**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        DC 20549**
 
 **FORM
        10-Q/A**
 **Amendment
        No. 1**
 
 **x**
              **Quarterly
                  Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
                  of 1934**For
                  the quarterly period ended: May 31, 2007
  **o**
              **Transition
                  Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
                  of 1934**For
                  the transition period from ________ to _________
 
 Commission
        File Number:     000-50477
 
 **MANCHESTER
        INC.**
 (Exact
        Name of Registrant as specified in its charter)
 
 **NEVADA**
              **98-0380409**(State
                  or other jurisdiction of
              (IRS
                  Employerincorporation
                  or organization)
              Identification
                  Number)
 
 **100
        Crescent Court, 7** **th** **Floor**
 **Dallas,
        Texas 75201**
 (Address
        of principal executive offices)
 
 **(214)
        459-3230**
 (Registrant’s
        telephone number, including area code)
 
 **N/A**
 (Former
        name, former address and former fiscal year, if changed since last report)
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 x Yes  o
        No
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definitions of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
        Accelerated Filer o            
Accelerated
        Filer x Non-Accelerated Filer o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 o  Yes x No
 
 Indicate
        the number of shares outstanding of each of the issuer's classes of common
        equity, as of the latest practicable date: 34,280,037 shares of $0.001 par
        value
        common stock outstanding as of July 13, 2007.
 
 
  Explanatory
        Note
 
 Manchester
        Inc., a Nevada corporation (the “Company”), hereby amends, as set forth herein,
        the Company’s Quarterly Report on Form 10-Q filed with the Securities and
        Exchange Commission (the “Commission”) on July 16, 2007. For the reader’s
        convenience, this Amendment No. 1 to the Company’s Quarterly Report (“Amendment
        No. 1”) includes all Items included in the Form 10-Q, even those not amended by
        this Amendment No. 1.  All information contained in this Amendment No. 1
        speaks solely as of the fiscal quarter ended May 31, 2007, except for
        information identified as subsequent events. For current information regarding
        the business of the Company, please refer to the periodic reports and current
        reports filed by the Company with the Commission in respect of dates after
        May
        31, 2007.
  
 
 **TABLE
                  OF CONTENTS****PART
                  I: FINANCIAL INFORMATION**Item
                  1: Financial Statements
              
              
              1Item
                  2: Management’s Discussion and Analysis of Financial Conditions and
                  Results of Operations
              
              
              23Item
                  3: Quantitative and Qualitative Disclosures about Market
                  Risk
              
              
              33Item
                  4: Control and Procedures
              
              
              34**PART
                  II: OTHER INFORMATION**Item
                  1: Legal Proceedings
              
              
              35Item
                  1A: Risk Factors
              
              
              35Item
                  2: Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              
              35Item
                  3: Defaults Upon Senior Securities
              
              
              35Item
                  4: Submission of Matters to a Vote of Security Holders
              
              
              36Item
                  5: Other Information
              
              
              36Item
                  6: Exhibits and reports on Form 8-K
              
              
              36SIGNATURES
              
              
              37
 
 
 ii
  **PART
        I:**  **FINANCIAL
        INFORMATION**
  **MANCHESTER,
        INC AND SUBSIDIARIES**
 
 **CONSOLIDATED
        BALANCE SHEETS**
 
 **(Stated
        in U.S. Dollars)**
 **MAY
                    31,**
                
                **NOVEMBER
                    30,****2007**
                
                **2006**(unaudited)
                
                See
                    Note 1**ASSETS**Current
                    AssetsCash
                    and cash equivalents
                
                $
                407,368
                
                $
                621,609Short
                    term investments and refundable deposits
                
                
                -
                
                
                838,963Accounts
                    and contracts receivable, net
                
                
                73,471,317
                
                
                55,551,304Inventory
                
                
                4,009,133
                
                
                3,394,276Prepaids
                    and other assets
                
                
                876,847
                
                
                218,959Property,
                    plant and equipment, net
                
                
                2,145,190
                
                
                914,059Goodwill
                
                
                24,845,147
                
                
                9,479,356Deferred
                    loan costs, net
                
                
                13,087,997
                
                
                14,309,709Deferred
                    state income taxes
                
                
                133,989
                
                
                133,989Other
                    assets
                
                
                40,757
                
                
                -Total
                    Assets
                
                $
                119,017,745
                
                $
                85,462,224**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**Accounts
                    payable
                
                $
                1,818,602
                
                $
                627,639Accrued
                    liabilities and expenses
                
                
                2,708,989
                
                
                534,798Revolving
                    line of credit
                
                
                83,826,604
                
                
                55,419,818Notes
                    payable
                
                
                8,774,406
                
                
                4,619,741Notes
                    payable stockholders
                
                
                11,870,999
                
                
                9,871,996Deferred
                    revenue
                
                
                323,843
                
                
                -Capital
                    leases payable
                
                
                244,938
                
                
                251,743Total
                    Liabilities
                
                
                109,568,381
                
                
                71,325,734**STOCKHOLDERS’
                    EQUITY**Common
                    StockAuthorized:100,000,000
                    common shares, no par value $0.001 pershare,
                    34,280,037 and 32,726,500 shares issues and outstandingat
                    May 31, 2007 and November 30, 2006, respectively
                
                
                34,280
                
                
                32,726Additional
                    paid in capital
                
                
                21,649,332
                
                
                17,615,747Accumulated
                    Deficit
                
                
                (12,234,248
                )
                
                (3,511,983
                )Total
                    Stockholders’ Equity
                
                
                9,449,364
                
                
                14,136,490Total
                    Liabilities and Stockholders Equity
                
                $
                119,017,745
                
                $
                85,462,224
 
 The
        accompanying notes are an integral part of these financial
        statements
  
   **MANCHESTER,
        INC AND SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENTS OF INCOME**
  **(Stated
        in U.S. Dollars)**
 
 **Three
                  Months Ended May 31,**
              
              **Six
                  Months Ended May 31,****2007**
              
              **2006**
              
              **2007**
              
              **2006**(unaudited)
              
              (unaudited)Revenues:Net
                  vehicle sales
              
              $
              26,499,789
              
              $
              -
              
              $
              44,713,582
              
              $
              -Interest
                  income
              
              
              5,491,099
              
              
              -
              
              
              10,594,902
              
              
              -Total
                  income
              
              
              31,990,888
              
              
              -
              
              
              55,308,484
              
              
              -Cost
                  of sales
              
              
              13,306,131
              
              
              -
              
              
              23,554,711
              
              
              -Gross
                  profit
              
              
              18,684,757
              
              
              -
              
              
              31,753,773
              
              
              -Expenses:Selling,
                  general and administrative
              
              
              4,406,041
              
              
              186,494
              
              
              7,623,566
              
              
              290,940Provision
                  for credit losses
              
              
              10,230,620
              
              
              -
              
              
              18,253,113
              
              
              -Interest
                  expense
              
              
              3,493,696
              
              
              5,532
              
              
              6,734,291
              
              
              8,724Depreciation
                  and amortization
              
              
              125,018
              
              
              969
              
              
              286,607
              
              
              1,311Financing
                  and other fees
              
              
              316,732
              
              
              -
              
              
              558,426
              
              
              -Total
                  expenses
              
              
              18,572,107
              
              
              192,995
              
              
              33,456,003
              
              
              300,975Operating
                  income (loss)
              
              
              112,650
              
              
              (192,995
              )
              
              (1,702,230
              )
              
              (300,975
              )Other
                  Expense:Amortization
                  of loan costs
              
              
              (1,088,708
              )
              
              -
              
              
              (2,177,417
              )
              
              -Stock
                  options for services
              
              
              (218,959
              )
              
              (117,456
              )
              
              (336,459
              )
              
              (117,456
              )Lawsuit
                  Settlement
              
              
              (4,506,159
              )
              
              
              
              
              (4,506,159
              )Loss
                  before taxes
              
              
              (5,701,176
              )
              
              (310,451
              )
              
              (8,722,265
              )
              
              (418,431
              )Income
                  tax provision (benefit)
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              $
              (5,701,176
              )
              $
              (310,451
              )
              
              (8,722,265
              )
              $
              (418,431
              )Net
                  loss per share applicable to common shareholdersBasic
                  and diluted
              
              $
              (0.17
              )
              $
              (0.01
              )
              $
              (0.26
              )
              $
              (0.01
              )Weighted
                  average number of common shares andcommon
                  share equivalent outstanding
              
              
              34,280,037
              
              
              33,137,500
              
              
              34,021,031
              
              
              33,137,500
  The
        accompanying notes are an integral part of these financial
        statements
  2
 
 **MANCHESTER,
        INC. AND SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENT OF CASH FLOW**
 **For
                    the Six Months Ended May 31,****2007**
                
                
                **2006**(unaudited)Net
                    Loss
                
                $
                (8,722,265
                )
                $
                (418,431
                )Adjustments
                    to reconcile net income (loss) tonet
                    cash used in operating activities:Provision
                    for credit losses
                
                
                18,253,113
                
                
                -Depreciation
                    and amortization
                
                
                286,607
                
                
                1,311Amortization
                    deferred financing
                
                
                2,764,283
                
                
                -Stock
                    options and warrants
                
                
                1,035,139
                
                
                -Changes
                    in assets and liabilities:Decrease
                    (increase) in refundable deposits
                
                
                900,000
                
                
                (250,000
                )Decrease
                    in accounts and contracts receivable, net
                
                
                (23,598,927
                )
                
                -Decease
                    in inventory
                
                
                (219,571
                )
                
                -Increase
                    in prepaids and other current assets
                
                
                (241,231
                )
                
                (13,194
                )Decrease
                    in accounts payable
                
                
                112,788
                
                
                -Increase
                    in accrued interest
                
                
                1,169,752
                
                
                8,725Increase
                    in accrued expenses and liabilities
                
                
                398,540
                
                
                91,336Net
                    cash used in operating activities
                
                
                (7,861,772
                )
                
                (580,253
                )Cash
                    flows from investing activities:Acquisition
                    of business, net of cash acquired
                
                
                -
                
                
                -Purchase
                    of property, plant and equipment
                
                
                (296,253
                )
                
                (14,404
                )Net
                    cash used in investing activities
                
                
                (296,253
                )
                
                (14,404Cash
                    flows from financing activitiesDeferred
                    loan costs incurred
                
                
                (1,542,571
                )
                
                (206,927
                )Payments
                    on notes payable
                
                
                (33,834,602
                )
                
                -Proceeds
                    from loans
                
                
                44,620,605
                
                
                799,203Payments
                    on capital leases, net of additions
                
                
                (6,805
                )
                
                -Repayments
                    of stockholder loans
                
                
                (1,292,843
                )
                
                117,400Net
                    cash provided in financing activities
                
                
                7,943,784
                
                
                709,676Increase
                    (decrease) in cash and cash equivalents
                
                
                (214,241
                )
                
                115,019Cash
                    and cash equivalents at beginning of year
                
                
                621,609
                
                
                777Cash
                    and cash equivalents at end of period
                
                $
                407,368
                
                $
                115,796Supplemental
                    Disclosure of Cash Flow InformationCash
                    paid during the period for interest
                
                $
                6,889,443
                
                $
                -Cash
                    paid during the period for income taxes
                
                $
                -
                
                $
                -
  The
        accompanying notes are an integral part of these financial
        statements




3


**MANCHESTER,
        INC AND SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENTS OF CASH FLOWS — (Continued)**
 
 **For
                  the Six Months Ended May 31,****2007**
              
              **2006**(unaudited)Supplemental
                  disclosures of non-cash investing and financing
                  activities:Stock
                  issued to acquire business
              
              $
              3,000,000
              
              $
              -Notes
                  issued to acquire business
              
              $
              3,150,000
              
              $
              -Amortization
                  of common stock warrants beneficial conversion feature
              
              $
              2,177,417
              
              $
              -Relative
                  fair value of common stock options issued for services
              
              $
              336,459
              
              $
              -Warrants
                  issued in settlement
              
              $
              698,680
              
              $
              -Reclassification
                  of goodwill - (Note 14)
              
              $
              10,366,387
              
              $
              -
  4
  **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **May
        31, 2007 (Unaudited)**
  
 **NOTE
        1.  ORGANIZATION, OPERATION AND BASIS OF PRESENTATION**
  The
        Company was incorporated on August 27, 2002 under the laws of the state of
        Nevada. The Company commenced business as an exploration stage mining and
        mineral resources company. During that time, the Company had been determined
        to
        be a development stage company under the definition of SFAS 7. The mining
        exploration activities ceased on April 30, 2004 and subsequently the Company
        began seeking an alternative line of business. In 2006 the Company began
        principal operations and ended its status as an exploration stage company.
 
 On
        October 4, 2006, the Company acquired a Buy-Here/Pay-Here used car sales
        enterprise. The transaction consisted of the acquisition of Nice Cars, Inc.,
        car
        sales company and Nice Cars Capital Acceptance Corporation, an affiliate
        credit
        acceptance company (collectively, the “Nice Cars Acquisition”) by two of the
        Company’s wholly-owned subsidiaries Nice Cars Operations Acquisition Co, Inc.
        and Nice Cars Acceptance Acquisition Co, Inc. (collectively, the “Manchester
        Nice Cars Acquisition Subsidiaries”). Nice Cars, Inc. was incorporated under the
        laws of the state of Georgia on May 21, 1998. Nice Cars Capital Acceptance
        Corporation was incorporated under the laws of the state of Georgia on May
        10,
        2000. The operations for the two months ended November 30, 2006 are included
        in
        the consolidated statement of income.
 
