Registration Number 333-103293
 ================================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q  x
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended:June 30,  2008
  OR  o
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
        to
  Commission file number:333-103293
  Pioneer Financial Services, Inc. (Exact name of Registrant as specified in its charter)  Missouri
(State or other jurisdiction of
incorporation or organization)
        44-0607504
(I.R.S. Employer
Identification No.)
  4700 Belleview Avenue, Suite 300, Kansas City, Missouri
(Address of principal executive office)
        64112
(Zip Code)
  Registrants telephone number, including area code:(816) 756-2020
   (Former name, former address and former fiscal year, if changed since last report)  Indicate by check mark whether the Registrant has (1) filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNo o  Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o  Non-accelerated filerx
        Accelerated filer o
        Smaller reporting company o
  Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Nox  Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.  Class
        Outstanding as of August 14, 2008
 Common Stock, no par value
        1 share
  As of June 30, 2008, 1 share of the Registrants common stock is outstanding. The registrant is a wholly owned subsidiary of MidCountry Financial Corp.    PIONEER FINANCIAL SERVICES, INC.  FORM 10-Q June 30, 2008  TABLE OF CONTENTS   PART I FINANCIAL INFORMATION  Item No.
        Page1.
        Consolidated Financial Statements
        1Consolidated Balance Sheet at June 30, 2008 and September 30, 2007
        1Consolidated Statements of Operations for the three months ended June 30, 2008, the period fromApril 1, 2007 to May 31, 2007 and the period from June 1, 2007 to June 30, 2007
        2Consolidated Statements of Operations for the nine months ended June 30, 2008, the period fromOctober 1, 2006 to May 31, 2007 and the period from June 1, 2007 to June 30, 2007
        3Consolidated Statements of Stockholders Equity for the nine months ended June 30, 2008, eight months ended May 31, 2007 and years ended September 30, 2007 and 2006
        4Consolidated Statements of Cash Flows for the nine months ended June 30, 2008, the period from October 1, 2006 to May 31, 2007 and the period from June 1, 2007 to June 30, 2007
        5Condensed Notes to Consolidated Financial Statements
        62.
        Managements Discussion and Analysis of Financial Condition and Results of Operations
        123.
        Quantitative and Qualitative Disclosures About Market Risk
        284T.
        Controls and Procedures
        28PART IIOTHER INFORMATION1.
        Legal Proceedings
        296.
        Exhibits
        30
     PART I - FINANCIAL INFORMATION  ITEM 1.Consolidated Financial Statements PIONEER FINANCIAL SERVICES, INC. Consolidated Balance Sheet As of June 30, 2008 and September 30, 2007 (unaudited)  ASSETS  June 30,
        
        
        
        September 30,2008
        
        
        
        2007Cash and cash equivalents - restricted
        
        $
        1,318,584
        
        
        
        $
        3,540,231Cash and cash equivalents - non-restricted
        
        
        5,966,071
        
        
        
        
        3,700,823Investments - restricted
        
        
        6,178,371
        
        
        
        
        3,413,564Investments - non-restricted
        
        
        130,000
        
        
        
        
        230,000Net finance receivables
        
        
        254,015,836
        
        
        
        
        236,234,550Furniture and equipment, net
        
        
        617,130
        
        
        
        
        747,342Deferred income tax asset
        
        
        888,388
        
        
        
        
        Prepaid and other assets
        
        
        5,178,220
        
        
        
        
        6,083,591Deferred policy acquisition costs
        
        
        2,730,772
        
        
        
        
        2,727,539Goodwill
        
        
        30,427,392
        
        
        
        
        28,058,432Intangibles - net
        
        
        19,967,600
        
        
        
        
        23,951,000Total assets
        
        $
        327,418,364
        
        
        
        $
        308,687,072LIABILITIES AND STOCKHOLDERS EQUITYRevolving credit line - banks
        
        $
        23,507,000
        
        
        
        $
        15,463,000Accounts payable
        
        
        2,775,571
        
        
        
        
        1,725,005Accrued expenses and other liabilities
        
        
        5,885,568
        
        
        
        
        3,877,235Amortizing term notes
        
        
        172,774,013
        
        
        
        
        168,928,850Investment notes
        
        
        35,320,408
        
        
        
        
        36,073,502Deferred income tax liability
        
        
        
        
        
        
        
        1,048,092Total liabilities
        
        
        240,262,560
        
        
        
        
        227,115,684Contingencies (Note 2)Stockholders equity:Common stock, no par value; 1 share issued and outstanding
        
        
        84,394,200
        
        
        
        
        82,394,200Retained earnings (deficit)
        
        
        2,761,604
        
        
        
        
        (822,812
        )Total stockholders equity
        
        
        87,155,804
        
        
        
        
        81,571,388Total liabilities and stockholders equity
        
        $
        327,418,364
        
        
        
        $
        308,687,072
    See Condensed Notes to Consolidated Financial Statements  1      PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Operations For the three months ended June 30, 2008, the period from April 1, 2007 to May 31, 2007 and the period from June 1, 2007 to June 30, 2007 (unaudited)   Successor
        
        
        
        
        
        
        
        PredecessorThree MonthsEnded June 30,
        
        
        
        Period from June1  June 30,
        
        
        
        
        
        
        
