Prospectus Supplement Dated August 14, 2006     Filed Pursuant to Rule 424(b)(3)
to Prospectus Dated  January 30, 2006 of
Pioneer Financial Services, Inc.                Registration Number 333-103293
================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                       For the period ended: June 30, 2006

                                       OR

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

                     For the transition period from      to

                       Commission file number: 333-103293

                        Pioneer Financial Services, Inc.
             (Exact name of Registrant as specified in its charter)


              Missouri                                         44-0607504
   (State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                             Identification No.)

4700 Belleview Avenue, Suite 300, Kansas City, Missouri               64112
 (Address of principal executive office)                           (Zip Code)

       Registrant's telephone number, including area code: (816) 756-2020


--------------------------------------------------------------------------------

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

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

        Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
  Large accelerated filer [  ]  Accelerated filer [  ]   Non-accelerated
  filer [X]

        Indicate by check mark whether the Registrant is a shell company (as
defined in Exchange Act Rule 12b-2).
Yes [  ] No [X]

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

        Class                               Outstanding as of August 10, 2006
        -----                               ---------------------------------
   Common Stock, $100 par value                           17,136 shares



<PAGE>



                        PIONEER FINANCIAL SERVICES, INC.

                                    FORM 10-Q
                                  June 30, 2006

                                TABLE OF CONTENTS



                                     PART I
                              FINANCIAL INFORMATION
Item No.                                                                    Page

1.  Consolidated Financial Statements..........................................1
    Consolidated Balance Sheets at June 30, 2006 and September 30, 2005........1
    Consolidated Statements of Income for the three months ended and
    nine months ended June 30, 2006 and 2005...................................2
    Consolidated Statements of Stockholder's Equity for the nine
    months ended June 30, 2006 and years ended September 30, 2005 and 2004.....3
    Consolidated Statements of Cash Flows for the nine months
    ended June 30, 2006 and 2005...............................................4
    Condensed Notes to Consolidated Financial Statements.......................5
2.  Management's Discussion and Analysis of Financial Condition and
    Results of Operations......................................................6
3.  Quantitative and Qualitative Disclosures About Market Risk................16
4.  Controls and Procedures...................................................16


                                     PART II
                                OTHER INFORMATION

1.  Legal Proceedings.........................................................16
    1A. Risk Factors..........................................................18
2.  Changes in Securities and Use of Proceeds.................................18
3.  Defaults upon Senior Securities...........................................19
4.  Submission of Matters to a Vote of Security Holders.......................19
5.  Other Information.........................................................19
6.  Exhibits .................................................................19


<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  Consolidated Financial Statements

                        PIONEER FINANCIAL SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                       ASSETS

                                                            June 30,              September 30,
                                                              2006                    2005
                                                        ---------------         ---------------
                                                          (unaudited)

<S>                                                     <C>                     <C>
Cash and cash equivalents                               $     2,632,453         $     1,734,925
Other investments                                             3,940,575               2,196,096

Finance receivables:
   Direct receivables                                       242,889,699             223,926,765
   Retail installment contracts                              22,360,263              23,262,974
                                                        ---------------         ---------------
Finance receivables before allowance
     for credit losses                                      265,249,962             247,189,739
   Allowance for credit losses                              (15,311,868)            (14,001,868)
                                                        ---------------         ---------------
Net finance receivables                                     249,938,094             233,187,871

Furniture and equipment, net                                  1,821,707               1,504,082
Unamortized computer software                                 1,443,044               1,987,541
Deferred income taxes                                         5,305,703               4,279,232
Prepaid and other assets                                        667,330               2,449,999
                                                        ---------------         ---------------
Total assets                                            $   265,748,906         $   247,339,746
                                                        ===============         ===============

                           LIABILITIES AND STOCKHOLDER'S EQUITY

Revolving credit line - banks                           $    11,689,185         $    13,965,005
Revolving credit line - affiliate                             1,103,781               1,659,396
Accounts payable                                                617,550               1,394,315
Accrued expenses and other liabilities                       11,542,096               9,150,199
Amortizing term notes                                       172,605,466             163,973,031
Investment notes                                             31,200,866              25,125,450
                                                        ---------------         ---------------
Total liabilities                                           228,758,944             215,267,396
                                                        ---------------         ---------------
Stockholder's equity:
Common stock, $100 par value; authorized
20,000 shares; issued and outstanding 17,136 shares           1,713,600               1,713,600
   Retained earnings                                         35,276,362              30,347,500
  Accumulated other comprehensive income                              -                  11,250
                                                        ---------------         ---------------
Total stockholder's equity                                   36,989,962              32,072,350
                                                        ---------------         ---------------
Total liabilities and stockholder's equity              $   265,748,906         $   247,339,746
                                                        ===============         ===============
</TABLE>

            See Notes to Condensed Consolidated Financial Statements

                                       1
<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended                     Nine Months Ended
                                                         June 30,                               June 30,
                                                --------------------------------       --------------------------------
                                                    2006                2005               2006                2005
                                                ------------        ------------       ------------        ------------

Revenue
<S>                                             <C>                 <C>                <C>                 <C>
   Finance income                               $ 18,393,935        $ 15,770,631       $ 54,340,534        $ 46,088,835
   Insurance premiums and commissions                842,502           1,261,732          2,621,508           3,859,906
   Other income, fees and commissions                583,574             257,487          1,086,974             962,034
                                                ------------        ------------       ------------        ------------
Total revenue                                     19,820,011          17,289,850         58,049,016          50,910,775

Provision for credit losses                        4,675,139           3,497,472         13,432,484           9,331,585
Interest expense                                   3,566,870           2,726,819         10,499,072           7,914,567
                                                ------------        ------------       ------------        ------------

Net revenue                                       11,578,002          11,065,559         34,117,460          33,664,623

Operating expenses:
   Employee costs                                  4,975,601           5,268,644         15,237,348          16,259,260
   Facilities                                      1,456,184           1,360,627          4,288,168           4,072,720
   Marketing                                         762,490             633,437          2,279,079           1,649,259
   Professional fees and other                     1,162,728           1,169,544          3,296,134           3,517,640
                                                ------------        ------------       ------------        ------------

Total operating expenses                           8,357,003           8,432,252         25,100,729          25,498,879
                                                ------------        ------------       ------------        ------------

Income before income taxes                         3,220,999           2,633,307          9,016,731           8,165,744
Provision for income taxes                         1,358,999             896,000          3,337,999           2,850,000
                                                ------------        ------------       ------------        ------------

Net income                                      $  1,862,000        $  1,737,307       $  5,678,732        $  5,315,744
                                                ============        ============       ============        ============

Net income per share, basic and diluted         $     108.66        $     101.38       $     331.39        $     310.21
                                                ============        ============       ============        ============
</TABLE>


            See Notes to Condensed Consolidated Financial Statements

                                       2
<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                                                           Accumulated
                                                                                              Other
                                                                                          Comprehensive
                                          Total       Common Stock    Retained Earnings       Income
                                      ------------    ------------    -----------------   -------------

<S>                                   <C>             <C>             <C>                 <C>
Balance, September 30, 2003           $ 20,756,080    $  1,713,600    $      19,042,480   $           -


  Net income                                                                  5,987,855
  Accumulated other
   comprehensive income -
    change in unrealized gain
    on equity securities, net of
    income taxes
  Total comprehensive income             5,987,855
  Dividend paid ($49.61 per share)        (850,117)                            (850,117)
                                      ------------    ------------    -----------------   -------------

Balance, September 30, 2004             25,893,818      1,713,600            24,180,218               -

  Net income                                                                  7,167,973
  Accumulated other
   comprehensive income -
    change in unrealized gain
    on equity securities, net of
    income taxes                                                                                 11,250
  Total comprehensive income             7,179,223
  Dividend paid ($58.40 per share)      (1,000,691)                          (1,000,691)
                                      ------------    ------------    -----------------   -------------

Balance, September 30, 2005             32,072,350      1,713,600            30,347,500          11,250