 The
        Company paid $18,051,054, incurred $9,372,095 in notes payable to the prior
        stockholders and issued 6.25 million shares of the Company’s common stock to
        acquire Nice Cars, Inc. and Nice Cars Capital Acceptance Corporation. As
        part of
        the purchase price, the Company also agreed to the assumption of certain
        obligations and liabilities. The Company acquired Nice Cars, Inc. and Nice
        Cars
        Capital Acceptance Corporation pursuant to the terms of two share purchase
        and
        exchange agreements.
 
 For
        federal income tax reporting, the company will file consolidated income tax
        returns. For state income and franchise tax reporting, Manchester Inc. and
        Nice
        Cars are separate legal entities with each company filing separate state
        tax
        returns.
 
 Nice
        Cars
        has operating locations in Tennessee and Georgia. The Nice Cars corporate
        and
        administrative offices are located in Fort Oglethorpe, Georgia. The corporate
        and administrative offices of Manchester Inc. are located in Dallas, Texas.
 
 On
        December 29, 2006, the Company acquired a second Buy-Here/Pay-Here used car
        sales enterprise. The transaction consisted of the acquisition of F.S. English,
        Inc., a Buy-Here/Pay-Here car sales company, and GNAC, Inc., its affiliated
        credit acceptance company, by two special purpose wholly-owned acquisition
        subsidiaries of the Company that were incorporated under the laws of the
        state
        of Delaware on November 21, 2006. Following the acquisition, F.S. English,
        Inc.
        and GNAC were merged into the Company’s subsidiaries and now operate under the
        names “Freedom Auto Sales” and “Freedom Auto Acceptance” (collectively, the
“Freedom Companies”). The operations of the Freedom Companies the five months
        ended May 31, 2007 are included in the consolidated statement of income.
 
 The
        Freedom Companies’ corporate predecessors’ financial statements for the calendar
        years ended December 31, 2005 and 2004, respectively, were audited by Katz,
        Sapper & Miller, LLP, a large audit, accounting and professional services
        firm in Indianapolis, Indiana. Manchester Inc. has engaged its public accounting
        firm of Rodefer Moss & Co, PLLC (“Rodefer Moss”) to perform the audit for
        the year ended December 31, 2006, the results of which will be incorporated
        on
        Form 8-K to be filed upon the completion of such audit. The consolidated
        financial statements of Manchester Inc. for the six months ended May 31,
        2007
        were prepared on the basis that no material misstatements would result from
        the
        audit of the Freedom Companies corporate predecessors’ financial statements for
        their respective fiscal-year ended December 31, 2006.
  5
  **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
  **NOTE
        2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Principles
        of Consolidation**
 
 The
        consolidated financial statements include the accounts of Manchester Inc.
        and
        its subsidiaries. The Consolidated Statements of Income include Manchester
        Inc.
        and Nice Cars for the six months ended May 31, 2007 and the operations of
        Freedom Auto Sales for the five months ended May 31, 2007. All intercompany
        accounts and transactions have been eliminated.
 
 **Reclassifications**
 
 Certain
        previously reported amounts have been reclassified to conform to the May
        31,
        2007 financial statement presentation.
 
 **Revenue,
        Costs and Expense Recognition**
 
 The
        Company recognizes revenues from vehicle sales, and the related cost of sales,
        upon delivery to the customer.
 
 Interest
        and discount income are recognized using the effective interest method, as
        payments are received on the sales contracts. Interest and discount income
        are
        suspended when a contract is two payment periods (weekly, bi-weekly or monthly)
        delinquent. Recognition of interest and discount income resumes if the contract
        becomes contractually current. Past-due interest and discount income are
        also
        recognized at that time. In addition, a detailed review of contract receivables
        will cause earlier suspension of recognition of interest and discount income
        if
        collection is doubtful, or if other related facts detrimental to the contracts
        become known.
 
 Contracts
        receivable are reported at their outstanding principal balances, net of amounts
        estimated to be uncollectible, deferred interest on the purchased contracts,
        and
        sales taxes due from customers but not payable to the applicable states until
        collected.
 
 Allowance
        for uncollectible contracts is increased by charges to income, and decreased
        by
        charge-offs, net of recoveries. Management’s periodic evaluation of the adequacy
        of the allowance is based upon the Company’s past loss experience, known and
        inherent risk, adverse situations that may affect the customer’s ability to make
        payments as agreed, the estimated fair market value of the underlying
        collateral, and current economic conditions. Contracts receivable are classified
        as delinquent after one missed payment. After two missed payments, repossession
        proceedings of the collateral underlying the contract are commenced. Upon
        repossession of the collateral, the contract is charged off.
 
 **Cash
        and Cash Equivalents**
 
 The
        Company considers all highly liquid investments purchased with a maturity
        at the
        date of purchase of three months or less to be cash equivalents.
 
 **Inventory**
 
 Inventory
        is stated at the lower of cost or market on a specific identification basis.
  6
  **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
 
 **Property,
        Plant and Equipment**
 
 Property
        and equipment are recorded at cost. Expenditures for repairs and maintenance
        are
        charged to expense as incurred. Expenditures for additions and improvements
        that
        significantly extend the lives of assets are capitalized. Upon the sale or
        other
        retirement of depreciable property, the cost and accumulated depreciation
        are
        eliminated from the related accounts and any gain or loss is reflected in
        operations. Depreciation is computed on the straight line and accelerated
        methods over the estimated useful lives of the depreciable assets, which
        range
        from 3-10 years.
 
 **Per
        Share Amounts**
 
 The
        basic
        net income (loss) per common share has been computed based upon the weighted
        average number of shares of Common Stock outstanding. Diluted net income
        (loss)
        per common share has been computed based upon the weighted average number
        of
        shares of Common Stock outstanding and shares that would have been outstanding
        assuming the issuance of Common Stock for all potentially dilutive securities
        outstanding. The Company’s outstanding stock options and warrants represent the
        only potentially dilutive securities outstanding. Diluted net loss per common
        share is equal to the basic net loss per common share for the six months
        ended
        May 31, 2007 and 2006 as common equivalent shares from stock options and
        stock
        warrants would have an anti-dilutive effect because of the loss from continuing
        operations. As of May 31, 2007, there were 4,933,333 shares of potentially
        dilutive securities from vested options and warrants.
 
 **Income
        Taxes**
 
 Income
        taxes are accounted for under the liability method. Under this method, deferred
        tax assets and liabilities are determined based on the differences between
        the
        financial reporting and tax basis of the assets and liabilities and are measured
        using the enacted rates expected to apply in the years in which these temporary
        differences are to be recovered or settled.
 
 Income
        taxes are provided for the tax effects of transactions reported in the
        consolidated financial statements and consist of any taxes currently due,
        plus
        deferred taxes. Deferred taxes are derived primarily from timing differences
        in
        the deductibility of bad debts for financial and income tax reporting, and
        operating losses that are available to offset future state taxable
        income. If it is more likely than not that some portion or all of a
        deferred tax asset will not be realized, a valuation allowance is recognized.
        The Company may be audited by taxing authorities. These audits could result
        in
        proposed assessments of additional taxes. The Company believes that its tax
        positions comply in all material aspects with the applicable tax law. However,
        tax law is subject to interpretation, and interpretations by taxing authorities
        could be different from those of the Company, which could result in the
        imposition of additional taxes.
 
 **Advertising**
 
 The
        Company expenses advertising production and communication costs as they are
        incurred. The total advertising expense for the three and six months ended
        May
        31, 2007 was $80,403 and $247,047, respectively.
 
 **Deferred
        loan costs**
 
 Loan
        and
        debt issuance costs related to financings are stated at cost and are amortized
        over the life of the obligation using the interest method. Upon retirement
        of
        the related debt, any unamortized loan costs are charged to expense.
  7
  **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
  **NOTE
        2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
        continued**
 
 **Estimates**
 
 The
        preparation of the consolidated financial statements in conformity with
        accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities, the disclosure of contingent assets and
        liabilities, and the reported revenues and expenses. Actual results could
        vary
        from the estimates that were used.
 
 **New
        Accounting Pronouncements**
 
 In
        December 2004, the Financial Accounting Standards Board ("FASB") revised
        Statement of Financial Accounting Standard No. 123, ACCOUNTING FOR STOCK-BASED
        COMPENSATION ("SFAS No. 123"), by issuing SHARE-BASED PAYMENT ("SFAS 123(R)").
        SFAS 123(R) requires us to recognize, in the determination of income, the
        grant
        date fair value of all stock options and other equity based compensation
        issued
        to employees. In April 2006, the Securities and Exchange Commission announced
        that it would provide for a phased-in implementation process for SFAS No.
        123(R), which required the Company to adopt SFAS No. 123(R) no later than
        January 1, 2006. The statement applies to all awards granted after the required
        effective date and to awards modified, repurchased, or cancelled after that
        date. The adoption of SFAS 123(R) in the second quarter of our fiscal year
        ended
        November 30, 2006, had no material effect on the Company's financial statements.
 
 Statement
        of Financial Accounting Standards No. 151, INVENTORY COSTS, an amendment
        of ARB
        No. 43, Chapter 4 (SFAS 151) was issued in November 2004 and became effective
        for inventory costs incurred during fiscal years beginning after June 15,
        2006.
        The statement clarifies the accounting for abnormal amounts of idle facility
        expense, freight, handling costs, and wasted material. The adoption of SFAS
        151 did not have any material effect on the
        Company's financial statements.
 
 Statement
        of Financial Accounting Standards No. 154, ACCOUNTING CHANGES AND ERROR
        CORRECTIONS, a replacement of APB Opinion No. 20 and FASB Statement No. 3
        ( SFAS
        154)
        was issued in May 2006 and became effective for accounting changes and
        corrections of errors made in fiscal years beginning after December 15, 2006.
        The Company does not expect that SFAS
        154
        will have any significant effect on future financial statements.
 
 Statement
        of Financial Accounting Standards No. 155, ACCOUNTING FOR CERTAIN HYBRID
        FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140, was
        issued in February 2006 and is effective for all financial instruments acquired
        or issued after the beginning of an entity's first fiscal year that begins
        after
        September 15, 2006. Certain parts of this Statement may be applied prior
        to the
        adoption of this Statement. Earlier adoption is permitted as of the beginning
        of
        an entity's fiscal year, provided the entity has not yet issued financial
        statements, including financial statements for any interim period for that
        fiscal year. Provisions of this Statement may be applied to instruments that
        an
        entity holds at the date of adoption on an instrument-by-instrument basis.
        The
        adoption of SFAS 155 did not have any significant effect on the
        Company's financial statements.
 
 In
        February 2007, the FASB issued Statement of Financial Standards No. 159 (“SFAS
        No. 159”), “The Fair Value Option for Financial Assets and Financial
        Liabilities,” which permits entities to choose to measure many financial
        instruments and certain other items at fair value. SFAS No. 159 is effective
        for
        fiscal years beginning after November 15, 2007. The Company is currently
        assessing the impact of SFAS No. 159 on its consolidated financial statements.
 
 8
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
  **NOTE
        2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
        continued**
  **New
        Accounting Pronouncements**
  In
        March
        2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING OF FINANCIAL
        ASSETS
        - AN AMENDMENT OF FASB STATEMENT NO. 140, with respect to the accounting
        for
        separately recognized servicing assets and servicing liabilities. SFAS 156
        permits the choice of the amortization method or the fair value measurement
        method, with changes in fair value recorded in income, for the subsequent
        measurement for each class of separately recognized servicing assets and
        servicing liabilities. The statement is effective for years beginning after
        September 15, 2006, with earlier adoption permitted. The Company is currently
        evaluating the effect that adopting this statement will have on the Company's
        financial position and results of operations
  In
        June
        2006, the FASB ratified the consensus reached on EITF Issue No. 06-3, "How
        Taxes
        Collected from Customers and Remitted to Governmental Authorities Should
        Be
        Presented in the Income Statement (That Is, Gross versus Net Presentation)"
        ("EITF 06-3"). EITF 06-3 requires disclosure of the method of accounting
        for the
        applicable assessed taxes and the amount of assessed taxes that are included
        in
        revenues if they are accounted for under the gross method. EITF 06-3 is
        effective for the first interim or annual reporting period beginning after
        December 15, 2006. No additional disclosures will be required since the Company
        presents revenues net of any taxes collected from customers.
  In
        July 2006 the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an
        interpretation of FASB Statement No. 109” (“FIN 48”), which provides
        criteria for the recognition, measurement, presentation and disclosure of
        uncertain tax positions. A tax benefit from an uncertain position may be
        recognized only if it is “more likely than not” that the position is sustainable
        based on its technical merits. The provisions of FIN 48 are effective for
        fiscal
        years beginning after December 15, 2006. The Company is currently
        evaluating the effects of FIN 48. The Company does not currently recognize
        any
        value for its tax net operating losses.
  In
        September 2006 the SEC issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Qualifying
        Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108
        provides guidance on the consideration of effects of the prior year misstatement
        in quantifying current year misstatements for the purpose of a materiality
        assessment. The SEC staff believes registrants must quantify errors using
        both a
        balance sheet and income statement approach and evaluate whether either approach
        results in a material misstatement, when all relevant quantitative and
        qualitative factors are considered. SAB 108 is effective for the first annual
        period ending after November 15, 2006, with early application encouraged.
        The Company has adopted SAB 108 for its fiscal year ending November 30,
        2007.
  In
        February 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial In September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* (“SFAS
        No. 157”). SFAS No. 157 defines fair value, establishes a framework and gives
        guidance regarding the methods used for measuring fair value, and expands
        disclosures about fair value measurements. SFAS No. 157 is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years. We are currently assessing
        the
        impact that SFAS No. 157. The Company does not expect SFAS 157 to have a
        material effect on the Company's consolidated financial position or results
        of
        operations.
  9
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **May
        31, 2007 (Unaudited)**
 
 **NOTE
                  3.  ACCOUNTS RECEIVABLE AND CONTRACTS RECEIVABLE**
 
 Contracts
        receivable are recorded at their outstanding principal balances, reduced
        by any
        charge-offs or specific valuation accounts, deferred interest and sale taxes
        due
        from customers. The Company finances vehicle sales to selected customers
        over
        periods ranging from 12 to 54 months, with interest at 26% in Georgia and
        Tennessee and ranging from 16% to 21% in Indiana and Illinois.
 