        Period fromApril 1  May 31,2008
        
        
        
        2007
        
        
        
        
        
        
        
        2007Interest Income and Fees
        
        $
        20,817,742
        
        
        
        $
        6,247,865
        
        
        
        
        
        
        
        $
        13,279,976Interest Expense
        
        
        3,948,776
        
        
        
        
        1,320,233
        
        
        
        
        
        
        
        
        2,627,550Net interest income before provision for loan losses
        
        
        16,868,966
        
        
        
        
        4,927,632
        
        
        
        
        
        
        
        
        10,652,426Provision for loan losses
        
        
        3,997,782
        
        
        
        
        6,035,321
        
        
        
        
        
        
        
        
        5,498,632Net Interest Income
        
        
        12,871,184
        
        
        
        
        (1,107,689
        )
        
        
        
        
        
        
        
        5,153,794Noninterest Income:Insurance premiums and commissions earned, net
        
        
        959,202
        
        
        
        
        380,557
        
        
        
        
        
        
        
        
        961,438Other
        
        
        243
        
        
        
        
        (731
        )
        
        
        
        
        
        
        
        277,737Total noninterest income
        
        
        959,445
        
        
        
        
        379,826
        
        
        
        
        
        
        
        
        1,239,175Noninterest Expense:Compensation and benefits
        
        
        79,340
        
        
        
        
        34,317
        
        
        
        
        
        
        
        
        2,520,262Management and record keeping services fee
        
        
        7,172,268
        
        
        
        
        2,193,636
        
        
        
        
        
        
        
        
        Occupancy and equipment
        
        
        405,982
        
        
        
        
        5,721
        
        
        
        
        
        
        
        
        750,108Advertising
        
        
        22,724
        
        
        
        
        5,005
        
        
        
        
        
        
        
        
        350,660Professional and regulatory fees
        
        
        226,404
        
        
        
        
        13,970
        
        
        
        
        
        
        
        
        214,649Data processing
        
        
        
        
        
        
        
        4,089
        
        
        
        
        
        
        
        
        38,112Amortization of intangibles
        
        
        1,327,800
        
        
        
        
        297,600
        
        
        
        
        
        
        
        
        Other operating expenses
        
        
        180,210
        
        
        
        
        38,590
        
        
        
        
        
        
        
        
        925,689Total noninterest expense
        
        
        9,414,728
        
        
        
        
        2,592,928
        
        
        
        
        
        
        
        
        4,799,480Income before income taxes
        
        
        4,415,901
        
        
        
        
        (3,320,791
        )
        
        
        
        
        
        
        
        1,593,489Provision for income taxes
        
        
        1,672,770
        
        
        
        
        (1,206,708
        )
        
        
        
        
        
        
        
        641,695Net income
        
        $
        2,743,131
        
        
        
        $
        (2,114,083
        )
        
        
        
        
        
        
        $
        951,794Net income per share, basicand diluted
        
        $
        2,743,131
        
        
        
        $
        (2,114,083
        )
        
        
        
        
        
        
        $
        55.54
   See Condensed Notes to Consolidated Financial Statements  2       PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Operations For the nine months ended June 30, 2008 and the period from October 1, 2006 to May 31, 2007 and the period from June 1, 2007 to June 30, 2007 (unaudited)   Successor
        
        
        
        PredecessorNine MonthsEnded June 30,
        
        Period fromJune 1  June 30,
        
        
        
        Period fromOctober 1, 2006May 31,2008
        
        2007
        
        
        
        2007Interest Income and Fees
        
        $
        61,376,841
        
        $
        6,247,865
        
        
        
        $
        53,170,947Interest Expense
        
        
        12,269,217
        
        
        1,320,233
        
        
        
        
        10,546,509Net interest income before provision for loan losses
        
        
        49,107,624
        
        
        4,927,632
        
        
        
        
        42,624,438Provision for loan losses
        
        
        17,091,942
        
        
        6,035,321
        
        
        
        
        21,101,441Net Interest Income
        
        
        32,015,682
        
        
        (1,107,689
        )
        
        
        
        21,522,997Noninterest Income:Insurance premiums and commissions earned, net
        
        
        2,932,528
        
        
        380,557
        
        
        
        
        3,313,121Other
        
        
        (237
        )
        
        (731
        )
        
        
        
        1,120,964Total noninterest income
        
        
        2,932,291
        
        
        379,826
        
        
        
        
        4,434,085Noninterest Expense:Compensation and benefits
        
        
        371,444
        
        
        34,317
        
        
        
        
        11,596,665Management and record keeping services fee
        
        
        20,427,863
        
        
        2,193,636
        
        
        
        
        Occupancy and equipment
        
        
        595,808
        
        
        5,721
        
        
        
        
        2,591,584Advertising
        
        
        57,936
        
        
        5,005
        
        
        
        
        1,538,223Professional and regulatory fees
        
        
        892,973
        
        
        13,970
        
        
        
        
        1,445,539Data processing
        
        
        
        
        
        4,089
        
        
        
        
        162,185Amortization of intangibles
        
        
        3,983,400
        
        
        297,600
        
        
        
        
        Other operating expenses
        
        
        451,863
        
        
        38,590
        
        
        
        
        3,655,072Total noninterest expense
        
        
        26,781,287
        
        
        2,592,928
        
        
        
