, are as follows.





**August
                  31, 2007**
              
              **Gross
                  contracts**
                **receivable**
              
              **Unearned
                  finance**
                **charges
                  and**
                **sales
                  taxes**
              
              **Principal**
                **balance**1st
                  year
              
              $
              67,586,145
              
              $
              (9,846,872
              )
              $
              57,739,2732nd
                  year
              
              
              43,144,865
              
              
              (6,285,933
              )
              
              36,858,9323rd
                  year
              
              
              18,013,766
              
              
              (2,624,491
              )
              
              15,389,2754th
                  year
              
              
              2,507,893
              
              
              (365,384
              )
              
              2,142,5095th
                  year
              
              
              741,697
              
              
              (108,061
              )
              
              633,636**Total**
              
              $
              131,994,366
              
              $
              (19,230,741
              )
              $
              112,763,625Allowance
                  for credit losses
              
              
              
              
              
              
              
              (29,729,022
              )**Total**
              
              
              
              
              
              
              
              $
              83,034,603





The
      above
      tabulation should not be regarded as a forecast of future cash collections.





The allowance
      for credit losses at August 31, 2007 was $29,729,022 and represents 26.4% of
      the
      net principal balance. See Note 14.








**NOTE
                4.  PROPERTY, PLANT AND EQUIPMENT**





Property,
      plant and equipment at August 31, 2007 and November 30, 2006 consisted of the
      following:


**August
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Furniture
                  and fixtures
              
              $
              557,477
              
              $
              67,211Equipment
              
              
              3,294,628
              
              
              2,167,903Leasehold
                  improvements
              
              
              1,274,350
              
              
              440,551Buildings
              
              
              712,323
              
              
              108,3495,838,778
              
              
              2,784,014Less:
                  accumulated depreciation
              
              
              (3,625,109
              )
              
              (1,869,955
              )Property,
                  plant and equipment, net
              
              $
              2,213,669
              
              $
              914,059




10




**NOTE
                5.  DEFERRED LOAN COSTS AND COMMON STOCK WARRANTS**





Deferred
      Loan Costs at August 31, 2007 consists of common stock warrants that were issued
      to the Company’s lender, Palm Beach Multi-Strategy Fund, L.P. on October 4, 2006
      and attendant fees and expenses associated with the credit facility. The
      4,000,000 warrants were valued using the Black-Scholes pricing model with an
      exercise price of $3.00 and a weighted average common per share price of $3.27.
      The amortization period is 36 months, the length of the loan duration.


**August
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Gross
                  value of warrants issued
              
              $
              13,064,499
              
              $
              13,064,499Loan
                  expenses
              
              
              3,726,940
              
              
              2,086,961Total
              
              
              16,791,439
              
              
              15,151,460Less:
                  amortization expense
              
              
              (5,060,801
              )
              
              (841,751
              )Balance
                  of deferred loan costs
              
              $
              11,730,638
              
              $
              14,309,709







11




**NOTE
                6.  REVOLVING LINE OF CREDIT**





The
      Company has six lines of credit with Palm Beach Multi-Strategy Fund L.P. with
      a
      total outstanding balance of $98,000,948 at August 31, 2007. The lines of credit
      are secured by accounts receivable, inventory and all assets of the Company.




**August
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Revolving
                    line of credit with Palm Beach Multi-Strategy Fund L.P. dated
                    September
                    28, 2006, as amended December 28, 2006 , consisting of a term
                    note payable
                    in full September 28, 2009, secured by accounts receivable, inventory
                    and
                    all assets of the Company, with interest at the Prime Rate as
                    published in
                    The Wall Street Journal ("WSJ Prime Rate") + 9% with an interest
                    rate
                    floor of 17% and a revolving credit line with interest at the
                    WSJ Prime
                    Rate + 5% with an interest rate floor of 13%.
              
              $
              66,004,494
              1
              $
              55,419,818
              **(*)**Revolving
                  line of credit with Palm Beach Multi-Strategy Fund L.P. dated December
                  28,
                  2006, consisting of a term note payable in full December 28, 2009,
                  secured
                  by accounts receivable, inventory and all assets of the Company,
                  with
                  interest at the WSJ Prime Rate + 8% with an interest rate floor
                  of 16% and
                  a revolving credit line with interest at the WSJ Prime Rate + 5%
                  with an
                  interest rate floor of 13%.
              
              
              22,691,898
              2
              
              -Revolving
                  line of credit with Palm Beach Multi-Strategy Fund L.P. dated July
                  25,
                  2007, secured by accounts receivable, inventory and all assets
                  of the
                  Company, with interest at the WSJ Prime Rate +
                  6.75%.
              
              
              4,912,986
              
              
              -Promissory
                  note with Palm Beach Multi-Strategy Fund L.P. dated August 9, 2007,
                  with
                  interest at a fixed rate of 13%.
              
              
              1,285,000
              
              
              -Revolving
                  Floor Plan with Palm Beach Multi-Strategy Fund, L.P. secured by
                  the
                  equivalent inventory with interest at the WSJ Prime Rate + 7.75%
                  with an
                  interest rate floor of 16%.
              
              
              1,599,186
              
              
              -Revolving
                  Floor Plan with Palm Beach Multi-Strategy Fund, L.P. secured by
                  the
                  equivalent inventory with interest at the WSJ Prime Rate + 7.75%
                  with an
                  interest rate floor of 16%.
              
              
              1,507,384
              
              
              -Total
              
              $
              98,000,948
              
              $
              55,419,818


1
      - The
      outstanding revolving credit line balance and term note payable at August 31,
      2007 were $24,654,173 and $41,350,321, respectively.





2
      - The
      outstanding revolving credit line balance and term note payable at August 31,
      2007 were $5,180,558 and $17,511,340, respectively.





(*)
      Certain prior year amounts have been reclassified to conform to the August
      31,
      2007 financial statement presentation.




12


**NOTE
                7.  NOTES PAYABLE**





Notes
      payable at August 31, 2007 and November 30, 2006 were outstanding as follows:




**August
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Note
                  Payable to a bank in monthly installments of $26,678 including
                  interest at
                  8.19%, through February 2012. Secured by certain property and
                  equipment.
              
              
              610,570
              
              
              -Note
                  Payable to a bank in monthly installments of $432 including interest
                  at
                  5.95% through April 2009.  Secured by certain property and
                  equipment.
              
              
              8,080
              
              
              -Unsecured
                  promissory demand note with one lender with interest of
                  5%.
              
              
              2,200
              
              
              -Unsecured
                    promissory demand notes with one lender, dated from December
                    2005 through
                    February 28, 2007 with interest of 6%.
              
              
              4,838,254
              
              
              4,437,204Unsecured
                    financing agreement with 1st. Insurance Funding payable in two
                    remaining
                    installments due by January 10, 2007.
              
              
              -
              
              
              83,233Unsecured
                  promissory note with one lender, amended June 1, 2006, payable
                  June 1,
                  2007 with interest of 8%.
              
              
              99,304
              
              
              99,304Unsecured
                  promissory demand note dated May 7, 2007 payable in eighteen equal
                  monthly
                  installments of $25,000, without interest, with the remaining balance
                  due
                  in full by November 7, 2008.
              
              
              2,840,833
              
              
              -Total
              
              $
              8,399,241
              
              $
              4,619,741


13




**NOTE
                8.  NOTES PAYABLE TO STOCKHOLDERS**





The
      stockholder notes payable balances at August 31, 2007 and November 30, 2006
      are
      detailed below. The notes payable to stockholders consists of various notes
      issued by the Company in the acquisition of the Nice Car’s companies on October
      4, 2006 and Freedom Auto Sale’s companies on December 29, 2006. The notes are
      subordinated to the note of the revolving line of credit as described at Note
      6.


**August
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Unsecured
                    promissory note to shareholders dated October 4, 2006, payable
                    in full
                    October 4, 2007, with interest rate of 10%.
              
              $
              6,930,000
              
              $
              6,930,000Unsecured
                    promissory note to shareholders dated October 4, 2006, payable
                    in full
                    November 1, 2006, with interest rate of 10%.
              
              
              -
              
              
              627,543Unsecured
                    demand note to shareholder dated November 1, 2006, with interest
                    rate of
                    10%.
              
              
              -
              
              
              500,000Unsecured
                    promissory note to shareholders dated October 4, 2006, payable
                    in full
                    January 2, 2007, with interest rate of 10%.
              
              
              1,240,765
              
              
              1,814,453Unsecured
                    promissory note to shareholder,  with an interest rate of 8%, payable
                    on demand.
              
              
              40,823
              
              
              -Unsecured
                    promissory note to shareholder, with an interest rate of 8%,
 payable
                    on demand.
              
              
              44,918
              
              
              -Unsecured
                    promissory note to shareholders dated December 29, 2006, payable
                    in full
                    December 29, 2007, with interest rate of 5%.
              
              
              3,000,000
              
              
              -Unsecured
                  promissory note to shareholders dated December 29, 2006, payable
                  in two
                  equal installments due on or before June 29, 2007 and September
                  29, 2007,
                  respectively with interest rate of 5%.
              
              
              150,000
              
              
              -Total
              
              $
              11,406,506
              
              $
              9,871,996




14





**NOTE
                9.  COMMON STOCK OPTIONS**




The
      Company has an incentive stock option plan for employees whereby options to
      purchase Common Stock are granted at no less than the stock’s estimated fair
      market value at the date of the grant and may be exercised during specified
      future periods.





In
      December 2004, the FASB issued SFAS No. 123 (Revised 2004)
“Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R
      addresses all forms of share-based payment (“SBP”) awards, including shares
      issued under certain employee stock purchase plans, stock options, restricted
      stock and stock appreciation rights. SFAS No. 123R requires the
      Company to expense SBP awards over the period during which an employee is
      required to provide service in exchange for the award, usually the vesting
      period. Compensation cost for SBP transactions will be measured at fair value
      using a Black-Scholes or similar bi-nomial model. SFAS No. 123R
      required us to adopt the new accounting provisions beginning in our second
      quarter of 2006.