 The
        allowance for uncollectible accounts is based upon the Company’s historical loss
        percentage relative to the fair value of the contracts’ underlying
        collateral.
 
 The
        estimated future maturities of contracts receivable at May 31, 2007 using
        forty-two months as the average contract term remaining, are as follows:
  **May
                    31, 2007**
                
                **Gross
                    contracts**
                  **receivable**
                
                **Unearned**
                  **finance
                    charges**
                  **and
                    sales taxes**
                
                **Principal**
                  **balance**1st
                    year
                
                $
                62,974,164
                
                $
                (13,593,387
                )
                $
                49,380,7772nd
                    year
                
                
                40,837,732
                
                
                (8,677,590
                )
                
                32,160,1423rd
                    year
                
                
                16,572,935
                
                
                (3,623,052
                )
                
                12,949,8834th
                    year
                
                
                4,076,591
                
                
                (504,405
                )
                
                3,572,1865th
                    year
                
                
                1,882,531
                
                
                (149,176
                )
                
                1,733,355**Total**
                
                $
                126,343,953
                
                $
                (26,547,610
                )
                $
                99,796,343Allowance
                    for credit losses
                
                
                
                
                
                (26,325,026
                )**Total**
                
                
                
                
                
                
                
                $
                73,471,317
 
 The
        above
        tabulation should not be regarded as a forecast of future cash collections.
 
 The allowance
        for credit losses at May 31, 2007 was $26,325,026 and represents 26.4% of
        the
        net principal balance. See Note 14.
  10
  **MANCHESTER
        INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **May
        31, 2007 (Unaudited)**
  **NOTE
        4.  PROPERTY, PLANT AND EQUIPMENT**
 
 Property,
        plant and equipment at May 31, 2007 and November 30, 2006 consisted of the
        following:
  **May
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Furniture
                  and fixtures
              
              $
              512,707
              
              $
              67,211Equipment
              
              
              3,112,998
              
              
              2,167,903Leasehold
                  improvements
              
              
              1,274,350
              
              
              440,551Buildings
              
              
              712,323
              
              
              108,3495,612,378
              
              
              2,784,014Less:
                  accumulated depreciation
              
              
              (3,467,188
              )
              
              (1,869,955
              )Property,
                  plant and equipment, net
              
              $
              2,145,190
              
              $
              914,059
  11
  **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
 
 **NOTE
                  5.  DEFERRED LOAN COSTS AND COMMON STOCK WARRANTS**
 
 Deferred
        Loan Costs at May 31, 2007 consists of common stock warrants that were issued
        to
        the Company’s lender, Palm Beach Multi-Strategy Fund, L.P. on October 4, 2006
        and attendant fees and expenses associated with the credit facility. The
        4,000,000 warrants were valued using the Black-Scholes pricing model with
        an
        exercise price of $3.00 and a weighted average common per share price of
        $3.27.
        The amortization period is 36 months, the length of the loan duration.
  **May
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Gross
                  value of warrants issued
              
              $
              13,064,499
              
              $
              13,064,499Loan
                  expenses
              
              
              3,629,534
              
              
              2,086,961Total
              
              
              16,694,033
              
              
              15,151,460Less:
                  accumulated amortization
              
              
              (3,606,036
              )
              
              (841,751
              )Balance
                  of deferred loan costs
              
              $
              13,087,997
              
              $
              14,309,709
  12
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
 
 **NOTE
                  6.  REVOLVING LINE OF CREDIT**
 
 The
        Company has four lines of credit with Palm Beach Multi-Strategy Fund L.P.
        and
        its affiliates with a total outstanding balance of $83,826,604 at May 31,
        2007.
        The lines of credit are secured by accounts receivable, inventory and all
        assets
        of the Company.
 **May
                    31,**
                
                **November
                    30,****2007**
                
                **2006**Revolving
                    line of credit with Palm Beach Multi-Strategy Fund L.P. dated
                    September
                    28, 2006, as amended December 28, 2006, consisting of a term
                    note payable
                    in full September 28, 2009, secured by accounts receivable, inventory
                    and
                    all assets of the Company, with interest at the Prime Rate as
                    published in
                    The Wall Street Journal ("WSJ Prime Rate") + 9% with an interest
                    rate
                    floor of 17% and a revolving credit line with interest at the
                    WSJ Prime
                    Rate + 5% with an interest rate floor of 13%.
                
                $
                60,154,704
                1
                $
                55,419,818
                (*)Revolving
                    line of credit with Palm Beach Multi-Strategy Fund L.P. dated
                    December 28,
                    2006, consisting of a term note payable in full December 28,
                    2009, secured
                    by accounts receivable, inventory and all assets of the Company,
                    with
                    interest at the WSJ Prime Rate + 8% with an interest rate floor
                    of 16% and
                    a revolving credit line with interest at the WSJ Prime Rate +
                    5% with an
                    interest rate floor of 13%.
                
                
                20,818,665
                2
                
                -Revolving
                    Floor Plan with Palm Beach Multi-Strategy Fund, L.P. secured
                    by the
                    equivalent inventory with interest at the WSJ Prime Rate + 7.75%
                    with an
                    interest rate floor of 16%.
                
                
                854,625
                
                
                -Revolving
                    Floor Plan with Palm Beach Multi-Strategy Fund, L.P. secured
                    by the
                    equivalent inventory with interest at the WSJ Prime Rate + 7.75%
                    with an
                    interest rate floor of 16%.
                
                
                1,998,610
                
                
                -Total
                
                $
                83,826,604
                
                $
                55,419,818
 
 1
                  -
                  The outstanding revolving credit line balance and term note payable
                  at May
                  31, 2007 was $17,838,110 and $42,316,594, respectively.2
                  -
                  The outstanding revolving credit line balance and term note payable
                  at May
                  31, 2007 was $945,000 and $19,873,665, respectively.(*)
                  Certain prior year amounts have been reclassified to conform to
                  the May
                  31, 2007 financial statement
                  presentation.
  13
  
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
  **NOTE
                  7.  NOTES PAYABLE**
 
 Notes
        payable at May 31, 2007 and November 30, 2006 were outstanding as follows:
  **May
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Note
                  Payable to a bank in monthly installments of $26,678
                  includinginterest
                  at 8.19%, through February 2012. Secured by certain property
                  andequipment.
              
              
              661,046
              
              
              -Note
                  Payable to a bank in monthly installments of $432
                  includinginterest
                  at 5.95% through April 2009. Secured by certain property
                  andequipment.
              
              
              9,269
              
              
              -Unsecured
                  promissory demand note with one lender with interest of
                  5%.
              
              
              10,200
              
              
              -Unsecured
                  promissory demand notes with one lender, dated fromDecember
                  2005 through February 28, 2007 with interest of 6%.
              
              
              5,103,754
              
              
              4,437,204Unsecured
                  financing agreement with 1st. Insurance Funding payable intwo
                  remaining installments due by January 10, 2007.
              
              
              -
              
              
              83,233Unsecured
                  promissory note with one lender, amended June 1, 2006,payable
                  June 1, 2007 with interest of 8%.
              
              
              99,304
              
              
              99,304Unsecured
                  promissory note dated May 7, 2007 payable in eighteenequal
                  monthly installments of $25,000, without interest, with the
                  remainingbalance
                  due in full by November 7, 2008.
              
              
              2,890,833
              
              
              -Total
              
              $
              8,774,406
              
              $
              4,619,741
  14
  **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
 
 **NOTE
                  8.  NOTES PAYABLE TO STOCKHOLDERS**
 
 The
        stockholder notes payable balances at May 31, 2007 and November 30, 2006
        are
        detailed below. The notes payable to stockholders consists of various notes
        issued by the Company in the acquisition of the Nice Car’s companies on October
        4, 2006 and Freedom Auto Sale’s companies on December 29, 2006. The notes are
        subordinated to the note of the revolving line of credit as described at
        Note 6.
 
 **May
                  31,**
              
              **November
                  30,****2007**
              
              **2006**Unsecured
                  promissory note to shareholders dated October 4, 2006,payable
                  in full October 4, 2007, with interest rate of 10%.
              
              $
              6,930,000
              
              $
              6,930,000Unsecured
                  promissory note to shareholders dated October 4, 2006,payable
                  in full November 1, 2006, with interest rate of 10%.
              
              
              -
              
              
              627,543Unsecured
                  demand note to shareholder dated November 1, 2006,with
                  interest rate of 10%.
              
              
              -
              
              
              500,000Unsecured
                  promissory note to shareholders dated October 4, 2006,payable
                  in full January 2, 2007, with interest rate of 10%.
              
              
              1,240,765
              
              
              1,814,453Unsecured
                  promissory note to shareholder, with an interest rate of8%,
                  payable on demand.
              
              
              60,823
              
              
              -Unsecured
                  promissory note to shareholder, with an interest rate of8%,
                  payable on demand.
              
              
              54,918
              
              
              -Cash
                  advances by shareholder, with remaining liability at March23,
                  2007 converted to unsecured promissory note payable inmonthly
                  installments through July, 2007, with interest rate of
                  10%.
              
              
              434,493
              
              
              -Unsecured
                  promissory note to shareholders dated December 29,2006,
                  payable in full December 29, 2007, with interest rate of
                  5%.
              
              
              3,000,000
              
              
              -Unsecured
                  promissory note to shareholders dated December 29,2006,
                  payable in two equal installments due on or before June
                  29,2007
                  and September 29, 2007, respectively with interest rate of
                  5%.
              
              
              150,000
              
              
              -Total
              
              $
              11,870,999
              
              $
              9,871,996
  15
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
 
 **NOTE
                  9.  COMMON STOCK OPTIONS**
  The
        Company has an incentive stock option plan for employees whereby options
        to
        purchase Common Stock are granted at no less than the stock’s estimated fair
        market value at the date of the grant and may be exercised during specified
        future periods.
 
 In
        December 2004, the FASB issued SFAS No. 123 (Revised 2004)
“Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R
        addresses all forms of share-based payment (“SBP”) awards, including shares
        issued under certain employee stock purchase plans, stock options, restricted
        stock and stock appreciation rights. SFAS No. 123R requires the
        Company to expense SBP awards over the period during which an employee is
        required to provide service in exchange for the award, usually the vesting
        period. Compensation cost for SBP transactions will be measured at fair value
        using a Black-Scholes or similar bi-nomial model. SFAS No. 123R
        required us to adopt the new accounting provisions beginning in our second
        quarter of 2006.
 
 **Weighted-****Weighted-**
              
              **Average****Average**
              
              **Remaining**
              
              **Aggregate****Exercise**
              
              **Contractual**
              
              **Intrinsic****Shares**
              
              **Price**
              
              **Term**
              
              **Value**Outstanding
                  at December 1, 2006
              
              
              550,000
              
              $
              4.46Granted
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (350,000
              )
              
              4.44Expired
              
              
              -
              
              
              -Outstanding
                  at February 28, 2007
              
              
              200,000
              
              
              4.45
              
              
              0.78
              
              
              -Granted
              
              
              900,000
              
              
              2.63Exercised
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -Expired
              
              
              -
              
              
              -Outstanding
                  at May 31, 2007
              
              
              1,100,000
              
              $
              2.97
              
              
              1.71
              
              
              -Vested
                  and exercisable at May 31, 2007
              
              
              133,333
              
              $
              4.45
  16
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
  **NOTE
                  10.  INCOME TAXES**
 
 
 The
                  income tax provision charged (benefit credited) for the six months
                  ended
                  May 31, 2007 was as follows:
 
 BenefitProvision
                  for income taxes related to operations
              
              $
              (2,965,500
              )Less
                  tax effects of non-deductible expenses:Provision
                  for credit losses
              
              
              (618,500
              )Amortization
                  of deferred loan costs
              
              
              740,300Charitable
                  contribution carryforward
              
              
              2,900Total
                  provision for Federal income taxes
              
              $
              (2,840,800
              )Net
                  provision for income taxes from Indiana operations
              
              
              (269,800
              )Net
                  provision for income taxes from Tennessee and Georgia
                  operations
              
              
              181,300Provision
                  for income tax benefit related to operations
              
              
              (2,929,300
              )Valuation
                  allowance
              
              
              2,929,300Net
                  current provision
              
              $
              -The
                  differences between the Statutory Federal income tax rate and the
                  effective tax rate are as follows:Statutory
                  Federal income tax rate
              
              
              -34.0
              %Increase
                  (decrease) in rate resulting from:State
                  and local taxes, net of Federal Benefit
              
              
              -1.0
              %Provision
                  for credit losses
              
              
              -7.1
              %Amortization
                  of deferred loan costs
              
              
              8.5
              %Charitable
                  contribution carryforward
              
              
              0.0
              %Effective
                  tax rate before allowance
              
              
              -33.6
              %Temporary
                  differences which give rise to a significant portion of deferred
                  tax
                  assets and liabilities were as follows:Provision
                  for credit losses
              
              $
              10,411,000Amortization
                  of deferred loan costs
              
              
              827,400Charitable
                  contribution carryforward
              
              
              68,200Total
                  deferred tax benefit
              
              
              11,306,600Valuation
                  allowance
              
              
              (11,172,611
              )Total
                  deferred tax benefit net of valuation allowance
              
              $
              133,989
  Prior
        year tax benefit provisions caused by losses incurred by operations are not
        material and have been eliminated by valuation allowances.
  17
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
 
 **NOTE
                  11.  CONCENTRATION OF CREDIT RISK**
 
 The
        Company’s customer base is concentrated in the Northwest Georgia, Southeast
        Tennessee and Northern Indiana geographical areas. Due to the nature of the
        Company’s business, many of its customers are considered substandard credit
        risks.
 