(unaudited)
 ---------
  Net income                                                                  5,678,732
  Accumulated other
   comprehensive income -
    change in unrealized gain
    on equity securities, net of
    income taxes                                                                                (11,250)
  Total comprehensive income             5,667,482
  Dividend paid ($43.76 per share)        (749,870)                            (749,870)
                                      ------------    ------------    -----------------   -------------

Balance, June 30, 2006                $ 36,989,962    $ 1,713,600     $      35,276,362   $           -
                                      ============    ============    =================   =============
</TABLE>


            See Notes to Condensed Consolidated Financial Statements

                                       3
<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Nine Months Ended June 30,
                                                        --------------------------------
                                                             2006               2005
                                                        -------------      -------------

Cash Flows from Operating Activities:
<S>                                                     <C>                <C>
   Net income                                           $   5,678,732      $   5,315,744
   Items not requiring (providing) cash:
      Provision for credit losses on
         finance receivables                               13,432,484          9,331,585
      Depreciation and amortization                         1,068,490            755,616
      Compounded interest added to
         investment notes                                     950,472          1,041,985
      Deferred income taxes                                (1,026,471)          (666,000)
      Loss on disposal/donation of equipment                   37,299
   Changes in:
      Accounts payable and accrued
         expenses                                             464,978            341,635
      Prepaids and other assets                             1,781,609            163,876
                                                        -------------      -------------

         Net cash provided by operating
           activities                                      22,387,593         16,284,441
                                                        -------------      -------------

Cash Flows from Investing Activities:
   Loans originated                                      (137,073,905)      (135,769,373)
   Loans purchased                                        (15,183,137)       (15,386,091)
   Loans repaid                                           122,074,335        110,813,981
   Capital expenditures                                      (883,715)          (856,675)
   Securities purchased                                    (2,505,260)
   Securities matured                                         755,389
                                                        -------------      -------------

         Net cash used in investing activities            (32,816,293)       (41,198,158)
                                                        -------------      -------------

Cash Flows from Financing Activities:
   Net borrowing (repayments) under lines
      of credit                                            (1,681,281)         1,975,083
   Proceeds from borrowings                                64,117,839         65,300,534
   Repayment of borrowings                                (50,360,460)       (42,054,796)
   Dividends paid                                            (749,870)          (702,697)
                                                        -------------      -------------


         Net cash provided by financing activities         11,326,228         24,518,124
                                                        -------------      -------------

Net Increase/(Decrease) in Cash                               897,528           (395,593)

Cash and cash equivalents, Beginning of Period              1,734,925          2,078,178
                                                        -------------      -------------

Cash and cash equivalents, End of Period                $   2,632,453      $   1,682,585
                                                        =============      =============

Additional Cash Flow Information:
   Interest paid                                        $  10,279,128      $   7,750,837
   Income taxes paid                                    $   3,710,104      $   3,073,805
</TABLE>


            See Notes to Condensed Consolidated Financial Statements

                                       4
<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         June 30, 2006 and June 30, 2005
                                   (Unaudited)

NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Concentration
--------------------------------------

        Pioneer Financial Services, Inc., a Missouri corporation (the
"Company"), is a specialized financial services company which originates and
services consumer loans and provides other products and financial services
exclusively to U.S. active duty or retired career military personnel or U.S.
Department of Defense employees. The Company's revenues are primarily earned
from the making of direct loans and the purchase of retail installment
contracts. The Company also earns revenues from commissions from the sale of
credit-related insurance placed with non-related insurance companies and from
reinsurance premiums on credit accident and health insurance. Additionally, the
Company sells non-loan related products and services, including roadside
assistance programs and discount healthcare cards.

Principles of Consolidation
---------------------------

        The accompanying consolidated financial statements include the accounts
of Pioneer Financial Services, Inc. (a wholly-owned subsidiary of Pioneer
Financial Industries, Inc.) and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated from the
accompanying consolidated financial statements. Certain information and note
disclosures normally included in the Company's annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements should
be read in conjunction with the Company's annual consolidated financial
statements filed with the Securities and Exchange Commission.

Use of Estimates
----------------

        The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

        Information with respect to June 30, 2006 and 2005, and the periods then
ended, have not been audited by the Company's independent auditors, but in the
opinion of management reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the financial
condition and operations of the Company. The results of operations for the nine
months ended June 30, 2006 and 2005 are not necessarily indicative of results to
be expected for the entire fiscal year. The condensed consolidated balance sheet
as of September 30, 2005 and statements of stockholder's equity for the years
ended September 30, 2005 and 2004 have been derived from the Company's audited
consolidated balance sheet and statements of stockholder's equity.

NOTE 2:  NET INCOME PER SHARE

        Net income per share is computed based upon the weighted-average common
shares outstanding of 17,136 during each period. There are no potentially
dilutive securities issued and outstanding.


                                       5
<PAGE>


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward-Looking Statements

        The discussion set forth below, as well as other portions of this
quarterly report, contains forward-looking statements within the meaning of
federal securities law. Words such as "may," "will," "expect," "anticipate,"
"believe," "estimate," "continue," "predict," or other similar words, identify
forward-looking statements. Forward-looking statements include statements
regarding our management's intent, belief or current expectation about, among
other things, trends affecting the markets in which we operate, our business,
financial condition and growth strategies. Although we believe that the
expectations reflected in these forward-looking statements are based on
reasonable assumptions, forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those predicted in the forward-looking statements as a result of
various factors, including, but not limited to, those risk factors set forth in
our annual report on Form 10-K for the period ended September 30, 2005 and set
forth herein under Item 1A--Risk Factors. Other factors not identified herein
could also have such an effect. If any of these risk factors occur, they could
have an adverse effect on our business, financial condition and results of
operation. When considering forward-looking statements keep these risk factors
in mind. These forward-looking statements are made as of the date of this
filing. You should not place undue reliance on any forward-looking statement. We
are not obligated to update forward-looking statements and will not update any
forward-looking statements in this Quarterly Report to reflect future events or
developments.

Overview

        We originate and service consumer loans and provide other financial
products and services on a worldwide basis, exclusively to active duty or
retired career U.S. military personnel or U.S. Department of Defense employees.
We make direct loans to our customers through referrals from a network of retail
sales offices and inquiries over the Internet. We also purchase retail
installment sales contracts from retail merchants who sell consumer goods to
active duty or retired career U.S. military personnel or U.S. Department of
Defense employees. We refer to these consumer loans and retail installment
contracts as "finance receivables".

        Our finance receivables are effectively unsecured with fixed interest
rates and typically have a maturity of less than 48 months. During the first
nine months of fiscal year ended September 30, 2006 ("fiscal 2006"), the size of
our average finance receivable at origination was approximately $3,476. A large
portion of our customers are unable to obtain traditional financing from banks,
credit unions or savings and loan associations due to factors such as their age,
likelihood of relocation and lack of credit history.

        Further improvement of our profitability is dependent in large part upon
the growth in our outstanding finance receivables, the maintenance of loan
quality, acceptable levels of borrowing costs and operating expenses and the
ongoing introduction of innovative new products and services to our customer
base. Since September 30, 2000, finance receivables have increased at a 14.1%
annual compounded rate from $127.7 million to $247.2 million at September 30,
2005. The aggregate finance receivable increase of 24.6% for fiscal year ended
September 30, 2005 ("fiscal 2005") is attributable in part to the presence of
third party marketing agreements entered into in October 2003 with companies
that market and sell products over the Internet to military service members.
These agreements have expanded our ability to help additional military customers
who need financing to effectuate Internet purchases as well as other needs. The
Internet is a lower-cost method of loan origination and proceed distribution. We
plan to continue to pursue innovative and efficient methods to distribute our
loans, including looking for opportunities to expand the Internet portion of our
business and adding new retail offices as we evaluate new military markets and
possible products.