**Weighted-****Weighted-**
                
                **Average****Average**
                
                **Remaining**
                
                **Aggregate****Exercise**
                
                **Contractual**
                
                **Intrinsic****Shares**
                
                **Price**
                
                **Term**
                
                **Value**Outstanding
                    at December 1, 2006
                
                
                550,000
                
                $
                4.46Granted
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Forfeited
                
                
                (350,000
                )
                
                4.44Outstanding
                    at February 28, 2007
                
                
                200,000
                
                
                4.45
                
                
                0.78
                
                
                -Granted
                
                
                900,000
                
                
                2.63Exercised
                
                
                -
                
                
                -Forfeited
                
                
                -
                
                
                -Outstanding
                    at May 31, 2007
                
                
                1,100,000
                
                $
                2.97
                
                
                1.71
                
                
                -Granted
                
                
                350,000
                
                
                1.88Exercised
                
                
                -
                
                
                -Forfeited
                
                
                -
                
                
                -Outstanding
                    at August 31, 2007
                
                
                1,450,000
                
                $
                2.71
                
                
                1.48
                
                
                -Vested
                    and execisable at August 31, 2007
                
                
                133,333
                
                $
                4.45


15




**NOTE
                10.  INCOME TAXES**




The
      income tax provision charged (benefit credited) for the nine months ended August
      31, 2007 was as follows:




BenefitProvision
                  for income taxes related to operations
              
              $
              (3,560,200
              )Less
                  tax effects of non-deductible expenses:Provision
                  for credit losses
              
              
              (330,500
              )Amortization
                  of deferred loan costs
              
              
              1,110,500Charitable
                  contribution carryforward
              
              
              2,900Total
                  provision for Federal income taxes
              
              $
              (2,777,300
              )Net
                  provision for income taxes from Indiana operations
              
              
              (535,200
              )Net
                  provision for income taxes from Tennessee and Georgia
                  operations
              
              
              116,200Provision
                  for income tax benefit related to operations
              
              
              (3,196,300
              )Valuation
                  allowance
              
              
              3,196,300Net
                  current year provision
              
              $
              -The
                  differences between the Statutory Federal income tax rate and the
                  effective tax rate are as follows:Statutory
                  Federal income tax rate
              
              
              -34.0
              %Increase
                  (decrease) in rate resulting from:State
                  and local taxes, net of Federal Benefit
              
              
              -4.0
              %Provision
                  for credit losses
              
              
              -3.2
              %Amortization
                  of deferred loan costs
              
              
              10.6
              %Charitable
                  contribution carryforward
              
              
              0.0
              %Effective
                  tax rate before valulation allowance
              
              
              -30.5
              %Temporary
                  differences which give rise to a significant portion of deferred
                  tax
                  assets and liabilities were as follows:Provision
                  for credit losses
              
              $
              11,835,588Amortization
                  of deferred loan costs
              
              
              1,241,099Charitable
                  contribution carryforward
              
              
              68,197Total
                  deferred tax benefit
              
              
              13,144,884Valuation
                  allowance
              
              
              (13,010,895
              )Total
                  defered tax benefit net of valuation allowance
              
              $
              133,989




Prior
      year tax benefit provisions caused by losses incurred by operations during
      the
      development stage are not material and have been eliminated by valuation
      allowances.





16




**NOTE
                11.  CONCENTRATION OF CREDIT RISK**





The
      Company’s customer base is concentrated in the Northwest Georgia, Southeast
      Tennessee and Northern Indiana geographical areas. Due to the nature of the
      Company’s business, many of its customers are considered substandard credit
      risks.





The
      Company has concentrated cash deposits in multiple high credit quality financial
      institutions. At times, the balances in these accounts may be in excess of
      federally insured limits. The company does not believe that it is exposed to
      significant credit risk in connection with cash and cash equivalents at August
      31, 2007.




The
      Company is exposed to various risks of loss related to torts, theft of, damage
      to and destruction of assets, errors and omissions and natural disasters. The
      Company has purchased third party liability and property damage insurance to
      protect against these claims and losses.








**NOTE
                12.  FAIR VALUE OF FINANCIAL INSTRUMENTS**





The
      Company’s financial instruments, none of which are held for trading, include
      cash, contracts receivable, accounts payable, accrued expenses, floor plan
      notes
      payable and capital leases payable. The Company estimates that the fair value
      of
      all financial instruments at August 31, 2007 (Unaudited) and November 30, 2006
      (Audited) does not differ materially from the aggregate carrying values of
      the
      financial instruments recorded in the accompanying combined financial
      statements. The estimated fair value amounts have been determined by using
      available market information and appropriate data to develop the estimates
      of
      fair value, and accordingly, the estimates are not necessarily indicative of
      the
      amounts that could be realized in a current market exchange. The use of
      different market assumptions or methodologies could have a material effect
      on
      the estimated fair value amounts.




17




**NOTE
                13.  ACQUISITIONS**





On
      December 29, 2006, Manchester, Inc. acquired F.S. English, Inc. and GNAC, Inc.
      The transaction was consummated through two special purpose wholly-owned
      acquisition subsidiaries of the Company. Following the acquisition, F.S.
      English, Inc. and GNAC, Inc. were merged into the Company’s acquisition
      subsidiaries and now respectively conduct business as Freedom Auto Sales and
      Freedom Auto Acceptance.





The
      transaction was accounted for as a purchase in accordance with SFAS 141, *Business
      Combinations.*


The
      purchase price of Freedom Auto Sales is as follows:


Total
                  purchase price of the Freedom Companies:Cash
              
              $
              -Notes
                  to seller
              
              
              3,150,000Common
                  stock par value
              
              
              3,000,000Total
                  purchase price
              
              $
              6,150,000Net
                  assets acquired:Cash
              
              $
              -Tangible
                  assets, net
              
              
              25,172,975Total
                  assets acquired
              
              
              25,172,975Liabilities
                  assumed
              
              
              (24,022,379
              )Total
                  liabilities assumed
              
              
              (24,022,379
              )Net
                  assets acquired
              
              $
              1,150,596Goodwill
              
              $
              4,999,404




Tangible
      assets acquired of $25.2 million includes trade accounts receivable, net
      (customer contracts), inventory and net fixed assets.





Liabilities
      assumed of $24.0 million include trade accounts payable, credit line and
      equipment financing notes, and notes to a shareholder.





$5.0 million
      was allocated to goodwill. Goodwill represents the excess of the purchase price
      over the fair market value of the net tangible assets acquired. Goodwill will
      not be amortized and will be tested for impairment at least annually. The
      recording of goodwill will be subject to adjustment for pre-acquisition
      contingencies during the allocation period.





On
      July
      25, 2006, Manchester, Inc. acquired substantially all of the assets (including
      the name) of Royce Motors, Inc. Following the acquisition of such assets,
      Manchester Inc. now operates Royce Motors as a unit of the Freedom Companies.





The
      transaction was accounted for as a purchase in accordance with SFAS 141, *Business
      Combinations.*


The
      purchase price of Royce Motors assets is as follows:




18




Total
      purchase price of the Royce Motors:  Net
                assets
                acquired:Cash
              
              $
              -Tangible
                  assets, net
              
              
              5,245,317Total
                assets
                acquired
              
              
              5,245,317Liabilities
                assumed
              
              
              (5,245,317
              )Total
                liabilities
                assumed
              
              
              (5,245,317
              )Net
                  assets acquired
              
              $
              -0-





Tangible
      assets acquired of $5.2 million includes trade accounts receivable, net
      (customer contracts), inventory and net fixed assets.





Liabilities
      assumed of $5.2 million include credit line and equipment financing notes.







**NOTE
                14.  GOODWILL**





The
      Company has recorded goodwill in connection with its acquisition of the Nice
      Cars and Freedom Auto Sales companies.





In
      connection with the Nice Cars Acquisition, the company made an initial
      allocation of the purchase price. The initial allocation of the purchase price
      for the Nice Cars Acquisition utilized historical analyses and data of the
      Nice
      Cars Companies in estimating the allowance for credit losses. During the nine
      months ended August 31, 2007, the Company has performed a more extensive
      analyses following the conversion of the former operating and accounts systems
      to an Internet based and integrated operating and accounting system designed
      for
      the Buy-Here/Pay-Here industry to evaluate the quality of the customer accounts
      and quantify actual write-offs that occurred that should have been part of
      the
      allowance for credit losses at the acquisition date of October 4, 2006. As
      a
      result of the analyses, the Company made an adjustment to increase goodwill
      by
      $14.6 million. Management will continue its analyses of the purchase price
      allocation with respect to the Nice Cars Companies including any purchase price
      adjustments that may be applicable in connection with representations and
      warranties made in the purchase documents. Management continues to assess
      pre-acquisition contingencies and fair value estimates of assets acquired and
      liabilities assumed in connection with the Nice Cars Acquisition. Management
      plans to complete its purchase price allocation and record any additional
      adjustments that may be necessary during the fourth quarter of
      2007.





Goodwill
      is not amortized, but is tested annually for impairment or more frequently
      if
      events or changes in circumstances indicate that the assets might be impaired.
      Absent unexpected circumstances, management has determined the Company does
      not
      have to assess or test for impairment.





In
      assessing the recoverability of goodwill, the Company must make assumptions
      about the estimated future cash flows and other factors to determine the fair
      value of these assets.





Assumptions
      about future sales and cash flows require significant judgment because of the
      current state of the economy, the fluctuation of actual sales, and the timing
      of
      expenses. The Company’s management develops future sales estimates based upon
      sales trends and other available data. Unless there is evidence to the contrary,
      estimates of future cash flows assume that expenses will grow at rates
      consistent with historical rates. If the expected cash flows are not realized,
      or if market conditions result in lower valuation multiples, impairment losses
      may be recorded in the future.