        
        20,989,268Income before income taxes
        
        
        8,166,686
        
        
        (3,320,791
        )
        
        
        
        4,967,814Provision for income taxes
        
        
        3,152,327
        
        
        (1,206,708
        )
        
        
        
        1,932,729Net income
        
        $
        5,014,359
        
        $
        (2,114,083
        )
        
        
        $
        3,055,085Net income per share, basicand diluted
        
        $
        5,014,359
        
        $
        (2,114,083
        )
        
        
        $
        177.12
    See Condensed Notes to Consolidated Financial Statements  3      PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Stockholders Equity For the nine months ended June 30, 2008, eight months ended May 31, 2007 and the years ended September 30, 2007 and 2006 (unaudited)   Total
        
        
        
        CommonStock
        
        
        
        RetainedEarnings(Deficit)PredecessorBalance, September 30, 2006
        
        $
        39,010,057
        
        
        
        $
        1,713,600
        
        
        
        $
        37,296,457Net income
        
        
        3,035,085
        
        
        
        
        
        
        
        
        
        3,035,085Dividend paid ($583.60 per share)
        
        
        (10,000,569
        )
        
        
        
        
        
        
        
        
        (10,000,569
        )Balance, May 31, 2007
        
        $
        32,044,573
        
        
        
        $
        1,713,600
        
        
        
        $
        30,330,973SuccessorBalance, May 31, 2007
        
        $
        
        
        
        
        $
        
        
        
        
        $
        Investment by parent
        
        
        86,229,762
        
        
        
        
        86,229,762
        
        
        
        
        Additional capital contributed
        
        
        7,432,000
        
        
        
        
        7,432,000
        
        
        
        
        Dividend of business operations to MCFC
        
        
        (11,267,562
        )
        
        
        
        (11,267,562
        )
        
        
        
        Net loss
        
        
        (822,812
        )
        
        
        
        
        
        
        
        
        (822,812
        )Balance, September 30, 2007
        
        $
        81,571,388
        
        
        
        $
        82,394,200
        
        
        
        $
        (822,812
        )Net income
        
        $
        5,014,359
        
        
        
        $
        
        
        
        
        $
        5,014,359Capital Contribution by Parent
        
        
        2,000,000
        
        
        
        
        2,000,000
        
        
        
        
        Dividend Paid to Parent
        
        
        (1,135,616
        )
        
        
        
        
        
        
        
        
        (1,135,616
        )Adoption of FIN48 (see note 6)
        
        
        (294,327
        )
        
        
        
        
        
        
        
        
        (294,327
        )Balance, June 30, 2008
        
        $
        87,155.804
        
        
        
        $
        84,394,200
        
        
        
        $
        2,761,604
   See Condensed Notes to Consolidated Financial Statements  4    PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Cash Flows For the nine months ended June 30, 2008, the period from October 1, 2006 to May 31, 2007 and the period from June 1, 2007 to June 30, 2007 (unaudited)  Successor
        
        
        
        
        
        PredecessorNine MonthsEnded June 30,2008
        
        
        
        Period fromJune 1  June 30,2007
        
        
        
        
        
        Period fromOctober 1, 2006 -May 31,2007Cash flows from operating activities:Net income
        
        $
        5,014,359
        
        
        
        $
        (2,114,084
        )
        
        
        
        
        $
        3,035,085Items not requiring (providing) cash:Provision for credit losses onfinance receivables
        
        
        17,091,942
        
        
        
        
        6,035,321
        
        
        
        
        
        
        21,101,441Depreciation and amortization
        
        
        2,967,636
        
        
        
        
        21,308
        
        
        
        
        
        
        936,559Loss on disposal/donation of equipment
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (62,616
        )Changes in deferred fees - net
        
        
        2,102,143
        
        
        
        
        1,223,657
        
        
        
        
        
        
        6,085,856Changes in unearned premium reserves
        
        
        39,142
        
        
        
        
        100,000
        
        
        
        
        
        
        Deferred income taxes
        
        
        (1,284,714
        )
        
        
        
        13,103,805
        
        
        
        
        
        
        (3,385,179
        )Interest Accrued on Investment Notes
        
        
        1,331,424
        
        
        
        
        
        
        
        
        
        
        
        Changes in:Accounts payable and accruedexpenses
        
        
        1,700,252
        
        
        
        
        (13,678,224
        )
        
        
        
        
        
        7,811,251Prepaids and other assets
        
        
        902,138
        
        
        
        
        (1,225,237
        )
        
        
        
        
        
        (1,305,297
        )Net cash provided by operatingactivities
        
        
        29,864,322
        
        
        
        
        3,466,546
        
        
        
        
        
        
        34,217,100Cash flows from investing activities:Loans originated
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (119,348,414
        )Loans purchased from affiliate
        
        
        (150,319,978
        )
        
        
        
        (14,800,068
        )
        
        
        
        
        
        Loans purchased
        
        
        (13,141,416
        )
        
        
        
        (1,183,474
        )
        
        
        
        
        
        (11,223,718
        )Loans repaid
        
        
        127,896,408
        
        
        
        
        13,871,118
        
        
        
        
        
        
        105,686,447Capital expenditures
        
        
        (62,587
        )
        
        
        
        
        
        
        
        
        
        
        (105,506
        )Acquisition of Pioneer Financial Services, Inc.
        