Lending Activities

     In general, our loans are under $10,000, repayable in equal monthly
installments and have terms no longer than 48 months. In evaluating the
creditworthiness of potential customers, we primarily examine the individual's
debt to income ratio, discretionary income, military rank, time served in the
military and prior credit experience. Loans are limited to amounts that the
customer can reasonably be expected to repay from that discretionary income.
Loan repayment terms are generally structured to repay the entire loan prior to
the customer's estimated separation from the military. However, because we
cannot predict when or whether a customer may unexpectedly leave the military or
when or whether other events could occur which result in us not being repaid
prior to a customer's departure from the military, we cannot implement any
policy or procedure to ensure that we are repaid prior to the time our customers
leave the military.

                                       6
<PAGE>

     A risk in all consumer lending and retail sales financing transactions is
the customer's unwillingness or inability to repay obligations. Unwillingness to
repay is usually evidenced by a consumer's historical credit repayment record.
An inability to repay occurs after our initial credit evaluation and funding and
usually results from lower income due to early separation from the military or
reduction in rank, major medical expenses, or divorce. Occasionally, these types
of events are so economically severe that the customer files for protection
under the bankruptcy laws. We use standard underwriting guidelines at the time
the customer applies for a loan to help minimize the risk of unwillingness or
inability to repay. These guidelines are developed from past customer credit
repayment experience and are periodically revalidated based on current portfolio
performance. We use these guidelines to predict the relative likelihood of
credit applicants repaying their obligation to us. We extend credit to those
consumers who fit our underwriting guidelines. The amount and interest rate of
the loan or retail sales finance transaction are based upon the estimated credit
risk assumed.

     All of our customers are required to complete standardized credit
applications in person at one of our retail network offices or to complete an
online application via the Internet. All of our retail network offices are
staffed and equipped to expedite loan applications electronically to one of the
lending subsidiaries for loan underwriting. Promptly, our lending subsidiary
employees verify the applicant's military service history and status including
rank, review credit histories using major credit reporting agencies and conduct
other review procedures as deemed necessary.

     We believe that the development and continual reinforcement of personal
relationships with customers improves our ability to monitor their
creditworthiness, reduce credit risk and generate loyal repeat customers. It is
not unusual for us to have made a number of loans to the same customer over the
course of several years, many of which were refinanced with a new loan after
approximately one third of the scheduled payments were made. In determining
whether to refinance existing loans, we typically require loans to be current on
a recency basis, and customers are required to complete a new credit
application. It is against our policy to grant extensions or deferments, or
allow account revisions, rewriting renewal or rescheduling to bring an otherwise
delinquent account current. Our policy is that we do not refinance loans to cure
a default in principal or interest. Generally, we refinance existing loans when
a portion of the new loan proceeds is used to repay the balance of the existing
loan and the remaining portion is advanced to the customer. In fiscal year 2005,
approximately 45.8% of the number and 30.2% of the amount of our loan
originations were refinancings of outstanding loans. As a customer service, we
will consider a new loan request when the customer has adequately reduced
his/her principal and after fully underwriting the new loan request to ensure
proper debt ratio, credit history and payment performance. No refinancing is
available to cure delinquency nor for the sole purpose of creating fee income.

     To reduce our credit risk and provide better service, we encourage our
customers to employ the convenience of making their monthly loan payments
electronically through payroll deduction via the Government Allotment System or
through an automatic debit of their bank account through the National Automated
Clearinghouse Association. As of September 30, 2005, approximately 94% of our
customers were utilizing these options.

Sources of Income

     We earn revenues and resulting income from finance income derived from
direct consumer lending and retail installment contracts, commissions earned on
the sale of credit insurance products, credit reinsurance premiums, and
commissions earned on the sale of ancillary products and services. For purposes
of the following discussion, "revenues" means the sum of our finance income,
insurance premiums and commissions and other income.

Finance Receivables

        Our finance receivables are comprised of direct loans and retail
installment contracts. The following table sets forth certain information about
the components of our finance receivables as of the ends of the periods
presented:


                                       7
<PAGE>


                                               As of, and For the Nine
                                                   Months Ended
                                                     June 30,
                                              -----------------------
                                                 2006          2005
                                              ---------     ---------
                                           (dollars in thousands, except
                                             for average note balance)

Finance Receivables:
   Finance receivables balance                $ 265,250     $ 231,217
   Average note balance                       $   2,595     $   2,522
   Total finance income                       $  54,341     $  46,089
   Total number of notes                        102,197        91,681

Direct Loans:
   Finance receivables balance                $ 242,890     $ 208,083
   Percent of finance receivables                 91.57%        89.99%
   Average note balance                       $   2,704     $   2,594
   Number of notes                               89,816        80,223

Retail Installment Contracts:
   Finance receivables balance                $  22,360     $  23,134
   Percent of finance receivables                  8.43%        10.01%
   Average note balance                       $   1,806     $   2,019
   Number of notes                               12,381        11,458


Net Interest Margin

        The principal component of our profitability is our net interest margin,
which is the difference between the interest we earn on finance receivables and
the interest we pay on borrowed funds. In some states, statutes regulate the
interest rates that we may charge our customers while in other states
competitive market conditions establish the interest rates we may charge.
Differences also exist in the interest rates we earn on the various components
of our finance receivable portfolio.

        Unlike our interest income, our interest expense is sensitive to general
market interest rate fluctuations. These general market fluctuations directly
impact our cost of funds. Our general inability to increase the interest rates
earned on new and existing finance receivables restricts our ability to react to
increases in our cost of funds. Accordingly, increases in market interest rates
generally will narrow our interest rate spread and lower our profitability,
while decreases in market interest rates generally will widen our interest rate
spread and increase our profitability. An increase in market interest rates may
result in a reduction in our profitability and impair our ability to pay
interest and principal on the investment notes. The following table presents
important data relating to our net interest margin as of the ends of the periods
presented:


                                       8
<PAGE>


<TABLE>
<CAPTION>
                                        As of, and For the Three       As of, and For the Nine
                                              Months Ended                  Months Ended
                                                June 30,                      June 30,
                                       -------------------------      ------------------------
                                           2006           2005           2006           2005
                                       ---------       ---------      ---------      ---------
                                         (dollars in thousands)        (dollars in thousands)

<S>                                    <C>             <C>            <C>            <C>
Finance receivables balance            $ 265,250       $ 231,217      $ 265,250      $ 231,217

Average finance receivables (1)        $ 263,018       $ 223,406      $ 261,324      $ 215,530

Average interest bearing
liabilities (1)                        $ 213,544       $ 170,588      $ 213,778      $ 172,080

Total finance income                   $  18,394       $  15,771      $  54,341      $  46,089

Total interest expense                 $   3,567       $   2,727      $  10,499      $   7,915
</TABLE>

----------------------------------------------------
   (1) Averages are computed using month-end balances.


Results of Operations

        Three Months Ended June 30, 2006 Compared to Three Months Ended June 30,
        2005

        Finance Receivables. Our aggregate finance receivables increased 14.7%
to $265.2 million on June 30, 2006 from $231.2 million on June 30, 2005. Our
aggregate finance receivables increased 3.4% during the third quarter of fiscal
2006 to $265.2 million on June 30, 2006 from $256.4 million on March 31, 2006
compared to a 7.8% increase during the third quarter of fiscal 2005 to $231.2
million on June 30, 2005 from $214.5 million on March 31, 2005. The third
quarter increase was due primarily to increases in finance receivables from the
Internet, which grew by more than $8.5 million or 5.7%.

        Finance Revenues. Finance revenues for the third quarter of fiscal 2006
increased to $18.4 million from $15.8 million for the third quarter of fiscal
2005, an increase of $2.6 million or 16.5%. This increase was primarily due to
an increase in average finance receivables to $263.0 million in the third
quarter of fiscal 2006 from $223.4 million in the third quarter fiscal 2005, an
increase of 17.7%.