19


For
      goodwill, the impairment evaluation will include a comparison of the carrying
      value of our Buy-Here/Pay-Here acquisitions (including goodwill) to their
      fair value on a reporting unit level. Generally, a reporting unit is an
      operating segment or one level below an operating segment (referred to as a
      component). A
      component of an operating segment is a reporting unit if the component
      constitutes a business for
      which
      discrete financial information is available and segment managementregularly
      reviews the operating results of that component. If the estimated fair value
      exceeds the reporting unit’s carrying value, no impairment of goodwill
      exists. If the fair value of the reporting unit does not exceed the unit’s
      carrying value, then an additional analysis will be performed to allocate the
      fair value of the reporting unit to all of the assets and liabilities of that
      unit. If the implied fair value of the reporting unit goodwill is less than
      the
      carrying value of the unit’s goodwill, an impairment charge is recorded for the
      difference. To date, management has not made any determination if impairment
      of
      goodwill exists or not.








**NOTE
                15.  LEGAL PROCEEDINGS**




The
      Company is party to various legal disputes and proceedings arising from its
      business activities. While, in the opinion of management, resolution of these
      matters is not expected to have a material adverse effect on the Company’s
      consolidated financial position, results of operations or cash flows, the
      ultimate outcome of any litigation is uncertain.





On
      November 29, 2006, Lancelot Investors Fund, L.P. (the “Lancelot Fund”) brought
      suit against Manchester in the Cook County Circuit Court (located in Cook
      County, Illinois) seeking more than $1.8 million in damages. On November 29,
      2006, Manchester sued the Lancelot Fund seeking the return of the unused portion
      of an expense deposit paid to the Lancelot Fund in the amount of $175,011.
      Subsequent to the filing of the two lawsuits, additional claims and
      counterclaims related to Manchester were asserted against other parties
      unrelated to Manchester, on the one hand, and the Lancelot Fund and certain
      of
      its affiliated entities, Lancelot Investment Management, L.L.C., Surge Capital
      and Surge Capital II, LLC (the Lancelot Fund and its four affiliated entities,
      collectively, the “Lancelot Parties”), on the other hand.  As disclosed in
      Form 8-K filed with the Securities & Exchange Commission on May 31, 2007, by
      confidential agreement entered into on May 24, 2007 and retroactively effective
      as of May 7, 2007, a settlement was reached between Manchester and all its
      subsidiaries and certain other parties unrelated to Manchester and the Lancelot
      Parties pursuant to which all claims and potential claims among the parties
      have
      been settled. The expense attributed to the settlement during the second and
      third quarter of 2007 was approximately $4.5 million and $.9 million,
      respectively. The total expense recorded consisted of a note, cash and stock
      warrants. The Company will recognize ongoing monthly expenses to be computed
      and
      payable based on monthly management fees and interest paid to the Company’s
      current senior lender.





Additionally,
      the Company and its subsidiaries are involved in litigation arising in the
      ordinary course of business. After consultation with legal counsel, management
      estimates that these matters will be resolved without material adverse effect
      on
      the Company’s future financial position or results from operations, and
      accordingly, has not recorded a liability in conjunction with them.








**NOTE
                16.  SUBSEQUENT
                EVENTS**





The
      Company has entered into term sheets for the prospective acquisition of several
      Buy-Here/Pay-Here companies. The Company is currently negotiating definitive
      terms and conditions of the definitive agreements with respect to such
      acquisitions, however, as of the date of this report definitive agreements
      have
      not yet been entered into by the parties.




Subsequent
      to August 31, 2007 the Company has determined
      that in its judgment, certain warranties and representations given by the
      sellers in the Nice Cars acquisition were inaccurate at the date of acquisition.
      Accordingly finance receivables acquired in connection with Nice Cars purchase
      did not meet acceptable underwriting criteria, and the Company’s lines
      of credit
      exceed its following base.




The
      initial allocation of the purchase price was
      adjusted to goodwill. The Company believes a further adjustment to the purchase
      price and goodwill will be appropriate. The Company continues to seek to enforce
      its rights against the sellers, based on the written representations received,
      and in October 2007, the Company filed suit against the sellers seeking relief
      on variety of claims. The Company assesses goodwill whenever circumstances
      and
      events indicate a possible impairment may have occurred, and at any rate, no
      less frequently than annually. Accordingly, during the fourth quarter the
      Company will complete its analysis of goodwill obtained in the fourth quarter
      of
      its prior fiscal year.






**NOTE
                17.  RELATED PARTY
                TRANSACTIONS**





In
      the
      nine months ended August 31, 2007, the company paid to Richard L. Stanley,
      the
      Company’s Chief Executive Officer, the sum of $409,100 for property rent of
      three vehicle lots in Indiana that operate under the Freedom Companies
      subsidiary.


20




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





This
      Quarterly Report contains certain forward-looking statements and our
      Company’s future operating results could differ materially from those
      discussed herein.  Such forward-looking statements involve known and
      unknown risks, uncertainties and other factors which may cause the
      actual results, performance or achievements of the Company to be
      materially different from any future results, performance or achievements
      expressed or implied by such forward-looking statements.  Given these
      uncertainties, readers are cautioned not to place undue reliance on such
      forward-looking statements. We disclaim any obligation to update any such
      factors or to announce publicly the results of any revisions of the
      forward-looking statements contained or incorporated by reference herein to
      reflect future events or developments. The Company suggests that the following
      discussion and analysis be read in conjunction with the Consolidated Financial
      Statements and Management’s Discussion and Analysis of Financial Condition and
      Results of Operations included in our Annual Report on Form 10-K for the year
      ended November 30, 2006. Unless otherwise provided in this Quarterly Report,
      references to the “Company,” the “Registrant,” the “Issuer,” “we,” “us,” and
“our” refer to Manchester Inc. and its subsidiaries.





The
      following discussion of the financial condition and results of operations of
      Manchester Inc. should be read in conjunction with the financial
      statements and the related notes thereto included elsewhere in this
      Quarterly Report.





**Overview**





Our
      Company was incorporated on August 27, 2002 under the laws of the state of
      Nevada. On October 4, 2006 we entered into two agreements for the acquisition
      of
      a Buy-Here/Pay-Here enterprise consisting of Nice Cars, Inc. and Nice Cars
      Capital Acceptance Corporation (collectively, the “Nice Cars Companies”). On
      December 29, 2006, the Company acquired F.S. English, Inc., a Buy-Here/Pay-Here
      car sales company, and GNAC, Inc., its affiliated credit acceptance company,
      which now operate under the names “Freedom Auto Sales and “Freedom Auto
      Acceptance”. On July 25, 2007, the Company acquired substantially all of the
      assets (including the name) of Royce Motors, Inc., a Buy-Here/Pay-Here car
      sales
      company, which operates as a unit of the Freedom Companies. Each
      Buy-Here/Pay-Here enterprise is referred to as a "dealership". Our operations
      during the period covered by this Quarterly Report were principally in Georgia,
      Tennessee and Indiana. We intend to make additional acquisitions during the
      foreseeable future and expand our Buy-Here/Pay-Here operations into other
      geographic areas.





As
      of the
      end of the period covered by this Quarterly Report, the Company served as the
      holding company for (i) the Nice Cars Companies, (ii) Nice Cars Funding LLC,
      (iii) the Freedom Companies, and (iv) Manchester Indiana Funding, LLC
      (collectively, Manchester’s six subsidiaries are referred to herein as the
“Subsidiaries”). Our financial statements for the period covered by this Report
      describe the financial condition and results of operations for Manchester Inc.
      and its Subsidiaries on a consolidated historical basis (unaudited). During
      the
      first three fiscal quarters ended August 31, 2007, the Company had no other
      operations other than those conducted by the Subsidiaries. As part of its
      planning to operate as a holding company for the Subsidiaries, the Company
      has
      hired professional accounting and financial personnel to administer the
      Subsidiaries, manage the loans, prepare financial statements and perform other
      functions and duties as a centralized corporate office.





The
      Company’s Subsidiaries operate as separate sales and finance companies in order
      to distinguish vehicle sales operations from financing activities. Our finance
      subsidiaries purchase the retail sales contracts from affiliated sales
      subsidiaries and assume all rights and responsibilities with respect to the
      acquired contracts. These contracts have varying terms, generally ranging from
      36 months to 60 months, with interest charges of up to 26%. The Company
      primarily sells used vehicles and provides financing for substantially all
      of
      its customers. Many of the Company’s customers have limited financial resources
      and would not qualify for conventional financing as a result of limited credit
      histories or impaired credit. As of August 31, 2007, the Company’s Subsidiaries
      operated three dealerships that sold used vehicles from 12 different sales
      lots.





The
      Company’s primary focus is on sales and collections. Each Subsidiary handles its
      own sales and collections with supervisory involvement of the corporate office.
      Hiring, training and retaining qualified sales personnel are critical to the
      Company’s success.  The Company intends to add resources to train and
      develop personnel. In fiscal 2007 and for the foreseeable future, the Company
      expects to acquire additional dealerships and to continue to invest in the
      acquisition of new dealerships and the development of its own dealerships and
      workforce.





21


**RESULTS
      OF OPERATIONS**





The
      financial statements (unaudited) contained herein have been prepared on a
      historical basis to give effect to the acquisition of our Subsidiaries
      using the purchase method of accounting with assumptions and adjustments as
      described in the accompanying notes to the combined condensed consolidated
      financial statements (unaudited) for the three and nine months ended August
      31,
      2007.