        
        43,594
        
        
        
        
        (68,800,473
        )
        
        
        
        
        
        Change in restricted cash
        
        
        2,221,647
        
        
        
        
        (527,599
        )
        
        
        
        
        
        (3,311,760
        )Investments purchased - restricted
        
        
        (6,447,205
        )
        
        
        
        
        
        
        
        
        
        
        (2,020,923
        )Investments matured - restricted
        
        
        3,688,276
        
        
        
        
        
        
        
        
        
        
        
        2,849,000Investments matured - non-restricted
        
        
        100,000
        
        
        
        
        514,000
        
        
        
        
        
        
        Net cash used in investing activities
        
        
        (36,021,261
        )
        
        
        
        (70,962,496
        )
        
        
        
        
        
        (27,474,874
        )Cash flows from financing activities:Net borrowing under lines of credit
        
        
        8,044,000
        
        
        
        
        (4,703,464
        )
        
        
        
        
        
        2,313,978Proceeds from borrowings
        
        
        63,000,000
        
        
        
        
        2,000,000
        
        
        
        
        
        
        52,785,224Repayment of borrowings
        
        
        (61,486,197
        )
        
        
        
        (6,339,813
        )
        
        
        
        
        
        (47,100,607
        )Cash portion of dividend to parent
        
        
        
        
        
        
        
        (3,914,609
        )
        
        
        
        
        
        Capital Contribution
        
        
        
        
        
        
        
        76,232,473
        
        
        
        
        
        
        Dividends paid
        
        
        (1,135,616
        )
        
        
        
        
        
        
        
        
        
        
        (10,000,569
        )Net cash provided by financingactivities
        
        
        8,422,187
        
        
        
        
        63,274,587
        
        
        
        
        
        
        (2,001,974
        )Net increase in cash and equivalents
        
        
        2,265,248
        
        
        
        
        (4,185,363
        )
        
        
        
        
        
        4,740,252Cash and cash equivalentsBeginning of period
        
        
        3,700,823
        
        
        
        
        6,337,959
        
        
        
        
        
        
        1,597,707Cash and cash equivalentsEnd of period
        
        $
        5,966,071
        
        
        
        $
        2,152,596
        
        
        
        
        
        $
        6,337,959Additional cash flow information:Interest paid
        
        $
        10,918,957
        
        
        
        $
        1,176,837
        
        
        
        
        
        $
        9,242,496Income taxes paid
        
        $
        2,786,719
        
        
        
        $
        156,995
        
        
        
        
        