        Provision for Credit Losses. The provision for credit losses in the
third quarter of fiscal 2006 increased to $4.7 million from $3.5 million in the
third quarter of fiscal 2005, an increase of $1.2 million or 34.3%. See "Finance
Receivables." This increase resulted from a combination of increases in both the
allowance for loan losses due to the growth in our loan portfolio and an
increase in our net charge-offs. Our loan portfolio increased by 14.7% or $34.0
million as mentioned above. In addition, our net charge-offs as a percentage of
average finance receivables for the third quarter of fiscal 2006 increased to
6.3% from 4.8% for the third quarter of fiscal 2005. This increase is due to a
higher number of customers leaving the military prior to repaying their loan,
longer-term military deployments as a result of the Middle East hostilities and
other deployments of military personnel overseas. In addition, rising gasoline
prices as well as other general economic factors have attributed to this
increase. Allowance for credit losses at June 30, 2006 increased to $15.3
million compared to $14.0 million at September 30, 2005. See also "--Credit Loss
Experience and Provision for Credit Losses."

        Interest Expense. Interest expense in the third quarter of fiscal 2006
increased to $3.6 million from $2.7 million in the third quarter of fiscal 2005,
an increase of $.9 million or 33.3%. Our average interest bearing liabilities
for the three months ended June 30, 2006 increased by $43.0 million or 25.8%
compared to the three months ended June 30, 2005. The weighted average interest
rate increased to 6.5% in the third quarter of fiscal 2006 from 6.1% in the
third quarter of fiscal 2005 due to the increase in market interest rates.

        Net Income. Income before taxes in the third quarter of fiscal 2006 was
$3.2 million and net income was $1.9 million compared to income before taxes of
$2.6 million and net income of $1.7 million during the third quarter

                                       9
<PAGE>

of fiscal 2005. These increases were primarily attributed to higher finance
receivables and relatively stable operating expenses partially reduced by an
increased provision for credit losses and interest expense.

        Nine Months Ended June 30, 2006 Compared to Nine Months Ended June 30,
        2005

        Finance Receivables. Our aggregate finance receivables increased 7.3%
during the first nine months of fiscal 2006 to $265.3 million from $247.2
million on September 30, 2005, compared to a 16.5% increase during the first
nine months of fiscal 2005 to $231.2 million from $198.4 million on September
30, 2004. The fiscal 2006 increase was due primarily to increases in finance
receivables from the Internet, which grew by more than $24.3 million or 18.1%.
The Internet is a lower-cost method of loan origination and proceed
distribution, and we plan to continue to increase this distribution channel in
the future.

        Finance Revenues. Finance revenues for the first nine months of fiscal
2006 increased to $54.3 million from $46.1 million for the first nine months of
fiscal 2005, an increase of $8.2 million or 17.8%. This increase was primarily
due to the increase in average finance receivables to $261.3 million in fiscal
2006 from $215.5 million in fiscal 2005, an increase of 21.3%.

        Provision for Credit Losses. The provision for credit losses in the
first nine months of fiscal 2006 increased to $13.4 million from $9.3 million in
the first nine months of fiscal 2005, an increase of $4.1 million or 44.1%. This
increase resulted from the increase in the allowance for loan losses due to
growth in our loan portfolio and an increase in loan losses. While our net
charge-offs of finance receivables in the first nine months of fiscal 2006
increased to $12.1 million from $7.5 million in the first nine months of fiscal
2005, as a percent of average finance receivables, net charge-offs increased to
6.2% during the nine months ending June 30, 2006 from 4.7% during the same
period last year. Our allowance for credit losses at June 30, 2006 increased to
$15.3 million from $13.0 million at June 30, 2005, an increase of $2.3 million,
or 17.7%. These increases reflect the increase in our average finance
receivables portfolio, an increase in bankruptcy filings due in part to the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which became
effective on October 17, 2005, rising gasoline prices, the effects of Hurricane
Katrina as well as other general economic factors. In addition, this increase
can be attributed in part to a higher number of customers leaving the military
prior to repaying their loan, longer-term military deployments as a result of
the Middle East hostilities and other deployments of military personnel
overseas,. See also "--Credit Loss Experience and Provision for Credit Losses."

        Interest Expense. Interest expense in the first nine months of fiscal
2006 increased to $10.5 million from $7.9 million in the first nine months of
fiscal 2005, an increase of $2.6 million or 32.9%. This is the result of an
increase of $41.7 million in our average interest bearing liabilities for the
nine months ended June 30, 2006 or 24.2 % compared to the nine months ended June
30, 2005. The weighted average interest rate increased to 6.5% in the first nine
months of fiscal 2006 from 6.1% in the first nine months of fiscal 2005 due to
the increase in market interest rates.

        Operating Expense. Operating expenses in the first nine months of fiscal
2006 decreased to $25.1 million from $25.5 in the first nine months of fiscal
2005 a decrease of $.4 million or 1.6%. This decrease was primarily due to a
decrease in employment costs for technology and other professionals needed last
year during the conversion to our new integrated lending system.

         Net Income. Income before taxes in the first nine months of fiscal 2006
was $9.0 million and net income was $5.7 million compared to income before taxes
of $8.2 million and net income of $5.3 million during the first nine months of
fiscal 2005. These increases were primarily attributed to higher finance
receivables partially reduced by an increased provision for credit losses and
interest expense.

Delinquency Experience

        Our customers are required to make monthly payments of interest and
principal. We analyze our delinquencies on a recency delinquency basis. A loan
is delinquent under the recency method when a full payment (95% or more of the
contracted payment amount) has not been received for 60 days after the last full
payment. We rarely grant extensions or deferments, or allow account revision,
rewriting, renewal or rescheduling in order to bring otherwise delinquent
accounts current.


                                       10
<PAGE>



        The following sets forth our delinquency experience for accounts for
which payments are 60 days or more past due and allowance for credit losses for
our finance receivables as of the ends of the periods presented:

                                                As of the Nine Months Ended
                                                        June 30,
                                                ---------------------------
                                                    2006            2005
                                                -----------     -----------
                                                   (dollars in thousands)

Finance receivables balances                    $   265,250     $   231,217

Finance receivables balances 60 days
   or more past due                             $    13,233     $     7,691

Finance receivables balances 60 days
   or more past due as a percent of
   finance receivables                                 4.99%           3.33%


Credit Loss Experience and Provision for Credit Losses

        General. Our provisions for credit losses are charged to income in
amounts sufficient to maintain our allowance for credit losses at a level
considered adequate to cover the probable losses inherent in our existing
finance receivable portfolio. Historical credit loss experience, delinquency of
finance receivables, the value of underlying collateral, current economic
conditions, current military activities and management's judgment are factors
used in assessing the overall adequacy of the allowance and corresponding
provision for credit losses. Our allowance for credit losses is developed
primarily for our direct finance receivable portfolio as our retail installment
contracts are generally covered by dealer reserves. While management believes
our allowance for credit losses is adequate, we have experienced an increase in
losses due in part to increased bankruptcy filings resulting from the enactment
of the October 2005 Bankruptcy Abuse Prevention and Consumer Protection Act of
2005, an increase in the number of customers leaving the military prior to the
final repayment of their loan, and longer-term military deployments as a result
of the Middle East hostilities and other deployments of military personnel
overseas. Typically when customers leave the military prior to the repayment of
their loans, the ability to collect the loan balance is reduced as there is a
transition period from military life to civilian. The majority of these
customers are electing to get out of the military instead of serving long-term
deployments in the Middle East. In addition, because many of our customers have
been deployed in the Middle East longer than anticipated or may be subject to
other long-term deployments overseas, our collection philosophy prevents any
aggressive collection efforts while these service members are deployed in a war
zone. We attempt to locate individuals that may have a power of attorney to
handle the financial obligations during deployments, and we send letter or email
correspondence, but we do not aggressively attempt to employ normal collection
techniques to those defending our freedoms. Furthermore, family members of
deployed customers may not have sufficient resources to repay the loan. All of
these issues have resulted in an increase in delinquencies and charge offs, but
at this time, we expect this increase to remain within historical ranges.