 The
        Company has concentrated cash deposits in multiple high credit quality financial
        institutions. The amounts on deposit at May 31, 2007 (unaudited) and during
        various periods during the year were lower than the federally insured deposit
        limit.
 
 The
        Company is exposed to various risks of loss related to torts, theft of, damage
        to and destruction of assets, errors and omissions and natural disasters.
        The
        Company has purchased third party liability and property damage insurance
        to
        protect against these claims and losses.
 
 **NOTE
                  12.  FAIR VALUE OF FINANCIAL INSTRUMENTS**
 
 The
        Company’s financial instruments, none of which are held for trading, include
        cash, contracts receivable, accounts payable, accrued expenses, floor plan
        notes
        payable and capital leases payable. The Company estimates that the fair value
        of
        all financial instruments at May 31, 2007 (Unaudited) and November 30, 2006
        (Audited) does not differ materially from the aggregate carrying values of
        the
        financial instruments recorded in the accompanying combined financial
        statements. The estimated fair value amounts have been determined by using
        available market information and appropriate data to develop the estimates
        of
        fair value, and accordingly, the estimates are not necessarily indicative
        of the
        amounts that could be realized in a current market exchange. The use of
        different market assumptions or methodologies could have a material effect
        on
        the estimated fair value amounts.
 
 18
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **May
        31, 2007 (Unaudited)**
  **NOTE
        13.  ACQUISITIONS**
 
 On
        December 29, 2006, Manchester Inc. acquired F.S. English, Inc. and GNAC,
        Inc.
        The transaction was consummated through two special purpose wholly-owned
        acquisition subsidiaries of the Company. Following the acquisition, F.S.
        English, Inc. and GNAC, Inc. were merged into the Company’s subsidiaries and now
        conduct business as Freedom Auto Sales and Freedom Auto Acceptance
        (collectively, the “Freedom Companies”).
 
 The
        transaction was accounted for as a purchase in accordance with SFAS 141, *Business
        Combinations* .
 The
        purchase price of Freedom Auto Sales is as follows:
  Total
                    purchase price of Freedom Auto Sales:Cash
                
                $
                -Notes
                    to seller
                
                
                3,150,000Common
                    stock par value
                
                
                3,000,000Total
                    purchase price
                
                $
                6,150,000Net
                    assets acquired:Tangible
                    assets, net
                
                
                25,172,975Total
                    assets acquired
                
                
                25,172,975Liabilities
                    assumed
                
                
                (24,022,379
                )Total
                    liabilities assumed
                
                
                (24,022,379
                )Net
                    assets acquired
                
                $
                1,150,596Goodwill
                
                $
                4,999,404
  Tangible
        assets acquired of $25.2 million includes trade accounts receivable, net
        (customer contracts), inventory and net fixed assets.
 
 Liabilities
        assumed of $24.0 million include trade accounts payable, credit line and
        equipment financing notes, and notes to a shareholder.
 
 $5.0 million
                  was allocated to goodwill. Goodwill represents the excess of the
                  purchase
                  price over the fair market value of the net tangible assets acquired.
                  Goodwill will not be amortized and will be tested for impairment
                  at least
                  annually. The recording of goodwill will be subject to adjustment
                  for
                  pre-acquisition contingencies during the allocation
                  period.
 
 19
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **May
        31, 2007 (Unaudited)**
  **NOTE
        14.  GOODWILL**
 
 The
        Company has recorded goodwill in connection with its acquisition of the Nice
        Cars and Freedom Auto Sales companies.
 
 In
        connection with the acquisition of Nice Cars, the Company made an initial
        allocation of the purchase price. The initial allocation of the purchase
        price
        for the Nice Cars acquisition utilized historical analyses and data of Nice
        Cars
        in estimating the allowance for credit losses. During the six months ended
        May
        31, 2007 the Company has performed a more extensive analysis following the
        conversion of the former operating and accounting systems to an Internet
        based
        and integrated operating and accounting system designed for the Buy\Here
        Pay\Here industry to evaluate the quality of the customer accounts and quantify
        actual write-offs that occurred that should have been part of the allowance
        for
        credit losses at the acquisition date of October 4, 2006. As a result of
        the analysis, the Company made an adjustment effective May 31, 2007 to increase
        the allowance for credit losses and goodwill by $10.3million. Management
        will
        continue its analysis of the purchase price allocation with respect to Nice
        Cars
        including any purchase price adjustments that may be applicable in connection
        with representations and warranties made in the purchase documents. Management
        continues to assess pre-acquisition contingencies and fair value estimates
        of
        assets acquired and liabilities assumed in connection with the Nice Cars
        acquisition. Management plans to complete its purchase price allocation and
        record any additional adjustments that may be necessary during the third
        quarter
        of 2007.
 
 Goodwill
        is not amortized, but is tested annually for impairment or more frequently
        if
        events or changes in circumstances indicate that the assets might be impaired.
        Absent unexpected circumstances, management has determined the Company does
        not
        have to assess or test for impairment.
 
 In
        assessing the recoverability of goodwill, the Company must make assumptions
        about the estimated future cash flows and other factors to determine the
        fair
        value of these assets.
 
 Assumptions
        about future sales and cash flows require significant judgment because of
        the
        current state of the economy, the fluctuation of actual sales, and the timing
        of
        expenses. The Company’s management develops future sales estimates based upon
        sales trends and other available data. Unless there is evidence to the contrary,
        estimates of future cash flows assume that expenses will grow at rates
        consistent with historical rates. If the expected cash flows are not realized,
        or if market conditions result in lower valuation multiples, impairment losses
        may be recorded in the future.
 
 For
        goodwill, the impairment evaluation will include a comparison of the carrying
        value of our Buy-Here/Pay-Here acquisitions (including goodwill) to their
        fair value on a reporting unit level. Generally, a reporting unit is an
        operating segment or one level below an operating segment (referred to as
        a
        component). A
        component of an operating segment is a reporting unit if the component
        constitutes a business for
        which
        discrete financial information is available and segment management regularly
        reviews the operating results of that component. If the estimated fair value
        exceeds the reporting unit’s carrying value, no impairment of goodwill
        exists. If the fair value of the reporting unit does not exceed the unit’s
        carrying value, then an additional analysis will be performed to allocate
        the
        fair value of the reporting unit to all of the assets and liabilities of
        that
        unit. If the implied fair value of the reporting unit goodwill is less than
        the
        carrying value of the unit’s goodwill, an impairment charge is recorded for the
        difference. To date, management has not made any determination if impairment
        of
        goodwill exists or not.
  20
 
 **MANCHESTER
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **May
        31, 2007 (Unaudited)**
  **NOTE
        15.  LEGAL PROCEEDINGS**
  The
        Company is party to various legal disputes and proceedings arising from its
        business activities. While, in the opinion of management, resolution of these
        matters is not expected to have a material adverse effect on the Company’s
        consolidated financial position, results of operations or cash flows, the
        ultimate outcome of any litigation is uncertain.
 
 On
        November 29, 2006, Lancelot Investors Fund, L.P. (the “Lancelot Fund”) brought
        suit against Manchester in the Cook County Circuit Court (located in Cook
        County, Illinois) seeking more than $1.8 million in damages. On November
        29,
        2006, Manchester sued the Lancelot Fund seeking the return of the unused
        portion
        of an expense deposit paid to the Lancelot Fund in the amount of $175,011.
        Subsequent to the filing of the two lawsuits, additional claims and
        counterclaims related to Manchester were asserted against other parties
        unrelated to Manchester, on the one hand, and the Lancelot Fund and certain
        of
        its affiliated entities, Lancelot Investment Management, L.L.C., Surge Capital
        and Surge Capital II, LLC (the Lancelot Fund and its four affiliated entities,
        collectively, the “Lancelot Parties”), on the other hand.  As disclosed in
        Form 8-K filed with the Securities & Exchange Commission on May 31, 2007, by
        confidential agreement entered into on May 24, 2007 and retroactively effective
        as of May 7, 2007, a settlement was reached between Manchester and all its
        subsidiaries and certain other parties unrelated to Manchester and the Lancelot
        Parties pursuant to which all claims and potential claims among the parties
        have
        been settled. The expense attributed to the settlement during the second
        quarter
        2007 was approximately $4.5 million. The total expense recorded consisted
        of a
        note, cash and stock warrants. The Company will recognize ongoing monthly
        expenses to be computed and payable based on monthly management fees and
        interest paid to the Company’s current senior lender.
 
 Additionally,
        the Company and its subsidiaries are involved in litigation arising in the
        ordinary course of business. After consultation with legal counsel, management
        estimates that these matters will be resolved without material adverse effect
        on
        the Company’s future financial position or results from operations, and
        accordingly, has not recorded a liability in conjunction with them.
  21
  **MANCHESTER
        INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
  **May
        31, 2007 (Unaudited)**
  **NOTE
        16.  SUBSEQUENT EVENTS**
 
 The
        Company has entered into term sheets for the prospective acquisition of several
        buy here / pay here companies. The Company is currently negotiating definitive
        terms and conditions of the definitive agreements with respect to such
        acquisitions, however, as of the date of this report definitive agreements
        have
        not yet been entered into by the parties.
  **NOTE
        17.  RELATED PARTY TRANSACTIONS**
 
 In
        the
        six months ended May 31, 2007, the company paid to Rick L. Stanley, the
        Company’s Chief Executive Officer, the sum of $285,349 for property rent of
        three vehicle lots in Indiana that operate under the Freedom Companies
        subsidiary.
  22
  **Item
        2.**  **Management’s
        Discussion and Analysis of Financial Conditions and Results of Operations**
 
 This
        Quarterly Report contains certain forward-looking statements and our
        Company’s future operating results could differ materially from those
        discussed herein.  Such forward-looking statements involve known and
        unknown risks, uncertainties and other factors which may cause the
        actual results, performance or achievements of the Company to be
        materially different from any future results, performance or achievements
        expressed or implied by such forward-looking statements.  Given these
        uncertainties, readers are cautioned not to place undue reliance on such
        forward-looking statements. We disclaim any obligation to update any such
        factors or to announce publicly the results of any revisions of the
        forward-looking statements contained or incorporated by reference herein to
        reflect future events or developments. The Company suggests that the following
        discussion and analysis be read in conjunction with the Consolidated Financial
        Statements and Management’s Discussion and Analysis of Financial Condition and
        Results of Operations included in our Annual Report on Form 10-K for the
        year
        ended November 30, 2006. Unless otherwise provided in this Quarterly Report,
        references to the “Company,” the “Registrant,” the “Issuer,” “we,” “us,” and
“our” refer to Manchester Inc. and its subsidiaries.
 
 The
        following discussion of the financial condition and results of operations
        of
        Manchester Inc. should be read in conjunction with the financial
        statements and the related notes thereto included elsewhere in this
        Quarterly Report.
 
 **Overview**
 
 Our
        Company was incorporated on August 27, 2002 under the laws of the state of
        Nevada. On October 4, 2006 we entered into two agreements for the acquisition
        of
        a Buy-Here/Pay-Here enterprise consisting of Nice Cars, Inc. and Nice Cars
        Capital Acceptance Corporation (collectively, the “Nice Cars Companies”). On
        December 29, 2006, the Company acquired F.S. English, Inc., a Buy-Here/Pay-Here
        car sales company, and GNAC, Inc., its affiliated credit acceptance company,
        which now operate under the names “Freedom Auto Sales and “Freedom Auto
        Acceptance” (collectively, the “Freedom Companies”). Each Buy-Here/Pay-Here
        enterprise is referred to as a "dealership". Our operations during the period
        covered by this Quarterly Report were principally in Georgia, Tennessee and
        Indiana. We intend to make additional acquisitions during the foreseeable
        future
        and expand our Buy-Here/Pay-Here operations into other geographic areas.
 
 As
        of the
        end of the period covered by this Quarterly Report, the Company served as
        the
        holding company for (i) the Nice Cars Companies, (ii) Nice Cars Funding LLC,
        (iii) the Freedom Companies, and (iv) Manchester Indiana Funding, LLC
        (collectively, Manchester’s six subsidiaries are referred to herein as the
“Subsidiaries”). Our financial statements for the period covered by this Report
        describe the financial condition and results of operations for Manchester
        Inc.
        and its Subsidiaries on a consolidated historical basis (unaudited). During
        the
        first and second fiscal quarters ended May 31, 2007, the Company had no other
        operations other than those conducted by the Subsidiaries. As part of its
        planning to operate as a holding company for the Subsidiaries, the Company
        has
        hired professional accounting and financial personnel to administer the
        Subsidiaries, manage the loans, prepare financial statements and perform
        other
        functions and duties as a centralized corporate office.
 