The
      following discussion provides an analysis of our results of operations,
      liquidity, and capital resources. This should be read in conjunction with our
      unaudited consolidated financial statements and related notes thereto contained
      in Item 1 of this Quarterly Report. The operating results of the three and
      nine-month periods presented were not significantly affected by inflation.
      The
      following table sets forth the percentage of our revenues represented by certain
      items included in our Consolidated Statements of Operations





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(Unaudited)
      (Stated in U.S. Dollars)




**For
                  the Three Months Ended August 31,**
              
              **For
                  the Nine Months Ended August 31,****2007**
              
              **%
                  to Sales**
              
              
              **2006**
              
              **2007**
              
              **%
                  to Sales**
              
              
              **2006**(unaudited)
              
              (unaudited)Revenues:Net
                  vehicle sales
              
              $
              31,886,884
              
              
              85.0
              %
              
              $
              -
              
              $
              76,588,271
              
              
              82.5
              %
              
              $
              -Interest
                  income
              
              
              5,625,352
              
              
              15.0
              %
              
              
              -
              
              
              16,220,253
              
              
              17.5
              %
              
              
              -Total
                  income
              
              
              37,512,236
              
              
              100.0
              %
              
              
              -
              
              
              92,808,524
              
              
              100.0
              %
              
              
              -Cost
                  of sales
              
              
              15,784,165
              
              
              42.1
              %
              
              
              -
              
              
              39,333,196
              
              
              42.4
              %
              
              
              -Gross
                  profit
              
              
              21,728,071
              
              
              57.9
              %
              
              
              -
              
              
              53,475,328
              
              
              57.6
              %
              
              
              -Expenses:Selling,
                  general and administrative
              
              
              4,763,134
              
              
              12.7
              %
              
              
              439,440
              
              
              12,368,645
              
              
              13.3
              %
              
              
              847,836Provision
                  for credit losses
              
              
              12,094,378
              
              
              32.2
              %
              
              
              -
              
              
              30,347,790
              
              
              32.7
              %
              
              
              -Interest
                  expense
              
              
              4,110,169
              
              
              11.0
              %
              
              
              27,220
              
              
              10,844,460
              
              
              11.7
              %
              
              
              35,944Depreciation
                  and amortization
              
              
              158,221
              
              
              0.4
              %
              
              
              1,201
              
              
              444,828
              
              
              0.5
              %
              
              
              2,512Financing
                  and other fees
              
              
              370,147
              
              
              1.0
              %
              
              
              -
              
              
              944,497
              
              
              1.0
              %
              
              
              -Total
                  expenses
              
              
              21,496,049
              
              
              57.3
              %
              
              
              467,861
              
              
              54,950,220
              
              
              59.2
              %
              
              
              886,292Operating
                  loss
              
              
              232,022
              
              
              0.6
              %
              
              
              (467,861
              )
              
              (1,474,892
              )
              
              -1.6
              %
              
              
              (886,292
              )Other
                  Expense:Amortization
                  of warrants
              
              
              (1,088,708
              )
              
              -2.9
              %
              
              
              -
              
              
              (3,266,125
              )
              
              -3.5
              %
              
              
              -Stock
                  option for service
              
              
              -
              
              
              0.0
              %
              
              
              (117,456
              )
              
              (336,459
              )
              
              -0.4
              %
              
              
              (117,456
              )Lawsuit
                  Settlement
              
              
              (887,505
              )
              
              -2.4
              %
              
              
              -
              
              
              (5,393,665
              )
              
              -5.8
              %
              
              
              -Loss
                  before taxes
              
              $
              (1,744,191
              )
              
              -4.6
              %
              
              $
              (585,317
              )
              $
              (10,471,141
              )
              
              -11.3
              %
              
              $
              (1,003,748
              )




**Three
      Months Ended August 31, 2007**





The
      Company’s Subsidiaries consist of the Nice Cars Companies and the Freedom
      Companies and their respective finance subsidiaries. The Nice Cars Companies
      were acquired during the prior fiscal year on October 4, 2006. The Freedom
      Companies were acquired during the Company’s first fiscal quarter on December
      29, 2006. Substantially all of the assets (including the name) of Royce Motors,
      Inc. was acquired during the third fiscal quarter covered by this Report on
      July
      25, 2007, which operates as a unit of the Freedom Companies. The results of
      operations reflected in this Report do not include financial information with
      respect to results of operations of our Subsidiaries prior to the date of their
      respective acquisition by our Company. Our Company was not actively conducting
      business prior to the acquisition of the Nice Cars Companies in October 2006.
      As
      such, Company performance between the three months ended August 31, 2007 and
      the
      three months ended August 31, 2006 are not indicative of comparable operations
      with respect to such quarterly periods.





Consolidated
      revenues increased $37.5 million, or 100%, for the three months ended August
      31,
      2007 as compared to the same period in the prior fiscal year before the Company
      commenced operations.





22


Cost
      of
      sales as a percentage of total revenue was 42.1% for the three months ended
      August 31, 2007 from 0% in the same period of the prior fiscal year in which
      the
      Company had no material operations. The Company’s gross margins are negatively
      affected by operating costs and vehicle repair costs, and to the purchase price
      of vehicles the Company sells. The Company’s selling prices are based upon the
      cost of the vehicle purchased, with lower-priced vehicles generally having
      higher gross margin percentages. Discretionary adjustments to the Company’s
      retail pricing policies may be made by sales managers.





Selling,
      general and administrative expense as a percentage of total revenue was 12.7%
      for the three months ended August 31, 2007. Selling, general and administrative
      expenses are, for the most part, more fixed in nature. The increase was due
      to
      the acquisition of the Company’s operating Subsidiaries subsequent to the date
      of the corresponding reporting period in 2006. The Company expects to see
      increases in selling, general and administrative expenses related to increasing
      personnel, advertising, higher insurance costs and repossession activity. The
      Company also intends to increase selling, general and administrative
      expenditures to strengthen controls and procedures, improve efficiencies in
      the
      corporate infrastructure as well as transitional costs associated with future
      acquisitions. Deferred financing expense for the amortization of common stock
      warrants for the three months ended August 31, 2007 was a non-cash amount of
      $1,088,708.





Cost
      of
      credit losses during the third quarter 2007 were approximately 32.2% of total
      revenue. Company management believes that credit losses were higher in the
      third
      quarter as a percentage of revenues than anticipated performance in subsequent
      quarterly periods due primarily to (i) with respect to higher repossessions
      at
      the Georgia and Tennessee lots resulting from higher than industry average
      of
      customer accounts assigned to in-house collectors; and (ii) Freedom Auto Sales’
transition from a Byrider franchisee and operational disputes with J.D. Byrider
      which temporarily depressed the sales of Freedom Auto Sales during the calendar
      quarters following the acquisition. Company management believes that the
      foregoing factors coupled with higher energy and fuel costs, increasing interest
      rates, general inflation and personal discretionary spending levels affecting
      its customers have had a negative impact on collection results.  At August
      31, 2007, 6.8% of the Company’s finance receivable balances were over 30 days
      past due.





The
      lawsuit settlement expense during the third quarter 2007 was approximately
      $0.9
      million and 2.4% of total revenue. The total expense recorded consisted of
      a
      note, cash and stock warrants. There will be an ongoing monthly expense to
      be
      computed and payable based on 15% and 20% of the monthly management fees and
      interest paid to the current senior lender.





Interest
      expense as a percentage of total revenue was 11.0% for the three months ended
      August 31, 2007. The increase was primarily attributable to borrowings made
      for
      servicing the loans made for the acquisition of the Subsidiaries and loans
      made
      against the Company’s portfolio of customer contract notes. The Company also
      established a floor plan credit line with the same senior lender to finance
      the
      inventory and acquisition of vehicles. During the three months ended August
      31,
      2007 the aggregate of all interest costs was approximately $4.1 million with
      an
      average rate charged during the quarter of approximately 16% per annum. Company
      management expects borrowings to increase in anticipation of growth in accounts
      receivable, inventory and fixed assets. Interest rates may increase as a
      function of interest rates charged by the Company’s lender.








**Nine
      Months Ended August 31, 2007**





The
      Company’s Subsidiaries consist of the Nice Cars Companies and the Freedom
      Companies and their respective finance subsidiaries. The Nice Cars Companies
      were acquired during the prior fiscal year on October 4, 2006. The Freedom
      Companies were acquired during the first fiscal quarter covered by this Report
      on December 29, 2006. Substantially
      all of the assets (including the name) of Royce Motors, Inc. was acquired during
      the third fiscal quarter covered by this Report on July 25, 2007, which operates
      as a unit of the Freedom Companies.The results of operations reflected
      in this Report do not include financial information with respect to results
      of
      operations of our Subsidiaries prior to the date of their respective acquisition
      by our Company. Our Company was not actively conducting business prior to the
      acquisition of the Nice Cars Companies in October 2006. As such, Company
      performance between the nine months ended August 31, 2007 and the nine months
      ended August 31, 2006 are not indicative of comparable operations with respect
      to such quarterly periods.





Consolidated
      revenues increased $92.8 million, or 100%, for the nine months ended August
      31,
      2007 as compared to the same period in the prior fiscal year.





Cost
      of
      sales as a percentage of total revenue was 42.4% for the nine months ended
      August 31, 2007 from 0% in the same period of the prior fiscal year in which
      the
      Company had no material operations. The Company’s gross margins are negatively
      affected by operating costs and vehicle repair costs, and to the purchase price
      of vehicles the Company sells. The Company’s selling prices are based upon the
      cost of the vehicle purchased, with lower-priced vehicles generally having
      higher gross margin percentages. Discretionary adjustments to the Company’s
      retail pricing policies may be made by sales managers.





23


Selling,
      general and administrative expense as a percentage of total revenue was 13.3%
      for the nine months ended August 31, 2007. Selling, general and administrative
      expenses are, for the most part, more fixed in nature. The increase was due
      to
      the acquisition of the Company’s operating Subsidiaries subsequent to the date
      of the corresponding reporting period in 2006. The Company expects to see
      increases in selling, general and administrative expenses related to increasing
      personnel, advertising, higher insurance costs and repossession activity. The
      Company also intends to increase selling, general and administrative
      expenditures to strengthen controls and procedures, improve efficiencies in
      the
      corporate infrastructure as well as transitional costs associated with future
      acquisitions. Also, approximately $336,459 of non-cash stock-based compensation
      expense was recorded during the first and second quarter. Deferred
      financing expense for the amortization of common stock warrants for the nine
      months ended August 31, 2007 was a non-cash amount of $3,266,125.





Cost
      of
      credit losses as a percentage of total revenue was 32.7% for the nine months
      ended August 31, 2007. Company management believes that credit losses were
      higher in the first nine month(s) as a percentage of revenues than anticipated
      performance in subsequent quarterly periods due primarily to (i) seasonality
      with respect to cash allocation decisions by customers during the end of the
      calendar year holiday season; (ii) with respect to higher repossessions at
      the
      Georgia and Tennessee lots resulting from higher than industry average of
      customer accounts assigned to in-house collectors and (iii) Freedom Auto Sales’
transition from a Byrider franchisee and operational disputes with J.D. Byrider
      which temporarily depressed the sales of Freedom Auto Sales during the calendar
      quarter following the acquisition. Company management believes that the
      foregoing factors coupled with higher energy and fuel costs, increasing interest
      rates, general inflation and personal discretionary spending levels affecting
      its customers have had a negative impact on collection results.  At August
      31, 2007, 6.8% of the Company’s finance receivable balances were over 30 days
      past due.