        Direct Loans. Our charge-off policy is based on an account-by-account
review of delinquent receivables on a recency basis. Finance receivables are
charged-off when management deems them to be uncollectible through our normal
collection procedures or they become 270 days past due. The 270-day limit is set
forth in our senior lending agreement. Approximately 35% of our charge-offs
occur before an account is 180 days delinquent. Our primary source of
charge-offs is when a customer leaves the military prior to repaying the finance
receivable. We generally structure our loans so that the entire amount is repaid
prior to a customer's estimated separation from the military, and the number of
our customers who depart the military early has remained relatively constant
over time. We, however, cannot predict when or whether a customer may depart
from the military early. Accordingly, it is difficult to implement policies and
procedures to ensure that we are repaid in full prior to our customer leaving
the military. Our second greatest source of loss results from customers
declaring bankruptcy.

                                       11
<PAGE>


        The following table presents net charge-offs on direct loans and net
charge-offs as a percentage of direct loans as of the ends of the periods
presented:

<TABLE>
<CAPTION>
                                            As of, and For the Three      As of, and For the Nine
                                                 Months Ended                 Months Ended
                                                  June 30,                      June 30,
                                           -------------------------      -----------------------
                                              2006           2005            2006          2005
                                           ---------      ---------       ---------     ---------
                                            (dollars in thousands)         (dollars in thousands)
Direct Loans:
<S>                                        <C>            <C>             <C>           <C>
   Loans charged-off                       $   4,505      $   3,036       $  13,088     $   8,714
   Less recoveries                               328            362             931         1,146
                                           ---------      ---------       ---------     ---------
   Net charge-offs                         $   4,177      $   2,674       $  12,157     $   7,568
                                           =========      =========       =========     =========

Average monthly balance of
   outstanding (1)                         $ 240,517      $ 200,295       $ 238,437     $ 192,921
Percentage of net charge-offs to average
   monthly balance outstanding (2)              6.95%          5.34%           6.80%         5.23%
</TABLE>

-------------------------------------------------
      (1) Averages are computed using month-end balances.
      (2) June 30, 2006 and 2005 are annualized for comparison purpose.


        Retail Installment Contracts. Under our retail merchant reserve
arrangements, we withhold a percentage (usually between five and ten percent) of
the principal amount of the retail installment contract purchased. The amounts
withheld from a particular retail merchant are recorded in a specific reserve
account. Any losses incurred on the retail installment contracts purchased from
that retail merchant are charged against its specific reserve account. Upon the
retail merchant's request, and no more often than annually, we pay the retail
merchant the amount by which its specific reserve account exceeds 15% of the
aggregate outstanding balance on all retail installment contracts purchased from
them, less losses we have sustained, or reasonably could sustain, due to debtor
defaults, collection expenses, delinquencies and breaches of our agreement with
the retail merchant. Our allowance for credit losses is charged only to the
extent that the loss on a retail installment contract exceeds the originating
retail merchant's specific reserve account at the time of the loss.

        The following table presents net charge-offs on retail installment
contracts and net charge-offs as a percentage of retail installment contracts as
of the ends of the periods presented.

<TABLE>
<CAPTION>
                                            As of, and For the Three      As of, and For the Nine
                                                Months Ended                    Months Ended
                                                  June 30,                        June 30,
                                           ------------------------       -----------------------
                                             2006            2005            2006          2005
                                           ---------      ---------       ---------     ---------
                                            (dollars in thousands)         (dollars in thousands)
Retail Installment Contracts:
<S>                                        <C>            <C>             <C>           <C>
   Contracts charged-off                   $       -      $       6       $       -     $      12
   Less recoveries                                12             22              35            48
                                           ---------      ---------       ---------     ---------
   Net charge-offs (recoveries)            $     (12)     $     (16)      $     (35)    $     (36)
                                           =========      =========       =========     =========


Average monthly balance of
   outstanding (1)                         $  22,501      $  23,111          $ 22,887   $  22,609
Percentage of net charge-offs to average
   monthly balance outstanding (2)             -0.21%         -0.28%            -0.20%      -0.21%
</TABLE>

-------------------------------------------------
  (1) Averages are computed using month-end balances.
  (2) June 30, 2006 and 2005 are annualized for comparison purpose.



                                       12
<PAGE>

     Allowance for Credit Losses. The following table presents our allowance for
credit losses on finance receivables as of the ends of the periods presented:

<TABLE>
<CAPTION>
                                            As of, and For the Three       As of, and For the Nine
                                                  Months Ended                 Months Ended
                                                    June 30,                     June 30,
                                           -------------------------       -----------------------
                                              2006            2005            2006          2005
                                           ---------       ---------       ---------     ---------
                                             (dollars in thousands)         (dollars in thousands)

<S>                         <C>            <C>             <C>             <C>           <C>
Average finance receivables (1)            $ 263,018       $ 223,406       $ 261,324     $ 215,530
Provision for credit losses                $   4,675       $   3,497       $  13,432     $   9,332
Net charge-offs                            $   4,165       $   2,658       $  12,122     $   7,532
Net charge-offs as a percentage of
   average finance receivables (2)              6.33%           4.76%           6.18%         4.66%
Allowance for credit losses                $  15,312       $  13,041       $  15,312     $  13,041
Allowance as a percentage of average
   finance receivables                          5.82%           5.84%           5.86%         6.05%
</TABLE>

----------------------------------------
  (1) Averages are computed using month-end balances.
  (2) June 30, 2006 and 2005 are annualized for comparison purpose.


     The allowance for credit losses is maintained at an amount which management
considers sufficient to cover estimated future losses. The Company has developed
policies and procedures for assessing the adequacy of the allowance for credit
losses which take into consideration the historical credit loss experience of
the Company, delinquency trends, current economic conditions, current or future
military deployments, and the composition of the finance receivable portfolio.
The Company uses various ratio analyses in evaluating prior finance receivable
losses and delinquency experience. These and other analyses are used to measure
historical movement of finance receivables through various levels of repayment,
delinquency, and loss. These results and management's judgment are used to
estimate future losses and in establishing the current provision and allowance
for credit losses. As described above, these estimates are influenced by factors
outside the Company's control, such as economic conditions and current or future
military deployments. There is uncertainty inherent in these estimates, making
it reasonably possible that they could change in the near term. See our annual
report on Form 10-K; Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Critical Accounting Policies."

     The following table sets forth changes in the components of our allowance
for credit losses on finance receivables as of the ends of the periods
presented:

<TABLE>
<CAPTION>
                                As of, and For the Three     As of, and For the Nine
                                      Months Ended                 Months Ended
                                        June 30,                     June 30,
                                ------------------------   -------------------------
                                   2006           2005        2006            2005
                                --------       ---------   ---------       ---------
                                 (dollars in thousands)      (dollars in thousands)

<S>                             <C>            <C>         <C>             <C>
Balance, beginning of period    $ 14,802       $  12,201   $  14,002       $  11,241
                                --------       ---------   ---------       ---------
Charge-offs:
   Loans charged-off              (4,505)         (3,041)    (13,088)         (8,726)
   Recoveries                        340             384         966           1,194
                                --------       ---------   ---------       ---------
Net charge-offs                   (4,165)         (2,657)    (12,122)         (7,532)
Provision for credit losses        4,675           3,497      13,432           9,332
                                --------       ---------   ---------       ---------
Balance, end of period          $ 15,312       $  13,041   $  15,312       $  13,041
                                ========       =========   =========       =========
</TABLE>


                                       13
<PAGE>

Loan Origination

        Our loan origination is an important factor in determining our future
revenues. Loan originations increased for the first nine months of fiscal 2006
to $218.4 million from $217.6 million for the first nine months of fiscal year
2005, an increase of $.8 million or .3%. See " Results of Operations - Nine
Months Ended June 30, 2006 Compared to the Nine Months ended June 30, 2005 -
Finance Receivables." The record volume in the first nine months of fiscal 2006
was achieved through increased expansion of our Internet distribution channel,
partly through marketing agreements, which we entered into since the first
quarter of fiscal year 2004.