 The
        Company’s Subsidiaries operate as separate sales and finance companies in order
        to distinguish vehicle sales operations from financing activities. Our finance
        subsidiaries purchase the retail sales contracts from affiliated sales
        subsidiaries and assume all rights and responsibilities with respect to the
        acquired contracts. These contracts have varying terms, generally ranging
        from
        36 months to 60 months, with interest charges of up to 26%. The Company
        primarily sells used vehicles and provides financing for substantially all
        of
        its customers. Many of the Company’s customers have limited financial resources
        and would not qualify for conventional financing as a result of limited credit
        histories or impaired credit. As of May 31, 2007, the Company’s Subsidiaries
        operated two dealerships that sold used vehicles from 9 different sales lots.
 
 The
        Company’s primary focus is on sales and collections. Each Subsidiary handles its
        own sales and collections with supervisory involvement of the corporate office.
        Hiring, training and retaining qualified sales personnel are critical to
        the
        Company’s success.  The Company intends to add resources to train and
        develop personnel. In fiscal 2007 and for the foreseeable future, the Company
        expects to acquire additional dealerships and to continue to invest in the
        acquisition of new dealerships and the development of its own dealerships
        and
        workforce.
  23
 
 **RESULTS
        OF OPERATIONS**
 
 The
        financial statements (unaudited) contained herein have been prepared on a
        historical basis to give effect to the acquisition of our Subsidiaries
        using the purchase method of accounting with assumptions and adjustments
        as
        described in the accompanying notes to the combined condensed consolidated
        financial statements (unaudited) for the three and six months ended May 31,
        2007.
 
 The
        following discussion provides an analysis of our results of operations,
        liquidity, and capital resources. This should be read in conjunction with
        our
        unaudited consolidated financial statements and related notes thereto contained
        in Item 1 of this Quarterly Report. The operating results of the
        three-month and six-month periods presented were not significantly affected
        by
        inflation. The following table sets forth the percentage of our revenues
        represented by certain items included in our Consolidated Statements of
        Operations
 
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 (Unaudited)
        (Stated in U.S. Dollars)
 
 **For
                  the Three Months Ended May 31,**
              
              **For
                  the Six Months Ended May 31,****2007**
              
              **%
                  to Sales**
              
              **2006**
              
              **2007**
              
              **%
                  to Sales**
              
              **2006**(unaudited)
              
              (unaudited)Revenues:Net
                  vehicle sales
              
              $
              26,499,789
              
              
              82.8
              %
              $
              -
              
              
              44,713,582
              
              
              80.8
              %
              $
              -Interest
                  income
              
              
              5,491,099
              
              
              17.2
              %
              
              -
              
              
              10,594,902
              
              
              19.2
              %
              
              -Total
                  income
              
              
              31,990,888
              
              
              100.0
              %
              
              -
              
              
              55,308,484
              
              
              100.0
              %
              
              -Cost
                  of sales
              
              
              13,306,131
              
              
              41.6
              %
              
              -
              
              
              23,554,711
              
              
              42.6
              %
              
              -Gross
                  profit
              
              
              18,684,757
              
              
              58.4
              %
              
              -
              
              
              31,753,773
              
              
              57.4
              %
              
              -Expenses:Selling,
                  general and administrative
              
              
              4,406,041
              
              
              13.8
              %
              
              186,494
              
              
              7,623,566
              
              
              13.8
              %
              
              290,940Provision
                  for credit losses
              
              
              10,230,620
              
              
              32.0
              %
              
              -
              
              
              18,253,113
              
              
              33.0
              %
              
              -Interest
                  expense
              
              
              3,493,696
              
              
              10.9
              %
              
              5,532
              
              
              6,734,291
              
              
              12.2
              %
              
              8,724Depreciation
                  and amortization
              
              
              125,018
              
              
              0.4
              %
              
              969
              
              
              286,607
              
              
              0.5
              %
              
              1,311Financing
                  and other fees
              
              
              316,732
              
              
              1.0
              %
              
              -
              
              
              558,426
              
              
              1.0
              %
              
              -Total
                  expenses
              
              
              18,572,107
              
              
              58.1
              %
              
              192,995
              
              
              33,456,003
              
              
              60.5
              %
              
              300,975Operating
                  Income (loss)
              
              
              112,650
              
              
              0.4
              %
              
              (192,995
              )
              
              (1,702,230
              )
              
              -3.1
              %
              
              (300,975
              )Other
                  Expense:Amortization
                  of loan costs
              
              
              (1,088,708
              )
              
              -3.4
              %
              
              -
              
              
              (2,177,417
              )
              
              -3.9
              %
              
              -Stock
                  options for services
              
              
              (218,959
              )
              
              -0.7
              %
              
              (117,456
              )
              
              (336,459
              )
              
              -0.6
              %
              
              (117,456
              )Lawsuit
                  Settlement
              
              
              (4,506,159
              )
              
              -14.1
              %
              
              -
              
              
              (4,506,159
              )
              
              -8.1
              %
              
              -Loss
                  before taxes
              
              $
              (5,701,176
              )
              
              -17.8
              %
              $
              (310,451
              )
              
              (8,722,265
              )
              
              -15.8
              %
              $
              (418,431
              )
 
 24
  **Three
        Months Ended May 31, 2007**
 
 The
        Company’s Subsidiaries consist of the Nice Cars Companies and the Freedom
        Companies and their respective finance subsidiaries. The Nice Cars Companies
        were acquired during the prior fiscal year on October 4, 2006. The Freedom
        Companies were acquired during the first fiscal quarter covered by this Report
        on December 29, 2006. The results of operations reflected in this Report
        do not
        include financial information with respect to results of operations of our
        Subsidiaries prior to the date of their respective acquisition by our Company.
        Our Company was not actively conducting business prior to the acquisition
        of the
        Nice Cars Companies in October 2006. As such, Company performance between
        the
        three months ended May 31, 2007 and the three months ended May 31, 2006 are
        not
        indicative of comparable operations with respect to such quarterly periods.
 Consolidated
        revenues increased $32.0 million, or 100%, for the three months ended May
        31,
        2007 as compared to the same period in the prior fiscal year.
 
 Cost
        of
        sales as a percentage of total revenue was 41.6% for the three months ended
        May
        31, 2007 from 0% in the same period of the prior fiscal year in which the
        Company had no material operations. The Company’s gross margins are negatively
        affected by operating costs and vehicle repair costs, and to the purchase
        price
        of vehicles the Company sells. The Company’s selling prices are based upon the
        cost of the vehicle purchased, with lower-priced vehicles generally having
        higher gross margin percentages. Discretionary adjustments to the Company’s
        retail pricing policies may be made by sales managers.
 
 Selling,
        general and administrative expense as a percentage of total revenue was 13.8%
        for the three months ended May 31, 2007. Selling, general and administrative
        expenses are, for the most part, more fixed in nature. The increase was due
        to
        the acquisition of the Company’s operating Subsidiaries subsequent to the date
        of the corresponding reporting period in 2006. The Company expects to see
        increases in selling, general and administrative expenses related to increasing
        personnel, advertising, higher insurance costs and servicing. The Company
        also
        intends to increase selling, general and administrative expenditures to
        strengthen controls and procedures, improve efficiencies in the corporate
        infrastructure as well as transitional costs associated with future
        acquisitions. Also, approximately $218,959 of non-cash stock-based compensation
        expense was recorded during the current quarter. Deferred financing expense
        for
        the amortization of common stock warrants for the three months ended May
        31,
        2007 was a non-cash amount of $1,088,708.
 
 Cost
        of
        credit losses during the second quarter 2007 were approximately 32.0% of
        total
        revenue. Company management believes that credit losses were higher in the
        second quarter as a percentage of revenues than anticipated performance (i)
        with
        respect to higher repossessions at the Georgia and Tennessee lots resulting
        from
        higher than industry average of customer accounts assigned to in-house
        collectors (ii) Freedom Auto Sales’ transition from a Byrider franchisee and
        operational disputes with J.D. Byrider which temporarily depressed the sales
        of
        Freedom Auto Sales during the calendar quarters following the acquisition.
        Company management believes that the foregoing factors coupled with higher
        energy and fuel costs, increasing interest rates, general inflation and personal
        discretionary spending levels affecting its customers have had a negative
        impact
        on collection results.  At May 31, 2007, 6.8% of the Company’s finance
        receivable balances were over 30 days past due.
 
 The
        lawsuit settlement expense during the second quarter 2007 was approximately
        $4.5
        million and 14.1% of total revenue. The total expense recorded consisted
        of a
        note, cash and stock warrants. There will be an ongoing monthly expense to
        be
        computed and payable based on 20% of the monthly management fees and interest
        paid to the Company’s current senior lender.
 
 Interest
        expense as a percentage of total revenue was 10.9% for the three months ended
        May 31, 2007 as compared to 13.9% for the three months ended February 28,
        2007.
        The decrease resulted from higher revenues in the second quarter. The interest
        expenses is attributed to borrowings for servicing the loans, made for the
        acquisition of the Subsidiaries and loans made against the Company’s portfolio
        of customer contract notes. The Company also established a floor plan credit
        line with the same senior lender to finance the inventory and acquisition
        of
        vehicles. During the three months ended May 31, 2007 the aggregate of all
        interest costs was approximately $3.5 million with an average rate charged
        during the quarter of approximately 16% per annum. Company management expects
        borrowings to increase in anticipation of growth in accounts receivable,
        inventory and fixed assets. Interest rates may increase as a function of
        interest rates charged by the Company’s lender.
  25
  **Six
        Months Ended May 31, 2007**
 
 The
        Company’s Subsidiaries consist of the Nice Cars Companies and the Freedom
        Companies and their respective finance subsidiaries. The Nice Cars Companies
        were acquired during the prior fiscal year on October 4, 2006. The Freedom
        Companies were acquired during the first fiscal quarter covered by this Report
        on December 29, 2006. The results of operations reflected in this Report
        do not
        include financial information with respect to results of operations of our
        Subsidiaries prior to the date of their respective acquisition by our Company.
        Our Company was not actively conducting business prior to the acquisition
        of the
        Nice Cars Companies in October 2006. As such, Company performance between
        the
        six months ended May 31, 2007 and the six months ended May 31, 2006 are not
        indicative of comparable operations with respect to such quarterly
        periods.
 
 Consolidated
        revenues increased $55.3 million, or 100%, for the six months ended May 31,
        2007
        as compared to the same period in the prior fiscal year.
 
 Cost
        of
        sales as a percentage of total revenue was 42.6% for the six months ended
        May
        31, 2007 from 0% in the same period of the prior fiscal year in which the
        Company had no material operations. The Company’s gross margins are negatively
        affected by operating costs and vehicle repair costs, and to the purchase
        price
        of vehicles the Company sells. The Company’s selling prices are based upon the
        cost of the vehicle purchased, with lower-priced vehicles generally having
        higher gross margin percentages. Discretionary adjustments to the Company’s
        retail pricing policies may be made by sales managers.
 
 Selling,
        general and administrative expense as a percentage of total revenue was 13.8%
        for the six months ended May 31, 2007. Selling, general and administrative
        expenses are, for the most part, more fixed in nature. The increase was due
        to
        the acquisition of the Company’s operating Subsidiaries subsequent to the date
        of the corresponding reporting period in 2006. The Company expects to see
        increases in selling, general and administrative expenses related to increasing
        personnel, advertising, higher insurance costs and servicing. The Company
        also
        intends to increase selling, general and administrative expenditures to
        strengthen controls and procedures, improve efficiencies in the corporate
        infrastructure as well as transitional costs associated with future
        acquisitions. Also, approximately $336,459 of non-cash stock-based compensation
        expense was recorded during the first and second quarter. Deferred financing
        expense for the amortization of common stock warrants for the six months
        ended
        May 31, 2007 was a non-cash amount of $2,177,417.
 
 Cost
        of
        credit losses during the first and second quarter(s) 2007 were approximately
        33.0% of total revenue. Company management believes that credit losses were
        higher in the first quarter as a percentage of revenues than anticipated
        performance (i) seasonality with respect to cash allocation decisions by
        customers during the end of the calendar year holiday season, (ii) with respect
        to higher repossessions at the Georgia and Tennessee lots resulting from
        higher
        than industry average of customer accounts assigned to in-house collectors,
        and
        (iii) Freedom Auto Sales’ transition from a Byrider franchisee and operational
        disputes with J.D. Byrider which temporarily depressed the sales of Freedom
        Auto
        Sales during the calendar quarter following the acquisition. Company management
        believes that the foregoing factors coupled with higher energy and fuel costs,
        increasing interest rates, general inflation and personal discretionary spending
        levels affecting its customers have had a negative impact on collection
        results.  At May 31, 2007, 6.8% of the Company’s finance receivable
        balances were over 30 days past due.
 
 The
        lawsuit settlement expense during the second quarter 2007 was approximately
        $4.5
        million and 8.1% of total revenue for the six months ended May 31, 2007.
        The
        total expense recorded consisted of a note, cash and stock warrants. There
        will
        be an ongoing monthly expense to be computed and payable based on 20% of
        the
        monthly management fees and interest paid to the current senior lender.
 