The
      lawsuit settlement expense was approximately $5.4 million and 5.8% of total
      revenue for the nine months ended August 31, 2007. The total expense recorded
      consisted of a note, cash and stock warrants. There will be an ongoing monthly
      expense to be computed and payable based on 15% and 20% of the monthly
      management fees and interest paid to the current senior lender.





Interest
      expense as a percentage of total revenue was 11.7% for the nine months ended
      August 31, 2007. The increase was attributable to borrowings made for servicing
      the loans made for the acquisition of the Subsidiaries and loans made against
      the Company’s portfolio of customer contract notes. The Company also established
      a floor plan credit line during the second and third quarter with the same
      senior lender to finance the inventory and acquisition of vehicles. During
      the
      nine months ended August 31, 2007 the aggregate of all interest costs was
      approximately $10.8 million with an average rate charged during the quarter
      of
      approximately 16% per annum. Company management expects borrowings to increase
      in anticipation of growth in accounts receivable, inventory and fixed assets.
      Interest rates may increase as a function of interest rates charged by the
      Company’s lender.


24




**Financial
      Condition**





The
      following table sets forth the major balance sheet accounts of the Company
      as of
      the dates specified:




**MANCHESTER,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  BALANCE SHEETS****(Stated
                  in U.S. Dollars)**
  **AUGUST
                  31,**
              
              **NOVEMBER
                  30,****2007**
              
              **2006****Assets:**Accounts
                  and contracts receivable, net
              
              $
              83,034,603
              
              $
              55,551,304Inventory
              
              
              2,882,611
              
              
              3,394,276Prepaids
                  and other assets
              
              
              1,124,190
              
              
              218,959Property,
                  plant and equipment, net
              
              
              2,213,669
              
              
              914,059**Liabilities:**Accounts
                  payable
              
              
              1,913,421
              
              
              627,639Accrued
                  liabilities and expenses
              
              
              3,293,437
              
              
              534,798Debt
                  facilities
              
              
              117,806,695
              
              
              69,911,555







In
      the
      first nine months of fiscal 2007, inventory was 4% as compared to vehicle sales
      revenues.





Net
      property and equipment was approximately $2.2 million during the nine months
      ended August 31, 2007 as the Company acquired the Freedom Companies during
      the
      first quarter and substantially all the assets Royce Motors Inc. during the
      third quarter.





Accounts
      payable and accrued liabilities were approximately $5.2 million at August 31,
      2007. Income taxes payable was $0 and deferred income tax liabilities were
      approximately $134,000 at August 31, 2007.





Borrowings
      on the Company’s credit facilities fluctuate based upon a number of factors
      including (i) net income, (ii) finance receivables growth, (iii) capital
      expenditures, and (iv) income tax liabilities.





**Liquidity
      and Capital Resources**





The
      following table sets forth certain summarized historical information with
      respect to the combined Manchester Inc. and Subsidiaries statements of cash
      flows.





25


**CONSOLIDATED
      CONDENSED STATEMENT OF CASH FLOWS**


**Stated
      in U.S. Dollars**


**MANCHESTER,
        INC. AND SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENT OF CASH FLOW**
  **For
                  the Nine Months Ended August 31,****2007**
              
              **2006**(unaudited)Net
                Loss
              
              $
              (10,471,140
              )
              $
              (1,003,748
              )Adjustments
                to reconcile net income (loss) tonet
                cash used in operating activities:Provision
                  for credit losses
              
              
              14,771,499
              
              
              -Depreciation
                  and amortization
              
              
              444,528
              
              
              2,512Amortization
                  deferred financing
              
              
              4,219,050
              
              
              -Stock
                  options and warrants
              
              
              1,035,139
              
              
              -Changes
                in assets and liabilities
              
              
              (24,899,319
              )
              
              (319,870
              )Net
                  cash provided (used) in operating activities
              
              
              (14,900,244
              )
              
              (1,321,106
              )Net
                  cash used in investing activities
              
              
              (368,188
              )
              
              (14,404
              )Net
                  cash provided (used) in financing activities
              
              
              15,708,809
              
              
              1,369,514Increase
                in cash and cash equivalents
              
              
              440,379
              
              
              34,004Cash
                and cash equivalents at beginning of year
              
              
              621,609
              
              
              777Cash
                and cash equivalents at end of period
              
              $
              1,061,988
              
              $
              34,781


(1)
      The
      Company Subsidiaries consist of the Nice Cars Companies and the Freedom
      Companies and their respective finance subsidiaries. The Nice Cars Companies
      were acquired during the prior fiscal year on October 4, 2006. The Freedom
      Companies were acquired during the first fiscal quarter covered by this Report
      on December 29, 2006. The results of operations reflected in this Quarterly
      Report do not include financial information with respect to results of
      operations of our Subsidiaries prior to the date of their respective acquisition
      by our Company. Our Company was not actively conducting business prior to the
      acquisition of the Nice Cars Companies in October 2006. As such, Company
      performance between the nine months ended August 31, 2007 and the nine months
      ended August 31, 2006 are not indicative of comparable operations with respect
      to such quarterly periods.





The
      Company generates cash flow from net income from operations. Most or all of
      this
      cash is used to fund finance receivables growth. To the extent finance
      receivables growth exceeds net income from operations, the Company generally
      will increase borrowings from its credit facility.





The
      Company’s credit facilities are provided by Palm Beach Multi-Strategy Fund L.P.
      (the “Lender”) pursuant to a commitment letter dated September 28, 2006 under
      which the Lender committed to provide up to $300 million in revolving warehouse
      financings for a roll up strategy to acquire captive sub prime Buy-Here/Pay-Here
      auto receivables origination and collection businesses nationwide (each, a
      “Financing”). There is no limit to the number of Financings, provided that no
      Financing shall be in an amount in excess of $100 million, unless approved
      by
      the Lender. Each Acquisition and Financing pursuant to the Commitment shall
      be
      subject to the Lender’s approval. The Company has drawn three loans from the
      credit commitment, one in the amount of $75 million for the acquisition and
      operation of the Nice Cars Companies during fiscal 2006, one in the amount
      of
      $30 million for the acquisition and operation of the Freedom Companies during
      the first quarter 2007 and the other in the amount of $10 million for the
      acquisition and operation of Royce Motors during the third quarter 2007,
      discussed in further detail below.





26


At
      August
      31, 2007, the Company’s assets consisted of $1.2 million in cash, $5.1 million
      in other tangible net assets and $83.0 million in receivables. The Company
      is
      limited in the amount of dividends or other distributions it can make to its
      shareholders without the consent of the Lender. The Company believes that it
      is
      currently in material compliance under the terms of all of its agreements.





At
      August
      31, 2007, the Company had $1.2 million in cash on hand. On a short-term basis,
      the Company’s principal sources of liquidity include income from operations and
      borrowings under the revolving credit facilities which may be drawn against
      delivery of qualified collateralized customer contract receivables. On a
      longer-term basis, the Company expects its principal sources of liquidity to
      consist of income from continuing operations and sales of securitized customer
      contract receivables. While the Company has no present plans to issue debt
      or
      equity securities, the Company believes, if necessary, it could raise additional
      capital through the issuance of such securities.





The
      Company expects to use cash to grow its finance receivables portfolio and to
      grow its business through acquisitions during the next 12 months.





The
      Company expects that it will be able to renew or refinance its credit facilities
      on or before the date they mature. The Company believes it will have adequate
      liquidity to satisfy its capital needs for the foreseeable future.





The
      Company leases the properties where its dealerships are located and expects
      to
      continue to do so for the foreseeable future.





***Nice
      Cars $75 Million Loan Agreement***





The
      Company’s first use of the $300 Million Credit Commitment was a $75 million loan
      facility which was established through the Company’s special purpose
      wholly-owned subsidiary, Nice Cars Funding, LLC, referred to as the “Nice Cars
      Borrower” under the terms of the Loan Agreement. Under the terms of the $75
      million loan facility, the Lender, upon request, will from time to time, until
      maturity at September 28, 2009, make advances to the Nice Cars Borrower.
      The Interest on the Loan will accrue at an interest rate equal to the lesser
      of:
      (i) the greater of (x) Prime Rate (as determined daily) plus 9% (unless for
      any
      day on which the principal amount of the Term Loan is equal to or less than
      sixty percent (60%) of outstanding principle then the Prime Rate shall be plus
      5% per annum) or (y) 17% per annum (unless for any day on which the principal
      amount of the Term Loan is equal to or less than sixty percent (60%) of the
      net
      term pool balance, the amount will be 13%); or (ii) the maximum rate which
      may
      be legally charged under applicable usury law. The Company drew down
      approximately $54 million of the Loan to fund the acquisition and initial
      operations of Nice Cars, Inc. and Nice Cars Capital Acceptance Corporation.





The
      Company believes that the advances drawn on the Loan on the basis of
      collateralized receivables will be sufficient to fund the growth of the
      Company’s operations as well as cover all payments due on the Loan for the
      foreseeable future.





The
      maximum amount that may be drawn under the Loan may not, in aggregate amount,
      exceed at any time the outstanding amount equal to the lesser of: (a) $75
      million; or (b) the Availability on Eligible Receivables. Such Availability
      on
      Eligible Receivables will be generally determined as an amount equal to (i)
      80%
      under the initial advance made under the Loan Agreement, and thereafter 60%;
      multiplied by (ii) the Net Pool Balance as of such date. The Net Pool Balance
      is
      calculated as the sum of (a) the outstanding principal balance of all Eligible
      Receivables; minus (b) all other matured and unpaid amounts due to the Nice
      Cars
      Borrower relating to the Eligible Receivables (including, without limitation,
      unearned finance charges, time price differentials, insurance fees and other
      fees and charges related thereto. Eligible Receivables are generally defined
      as
      receivables which have not more than 60 days past due, have an interest rate
      of
      at least 25% per annum payable no less frequently than monthly along with
      additional qualification attributes; will not cause the weighted average age
      (by
      unpaid principal balance, based on model year) of all Eligible Receivables
      to
      exceed eight (8) years; and the contribution of the Receivable will not cause
      the weighted average mileage (by unpaid principal balance, at the time of sale)
      of all Eligible Receivables to exceed 110,000 miles.