        The following table sets forth our overall loan originations and lending
activities by direct loans and retail installment contracts as of the ends of
the periods presented:

<TABLE>
<CAPTION>
                                       As of, and For the Three     As of, and For the Nine
                                            Months Ended                   Months Ended
                                              June 30,                       June 30,
                                       ------------------------     -----------------------
                                         2006            2005           2006            2005
                                       ---------      ---------     -----------    --------
                                     (dollars in thousands, except for average note amounts)
Total Loan Origination:
<S>                                    <C>            <C>           <C>            <C>
   Gross balance                       $  77,828      $  84,506     $   218,385    $  217,627
   Number of finance receivable notes     22,108         23,754          62,828        63,547
   Average note amount                 $   3,520      $   3,558     $     3,476    $    3,425

Direct Loans:
   Gross balance                       $  72,921      $  79,245     $   203,202    $  200,846
   Number of finance receivable notes     20,435         21,920          57,480        57,832
   Average note amount                 $   3,568      $   3,615     $     3,535    $    3,473

Retail Installment Contracts:
   Gross balance                       $   4,907      $   5,261     $    15,183    $   16,781
   Number of finance receivable notes      1,673          1,834           5,348         5,715
   Average note amount                 $   2,933      $   2,869     $     2,839    $    2,936
</TABLE>


Liquidity and Capital Resources

        A relatively high ratio of borrowings to invested capital is customary
in consumer finance activities due to the quality and term of the assets
employed. Investing activities are our principal use of cash, which is to make
new loans and purchase retail installment contracts. We use our borrowings to
fund the difference, if any, between the cash used to make new loans and
purchase retail installment contracts, and the cash generated from loan
repayments. Cash used in investing activities in the first nine months of fiscal
2006 was approximately $32.8 million, which was funded from $22.3 million of
cash from operating activities and $11.3 million from financing activities. Cash
used in investing activities in the first nine months of fiscal 2005 was
approximately $41.2 million, which were funded from $16.3 million of cash from
operating activities and $24.5 million from financing activities.

        Financing activities primarily consist of borrowings and repayments
relating to our bank debt, an unsecured revolving credit line from our parent
and our investment notes. We anticipate that our cash inflow from operations,
borrowings under our senior lending agreement, and the proceeds from the sale of
investment notes will be adequate to meet our cash out flows to fund anticipated
growth in our finance receivables, operating expenses, repayment of
indebtedness, and planned capital expenditures.

        On or before March 31st of each year, each bank that is a party to the
senior lending agreement is to deliver to us a written indication of whether or
not it wishes to participate in future fundings and the amounts that it expects
to be willing to fund during the next 12 months. As of June 30, 2006, all banks
that are a party to our senior lending agreement have indicated in writing their
willingness to participate in the fundings up to an aggregate of $270 million.

                                       14
<PAGE>

        Senior Indebtedness-Bank Debt. Our senior lending agreement is an
uncommitted facility, which provides common terms and conditions pursuant to
which individual banks that are a party to this agreement may choose to make
loans to us in the future. Any bank may elect not to participate in any future
fundings at any time without penalty. As of June 30, 2006, we could request up
to $26.8 million in additional funds and remain in compliance with the terms of
our senior lending agreement. No bank, however, has any contractual obligation
to lend us these additional funds. As of June 30, 2006, we were in material
compliance with all loan covenants.

        Senior Indebtedness-Parent Debt. We also have a revolving line of
credit, payable on demand, from our parent, Pioneer Financial Industries, Inc.
Interest on this facility accrues at the prime rate plus 2%. At June 30, 2006,
there was $1.1 million outstanding under this credit facility with an interest
rate of 10.25%.

        Senior Indebtedness Table. As of June 30, 2006 and 2005, the total
borrowings and availability under our senior lending agreement and our revolving
line of credit from our parent company consisted of the following amounts for
the ends of the periods presented:

<TABLE>
<CAPTION>
                                               As of June 30,           As of September,
                                         ---------------------------    ----------------
                                            2006              2005            2005
                                         ---------         ---------    ----------------
                                                    (dollars in thousands)
Revolving Credit Line (1):
<S>                                      <C>               <C>          <C>
   Total facility                        $  49,341         $  47,034    $         47,444
   Balance at end of period              $  12,793         $  17,467    $         15,624
   Maximum available credit (3)          $  36,548         $  29,567    $         31,820

Term Notes (2):
   Total facility                        $ 225,000         $ 207,000    $        207,000
   Balance at end of period              $ 172,605         $ 145,973    $        163,973
   Maximum available credit (3)          $  52,395         $  61,027    $         43,027

Total Revolving and Term Notes (1) (2):
   Total facility                        $ 274,341         $ 254,034    $        254,444
   Balance at end of period              $ 185,398         $ 163,440    $        179,597
   Maximum available credit (3)          $  88,943         $  90,594    $         74,847
   Credit facility available (4)         $  26,802         $  21,534    $         18,154
   Percent utilization of the
     total facility                          67.58%            64.34%              70.58%
</TABLE>

------------------------------------
(1)    Includes revolving credit line from our parent.
(2)    Includes 48-month amortizing term notes.
(3)    Maximum available credit assuming proceeds in excess of the amounts shown
       below under "Credit Facility Available" are used to increase qualifying
       finance receivables and all terms of the senior lending agreement are
       met, including maintaining a Senior Indebtedness to Net Receivable Ratio
       of not more than 80.0%.
(4)    Credit facility available based on the existing asset borrowing base and
       maintaining a Senior Indebtedness to Net Receivable Ratio of not more
       than 80.0%.

        Outstanding Investment Notes. We also fund our liquidity needs through
the sale of unsecured investment notes. These notes have varying fixed interest
rates and are subordinate to all senior indebtedness. We can redeem these notes
at any time upon 30 days written notice. In the history of the program, we have
never called or defaulted on these notes and we do not anticipate doing so. As
of June 30, 2006, we had issued approximately $31.2 million of these investment
notes at a weighted average interest rate of 9.3%.

        The sale of these notes provides us with additional liquidity and
capital resources. Issuing these notes increases our tangible net worth, as
defined in the senior lending agreement, which allows us to borrow larger
amounts under our senior lending agreement. To finance growth in our finance
receivables portfolio, we intend to borrow additional funds under our senior
lending agreement from time to time as we sell additional notes.

Trends

        As we continue to assess and align our products to the increasingly
competitive market of military lending, we continue to look for ways to remain
the responsible alternative. The growth of the payday or "balloon loans" and
significant increases in credit card costs or "revolving loans", suggest we
fine-tune our disciplined, installment loan

                                       15
<PAGE>

program. As a result, we have limited our secured lending to loans that are
secured by real property and/or titled vehicles. The majority of our loans will
continue to be unsecured and we will no longer accept other personal property as
security for our secured loans. We anticipate this will have a slight decrease
in insurance commission revenue as a result of this new focus, but our focus on
helping military families eliminate the high cost of balloon and revolving loans
should improve our loan originations and more than off set the commission
decrease.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

        Our profitability and financial performance are sensitive to changes in
the U.S. Treasury yields and the spread between the effective rate of interest
we receive on customer loans and the interest rates we pay on our borrowings.
Our finance income is generally not sensitive to fluctuations in market interest
rates. The primary exposure that we face is changes in interest rates on our
borrowings. A substantial and sustained increase in market interest rates could
adversely affect our growth and profitability. The overall objective of our
interest rate risk management strategy is to mitigate the effects of changing
interest rates on our interest expense through the utilization of short-term
variable rate debt and medium and long term fixed rate debt. We have not entered
into any derivative instruments to manage our interest rate risk. For more
information about this item see our annual report of Form 10-K; Item 7A,
"Quantitative And Qualitative Disclosures About Market Risk-Interest Rate Risk
Management."

ITEM 4.  Controls and Procedures

        The Company maintains disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to
ensure that information required to be disclosed in the Company's reports under
the Exchange Act is recorded, processed, summarized and reported as of the end
of the period covered by this report (evaluation date), and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures. Any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives. Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures as of June
30, 2006. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that the design and operation of our disclosure
controls and procedures are effective. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date the evaluation was completed.