 Interest
        expense as a percentage of total revenue was 12.2% for the six months ended
        May
        31, 2007. The increase was attributed to borrowings for servicing the loans,
        made for the acquisition of the Subsidiaries and loans made against the
        Company’s portfolio of customer contract notes. The Company also established a
        floor plan credit line during the second quarter with the same senior lender
        to
        finance the inventory and acquisition of vehicles. During the six months
        ended
        May 31, 2007 the aggregate of all interest costs was approximately $6.7 million
        with an average rate charged during the quarter of approximately 16% per
        annum.
        Company management expects borrowings to increase in anticipation of growth
        in
        accounts receivable, inventory and fixed assets. Interest rates may increase
        as
        a function of interest rates charged by the Company’s lender.
  26
  **Financial
        Condition**
 
 The
        following table sets forth the major balance sheet accounts of the Company
        as of
        the dates specified:
 
 **MANCHESTER,
        INC AND SUBSIDIARIES**
  **CONSOLIDATED
        BALANCE SHEETS**
  **(Stated
        in U.S. Dollars)**
 
 **MAY
                  31,**
              
              **NOVEMBER
                  30,****2007**
              
              **2006****Assets:**Accounts
                  and contracts receivable, net
              
              $
              73,471,317
              
              $
              55,551,304Inventory
              
              
              4,009,133
              
              
              3,394,276Prepaids
                  and other assets
              
              
              876,847
              
              
              218,959Property,
                  plant and equipment, net
              
              
              2,145,190
              
              
              914,059**Liabilities:**Accounts
                  payable
              
              
              1,818,602
              
              
              627,639Accrued
                  liabilities and expenses
              
              
              2,708,989
              
              
              534,798Debt
                  facilities
              
              
              104,472,009
              
              
              69,911,554
 
 In
        the
        first six months of fiscal 2007, inventory was 9% as compared to vehicle
        sales
        revenues.
 
 Net
        property and equipment was approximately $2.2 million during the six months
        ended May 31, 2007 as the Company acquired the Freedom Companies during the
        first quarter.
 
 Accounts
        payable and accrued liabilities were approximately $4.5 million at May 31,
        2007.
        Income taxes payable was $0 and deferred income tax liabilities were
        approximately $134,000 at May 31, 2007.
 
 Borrowings
        on the Company’s credit facilities fluctuate based upon a number of factors
        including (i) net income, (ii) finance receivables growth, (iii) capital
        expenditures, and (iv) income tax liabilities.
  27
  **Liquidity
        and Capital Resources**
 
 The
        following table sets forth certain summarized historical information with
        respect to the combined Manchester Inc. and Subsidiaries statements of cash
        flows.
 
 **CONSOLIDATED
        CONDENSED STATEMENT OF CASH FLOWS**
 **Stated
        in U.S. Dollars**
 **For
                    the Six Months Ended May 31,****2007**
                
                
                **2006**Net
                    Loss
                
                $
                (8,722,265
                )
                $
                (418,431
                )Adjustments
                    to reconcile net income (loss) tonet
                    cash used in operating activities:Provision
                    for credit losses
                
                
                18,253,113
                
                
                -Depreciation
                    and amortization
                
                
                286,607
                
                
                1,311Amortization
                    deferred financing
                
                
                2,764,283Amortization
                    deferred financing
                
                
                1,035,139Changes
                    in assets and liabilities
                
                
                (21,478,649
                )
                
                (163,133
                )Net
                    cash used in operating activities
                
                
                (
                    7,861,772
                )
                
                (580,253
                )Net
                    cash used in investing activities
                
                
                (296,253
                )
                
                (14,404
                )Net
                    cash provided in financing activities
                
                
                7,943,784
                
                
                709,676Increase
                    (decrease) in cash and cash equivalents
                
                
                (214,241
                )
                
                115,019Cash
                    and cash equivalents at beginning of year
                
                
                621,609
                
                
                777Cash
                    and cash equivalents at end of period
                
                $
                407,368
                
                $
                115,796
 
 (1)
        The
        Company Subsidiaries consist of the Nice Cars Companies and the Freedom
        Companies and their respective finance subsidiaries. The Nice Cars Companies
        were acquired during the prior fiscal year on October 4, 2006. The Freedom
        Companies were acquired during the first fiscal quarter covered by this Report
        on December 29, 2006. The results of operations reflected in this Quarterly
        Report do not include financial information with respect to results of
        operations of our Subsidiaries prior to the date of their respective acquisition
        by our Company. Our Company was not actively conducting business prior to
        the
        acquisition of the Nice Cars Companies in October 2006. As such, Company
        performance between the six months ended May 31, 2007 and the six months
        ended
        May 31, 2006 are not indicative of comparable operations with respect to
        such
        quarterly periods.
 
 The
        Company generates cash flow from net income from operations. Most or all
        of this
        cash is used to fund finance receivables growth. To the extent finance
        receivables growth exceeds net income from operations, the Company generally
        will increase borrowings from its credit facility.
 
 The
        Company’s credit facilities are provided by Palm Beach Multi-Strategy Fund L.P.
        (the “Lender”) pursuant to a commitment letter dated September 28, 2006 under
        which the Lender committed to provide up to $300 million in revolving warehouse
        financings for a roll up strategy to acquire captive sub prime Buy-Here/Pay-Here
        auto receivables origination and collection businesses nationwide (each,
        a
“Financing”). There is no limit to the number of Financings, provided that no
        Financing shall be in an amount in excess of $100 million, unless approved
        by
        the Lender. Each Acquisition and Financing pursuant to the Commitment shall
        be
        subject to the Lender’s approval. The Company has drawn two loans from the
        credit commitment, one in the amount of $75 million for the acquisition and
        operation of the Nice Cars Companies during fiscal 2006 and the other in
        the
        amount of $30 million for the acquisition and operation of the Freedom Companies
        during the first quarter 2007, discussed in further detail below.
  28
  At
        May
        31, 2007, the Company’s assets consisted of $0.4 million in cash, $6.3 million
        in other tangible net assets and $73.5 million in receivables. The Company
        is
        limited in the amount of dividends or other distributions it can make to
        its
        shareholders without the consent of the Lender.
 
 At
        May
        31, 2007, the Company had $0.4 million in cash on hand. On a short-term basis,
        the Company’s principal sources of liquidity include income from operations and
        borrowings under the revolving credit facilities which may be drawn against
        delivery of qualified collateralized customer contract receivables. On a
        longer-term basis, the Company expects its principal sources of liquidity
        to
        consist of income from continuing operations and sales of securitized customer
        contract receivables. While the Company has no present plans to issue debt
        or
        equity securities, the Company believes, if necessary, it could raise additional
        capital through the issuance of such securities.
 
 The
        Company expects to use cash to grow its finance receivables portfolio and
        to
        grow its business through acquisitions during the next 12 months.
 
 The
        Company expects that it will be able to renew or refinance its credit facilities
        on or before the date they mature. The Company believes it will have adequate
        liquidity to satisfy its capital needs for the foreseeable future.
 
 The
        Company leases the properties where its dealerships are located and expects
        to
        continue to do so for the foreseeable future.
 
 ***Nice
        Cars $75 Million Loan Agreement***
 
 The
        Company’s first use of the $300 Million Credit Commitment was a $75 million loan
        facility which was established through the Company’s special purpose
        wholly-owned subsidiary, Nice Cars Funding, LLC, referred to as the “Nice Cars
        Borrower” under the terms of the Loan Agreement. Under the terms of the $75
        million loan facility, the Lender, upon request, will from time to time,
        until
        maturity at September 28, 2009, make advances to the Nice Cars Borrower.
        The Interest on the Loan will accrue at an interest rate equal to the lesser
        of:
        (i) the greater of (x) Prime Rate (as determined daily) plus 9% (unless for
        any
        day on which the principal amount of the Term Loan is equal to or less than
        sixty percent (60%) of outstanding principle then the Prime Rate shall be
        plus
        5% per annum) or (y) 17% per annum (unless for any day on which the principal
        amount of the Term Loan is equal to or less than sixty percent (60%) of the
        net
        term pool balance, the amount will be 13%); or (ii) the maximum rate which
        may
        be legally charged under applicable usury law. The Company drew down
        approximately $54 million of the Loan to fund the acquisition and initial
        operations of Nice Cars, Inc. and Nice Cars Capital Acceptance Corporation.
 
 The
        Company believes that the advances drawn on the Loan on the basis of
        collateralized receivables will be sufficient to fund the growth of the
        Company’s operations as well as cover all payments due on the Loan for the
        foreseeable future.
 
 The
        maximum amount that may be drawn under the Loan may not, in aggregate amount,
        exceed at any time the outstanding amount equal to the lesser of: (a) $75
        million; or (b) the Availability on Eligible Receivables. Such Availability
        on
        Eligible Receivables will be generally determined as an amount equal to (i)
        80%
        under the initial advance made under the Loan Agreement, and thereafter 60%;
        multiplied by (ii) the Net Pool Balance as of such date. The Net Pool Balance
        is
        calculated as the sum of (a) the outstanding principal balance of all Eligible
        Receivables; minus (b) all other matured and unpaid amounts due to the Nice
        Cars
        Borrower relating to the Eligible Receivables (including, without limitation,
        unearned finance charges, time price differentials, insurance fees and other
        fees and charges related thereto. Eligible Receivables are generally defined
        as
        receivables which are not more than 60 days past due, have an interest rate
        of
        at least 25% per annum payable no less frequently than monthly along with
        additional qualification attributes; will not cause the weighted average
        age (by
        unpaid principal balance, based on model year) of all Eligible Receivables
        to
        exceed eight (8) years; and the contribution of the Receivable will not cause
        the weighted average mileage (by unpaid principal balance, at the time of
        sale)
        of all Eligible Receivables to exceed 110,000 miles.
 
 The
        Company must make payments on the Loan if at any time the amount advanced
        by
        Lender to the Nice Cars Borrower exceeds the maximum amount that may draw
        on the
        Loan. In such event, the Nice Cars Borrower must immediately and without
        notice,
        repay to Lender an amount sufficient to eliminate the excess, or, at Lender’s
        option, assign and deliver additional Eligible Receivables sufficient to
        cover
        the deficiency.
  29
 
 The
        Nice
        Cars Borrower may, at any time, terminate financing under the Loan Agreement
        and
        prepay the indebtedness in full by providing the Lender with written notice
        at
        least ninety (90) calendar days prior to the specific date upon which Nice
        Cars
        Borrower intends to cease financing and prepay the indebtedness in full.
        In the
        event of termination of the Loan prior to September 28, 2009, the Nice Cars
        Borrower will pay Liquidated Damages in amount equal to the product of (i)
        the
“minimum interest charge under the Loan" multiplied by (ii) the number of
        months
        remaining from the date of the Lender's receipt of the termination notice
        until
        September 28, 2009. The “minimum interest charge under the Loan” shall
        equal the product of (i) the average principal balance of the Loan during
        the
        six (6) months immediately preceding the Lender's receipt of the termination
        notice multiplied by (ii) 1.50%.
 
 In
        the
        event of a default of performance of the Loan Agreement by the Nice Cars
        Borrower, the Nice Cars Borrower shall pay Lender interest on the daily
        outstanding balance of the Loan at the Default Rate, which will be determined
        as
        5% in excess of the greater of: (x) the prime rate plus 9% (unless for any
        day
        on which the principal amount of the Term Loan is equal to or less than sixty
        percent (60%) of outstanding principle then the rate shall be plus 5% per
        annum); or (y) 17% per annum (unless for any day on which the principal amount
        of the Term Loan is equal to or less than sixty percent (60%) of the net
        term
        pool balance, the amount will be 13%). An event of default will occur if
        (a) the
        Nice Cars Borrower fails to pay the principal component of the Loan or any
        interest thereon when due and payable, (b) the Nice Cars Borrower fails to
        pay
        any indebtedness when due and payable within five (5) calendar days after
        the
        same becomes due and payable; (c) any default occurs by the Nice Cars Borrower,
        the Company or any related party under any ancillary documentation executed
        in
        connection with the Loan; (d) any default occurs by any related party to
        Nice
        Cars Borrower in respect of indebtedness; (e) any material adverse effect;
        and
        (f) other customary conditions of default. Upon an event of default, all
        Indebtedness shall immediately be due and payable and interest will accrue
        at
        the Default Rate. The Lender will have several rights and remedies in the
        event
        of a default, including the sale of collateral Receivables.
 
 As
        inducement for the Lender to enter into the Loan, the Nice Cars Borrower
        has
        irrevocably granted to a collateral agent acting on behalf of the Lender
        and
        affiliates, a first and continuing security interest in all of the Nice Cars
        Borrower’s right, title and interest in and to all receivables, property and
        assets of Nice Cars Borrower. The Company and the Nice Cars Borrower have
        established customary receivables custody, collateral agency, and servicing
        arrangements for payments of receivables to be deposited into blocked accounts
        and the return of paid-up receivables to the Company. The Company has guaranteed
        all of the obligations of the Nice Cars Borrower. The Nice Cars Borrower
        has
        also agreed to customary covenants and negative covenants, which include,
        among
        other requirements, to protect the first priority security interest in the
        receivables as collateral for the Lender and maintain the corporate good
        standing of the Nice Cars Borrower. The Nice Cars Borrower has agreed to
        pay all
        costs and expenses of the Lender and its affiliates in connection with the
        Loan.
        The Nice Cars Borrower has also granted indemnification to the Lender and
        the
        Collateral Agent in respect of all claims and losses incurred or asserted
        in
        connection with the Loan against the Lender, its affiliates or the Collateral
        Agent, except in the case of gross negligence or willful misconduct.
 