        $
        2,427,013Noncash financing activities:Capital contribution from parent
        
        $
        2,000,000Capitalized Accrued Interest onInvestment Notes
        
        $
        1,331,424
  See Condensed Notes to Consolidated Financial Statements  5    PIONEER FINANCIAL SERVICES, INC.  CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2008 and June 30, 2007 (Unaudited)  NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of Pioneer Financial Services, Inc. and its wholly-owned subsidiaries (collectively we, us, our or the company). All significant intercompany balances and transactions have been eliminated.  We were acquired on May 31, 2007 by MidCountry Financial Corp, a Georgia corporation (MCFC) as a wholly-owned subsidiary (the Transaction).   We are now a wholly-owned first-tier subsidiary of MCFC. Our accounting for the Transaction followed the requirements of Staff Accounting Bulletin (SAB) 54, Topic  5-J and Statement of Accounting Standards No. 141, Business Combinations, which required that purchase accounting treatment of the Transaction be pushed down to us resulting in the adjustment of all our net assets to their respective fair values as of the Transaction date. Although we continued as the same legal entity after the Transaction, the application of push down accounting represents the termination of the old accounting entity and the creation of a new one.  As a result, the accompanying condensed consolidated financial statements represent two periods: Predecessor, first eight months of fiscal 2007, and Successor, the month of June 2007 and the first nine months of fiscal 2008. Immediately subsequent to the Transaction, we declared and paid a dividend to MCFC of our business operation and certain assets and liabilities related to the origination and servicing of our finance receivables. MCFC contributed these operations to MidCountry Bank (MCB) which is a wholly-owned subsidiary of MCFC.  MCB formed the Military Banking Division (MBD) which is composed exclusively of the assets and liabilities contributed from MCFC.  This transaction is further described in Note 2:  Transaction and Dividend of Operations and Net Assets to MCFC.  As part of the dividend, we entered into a Loan Sale and Master Services Agreement (LSMS Agreement) with MBD.  Under the LSMS Agreement, MBD is obligated to originate loans and we are obligated to purchase those loans that meet our business model and underwriting guidelines.  Also under the LSMS Agreement,
MBD will provide us with management and record keeping services.  As part of the dividend, substantially all of our employees became employees of MBD.  We pay fees for loans purchased and originated by MBD and management and record keeping services provided by MBD.  The LSMS Agreement is further described in Note 7:  Related Party Transactions. There are significant differences in the way we operated in the Predecessor Period to the Successor Period.  Certain fees and revenue we earned in the Predecessor Period are not collected in the Successor Period from our loans.  Under the LSMS Agreement, in the Successor Period we are outsourcing to MBD (a) origination of loans to US military personnel and US Department of Defense employees (collectively military loans) and (b) servicing of all loans.  Our expenses include amortization of our intangible assets in the Successor Period pursuant to SFAS No. 142, Goodwill and Other Intangible Assets.  While comparisons to prior periods are relevant, these changes have an effect on our financial condition, results of operations and cash flow.  Nature of Operations and Concentration We are headquartered in Kansas City, Missouri.  Prior to June 1, 2007, we originated finance receivables exclusively to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees.  We also purchased finance receivables from retail merchants that sell consumer goods to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees.    We now purchase similar finance receivables from MBD and continue to purchase from retail merchants.    Prior to June 1, 2007, we also sold non-loan related products and services including roadside assistance programs and discount cards.  In connection with the Transaction, we discontinued the selling of ancillary products and services as of June 1, 2007.  6    Use of Estimates The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the unaudited condensed consolidated financial statements and in disclosures of contingent assets and liabilities.  Management uses estimates and employs judgments in determining the amount of our allowance for credit losses, insurance claims and policy reserves, deferred loan origination costs, and establishing the fair value of our financial instruments.  We also used estimates in assigning fair values to our assets and liabilities after the Transaction.   While the consolidated financial statements and footnotes reflect the best estimates and judgments of management at the time, actual results could differ significantly from those estimates. Information with respect to June 30, 2008 and 2007, and the periods then ended, have not been audited by our independent auditors, but in the opinion of management reflect all adjustments (which include only normal recurring adjustments) necessary for the fair presentation of the financial condition and operations.  The results of operations for the three and nine months ended June 30, 2008 and 2007 are not necessarily indicative of results to be expected for the entire fiscal year.  The condensed consolidated balance sheet as of September 30, 2007 and statements of stockholders equity for the years ended September 30, 2007 and 2006 have been derived from the our audited consolidated balance sheet and statements of stockholders equity. NOTE 2:  TRANSACTION AND DIVIDEND OF OPERATIONS AND NET ASSETS TO MCFC In connection with the Transaction, MCFC paid the shareholders of PFI (the Sellers) approximately $68.8 million in cash and 882,353 shares of MCFCs common stock. Under the related purchase agreement, MCFC is also required to pay the Sellers an additional $5 million in contingent payments, of which $4 million will be contributed to us and $1 million to MBD, if we meet any one of certain financial performance goals which will be evaluated and paid in two installments over the 24 months following the acquisition. These goals pertain to net revenue, net income, finance receivable and the number of customer relationships for the calendar year ended December 31, 2007 and 2008.As of December 31, 2007 we met our performance goals for the calendar year, resulting in MCFC paying the Sellers $2 million on March 31, 2008, which was contributed by us. The Transaction was accounted for using the purchase method in accordance with SFAS 141, Business Combinations.  The components of the purchase price were as follows:   Stock in MCFC Financial Corp.
        
        
        
        $
        15,000,000Cash
        
        
        
        
        68,800,473Direct acquisition costs
        
        
        
        
        492,000Consideration paid
        
        
        
        
        84,292,473Assumption of liabilities
        
        
        
        
        1,937,289Total purchase price
        
        
        
        $
        86,229,762
   Updates to the purchase price allocated to us due to performance goals met and earned by us as of June 30, 2008:  Purchase price as of 09/30/2007
        
        
        
        $
        86,229,762Contingent payment on 3/31/2008
        
        
        
        
        2,000,000Total purchase price as of 6/30/2008
        
        
        
        $
        88,229,762
   The purchase price as recorded above does not include $2 million in contingent payments for calendar year 2008, which have not been earned or paid.  7    The fair value assigned to intangible assets acquired and assumed liabilities is supported by valuations using estimates and assumptions provided by management. We also retained independent appraisers to assist in these valuations.  The primary changes to the balance sheet are preliminary and reflect certain assets and liabilities as follows: 
        The recording of the fair value of our intangibles including customer relationships, agent relationships, vendor relationships and system technology;
 
        The recording of the fair value of goodwill;
 
        Elimination of the accumulated earnings; and
 
        The recording of the fair value of fixed assets, investment notes, senior debt and finance receivables.
 The purchase price was allocated to the estimated fair value of assets acquired and liabilities assumed as follows:  Cash and other current assets
        
        
        
        $
        10,990,773Net finance receivables
        
        
        
        
        238,366,357Equipment and other assets
        
        
        
        
        10,388,206Goodwill
        
        
        
        
        41,567,954Intangible assets
        
        
        
        
        26,200,000Subtotal
        
        
        
        
        327,513,290Liabilities
        
        
        
        
        (230,213,810
        )Deferred income taxes, related to intangibles
        
        
        
        
        (9,069,718
        )Total
        
        
        
        $
        88,229,762
   Immediately subsequent to the Transaction, we declared and paid a dividend to MCFC of our business operations and certain assets and liabilities related to the origination and servicing of finance receivables.  MCFC contributed these operations to MCB which is a wholly-owned subsidiary of MCFC.  MCB formed the MBD which is composed exclusively of the operation and assets and liabilities from us.  Intangible assets were allocated to the operations and assets and liabilities as a dividend to MCFC based on relative fair values.  The dividend is summarized as follows:  Cash and cash equivalents
        
        
        