                           PART II - OTHER INFORMATION

ITEM 1.  Legal Proceedings

        The Company is also currently involved in various litigation matters in
the ordinary course of business. Other than as described below, the Company is
not currently involved in any litigation or other proceedings that it expects,
either individually or in the aggregate, will have a material adverse effect on
our financial condition, results of operations and cash flows.

        State Actions. For 13 years, the Company has relied upon Pioneer
Military Lending v. Manning ("Manning"), 2 F.3d 280 (8th Cir. 1993) ("Manning")
for operation of its military lending business. Under Manning, the Eighth
Circuit Court of Appeals held that the Commerce Clause of the U.S. Constitution
prevents the lending laws of the state in which a non-resident military borrower
is stationed from regulating such loan transactions. Since the Manning decision,
more than 25 states have accepted the rationale in that decision and allowed the
Company to utilize the aforementioned business model without local state
regulation.

        California Action. On May 19, 2006, the Department of Corporations of
the State of California ("Department") rescinded OP 6547CFLL, a specific ruling
issued on March 26, 1996. This specific ruling held that ". . . Pioneer is not
engaging in the business of a Finance lender . . ." as long as Pioneer followed
the model of lending set forth in Manning and, therefore, did not need to
register under the California Finance Lenders' Law ("CFLL"). In connection with
recession of this specific ruling, the Department demanded that two wholly-owned
subsidiaries of the Company, Pioneer Military Lending, Inc., a Washington
corporation ("PMLI"), and Pioneer Military Lending of Nevada, Inc., a Nevada
corporation ("PML-Nevada"), either cease making loans to non-resident military
borrowers in California or become licensed under the CFLL.

     On June 28, 2006, PMLI, joined by PML-Nevada, filed a Complaint for
Declaratory Judgment, Injunctive Relief and Damages against Preston DuFauchard,
Commissioner of the Department, in the United States District

                                       16
<PAGE>



Court for the Eastern District of California. Pioneer Military Lending, Inc.,
and Pioneer Military Lending of Nevada, Inc. v. Preston DuFauchard, Case No.
2:06-CV-01445-LKK-PAN (E.D. Cal.). The Complaint seeks a determination that,
among other things, the Company and its affiliates are not subject to California
lending laws and licensing requirements.

     On July 21, 2006, the Company's motion for preliminary injunction with
respect to PMLI was granted. PMLI is located in the State of Washington and
makes loans exclusively to US military personnel located in California, among
other states who are not residents of California. The Order granting the
preliminary injunction stated, inter alia:

     ... although defendant has asserted state interests having to do with
     protecting borrowers and promoting sound lending practices, he fails to
     articulate what interest, if any, California has in protecting
     non-California residents from the activities of a lender regulated by
     another state. See Manning, 2 F.3d at 284 (citing MITE Corp., 457 U.S. at
     644 (state has no interest for purposes of Commerce Clause in protecting
     non-residence under securities laws) (Order p. 34)

The Department has not appealed the Order, but has until August 21, 2006 to do
so. Should the Department appeal, the Company believes its position has
substantial merit.

     With respect to PML-Nevada, the Court denied the Company's motion and held
that PML-Nevada, which makes loans solely by the Internet exclusively to US
military personnel, could make no loans to California residents regardless where
located, without first becoming licensed under the CFLL. As part of its
analysis, the Court discussed that while the loan to a US military personnel
from PML-Nevada was entered into when the US military personnel was stationed
abroad or in another State, the US military personnel had indicated on the Leave
and Earnings Statement ("LES") that his or her residence is in California.
PML-Nevada has complied with the Court's ruling by ceasing to lend to any US
military personnel over the Internet who has indicated on the LES that he or she
is a resident of California, but believes the ruling to be erroneous, in several
respects. Primary among those is that the Order is contrary to many Supreme
Court cases holding that a State cannot control or regulate business
transactions of residence which occur outside the State "Item 1A. Risk Factors
-- The Company's internet and retail lending activities may be subject to State
lending regulations."

     Florida Action. In the second quarter of fiscal year 2005, the Company
became aware that the Florida Attorney General was planning to file a lawsuit
against a subsidiary of the Company accusing it of violating Florida lending
laws and requiring it to comply with such laws in connection with 216 loans that
were made by a subsidiary of the Company during the period December 2001 to
March 2003. The Company had closed its Florida office for other business reasons
in March of 2003 well before it had any reason to believe that the Florida
Attorney General had any issues with its activities in Florida.

     While not obligated to do so, the Company has been cooperating fully with
an inquiry conducted during the past three years by the Florida Attorney General
regarding the loans made from the Company's subsidiary in Georgia to
non-resident U.S. military personnel stationed in Florida. In March 2005 the
Company's subsidiary received another subpoena from the Attorney General's
Office, that the Company interpreted as indicating that the Florida Attorney
General was planning to file a lawsuit.

     On April 29, 2005, Pioneer Military Lending of Georgia, Inc., a Georgia
corporation and wholly-owned subsidiary of the Company, filed a Complaint for
Declaratory Judgment, Injunctive Relief and Damages against Charlie Crist, the
Attorney General of Florida, in the United States District Court for the
Northern District of Florida. The complaint seeks a determination that, among
other things, the Company and its affiliates are not subject to Florida lending
laws and licensing requirements.

     On March 29, 2006, the Motion for preliminary injunction requested by the
Company was denied. In its Order denying that motion, the District Court
distinguished the Manning case on the ground that Missouri law, unlike Florida
law, required the Company to maintain a full-service office in Missouri. In
finding that the Company failed to meet the high "substantial likelihood of
success on the merits" standard for granting a preliminary injunction, the
District Court stated that "applying the Florida Consumer Protection Act to
Pioneer loans is not likely to violate the Commerce Clause." While the
injunction was denied, the District Court also denied in large part the Attorney
General's Motion to Dismiss the Company's Complaint for Declaratory and Damages
against Charles Christ, Attorney General of Florida. The District Court stated,
among other things, that the Company's "allegation is sufficient to state a
commerce clause violation." On March 31, 2006 the Company filed an appeal of the
District Court's denial of the preliminary injunction with the United States
Circuit Court of Appeals, Eleventh Circuit, as the

                                       17
<PAGE>

Company believes its appeal has substantial merit. See this quarterly report on
Form 10-Q, "Item 1A. Risk Factors -- The Company's internet and retail lending
activities may be subject to State lending regulations."

ITEM 1A.  Risk Factors

     In our annual report on Form 10-K for the period ended September 30, 2005,
we have identified important risks and uncertainties that could affect our
results of operations, financial position, cash flow or business and that could
cause them to differ materially from our historical results of operations,
financial position, cash flow or business, or those contemplated by
forward-looking statements made herein or elsewhere, by, or on behalf of, us. In
this quarterly report we have identified material changes in these important
risks and uncertainties which include, but are not limited to, those factors
described below. These factors should be read in conjunction with the factors
identified in our annual report on Form 10-K for the period ended September 30,
2005 UNDER "ITEM 1. BUSINESS--FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS, FINANCIAL CONDITION OR BUSINESS."

     If a customer leaves the military prior to repaying our loan, there is an
increased risk that our loan will not be repaid.

     The terms of repayment on the loans we make are generally structured so the
entire loan amount is repaid prior to the customer's estimated separation from
the military. If, however, a customer unexpectedly leaves the military or other
events occur which result in the loan not being repaid prior to our customer's
departure from the military, there is an increased chance that our loan will not
be repaid. Because we do not know whether or when a customer will leave the
military early, we cannot institute policies or procedures to ensure that the
entire loan is repaid before the customer leaves the military. As of June 30,
2006, we had approximately 6,170 customers who separated from the military prior
to repaying our loan and who in the aggregate owed us approximately $12.1
million. Based on historical charge-off models, management believes this could
result in approximately $6.8 million in charge-offs. If that amount increases or
the number of our customers who separate from the military prior to their
scheduled separation date materially increases, our charge-offs may increase.
This may have a materially adverse effect on cashflow, results of operations and
financial conditions.