 The
        Company and its subsidiaries have each agreed to guaranty Loans made under
        the
        Loan Agreement up to an amount not exceeding ten percent of the amount of
        the
        Loan outstanding from time to time, pursuant to the terms of a Guaranty which
        closed September 28, 2006. The Guarantors have also entered into a Security
        Agreement with the Lender and the Collateral Agent pursuant to which each
        Guarantor has granted to the Collateral Agent and its successors and assigns,
        for the security and benefit of the Lender, a first priority security interest
        in and mortgage lien on all of the property of the Guarantors.
 
 In
        connection with the Loan Agreement, the Nice Cars Borrower, the Company and
        certain of its other subsidiaries have entered into a Sale and Servicing
        Agreement (the “Nice Cars Sale and Servicing Agreement”), pursuant to which a
        subsidiary of the Company has agreed to sell all of its rights to receivables
        (the “Nice Cars Receivables”) to the Nice Cars Borrower. Pursuant to the Nice
        Cars Sale and Servicing Agreement, the Company shall serve as the servicer
        for
        all Nice Cars Receivables, acting as agent, and shall manage service and
        make
        collections on the Nice Cars Receivables. The Company has agreed to comply
        with
        the terms and conditions of a servicing guideline and a credit and collection
        policy provided by the Lender.
  The
        agreement also includes customary financial performance covenants. The covenants
        are (i) the Tangible Net Worth shall not be less than $2,500,000, (ii) the
        Interest Coverage Ratio shall not be less than 1:4:1, and (iii) the consolidated
        net income of the Nice Cars Borrower determined in accordance with GAAP shall
        exceed $1.00 (one dollar). At May 31, 2007, the Company was in violation
        of the
        Tangible Net Worth covenant and waiver of that covenant violation was
        received from the lender.
  30
  ***Freedom
        Companies $30 Million Loan Agreement***
 
 During
        the period covered by this Quarterly Report, on December 29, 2006 the Company
        acquired F.S. English, Inc., a privately held Buy-Here/Pay-Here car sales
        company which operates three retail locations in the Indianapolis area, and
        GNAC, Inc., its affiliated credit acceptance company. These Company subsidiaries
        now operate under the trade names “Freedom Auto Sales” and “Freedom Auto
        Acceptance”. Under the terms of the agreement, the Company paid an aggregate of
        approximately $8 million and refinanced the acquired $26 million portfolio
        of
        receivables through a drawdown on the Company's $300 million credit commitment.
 
 The
        acquisition of the Freedom Companies closed pursuant to the terms and conditions
        of a Stock Purchase Agreement, dated December 2, 2006, and a First Amendment
        thereto, dated December 29, 2006 (collectively, the “Stock Purchase Agreement”),
        by and between the Company, Manchester Indiana Operations, Inc., a Delaware
        corporation and wholly owned acquisition subsidiary of the Company (“Indiana
        Operations”), Manchester Indiana Acceptance, Inc., a Delaware corporation and
        wholly owned acquisition subsidiary of the Company (“Indiana Acceptance”), the
        ten shareholders of each of F.S. English, Inc. and GNAC, Inc. (the “Indiana
        Sellers,” and each an “Indiana Seller”), and Rick Stanley, as the Indiana
        Sellers’ representative. Under the Stock Purchase Agreement, Indiana Operations
        acquired all of the issued and outstanding capital stock of F.S. English,
        Inc.
        (the “F.S. English Shares”) and Indiana Acceptance acquired all of the issued
        and outstanding capital stock of GNAC, Inc. (the “GNAC Shares,” and together
        with the F.S. English Shares, the “Shares”). In connection with the acquisition,
        the Company refinanced the GNAC, Inc. $26 million portfolio of receivables
        with
        the proceeds of the Indiana Term Loan (as described below). The aggregate
        consideration paid to the Indiana Sellers in exchange for the Shares was:
        (i)
        $3,000,000 in the form of a promissory note (the “Seller Note”); (ii) 1,492,537
        shares of the common stock of the Company (the “Manchester Shares”),
        representing an amount equal to $3,000,000 as determined by reference to
        the
        average of the closing prices of the Company common stock on the five (5)
        business days immediately preceding December 29, 2006. In addition, the Company
        (i) repaid approximately $2 million to certain creditors of the Freedom
        Companies on behalf of the Indiana Sellers; and (ii) caused each personal
        guarantee of the Indiana Sellers to be released in regard to obligations
        of the
        Freedom Companies. The indebtedness of the Freedom Companies held by Rick
        Stanley was only partially repaid and a subordinated note was issued to Mr.
        Stanley in the amount of $150,000. The Company has provided limited piggy-back
        registration rights to the Indiana Sellers with respect to the Manchester
        Shares
        issued to them.
 
 The
        Company is continuing operations of the respective businesses of the Freedom
        Companies as managed by Mr. Rick L. Stanley, who served as president of the
        Freedom Companies prior to the date of their acquisition by the Company.
        Subsequent to the date of acquisition by the Company, the Freedom Companies
        entered into an employment agreement with Mr. Rick L. Stanley, who is now
        serving as CEO of the Freedom Companies and CEO of Manchester Inc. Mr. Stanley
        has worked extensively in the Buy-Here/Pay-Here auto market for the past
        18
        years.
 
 Manchester
        Indiana Funding LLC, a wholly-owned subsidiary of the Company entered into
        a
        loan agreement with the Lender, to provide financing for the acquisition
        of the
        Freedom Companies. This acquisition loan constitutes the second financing
        that
        the Company has entered into with the Lender. Pursuant to a Loan and Security
        Agreement which closed on December 29, 2006 (the “Indiana Loan Agreement”),
        between Manchester Indiana Funding LLC, the Lender and The Bank of New York
        Trust Company, N.A., as Collateral Agent (the “Collateral Agent”), the Lender
        agreed to loan Manchester Indiana Funding LLC up to $30 million. The Company
        has
        initially drawn approximately $21.1 million (the “Indiana Term Loan”) and may
        request additional draws under the terms of the Indiana Loan Agreement (the
        “Revolving Loan,” and together with the Indiana Term Loan, the “Indiana Loan”).
        The Indiana Loan Agreement expires on December 28, 2009 unless terminated
        earlier in accordance with its terms.
 
 Interest
        on the Indiana Term Loan will accrue at an interest rate equal to the lesser
        of:
        (i) the greater of (x) prime rate (as determined daily) plus the Term Applicable
        Margin (as defined below) or (y) the Indiana Term Loan Floor (as defined
        below);
        or (ii) the maximum rate which may be legally charged under applicable usury
        law. Interest on the Revolving Loan will accrue at an interest rate equal
        to the
        lesser of: (i) the greater of (x) prime rate (as determined daily) plus five
        percent (5%) per annum or (y) thirteen percent (13%) per annum; or (ii) the
        maximum rate which may be legally charged under applicable usury law. The
        term
“Term Applicable Margin” means eight percent (8%) per annum, provided that, for
        any day on which the principal amount of the Indiana Term Loan is equal to
        or
        less than sixty-five percent (65%) of the Net Term Pool Balance (the Net
        Term
        Pool Balance being the total balance of certain outstanding receivables),
        the
        term “Term Applicable Margin” means five percent (5%) per annum. The term
“Indiana Term Loan Floor” means sixteen percent (16%) per annum, provided that,
        for any day on which the principal amount of the Indiana Term Loan is equal
        to
        or less than sixty-five percent (65%) of the Net Term Pool Balance, the “Indiana
        Term Loan Floor” shall be thirteen percent (13%) per annum. The Company has paid
        all fees, costs, expenses and disbursements of the Lender in connection with
        legal services, origination costs, due diligence, closing of the Indiana
        Loan
        and initial interest, which in the aggregate was approximately $120,000 dollars.
        All other terms and conditions of the Indiana Term Loan are substantially
        similar to the same terms and conditions as the Nice Cars Loan, as described
        above.
  31
  The
        Company, the Freedom Companies and Manchester Indiana Funding LLC (collectively,
        the “Indiana Guarantors”) have each agreed to guaranty the loans up to an amount
        not exceeding ten percent of the amount of the Indiana Loan outstanding from
        time to time, pursuant to the terms of a Guaranty. The Indiana Guarantors
        have
        also entered into a Security Agreement with the Lender and the Collateral
        Agent
        pursuant to which each of the Indiana Guarantors has granted to the Collateral
        Agent and its successors and assigns, for the security and benefit of the
        Lender, a first priority security interest in and mortgage lien on all of
        the
        respective assets of the Indiana Guarantors.
 
 In
        connection with the Indiana Loan Agreement, the Company, the Freedom Companies
        and Manchester Indiana Funding LLC, have entered into a Sale and Servicing
        Agreement, pursuant to which Indiana Acceptance has agreed to sell all of
        its
        rights to car sales contract receivables (the “Receivables”) to Manchester
        Indiana Funding LLC. Pursuant to this Sale and Servicing Agreement, the Company
        shall serve as the servicer for all Receivables, acting as agent, and shall
        manage, service and make collections on the Receivables. The Company has
        delegated its duties as servicer to Indiana Acceptance, as sub-servicer.
        The
        Company and Indiana Acceptance have agreed to comply with the terms and
        conditions of a servicing guideline and a credit and collection policy provided
        by the Lender.
  The
        agreement also includes customary financial performance covenants. The covenants
        are (i) the Tangible Net Worth shall not be less than $2,500,000, (ii) the
        Interest Coverage Ratio shall not be less than 1:4:1, and (iii) the consolidated
        net income of the Freedom Auto Sales determined in accordance with GAAP
        shall exceed $1.00 (one dollar). At May 31, 2007, the Company was in violation
        of the Tangible Net Worth covenant and consolidated net income covenant and
        waivers of those covenant violations were received from the lender.
 
 **Litigation**
 
 The
        Company is party to various legal disputes and proceedings arising from its
        business activities. While, in the opinion of management, resolution of these
        matters is not expected to have a material adverse effect on the Company’s
        consolidated financial position, results of operations or cash flows, the
        ultimate outcome of any litigation is uncertain.
 
 On
        November 29, 2006, Lancelot Investors Fund, L.P. (the “Lancelot Fund”) brought
        suit against Manchester in the Cook County Circuit Court (located in Cook
        County, Illinois) seeking more than $1.8 million in damages. On November
        29,
        2006, Manchester sued the Lancelot Fund seeking the return of the unused
        portion
        of an expense deposit paid to the Lancelot Fund in the amount of $175,011.
        Subsequent to the filing of the two lawsuits, additional claims and
        counterclaims related to Manchester were asserted against other parties
        unrelated to Manchester, on the one hand, and the Lancelot Fund and certain
        of
        its affiliated entities, Lancelot Investment Management, L.L.C., Surge Capital
        and Surge Capital II, LLC (the Lancelot Fund and its four affiliated entities,
        collectively, the “Lancelot Parties”), on the other hand.  As disclosed in
        Form 8-K filed with the Securities & Exchange Commission on May 31, 2007, by
        confidential agreement entered into on May 24, 2007 and retroactively effective
        as of May 7, 2007, a settlement was reached between Manchester and all its
        subsidiaries and certain other parties unrelated to Manchester and the Lancelot
        Parties pursuant to which all claims and potential claims among the parties
        have
        been settled. The expense attributed to the settlement during the second
        quarter
        2007 was approximately $4.5 million. The total expense recorded consisted
        of a
        note, cash and stock warrants. The Company will recognize ongoing monthly
        expenses to be computed and payable based on monthly management fees and
        interest paid to the Company’s current senior lender.
  32
  Additionally,
        the Company and its subsidiaries are involved in litigation arising in the
        ordinary course of business. After consultation with legal counsel, management
        estimates that these matters will be resolved without material adverse effect
        on
        the Company’s future financial position or results from operations, and
        accordingly, has not recorded a liability in conjunction with them.
 
 **Effect
        of Inflation**
 
 Inflation
        has not been a significant factor affecting the Company’s results.
  **Seasonality**
 
 The
        Company’s automobile sales and finance business is seasonal in nature, with
        sales slowing towards the end of the calendar year. Many of the Company’s
        operating expenses such as administrative personnel, rent and insurance are
        fixed and cannot be reduced during periods of decreased sales. Further, the
        Company experiences seasonal fluctuations in its finance receivable credit
        losses.
 
 **Off-Balance
        Sheet Arrangements**
 
 As
        of the
        end of the period covered by this Quarterly Report, the Company was not a
        party
        to any off-balance sheet arrangements.
 
 **Contractual
        Payment Obligations**
 
 There
        have been no material changes outside of the ordinary course of business
        in the
        Company’s contractual payment obligations from those reported at November 30,
        2006 in the Company’s Annual Report on Form 10-K.
 
 **Item
        3.****Quantitative
        and Qualitative Disclosures About Market Risk**
 
 The
        Company is exposed to market risk on its financial instruments from changes
        in
        interest rates. In particular, the Company has exposure to changes in the
        prime
        rate. The Company does not use financial instruments for trading purposes
        or to
        manage interest rate risk. The Company’s earnings are determined by its net
        interest income, which is the difference between the income earned on
        interest-bearing assets and the interest paid on interest-bearing notes payable.
        A change in market interest rates could have an adverse effect on the Company’s
        profitability.
 