27


The
      Company must make payments on the Loan if at any time the amount advanced by
      Lender to the Nice Cars Borrower exceeds the maximum amount that may be drawn
      on
      the Loan. In such event, the Nice Cars Borrower must immediately and without
      notice, repay to Lender an amount sufficient to eliminate the excess, or, at
      Lender’s option, assign and deliver additional Eligible Receivables sufficient
      to cover the deficiency.





The
      Nice
      Cars Borrower may, at any time, terminate financing under the Loan Agreement
      and
      prepay the indebtedness in full by providing the Lender with written notice
      at
      least ninety (90) calendar days prior to the specific date upon which Nice
      Cars
      Borrower intends to cease financing and prepay the indebtedness in full. In
      the
      event of termination of the Loan prior to September 28, 2009, the Nice Cars
      Borrower will pay Liquidated Damages in amount equal to the product of (i)
      the
“minimum interest charge under the Loan" multiplied by (ii) the number of months
      remaining from the date of the Lender's receipt of the termination notice until
      September 28, 2009. The “minimum interest charge under the Loan” shall
      equal the product of (i) the average principal balance of the Loan during the
      six (6) months immediately preceding the Lender's receipt of the termination
      notice multiplied by (ii) 1.50%.





In
      the
      event of a default of performance of the Loan Agreement by the Nice Cars
      Borrower, the Nice Cars Borrower shall pay Lender interest on the daily
      outstanding balance of the Loan at the Default Rate, which will be determined
      as
      5% in excess of the greater of: (x) the prime rate plus 9% (unless for any
      day
      on which the principal amount of the Term Loan is equal to or less than sixty
      percent (60%) of outstanding principle then the rate shall be plus 5% per
      annum); or (y) 17% per annum (unless for any day on which the principal amount
      of the Term Loan is equal to or less than sixty percent (60%) of the net term
      pool balance, the amount will be 13%). An event of default will occur if (a)
      the
      Nice Cars Borrower fails to pay the principal component of the Loan or any
      interest thereon when due and payable, (b) the Nice Cars Borrower fails to
      pay
      any indebtedness when due and payable within five (5) calendar days after the
      same becomes due and payable; (c) any default occurs by the Nice Cars Borrower,
      the Company or any related party under any ancillary documentation executed
      in
      connection with the Loan; (d) any default occurs by any related party to Nice
      Cars Borrower in respect of indebtedness; (e) any material adverse effect;
      and
      (f) other customary conditions of default. Upon an event of default, all
      Indebtedness shall immediately be due and payable and interest will accrue
      at
      the Default Rate. The Lender will have several rights and remedies in the event
      of a default, including the sale of collateral Receivables.





As
      inducement for the Lender to enter into the Loan, the Nice Cars Borrower has
      irrevocably granted to a collateral agent acting on behalf of the Lender and
      affiliates, a first and continuing security interest in all of the Nice Cars
      Borrower’s right, title and interest in and to all receivables, property and
      assets of Nice Cars Borrower. The Company and the Nice Cars Borrower have
      established customary receivables custody, collateral agency, and servicing
      arrangements for payments of receivables to be deposited into blocked accounts
      and the return of paid-up receivables to the Company. The Company has guaranteed
      all of the obligations of the Nice Cars Borrower. The Nice Cars Borrower has
      also agreed to customary covenants and negative covenants, which include, among
      other requirements, to protect the first priority security interest in the
      receivables as collateral for the Lender and maintain the corporate good
      standing of the Nice Cars Borrower. The Nice Cars Borrower has agreed to pay
      all
      costs and expenses of the Lender and its affiliates in connection with the
      Loan.
      The Nice Cars Borrower has also granted indemnification to the Lender and the
      Collateral Agent in respect of all claims and losses incurred or asserted in
      connection with the Loan against the Lender, its affiliates or the Collateral
      Agent, except in the case of gross negligence or willful misconduct.





The
      Company and its subsidiaries have each agreed to guaranty Loans made under
      the
      Loan Agreement up to an amount not exceeding ten percent of the amount of the
      Loan outstanding from time to time, pursuant to the terms of a Guaranty which
      closed September 28, 2006. The Guarantors have also entered into a Security
      Agreement with the Lender and the Collateral Agent pursuant to which each
      Guarantor has granted to the Collateral Agent and its successors and assigns,
      for the security and benefit of the Lender, a first priority security interest
      in and mortgage lien on all of the property of the Guarantors.





In
      connection with the Loan Agreement, the Nice Cars Borrower, the Company and
      certain of its other subsidiaries have entered into a Sale and Servicing
      Agreement (the “Nice Cars Sale and Servicing Agreement”), pursuant to which a
      subsidiary of the Company has agreed to sell all of its rights to receivables
      (the “Nice Cars Receivables”) to the Nice Cars Borrower. Pursuant to the Nice
      Cars Sale and Servicing Agreement, the Company shall serve as the servicer
      for
      all Nice Cars Receivables, acting as agent, and shall manage service and make
      collections on the Nice Cars Receivables. The Company has agreed to comply
      with
      the terms and conditions of a servicing guideline and a credit and collection
      policy provided by the Lender.





28





***Freedom
      Companies $30 Million Loan Agreement***





On
      December 29, 2006 the Company acquired F.S. English, Inc., a privately held
      Buy-Here/Pay-Here car sales company which operates three retail locations in
      the
      Indianapolis area, and GNAC, Inc., its affiliated credit acceptance company.
      These Company subsidiaries now operate under the trade names “Freedom Auto
      Sales” and “Freedom Auto Acceptance”. Under the terms of the agreement, the
      Company paid an aggregate of approximately $8 million and refinanced the
      acquired $26 million portfolio of receivables through a drawdown on the
      Company's $300 million credit commitment.





The
      acquisition of the Freedom Companies closed pursuant to the terms and conditions
      of a Stock Purchase Agreement, dated December 2, 2006, and a First Amendment
      thereto, dated December 29, 2006 (collectively, the “Stock Purchase Agreement”),
      by and between the Company, Manchester Indiana Operations, Inc., a Delaware
      corporation and wholly owned acquisition subsidiary of the Company (“Indiana
      Operations”), Manchester Indiana Acceptance, Inc., a Delaware corporation and
      wholly owned acquisition subsidiary of the Company (“Indiana Acceptance”), the
      ten shareholders of each of F.S. English, Inc. and GNAC, Inc. (the “Indiana
      Sellers,” and each an “Indiana Seller”), and Rick Stanley, as the Indiana
      Sellers’ representative. Under the Stock Purchase Agreement, Indiana Operations
      acquired all of the issued and outstanding capital stock of F.S. English, Inc.
      (the “F.S. English Shares”) and Indiana Acceptance acquired all of the issued
      and outstanding capital stock of GNAC, Inc. (the “GNAC Shares,” and together
      with the F.S. English Shares, the “Shares”). In connection with the acquisition,
      the Company refinanced the GNAC, Inc. $26 million portfolio of receivables
      with
      the proceeds of the Indiana Term Loan (as described below). The aggregate
      consideration paid to the Indiana Sellers in exchange for the Shares was: (i)
      $3,000,000 in the form of a promissory note (the “Seller Note”); and (ii)
      1,492,537 shares of the common stock of the Company (the “Manchester Shares”),
      representing an amount equal to $3,000,000 as determined by reference to the
      average of the closing prices of the Company common stock on the five (5)
      business days immediately preceding December 29, 2006. In addition, the Company
      (i) repaid approximately $2 million to certain creditors of the Freedom
      Companies on behalf of the Indiana Sellers; and (ii) caused each personal
      guarantee of the Indiana Sellers to be released in regard to obligations of
      the
      Freedom Companies. The indebtedness of the Freedom Companies held by Rick
      Stanley was only partially repaid and a subordinated note was issued to Mr.
      Stanley in the amount of $150,000. The Company has provided limited piggy-back
      registration rights to the Indiana Sellers with respect to the Manchester Shares
      issued to them.





The
      Company is continuing operations of the respective businesses of the Freedom
      Companies as managed by Mr. Rick L. Stanley, who served as president of the
      Freedom Companies prior to the date of their acquisition by the Company.
      Subsequent to the date of acquisition by the Company, the Freedom Companies
      entered into an employment agreement with Mr. Rick L. Stanley, who is now
      serving as CEO of the Freedom Companies and CEO of Manchester, Inc. Mr. Stanley
      has worked extensively in the Buy-Here/Pay-Here auto market for the past 18
      years.





Manchester
      Indiana Funding LLC, a wholly-owned subsidiary of the Company entered into
      a
      loan agreement with the Lender, to provide financing for the acquisition of
      the
      Freedom Companies. This acquisition loan constitutes the second financing that
      the Company has entered into with the Lender. Pursuant to a Loan and Security
      Agreement which closed on December 29, 2006 (the “Indiana Loan Agreement”),
      between Manchester Indiana Funding LLC, the Lender and The Bank of New York
      Trust Company, N.A., as Collateral Agent (the “Collateral Agent”), the Lender
      agreed to loan Manchester Indiana Funding LLC up to $30 million. The Company
      has
      initially drawn approximately $21.1 million (the “Indiana Term Loan”) and may
      request additional draws under the terms of the Indiana Loan Agreement (the
      “Revolving Loan,” and together with the Indiana Term Loan, the “Indiana Loan”).
      The Indiana Loan Agreement expires on December 28, 2009 unless terminated
      earlier in accordance with its terms.