     The Company's internet and retail lending activities may be subject to
State lending regulations.

     We are subject to regulation by States where our lending subsidiaries are
located. Recently, one state has reversed its position and now takes the
position that our internet lending activity is subject to their State regulation
if the loan is to a resident even if the transaction occurs outside the State's
borders. If this State and other States were ultimately successful in requiring
us to become licensed in each state this would have a material adverse effect on
our results of operations and business and could adversely impact our ability to
repay the investment notes.

ITEM 2.  Changes in Securities and Use of Proceeds

     On May 13, 2003, the Securities and Exchange Commission declared our
registration statement on Form S-1, as amended (File No. 333-103293), effective.
On January 13, 2004 the Securities and Exchange Commission declared our post
effective amendment number 1 as filed on Form S-1 (File No. 333-103293),
effective. On February 10, 2005, the Securities and Exchange Commission declared
our post effective amendment number 2 as filed on From S-2 (File No.
333-103293), effective. On January 30, 2006 the Securities and Exchange
Commission declared our post effective amendment number 3 as filed on Form S-2
(File No. 333-103293), effective. Pursuant to the registration statement, and
the accompanying prospectus, we registered and are offering up to $25,000,000 in
aggregate principal amount of our investment notes, with a maximum aggregate
offering price of $25,000,000 on a continuous basis with an expected termination
of January 31, 2007 unless terminated earlier at our discretion. We commenced
the offering of these investment notes on May 20, 2003. We are currently
offering the notes through our officers and employees directly without an
underwriter or agent. From May 20, 2003 to June 30, 2006, we sold 680 notes in
an approximate aggregate principal amount of $19,231,000. For the quarter ended
June 30, 2006, we sold 74 notes in the approximate aggregate principal amount of
$2,790,000. Costs incurred in connection with the preparation of the initial
registration statement on Form S-1 were approximately $315,000. Our expenses
incurred in connection with the issuance and distribution of the investment
notes from the date our registration statement became effective, May 13, 2003,
through June 30, 2006 were approximately $706,000. Expenses incurred in the
third quarter of fiscal 2006 were approximately $47,000. Net proceeds from the
offering through June 30, 2006, were approximately $18,525,000.


                                       18
<PAGE>

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

(a)     Exhibits

3.1            Restated Articles of Incorporation of the Company (Incorporated
               by reference to Exhibit 3.1 of the Company's Registration
               Statement on Form S-1, as amended, filed with the Securities and
               Exchange Commission on February 8, 2003 (Commission No.
               333-103293) (the "Initial Registration Statement")).
3.2            Certificate of Amendment to Articles of Incorporation of the
               Company (Incorporated by reference to Exhibit 3.2 of the Initial
               Registration Statement).
3.3            Amended and Restated By-Laws of the Company (Incorporated by
               reference to Exhibit 3.3 of the Initial Registration Statement).
4.1            Amended and Restated Indenture dated as of December 15, 2004
               (Incorporated by reference to Exhibit 4.1 of the Post Effective
               Amendment No. 2 to the Registration Statement filed with the
               Securities and Exchange Commission dated December 17, 2004
               (Commission No. 333-103293) ("Post Effective Amendment No.2").
4.2            Form of investment note certificate (Incorporated by reference to
               Exhibit 4.2 of the Post Effective Amendment No. 2).
4.3            Form of Investment Note prior to November 1, 2002 (Incorporated
               by reference to Exhibit 4.3 of the Initial Registration
               Statement).
4.7            Form of Agreement between the Company and various banks named in
               Amended and Restated Senior
               Lending Agreement (Incorporated by reference to Exhibit 4.7 of
               the Initial Registration Statement).
4.9            Amended and Restated Senior Lending Agreement dated October 1,
               2003 among the Company and various banks named therein
               (Incorporated by reference to Exhibit 4.9 of the Post Effective
               Amendment No. 1 to the Registration Statement filed with the
               Securities and Exchange Commission dated December 12, 2003
               (Commission No. 333-103293) ("Post Effective Amendment No.1").
4.10           Promissory Note dated October 1, 2003 between the Company and
               Pioneer Financial Industries, Inc. (Incorporated by reference to
               Exhibit 4.10 of the Post Effective Amendment No. 2)
4.11           Form of Rate Supplement (Incorporated by reference to Exhibit
               4.11 of the Post Effective Amendment No. 2).
4.12           Form of IRA Application (Incorporated by reference to Exhibit
               4.12 of the Post Effective Amendment No. 2).
4.13           Form of Offer to Purchase (Incorporated by reference to Exhibit
               4.13 of the Post Effective Amendment No. 2).
10.1           Form of Readi-Loan Licensing Agreement (Incorporated by reference
               to Exhibit 10 of the Initial Registration Statement).
10.2           Office Building Lease dated January 31, 2001, between the Company
               and Belletower Partners, L.L.C. (Incorporated by reference to
               Exhibit 10.2 of the Initial Registration Statement).
10.3           Addendum to Office Building Lease between the Company and
               Belletower Partners, L.L.C. (Incorporated by reference to Exhibit
               10.3 of the Initial Registration Statement).
10.4           First Amendment to Office Building Lease dated July 19, 2001,
               between the Company and Belletower Partners, L.L.C. (Incorporated
               by reference to Exhibit 10.4 of the Initial Registration
               Statement).
10.5           Employment Contract between the Company and Randall J. Opliger
               (Incorporated by reference to Exhibit 10.5 of the Initial
               Registration Statement).

                                       19
<PAGE>

10.6           Trademark Licensing Agreement dated October 10, 2000 between the
               Company and Pioneer Licensing Services, Inc. (Incorporated by
               reference to Exhibit 10.6 of the Initial Registration Statement).
10.7           Transfer of Shares dated as of September 30, 2003 between the
               Company and Pioneer Financial Industries, Inc. (Incorporated by
               reference to Exhibit 10.7 of the Annual Report on Form 10-K
               for the fiscal year ended September 30, 2003).
10.8           Capital Contribution Agreement dated as of September 30, 2003
               between the Company and Pioneer Financial Industries, Inc.
               (Incorporated by reference to Exhibit 10.8 of the Annual Report
               on Form 10-K for the fiscal year ended September 30, 2003).
10.9           Stock Purchase Agreement dated October 29, 2003 between the
               Company and Pioneer Financial Industries, Inc. (Incorporated by
               reference to Exhibit 10.9 of the Annual Report on Form 10-K
               for the fiscal year ended September 30, 2003).
10.10          Stock Purchase Agreement dated October 29, 2003 between the
               Company and Pioneer Financial Industries, Inc. (Incorporated by
               reference to Exhibit 10.10 of the Annual Report on Form 10-K
               for the fiscal year ended September 30, 2003).
12             Statement regarding computation of ratios (Incorporated by
               reference to Exhibit 12 of Post Effective Amendment No. 2).
21             Subsidiaries of the Company (Incorporated by reference to Exhibit
               21 of the Post Effective Amendment No. 1).
25             Statement of eligibility of trustee (Incorporated by reference to
               Exhibit 25 of the Amendment No. 1).
31.1           Certification of Chief Executive Officer pursuant to Rule
               15d-15e.
31.2           Certification of Chief Financial Officer pursuant to Rule
               15d-15e.
32.1           18 U.S.C. Section 1350 Certification of Chief Executive Officer.
32.2           18 U.S.C. Section 1350 Certification of Chief Financial Officer.


                                       20
<PAGE>


                                   SIGNATURES


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

PIONEER FINANCIAL SERVICES, INC.


Name                                    Title                          Date


/s/ William D. Sullivan             Chief Executive Officer      August 14, 2006
-------------------------------     and Sole Director
William D. Sullivan                 (Principal Executive Officer)


/s/ Randall J. Opliger              Chief Financial Officer,     August 14, 2006
-------------------------------     Treasurer and Secretary
Randall J. Opliger                  (Principal Financial Officer
                                    and Principal Accounting Officer)




                                       21