        $
        811,651Property and Equipment
        
        
        
        
        1,391,211Goodwill
        
        
        
        
        11,140,562Intangibles
        
        
        
        
        200,000Due to parent
        
        
        
        
        3,085,682Other assets
        
        
        
        
        687,559Total Assets
        
        
        
        
        17,316,665Accrued expenses and other liabilities
        
        
        
        
        (5,976,103
        )Deferred tax liabilities, net
        
        
        
        
        (73,000
        )Total liabilities
        
        
        
        
        (6,049,103
        )Assets in excess of liabilities
        
        
        
        $
        11,267,562
    8     NOTE 3:  FINANCE RECEIVABLES Finance receivables at June 30, 2008 and September 30, 2007, consisted of the following:  As of June 30,
        
        
        
        
        
        As of September 30,2008
        
        
        
        
        
        2007Military receivables/loans
        
        
        
        $
        280,121,738
        
        
        
        
        
        $
        260,539,276Retail installment contracts
        
        
        
        
        19,387,411
        
        
        
        
        
        
        19,238,995Total finance receivables
        
        
        
        
        299,509,149
        
        
        
        
        
        
        279,778,271Purchase adjustment (1)
        
        
        
        
        (299,503
        )
        
        
        
        
        
        (1,749,030
        )Discounts and net deferred loan fees
        
        
        
        
        (15,761,978
        )
        
        
        
        
        
        (13,092,318
        )Unearned insurance premium reserves
        
        
        
        
        (6,581,825
        )
        
        
        
        
        
        (6,718,659
        )Insurance claims and policy reserves
        
        
        
        
        (442,751
        )
        
        
        
        
        
        (345,059
        )Finance receivables - net of unearned fees and premiums
        
        
        
        
        276,423,092
        
        
        
        
        
        
        257,873,205Allowance for credit losses
        
        
        
        
        (22,407,256
        )
        
        
        
        
        
        (21,638,655
        )Finance receivables - net of allowance
        
        
        
        $
        254,015,836
        
        
        
        
        
        $
        236,234,550
  (1) Relates to the fair value adjustments recorded to finance receivables as part of the Transaction. During the third quarter of fiscal 2008, we amortized approximately $351,796 of the purchase adjustment into income.  Year to date amortized total equals $1,449,527.   NOTE 4:  GOODWILL AND INTANGIBLES  Due to the Transaction, we recorded goodwill and amortizable intangible assets in the form of customer, agent and vendor relationships, trade name, technology for the lending system and the value of business acquired.  Goodwill and intangible assets at June 30, 2008 are as follows:  June 30, 2008
        
        
        
        September 30, 2007GrossCarryingAmount
        
        
        
        AccumulatedAmortization
        
        
        
        Net CarryingValue
        
        
        
        GrossCarryingAmount
        
        
        
        AccumulatedAmortization
        
        
        
        Net CarryingValueCustomer Relationships
        
        $
        11,000,000
        
        
        
        $
        (2,427,077
        )
        
        
        $
        8,572,923
        
        
        
        $
        11,000,000
        
        
        
        $
        (710,000
        )
        
        
        $
        10,290,000Agent Relationships
        
        
        700,000
        
        
        
        
        (130,460
        )
        
        
        $
        569,540
        
        
        
        
        700,000
        
        
        
        
        (38,000
        )
        
        
        $
        662,000Vendor Relationships
        
        
        1,700,000
        
        
        
        
        (318,404
        )
        
        
        $
        1,381,596
        
        
        
        
        1,700,000
        
        
        
        
        (95,000
        )
        
        
        $
        1,605,000Trade Name
        
        
        7,000,000
        
        
        
        
        (994,718
        )
        
        
        $
        6,005,282
        
        
        
        
        7,000,000
        
        
        
        
        (317,000
        )
        
        
        $
        6,683,000Technology
        
        
        4,000,000
        
        
        
        
        (997,086
        )
        
        
        $
        3,002,914
        
        
        
        
        4,000,000
        
        
        
        
        (318,000
        )
        
        
        $
        3,682,000Valuation of Business Acquired
        
        
        1,600,000
        
        
        
        
        (1,164,655
        )
        
        
        $
        435,345
        
        
        
        
        1,600,000
        
        
        
        
        (571,000
        )
        
        
        $
        1,029,000Total amortizable intangibles
        
        $
        26,000,000
        
        
        
        $
        (6,032,400
        )
        
        
        $
        19,967,600
        
        
        
        $
        26,000,000
        
        
        
        $
        (2,049,000
        )
        
        
        $
        23,951,000Goodwill
        
        $
        30,427,392
        
        
        
        $
        
        
        
        
        $
        30,427,392
        
        
        
        $
        28,058,432
        
        
        
        $
        
        
        