Interest
      on the Indiana Term Loan will accrue at an interest rate equal to the lesser
      of:
      (i) the greater of (x) prime rate (as determined daily) plus the Term Applicable
      Margin (as defined below) or (y) the Indiana Term Loan Floor (as defined below);
      or (ii) the maximum rate which may be legally charged under applicable usury
      law. Interest on the Revolving Loan will accrue at an interest rate equal to
      the
      lesser of: (i) the greater of (x) prime rate (as determined daily) plus five
      percent (5%) per annum or (y) thirteen percent (13%) per annum; or (ii) the
      maximum rate which may be legally charged under applicable usury law. The term
      “Term Applicable Margin” means eight percent (8%) per annum, provided that, for
      any day on which the principal amount of the Indiana Term Loan is equal to
      or
      less than sixty-five percent (65%) of the Net Term Pool Balance (the Net Term
      Pool Balance being the total balance of certain outstanding receivables), the
      term “Term Applicable Margin” means five percent (5%) per annum. The term
“Indiana Term Loan Floor” means sixteen percent (16%) per annum, provided that,
      for any day on which the principal amount of the Indiana Term Loan is equal
      to
      or less than sixty-five percent (65%) of the Net Term Pool Balance, the “Indiana
      Term Loan Floor” shall be thirteen percent (13%) per annum. The Company has paid
      all fees, costs, expenses and disbursements of the Lender in connection with
      legal services, origination costs, due diligence, closing of the Indiana Loan
      and initial interest, which in the aggregate was approximately $120,000 dollars.
      All other terms and conditions of the Indiana Term Loan are substantially
      similar to the same terms and conditions as the Nice Cars Loan, as described
      above.




29


The
      Company, the Freedom Companies and Manchester Indiana Funding LLC (collectively,
      the “Indiana Guarantors”) have each agreed to guaranty the loans up to an amount
      not exceeding ten percent of the amount of the Indiana Loan outstanding from
      time to time, pursuant to the terms of a Guaranty. The Indiana Guarantors have
      also entered into a Security Agreement with the Lender and the Collateral Agent
      pursuant to which each of the Indiana Guarantors has granted to the Collateral
      Agent and its successors and assigns, for the security and benefit of the
      Lender, a first priority security interest in and mortgage lien on all of the
      respective assets of the Indiana Guarantors.





In
      connection with the Indiana Loan Agreement, the Company, the Freedom Companies
      and Manchester Indiana Funding LLC, have entered into a Sale and Servicing
      Agreement, pursuant to which Indiana Acceptance has agreed to sell all of its
      rights to car sales contract receivables (the “Receivables”) to Manchester
      Indiana Funding LLC. Pursuant to this Sale and Servicing Agreement, the Company
      shall serve as the servicer for all Receivables, acting as agent, and shall
      manage, service and make collections on the Receivables. The Company has
      delegated its duties as servicer to Indiana Acceptance, as sub-servicer. The
      Company and Indiana Acceptance have agreed to comply with the terms and
      conditions of a servicing guideline and a credit and collection policy provided
      by the Lender.





***Royce
      Motors $10 Million Loan Agreement***





During
      the period covered by this Quarterly Report, on July 24, 2007, the Company
      acquired substantially all of the assets of Royce Motors, Inc., a privately
      held
      Buy-Here/Pay-Here car sales company which operates three retail locations in
      the
      Indianapolis area. This Company operation continues to operate under the trade
      name of Royce Motors, Inc. but for reporting purposes operates as a division
      under “Freedom Auto Sales” and “Freedom Auto Acceptance”. Under the terms of the
      acquisition agreement, the Company paid an aggregate of approximately $4.9
      million and refinanced the acquired $7.2 million portfolio of receivables
      through a drawdown on the Company's $300 million credit commitment.





The
      acquisition of Royce Motors, Inc. closed pursuant to the terms and conditions
      of
      an Asset Purchase Agreement, dated July 24, 2007 by and among Royce Motors,
      Inc., Manchester Indiana Operations, Inc. and Manchester Indiana Acceptance,
      Inc., Delaware corporations and wholly owned acquisition subsidiaries of the
      Company. Under the Asset Purchase Agreement, Indiana Operations and Indiana
      Acceptance acquired substantially all of the assets of Royce Motors, Inc.
      consisting of accounts receivable, inventory and fixed assets of plant, property
      and equipment. In connection with the acquisition, the Company refinanced the
      $7.2 million portfolio of receivables with the proceeds of the Royce Loan (as
      described below). The aggregate consideration paid to the Royce Motors sellers
      was approximately $4.9 million and was used to pay off certain debt facilities
      of Royce Motors.





Manchester
      Royce Funding LLC, a wholly-owned subsidiary of the Company entered into a
      loan
      agreement with the Lender, to provide financing for the acquisition of Royce
      Motors, Inc. This acquisition loan constitutes the third financing that the
      Company has entered into with the Lender. Pursuant to a Loan and Security
      Agreement which closed on July 24, 2007 (the “Royce Loan Agreement”), between
      Manchester Royce Funding LLC, the Lender and The Bank of New York Trust Company,
      N.A., as Collateral Agent (the “Collateral Agent”), the Lender agreed to loan
      Manchester Royce Funding LLC up to $10 million. The Company has initially drawn
      approximately $4.9 million (the “Royce Loan”) and may request additional draws
      under the terms of the Royce Loan Agreement. The Royce Loan Agreement expires
      on
      July 24, 2010 unless terminated earlier in accordance with its terms.





Interest
      on the Royce Loan will accrue at an interest rate equal to the lesser of: (i)
      the greater of (x) prime rate (as determined daily) plus six and three quarter
      percent (6.75%) per annum or (y) fifteen percent (15%) per annum; or (ii) the
      maximum rate which may be legally charged under applicable usury law. The
      Company has paid all fees, costs, expenses and disbursements of the Lender
      in
      connection with legal services, origination costs, due diligence, closing of
      the
      Royce Loan and initial interest, which in the aggregate was approximately
      $63,000 dollars after the refund of the $137,000 commitment fee by the Lender.
      All other terms and conditions of the Royce Loan are substantially similar
      to
      the same terms and conditions as the Nice Cars and Freedom Loans, as described
      above.




30


The
      Company and the Freedom Companies, (collectively, the “Royce Guarantors”) have
      each agreed to guaranty the loans up to an amount not exceeding ten percent
      of
      the amount of the Royce Loan outstanding from time to time, pursuant to the
      terms of a Guaranty. The Royce Guarantors have also entered into a Security
      Agreement with the Lender and the Collateral Agent pursuant to which each of
      the
      Royce Guarantors has granted to the Collateral Agent and its successors and
      assigns, for the security and benefit of the Lender, a first priority security
      interest in and mortgage lien on all of the respective assets of the Royce
      Guarantors.





In
      connection with the Royce Loan Agreement, the Company, the Freedom Companies
      and
      Manchester Royce Funding LLC, have entered into a Sale and Servicing Agreement,
      pursuant to which Indiana Acceptance has agreed to sell all of its rights to
      car
      sales contract receivables (the “Receivables”) to Manchester Royce Funding LLC.
      Pursuant to this Sale and Servicing Agreement, the Company shall serve as the
      servicer for all Receivables, acting as agent, and shall manage, service and
      make collections on the Receivables. The Company has delegated its duties as
      servicer to Indiana Acceptance, as sub-servicer. The Company and Indiana
      Acceptance have agreed to comply with the terms and conditions of a servicing
      guideline and a credit and collection policy provided by the Lender.





***Litigation***





The
      Company is party to various legal disputes and proceedings arising from the
      ordinary course of general business activities. While, in the opinion of
      management, resolution of these matters is not expected to have a material
      adverse effect on the Company’s consolidated financial position, results of
      operations or cash flows, the ultimate outcome of any litigation is uncertain.





On
      November 29, 2006, Lancelot Investors Fund, L.P. (the “Lancelot Fund”) brought
      suit against Manchester in the Cook County Circuit Court (located in Cook
      County, Illinois) seeking more than $1.8 million in damages. On November 29,
      2006, Manchester sued the Lancelot Fund seeking the return of the unused portion
      of an expense deposit paid to the Lancelot Fund in the amount of $175,011.
      Subsequent to the filing of the two lawsuits, additional claims and
      counterclaims related to Manchester were asserted against other parties
      unrelated to Manchester, on the one hand, and the Lancelot Fund and certain
      of
      its affiliated entities, Lancelot Investment Management, L.L.C., Surge Capital
      and Surge Capital II, LLC (the Lancelot Fund and its four affiliated entities,
      collectively, the “Lancelot Parties”), on the other hand.  As disclosed in
      Form 8-K filed with the Securities & Exchange Commission on May 31, 2007, by
      confidential agreement entered into on May 24, 2007 and retroactively effective
      as of May 7, 2007, a settlement was reached between Manchester and all its
      subsidiaries and certain other parties unrelated to Manchester and the Lancelot
      Parties pursuant to which all claims and potential claims among the parties
      have
      been settled. The expense attributed to the settlement during the second and
      third quarter 2007 was approximately $4.5 million and $.9 million, respectively.
      The total expense recorded consisted of a note, cash and stock warrants. The
      Company will recognize ongoing monthly expenses to be computed and payable
      based
      on monthly management fees and interest paid to the Company’s current senior
      lender.





Additionally,
      the Company is involved in litigation arising in the normal course of business.
      After consultation with legal counsel, management estimates that these matters
      will be resolved without material adverse effect on the Company’s future
      financial position or results from operations, and accordingly, has not recorded
      a liability in conjunction with them.





**Effect
      of Inflation**





Inflation
      has not been a significant factor affecting the Company’s results.





**Seasonality**





The
      Company’s automobile sales and finance business is seasonal in nature, with
      sales slowing towards the end of the calendar year. Many of the Company’s
      operating expenses such as administrative personnel, rent and insurance are
      fixed and cannot be reduced during periods of decreased sales. Further, the
      Company experiences seasonal fluctuations in its finance receivable credit
      losses.





**Off-Balance
      Sheet Arrangements**





As
      of the
      end of the period covered by this Quarterly Report, the Company was not a party
      to any off-balance sheet arrangements.