 Interest
        on the Company’s $75 million loan borrowed in connection with its October 4,
        2006 acquisitions of Nice Cars, Inc. and Nice Cars Capital Acceptance
        Corporation will accrue on drawn principal at an interest rate equal to the
        lesser of: (i) the greater of (x) prime rate (as determined daily) plus 9%
        (unless for any day on which the principal amount of the Term Loan is equal
        to
        or less than sixty percent (60%) of outstanding principle then the Prime
        Rate
        shall be plus 5% per annum) or (y) 17% per annum (unless for any day on which
        the principal amount of the Term Loan is equal to or less than sixty percent
        (60%) of the net term pool balance, the amount will be 13% per annum); or
        (ii)
        the maximum rate which may be legally charged under applicable usury law.
 
 Interest
        on the $30 million Indiana Term Loan borrowed in connection with the
        acquisitions of the Freedom Companies, will accrue at an interest rate equal
        to
        the lesser of: (i) the greater of (x) prime rate (as determined daily) plus
        the
        Term Applicable Margin or (y) the Indiana Term Loan Floor; or (ii) the maximum
        rate which may be legally charged under applicable usury law. Interest on
        the
        Revolving Loan will accrue at an interest rate equal to the lesser of: (i)
        the
        greater of (x) prime rate (as determined daily) plus five percent (5%) per
        annum
        or (y) thirteen percent (13%) per annum; or (ii) the maximum rate which may
        be
        legally charged under applicable usury law. The term “Term Applicable Margin”
means eight percent (8%) per annum, provided that, for any day on which the
        principal amount of the Indiana Term Loan is equal to or less than sixty-five
        percent (65%) of the Net Term Pool Balance (the Net Term Pool Balance being
        the
        total balance of certain outstanding receivables), the term “Term Applicable
        Margin” means five percent (5%) per annum. The term “Indiana Term Loan Floor”
means sixteen percent (16%) per annum, provided that, for any day on which
        the
        principal amount of the Indiana Term Loan is equal to or less than sixty-five
        percent (65%) of the Net Term Pool Balance, the “Indiana Term Loan Floor” shall
        be thirteen percent (13%) per annum.
 
 33
  The
        Company intends to charge the highest legally permissible interest rates
        on the
        notes issued in connection with the sales of its automobiles, however, if
        the
        foregoing formulation for the calculation of interest applicable to the
        Company’s Loan equals or exceeds the rate of interest that the Company may
        legally charge its customers, the Company may incur net interest losses.
        The
        applicable rates of interest will also vary state-by-state in accordance
        with
        applicable usury laws which could adversely affect the Company’s ability to
        maintain profitable operations in respect of the differential in rates which
        the
        Company may charge its customers and service interest payments on the Loan.
        An
        increase in prime rate will generally reduce Company net revenues. However,
        a
        decrease in prime rate will not necessarily increase Company net revenues
        as the
        applicable interest rate on the Company’s Loan indebtedness will be subject to
        the rate adjustments discussed above which could be applied under the component
        of the formulation which does not include prime rate.
  **Item
        4.**  **Controls
        and Procedures**
 
 As
        of the
        end of the period covered by this Quarterly Report, an evaluation was carried
        out under the supervision and with the participation of the Company’s
        management, including the Company’s Chief Executive Officer and Chief Financial
        Officer, of the effectiveness of the Company’s disclosure controls and
        procedures, as defined in Rule 13a-15(e) promulgated under the Securities
        and
        Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation, the
        Company’s Acting Chief Executive Officer and Chief Financial Officer have
        concluded that the Company’s disclosure controls and procedures were deficient
        with respect to assurance that information required to be disclosed by the
        Company in reports that it files or submits under the Exchange Act is
        accumulated and communicated to the Company’s management, including the
        Company’s Acting Chief Executive Officer and Chief Financial Officer, to allow
        timely decisions on required disclosures and is recorded, processed, summarized
        and reported within the time periods specified in Securities and Exchange
        Commission rules and forms.
 
 The
        Company has made changes in the Company’s internal controls over financial
        reporting during the Company’s most recently completed fiscal quarter that have
        materially affected, or are reasonably likely to materially affect, our internal
        controls over financial reporting. The Board of Directors of the Company
        has
        made a commitment to revise the Company’s controls and procedures relative to
        the acquisition of the Nice Cars Companies and the acquisition of the Freedom
        Companies, as well as all subsequent Buy-Here/Pay-Here operations. The
        implementation of the new internal controls over financial reporting has
        commenced during the first quarter of 2007 and will continue subsequent to
        the
        period covered by this Quarterly Report. The new systems, controls and
        procedures are designed specifically for the Buy-Here/Pay-Here business,
        including, without limitation, implementation of the AutoStar Solutions
        operations software and Account Mate, a fully integrated accounting system
        with
        the AutoStar software. This system was placed into service in both the Nice
        Cars
        Companies and the Freedom Companies during the first quarter of 2007 and
        is
        currently processing such Companies’ Accounts. Company management expects the
        remediation of its internal controls over financial reporting to be completed
        during the course of the third and fourth quarters of 2007.
  34
  **PART
        II:**  **OTHER
        INFORMATION**
 
 **Item
        1.****Legal
        Proceedings**
 
 During
        the period covered by this Quarterly Report, legal proceedings were commenced
        against the Company, one of its subsidiaries, and Rick Stanley, the Chief
        Executive Officer of two of the Company’s subsidiaries. See disclosure set forth
        under the caption “Management’s Discussion and Analysis of Financial Conditions
        and Results of Operations - Legal Matters” which is incorporated herein by
        reference thereto.
 
 **Item
        1A.**  **Risk
        Factors**
 
 For
        a
        discussion of the risk factors affecting the Company, see “Risk Factors” in Part
        I, Item 1A of the Form 10-K filed with respect to the Company’s fiscal year
        end on November 30, 2006.
 
 **Item
        2.****Unregistered
        Sales of Equity Securities and Use of Proceeds**
 
 By
        confidential agreement entered into on May 24, 2007 and retroactively effective
        as of May 7, 2007, a settlement was reached between Manchester and all its
        subsidiaries and certain other parties unrelated to Manchester pursuant to
        which
        all claims and potential claims among the parties have been settled. See
        disclosure set forth under the caption “Management’s Discussion and Analysis of
        Financial Conditions and Results of Operations - Legal Matters” which is
        incorporated herein by reference thereto. Pursuant to the terms of such
        settlement, the Company agreed to issue warrants to the Lancelot Investors
        Fund,
        L.P. exercisable for the purchase of 800,000 shares of common stock at a
        purchase price of $3.00 per share. Such warrants were not yet exercised during
        the period covered by this report and no cash proceeds were realized by the
        Company in such regard. Such warrants were issued pursuant to exemption from
        registration provided by Section 4(2) of the Securities Act of 1933, as amended.
 
 During
        the quarter-ended May 31, 2007, the Board of Directors granted options for
        the
        purchase of common stock, par value $.001 per share, to certain officers,
        directors and Company employees pursuant to the terms and conditions of the
        Company’s 2006 Equity Incentive Plan, at the respective date, amount and
        exercise price per share adjacent to each recipient’s name as follows:
 l
                Lawrence
                    Taylor, March 30, 2007, 200,000 shares, $1.85 per
                    share
  l
                Anthony
                    Hamlin, March 30, 2007, 200,000 shares, $1.85 per
                    share
  l
                Jake
                    Baker, March 30, 2007 100,000 shares, $1.85 per
                    share
  l
                Ivan
                    Poor, March 30, 2007, 150,000 shares, $1.85 per share
  l
                Rex
                    Gosset, April 20, 2007, 100,000 shares, $1.96 per
                    share
  l
                Richard
                    Gaines, April 25, 2007, 125,000 shares, $3.50 per
                    share
  l
                Stephen
                    Scorgie, April 25, 2007, 100,000 shares, $3.50 per
                    share
  All
        such
        options were issued pursuant to exemption from registration under Section
        4(2)
        of the Securities Act of 1933, as amended and the rules and regulations
        promulgated thereunder. As of the date of this report, no options have been
        exercised and the Company has not received any proceeds.
 
 **Item
        3.**  **Defaults
        Upon Senior Securities**
 
 None.
  35
  **Item
        4.****Submission
        of Matters to a Vote of Security Holders**
 
 None.
 
 **Item
        5.****Other
        Information**
 
 None.
  **Item
        6.****Exhibits
        and Reports on Form 8-K**
 
 **(a)**  **Exhibits**
 
 An
        Exhibit List has been filed as part of this Report on page E-1 which is
        incorporated herein by reference thereto.
 
 **(b)**  **Reports
        on Form 8-K**
 
 On
        March
        20, 2007, the Company filed a Form 8-K disclosing (i) the appointment of
        Lawrence Taylor as its Chief Financial Officer; and (ii) the appointment
        of Mr.
        Stephen R. Scorgie as a director.
 
 On
        May 1,
        2007 the Company filed a Form 8-K disclosing (i) the entry into an employment
        agreement with Richard D. Gaines, dated as of April 25, 2007; the appointment
        of
        Anthony Hamlin as its Senior Vice President and Chief Accounting Officer
        as of
        April 25, 2007; (iii) the appointment of Rex Gossett as the Company’s new Senior
        Vice President of Operations as of April 25, 2007; (iv) the grant of an option
        to purchase 200,000 shares to Mr. Hamlin; (v) the grant of an option to purchase
        125,000 shares to Mr. Gaines; (vi) the grant of an option to purchase to
        100,000
        shares to Mr. Scorgie; (vii) the assignment of the title Executive Vice
        President of Corporate Development to Mr. Gaines; and (viii) the assignment
        of
        the title Executive Vice President to Mr. Taylor.
 
 On
        May
        21, 2007, the Company filed a Form 8-K disclosing the appointment of Rick
        Stanley as Chief Executive Officer of the Company.
 
 On
        May
        31, 2007, the Company filed a Form 8-K disclosing (i) its entry into Letter
        of
        Intent to Acquire Quick Car Credit Inc. and Texas Auto Credit Solutions
        Corporation on May 25, 2007; (ii) entry into a Stock Purchase Agreement to
        acquire JC Wink Inc. on May 30, 2007; and (iii) entry into a Settlement
        Agreement with Lancelot Investors Fund, L.P. on May 24, 2007.
  36
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this Quarterly Report to be signed on its behalf by the undersigned
        thereunto duly authorized.
  **MANCHESTER
                  INC.**
                (Registrant)Date:
                  July 24, 2007
              By:
              /s/
                  Rick L. StanleyName:Rick
                  L. StanleyTitle:    Chief
                  Executive Officer
 
 Date:
                  July 24, 2007
              By:
              /s/
                  Lawrence A. TaylorName:  Lawrence
                  A. TaylorTitle:Chief
                  Financial Officer
  37
 
 **EXHIBIT
        INDEX**
 
 **Manchester
        Inc.**
 
 **Quarter
        Ended May 31, 2007**
 
 Exhibit
                  No.
              
              Description
                  of ExhibitsExhibit
                  10.58
              
              Indemnification
                  Agreement, dated as of February 8, 2007, between the Company and
                  Rick
                  Stanley, incorporated by reference to Exhibit 10.58 to the Company's
                  Quarterly Report on Form 10-Q filed with the Securities and Exchange
                  Commission on July 16, 2007.Exhibit
                  10.59
              
              Form
                  of Indemnification Agreement, entered into between the Company
                  and its
                  officers and directors, incorporated by reference to Exhibit 10.59
                  to the
                  Company's Quarterly Report on Form 10-Q filed with the Securities
                  and
                  Exchange Commission on July 16, 2007.Exhibit
                  10.60
              
              Employment
                  Agreement, dated April 25, 2007, between the Company and Richard
                  Gaines,
                  incorporated by reference to Exhibit 10.60 to the Company's Quarterly
                  Report on Form 10-Q filed with the Securities and Exchange Commission
                  on
                  July 16, 2007.Exhibit
                  10.61
              
              Stock
                  Option Agreement entered into between the Company and Lawrence
                  Taylor,
                  dated March 30, 2007, incorporated by reference to Exhibit 10.61
                  to the
                  Company's Quarterly Report on Form 10-Q filed with the Securities
                  and
                  Exchange Commission on July 16, 2007.Exhibit
                  10.62
              
              Stock
                  Option Agreement entered into between the Company and Anthony Hamlin,
                  dated March 30, 2007, incorporated by reference to Exhibit 10.62
                  to the
                  Company's Quarterly Report on Form 10-Q filed with the Securities
                  and
                  Exchange Commission on July 16, 2007.Exhibit
                  10.63
              
              Stock
                  Option Agreement entered into between the Company and Richard Gaines,
                  dated April 25, 2007, incorporated by reference to Exhibit 10.63
                  to the
                  Company's Quarterly Report on Form 10-Q filed with the Securities
                  and
                  Exchange Commission on July 16, 2007.Exhibit
                  10.64
              
              Stock
                  Option Agreement entered into between the Company and Stephen Scorgie,
                  dated April 25, 2007, incorporated by reference to Exhibit 10.64
                  to the
                  Company's Quarterly Report on Form 10-Q filed with the Securities
                  and
                  Exchange Commission on July 16, 2007.Exhibit
                  31.1
              
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.Exhibit
                  31.2
              
              Certification
                  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.Exhibit
                  32.1
              
              Certification
                  of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit
                  32.2
              
              Certification
                  of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 38