        
        $
        28,058,432
   Intangible assets other than goodwill, which are determined to have finite lives, are amortized on a straight-line or accelerated basis over their estimated useful lives between three and ten years.  Management evaluated goodwill at September 30, 2007, in accordance with SFAS No. 142 and determined that there was no impairment.  Management also evaluates amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  There were no impairments of amortizable intangible assets, as of September 30, 2007, and no events or changes in circumstances that indicate the carrying amount of an asset may not be recoverable. 9    NOTE 5: NET INCOME PER SHARE Net income per share is computed based upon the weighted-average common shares outstanding of 1 for the first three months and nine months of fiscal year 2008 and 17,136 for the period from April 1, 2007 to May 31, 2007 and the period from October 1, 2006 to May 31, 2007.  There are no potentially dilutive securities issued and outstanding. NOTE 6: INCOME TAXES The Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN 48,") dated June 2006.  FIN 48 requires companies to recognize the tax benefits of uncertain tax positions only when the position is "more likely than not" to be sustained assuming examination by tax authorities.  The amount recognized represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized.  A liability is recognized for any benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) on the excess. We adopted the provisions of FIN 48 on October 1, 2007.  As a result, we recorded a charge of approximately $294,000 to the October 1, 2007, retained deficit.  As of the adoption date, we had a gross unrecognized tax benefit (FIN48 liability) of approximately $1,020,000.  Approximately $468,000, if recognized, would favorably affect our effective tax rate. The FIN 48 liability is carried in other liabilities in the consolidated balance sheet as of June 30, 2008.  Interest and penalties recognized are recorded as a component of income tax expense.  Accrued interest and penalties were approximately $339,000 as of October 1, 2007 and $434,000 as of June 30, 2008.  NOTE 7: RELATED PARTY TRANSACTIONS  Due to the Transaction, we entered into a LSMS Agreement with MBD.  Under the LSMS Agreement, we buy certain military loans that MBD originates and receive management and record keeping services.  During the third quarter of fiscal 2008, the total loans, net of deferred fees, we purchased from MBD pursuant to the LSMS Agreement were $54.4 million, bringing the year to date fiscal 2008 total to $150.3 million.  We have paid $6.6 million to MBD for services receive for management and record keeping services pursuant to the LSMS Agreement for the third quarter of 2008.  Management fee expense paid to MBD for the first nine months of 2008 totals $19.9 million.  NOTE 8: NEW ACCOUNTING PRONOUNCEMENTS In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements(SFAS No. 157), which enhances existing guidance for measuring assets and liabilities using fair values. SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. We are currently evaluating the impact of SFAS No. 157 on our consolidated financial condition and results of operations.  In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities(SFAS No. 159), which permits entities to choose to measure many financial assets and financial liabilities at fair value.  Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings.  The provision of SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  We are currently evaluating the impact of adopting SFAS No. 159 on our consolidated financial condition and results of operations.  10     In March 2008 FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB statement No. 133(SFAS 161). SFAS 161 expands the disclosure requirements in Statement 133 about an entitys derivative instruments and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51(SFAS 160). SFAS 160 changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parents equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS 160 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, except for the presentation and disclosure requirements, which will apply retrospectively. Adoption of SFAS 160 will not have a material impact to our consolidated results of operations and financial condition. In December 2007, the FASB issued SFAS No. 141 (Revised 2007),Business Combinations(SFAS 141R). SFAS 141R replaces SFAS No. 141. SFAS 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. SFAS 141R also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will apply SFAS 141R prospectively to business combinations completed on or after
that date. There will be no impact upon adoption to our current consolidated results of operations and financial condition.  11    ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations  Forward-Looking Statements The discussion set forth below, in the quarterly report of Pioneer Financial Services, Inc. (PFS), with its wholly-owned subsidiaries (collectively we, us, our or the company), contains forward-looking statements within the meaning of federal securities law.  Words such as "may," "will," "expect," "anticipate," "believe," "estimate," "continue," "predict," or other similar words, identify forward-looking statements.  Forward-looking statements include statements regarding our management's intent, belief or current expectation about, among other things, trends affecting the markets in which we operate, our business, financial condition and growth strategies.  Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of
future performance and involve risks and uncertainties.  Actual results may differ materially from those predicted in the forward-looking statements as a result of various factors, including, but not limited to, those risk factors set forth in our annual report on Form 10-K for the period ended September 30, 2007 (annual report) under Item 1ARisk Factors.  Other factors not identified herein could also have such an effect.  If any of these risk factors occur, they could have an adverse effect on our business, financial condition and results of operation.  When considering forward-looking statements keep these risk factors in mind.  These forward-looking statements are made as of the date of this filing.  You should not place undue reliance on any forward-looking statement.  We are not obligated to update forward-looking statements and will not update any forward-looking statements in this Quarterly Report to reflect future events or developments. Overview We are a wholly-owned subsidiary of MidCountry Financial Corp., a Georgia corporation (MCFC).  Prior to May 31, 2007, we were a wholly-owned subsidiary of Pioneer Financial Industries, Inc., a Nevada corporation (PFI). On May 31, 2007, MCFC acquired 100% of PFI's common stock (the Transaction).  The Transaction resulted in a change in control effective May 31, 2007. Pursuant to the Transaction, MCFC reorganized our operations.  Prior to June 1, 2007, we originated loans exclusively to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees.  In connection with the Transaction, activities related to the origination and servicing of loans are now being conducted by our affiliate, the Military Banking Division of MidCountry Bank (a wholly-owned subsidiary of MCFC and referred to throughout as MBD).  In
addition, generally all of our former employees work for MBD. We purchase consumer loans, on a worldwide basis, made exclusively to active-duty or retired career U.S. military personnel or U.S. Department of Defense employees.  We purchase primarily from two different types of sources.  Our largest source of military loans is MBD, an affiliate who originates military loans through a network of loan production offices and via the Internet. Military families use these loan proceeds to purchase goods and services.  We also purchase retail installment contracts from retail merchants that sell consumer goods to active-duty or retired career U.S. military personnel or U.S. Department of Defense employees.  We plan to hold these military loans and retail installment contracts until repaid.  We have entered into a Loan Sale and Master Services Agreement (LSMS) with MBD which outlines the terms of the sale and servicing of these loans. Finance receivables, whether originated or purchased, are effectively unsecured and consist of loans originated by us or purchased from MBD and retail merchants.  All finance receivables have fixed interest rates and typically have a maturity of less than 48 months. During the third quarter of fiscal 2008, the size of the average finance receivables when purchased was approximately $3,126. A large portion of our customers are unable to obtain financing from traditional sources due to factors such as their age, frequent relocations and lack of credit history, which may not allow them to build relationships with these sources. Improvement of our profitability is dependent upon the growth in amount of finance receivables we are able to acquire from MBD and retail merchants and the maintenance of loan quality.  12     Lending and Servicing Operations Primary Supplier of Loans We have retained MBD as a primary supplier of loans.  Under the LSMS Agreement, MBD is obligated to use our underwriting criteria (which was developed from our past customer credit repayment experience and is periodically revalidated based on current portfolio performance).  This criterion primarily requires the following: 
        All borrowers must be U.S. military personnel or U.S. defense department employees.
 