31


**Contractual
      Payment Obligations**





There
      have been no material changes outside of the ordinary course of business in
      the
      Company’s contractual payment obligations from those reported at November 30,
      2006 in the Company’s Annual Report on Form 10-K.





**Item
              3.**
            **Quantitative
                and Qualitative Disclosing About Market Risk**





The
      Company is exposed to market risk on its financial instruments from changes
      in
      interest rates. In particular, the Company has exposure to changes in the prime
      rate. The Company does not use financial instruments for trading purposes or
      to
      manage interest rate risk. The Company’s earnings are determined by its net
      interest income, which is the difference between the income earned on
      interest-bearing assets and the interest paid on interest-bearing notes payable.
      A change in market interest rates could have an adverse effect on the Company’s
      profitability.





Interest
      on the Company’s $75 million loan borrowed in connection with its October 4,
      2006 acquisitions of Nice Cars, Inc. and Nice Cars Capital Acceptance
      Corporation will accrue on drawn principal at an interest rate equal to the
      lesser of: (i) the greater of (x) prime rate (as determined daily) plus 9%
      (unless for any day on which the principal amount of the Term Loan is equal
      to
      or less than sixty percent (60%) of outstanding principle then the Prime Rate
      shall be plus 5% per annum) or (y) 17% per annum (unless for any day on which
      the principal amount of the Term Loan is equal to or less than sixty percent
      (60%) of the net term pool balance, the amount will be 13% per annum); or (ii)
      the maximum rate which may be legally charged under applicable usury law.





Interest
      on the $30 million Indiana Term Loan borrowed in connection with the
      acquisitions of the Freedom Companies, will accrue at an interest rate equal
      to
      the lesser of: (i) the greater of (x) prime rate (as determined daily) plus
      the
      Term Applicable Margin or (y) the Indiana Term Loan Floor; or (ii) the maximum
      rate which may be legally charged under applicable usury law. Interest on the
      Revolving Loan will accrue at an interest rate equal to the lesser of: (i)
      the
      greater of (x) prime rate (as determined daily) plus five percent (5%) per
      annum
      or (y) thirteen percent (13%) per annum; or (ii) the maximum rate which may
      be
      legally charged under applicable usury law. The term “Term Applicable Margin”
means eight percent (8%) per annum, provided that, for any day on which the
      principal amount of the Indiana Term Loan is equal to or less than sixty-five
      percent (65%) of the Net Term Pool Balance (the Net Term Pool Balance being
      the
      total balance of certain outstanding receivables), the term “Term Applicable
      Margin” means five percent (5%) per annum. The term “Indiana Term Loan Floor”
means sixteen percent (16%) per annum, provided that, for any day on which
      the
      principal amount of the Indiana Term Loan is equal to or less than sixty-five
      percent (65%) of the Net Term Pool Balance, the “Indiana Term Loan Floor” shall
      be thirteen percent (13%) per annum.





The
      Company intends to charge the highest legally permissible interest rates on
      the
      notes issued in connection with the sales of its automobiles, however, if the
      foregoing formulation for the calculation of interest applicable to the
      Company’s Loan equals or exceeds the rate of interest that the Company may
      legally charge its customers, the Company may incur net interest losses. The
      applicable rates of interest will also vary state-by-state in accordance with
      applicable usury laws which could adversely affect the Company’s ability to
      maintain profitable operations in respect of the differential in rates which
      the
      Company may charge its customers and service interest payments on the Loan.
      An
      increase in prime rate will generally reduce Company net revenues. However,
      a
      decrease in prime rate will not necessarily increase Company net revenues as
      the
      applicable interest rate on the Company’s Loan indebtedness will be subject to
      the rate adjustments discussed above which could be applied under the component
      of the formulation which does not include prime rate.





**Item
              4.**
            **Controls
                and Procedures**





As
      of the
      end of the period covered by this Quarterly Report, an evaluation was carried
      out under the supervision and with the participation of the Company’s
      management, including the Company’s Chief Executive Officer and Chief Financial
      Officer, of the effectiveness of the Company’s disclosure controls and
      procedures, as defined in Rule 13a-15(e) promulgated under the Securities and
      Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation, the
      Company’s Chief Executive Officer and Chief Financial Officer have concluded
      that the Company’s disclosure controls and procedures were deficient with
      respect to assurance that information required to be disclosed by the Company
      in
      reports that it files or submits under the Exchange Act is accumulated and
      communicated to the Company’s management, including the Company’s Chief
      Executive Officer and Chief Financial Officer, to allow timely decisions on
      required disclosures and is recorded, processed, summarized and reported within
      the time periods specified in Securities and Exchange Commission rules and
      forms.





32


The
      Company has made changes in the Company’s internal controls over financial
      reporting during the Company’s most recently completed fiscal quarter that have
      materially affected, or are reasonably likely to materially affect, our internal
      controls over financial reporting. The Board of Directors of the Company has
      made a commitment to revise the Company’s controls and procedures relative to
      the acquisition of the Nice Cars Companies and the acquisition of the Freedom
      Companies, as well as all subsequent Buy-Here/Pay-Here operations. The
      implementation of the new internal controls over financial reporting has
      commenced during the first quarter of 2007 and will continue subsequent to
      the
      period covered by this Quarterly Report. The new systems, controls and
      procedures are designed specifically for the Buy-Here/Pay-Here business,
      including, without limitation, implementation of the AutoStar Solutions
      operations software and Account Mate, a fully integrated accounting system
      with
      the AutoStar software. This system was placed into service in both the Nice
      Cars
      Companies and the Freedom Companies during the first quarter of 2007 and is
      currently processing such Companies’ Accounts. Company management expects the
      remediation of its internal controls over financial reporting to be completed
      during the fourth quarter of 2007.





**PART
      II:**  **OTHER
      INFORMATION**





**Item
              1.**
            **Legal
                Proceedings**





See
      disclosure set forth under the caption “Management’s Discussion and Analysis of
      Financial Conditions and Results of Operations - Legal Matters” which is
      incorporated herein by reference thereto.


**Subsequent
        Events**
 
 On
        October 5, 2007 the Company and the following subsidiaries, Nice Cars Operations
        AcquisitionCo, Inc., Nice Cars Acceptance AcquisitionCo., Inc and Nice Cars
        Funding, LLC, collectively filed suit in the U.S. District Court, Southern
        District of New York against Ray Lyle, Sr., Victoria Lyle, Ray Lyle, II,
        Robert
        Lyle, Ginger Bond (collectively the “Lyle Defendants”) and the United States
        Department of Treasury, Internal Revenue Service seeking a variety of relief
        (such litigation, the “Action”).  On October 12, 2007, an amended complaint
        was filed in the Action.  The relief sought against the Lyle Defendants
        includes, but is not limited to, enforcement of the terms of a settlement
        and
        other relief.


**Item
              1A.**
            **Risk
                Factors**





For
      a
      discussion of the risk factors affecting the Company, see “Risk Factors” in Part
      I, Item 1A of the Form 10-K filed with respect to the Company’s fiscal year
      end on November 30, 2006. There have been no material changes in the Company’s
      risk factors subsequent thereto.





**Item
              2.**
            **Unregistered
                Sales of Equity Securities and Use of Proceeds**





None.





**Item
              3.**
            **Defaults
                Upon Senior Securities**





None.





**Item
              4.**
            **Submission
                of Matters to a Vote of Security Holders**





None.





**Item
              5.**
            **Other
                Information**





None.





**Item
              6.**
            **Exhibits
                and Reports on Form 8-K**





**(** a **) Exhibits**





An
      Exhibit List has been filed as part of this Report on page E-1 which is
      incorporated herein by reference thereto.





( **b) Reports
      on Form 8-K**





On
      July
      17, 2007, the Company filed a Form 8-K disclosing its entry into Letter of
      Intent to Acquire Greenwich Automotive Consultants, LLC, Granite Auto Company,
      LLC and Greenwich Finance, LLC subject to final due diligence, approval of
      the
      purchase agreements and approval from credit provider.





On
      July
      27, 2007, the Company filed a Form 8-K disclosing its completion of acquiring
      substantially all the assets of Royce Motors, Inc.





33


**Subsequent
      Events**





On
      September 12, 2007, the Company filed a Form 8-K disclosing the acceptance
      of
      obtaining substantial reduction in cost of operational loans for future
      acquisitions.





On
      September 17, 2007, the Company filed a Form 8-K disclosing its entry into
      Letter of Intent to acquire Discovery Byrider, Brightstar Financial Group and
      eight affiliates subject to final due diligence, approval of the purchase
      agreements and approval from credit provider.





On
      September 19, 2007, the Company filed a Form 8-K disclosing its entry into
      Letter of Intent to Acquire Value Systems and Affiliates subject to final due
      diligence, approval of the purchase agreements and approval from credit
      provider.





On
      September 20, 2007, the Company filed a Form 8-K disclosing its entry into
      Letter of Intent to Acquire C & S Orlando, Inc and C & S Orlando Finance
      subject to final due diligence, approval of the purchase agreements and approval
      from credit provider.





On
      October 12, 2007, the Company
      filed a Form 8-K disclosing confirmation of agreement to acquire Griffin
      Management Services, Inc. and Griffin Financial Corporation d/b/a Union
      Acceptance Company through two special purpose acquisition subsidiaries, subject
      to final due diligence and approval from the Company’s credit
      provider .




34


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this Quarterly Report to be signed on its behalf by the undersigned
      thereunto duly authorized.





**MANCHESTER
                INC.**
              (Registrant)Date:
                October 15, 2007
            By:
            /s/
                Rick L. StanleyName:Rick
                L. StanleyTitle:Chief
                Executive Officer





Date:
                October 15, 2007
            By:
            /s/
                Lawrence A. TaylorName:Lawrence
                A. TaylorTitle:Chief
                Financial Officer





35


**EXHIBIT
      INDEX**





**Manchester
      Inc.**





**Quarter
      Ended August 31, 2007**





Exhibit
                No.
            
            Description
                of Exhibits




Exhibit
                31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.Exhibit
                31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.Exhibit
                32.1
            
            Certification
                of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit
                32.2
            
            Certification
                of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.











E-1