        All potential borrowers must complete standardized credit applications either in person at one of MBDs loan production offices or online via the Internet.
 
        A thorough review must be conducted on all applicants military service history.  This includes verification of status including rank and credit history using major credit reporting agencies.  Other review procedures may be conducted as deemed necessary.
 
        Loan repayment terms must generally be structured to repay the entire loan prior to the customers estimated separation from the military.
  To the extent MBD originates loans under these standards, MBD is obligated to sell such loans, net of deferred loan fees, to us and we are obligated to purchase such loans.  Loans purchased from MBD and those previously originated by us prior to the transaction are referred to as military loans.  See our annual report under Item 1A.  Risk FactorsMBD may modify underwriting and servicing standards and does not have to lend to the traditional customers who meet our business model and lending guidelines.  Each of these may materially adversely affect our business operations, cash flow, results of operations, financial condition and profitability.  Loan Purchasing Generally.We have 20+ years experience underwriting, originating, monitoring and servicing consumer loans to the military market and have developed a deep understanding of the military and the military lifestyle. Through this extensive knowledge of our customer base, we had developed a proprietary scoring model that focuses on the unique characteristics of the military market, as well as traditional credit scoring variables which are currently utilized by MBD when originating loans in this market.   We incorporated these proprietary underwriting guidelines and scoring model into our loan origination system to facilitate auto-decisioning and risk-based pricing on our loans. For the loans we purchase, MBD now uses our proprietary underwriting guidelines and scoring model when it originates loans.  Under these guidelines, in evaluating the creditworthiness of potential customers, MBD primarily examines the individuals debt to income ratio, discretionary income, military rank, time served in the military and prior credit experience. Loans are limited to amounts that the customer could reasonably be expected to repay from that discretionary income. Loan repayment terms are generally structured to repay the entire loan prior to the customers estimated separation from the military. However, when we purchase loans from MBD, we can not predict when or whether a customer may unexpectedly leave the military or when or whether other events could occur which result in not being repaid prior to a customers departure from the military. We only purchase loans made to consumers who fit our business model and underwriting guidelines.  When we purchase loans from MBD, we use our standard underwriting guidelines to predict the relative likelihood of credit applicants repaying their obligation to us.  In general, each finance receivable we own is under $10,000 repayable in equal monthly installments and has terms no longer than 48 months. A risk in all consumer lending and retail sales financing transactions is the customers unwillingness or inability to repay obligations. Unwillingness to repay is usually evidenced by a consumers historical credit repayment record. An inability to repay occurs after initial credit evaluation and funding and usually results from lower income due to early separation from the military or reduction in rank, major medical expenses, or divorce.  Occasionally, these types of events are so economically severe that the customer files for protection under the bankruptcy laws.  Standard underwriting guidelines are used at the time the customer applies for a loan to help minimize the risk of unwillingness or inability to repay.  These guidelines were developed from past customer credit repayment experience and are periodically revalidated based on current portfolio performance.  We use these
guidelines to predict the relative likelihood of credit applicants repaying their obligation to us.  We purchase loans made to consumers who fit our underwriting guidelines.  The amount and interest rate of the military loan or retail sales finance transaction purchased are set by MBD or the retail merchant based upon our underwriting guidelines considering the estimated credit risk assumed. 13    As a customer service, we consider purchasing a new loan from MBD if an existing borrower has demonstrated a positive payment history with us and where the transaction created an economic benefit to the customer after fully underwriting the new loan request to ensure proper debt ratio, credit history and payment performance. We will not purchase refinancings made to cure delinquency nor for the sole purpose of creating fee income.  Generally, we purchase refinancing of existing loans when a portion of the new loan proceeds is used to repay the balance of the existing loan and the remaining portion is advanced to the customer.  In third quarter 2008, approximately 27.4% of the amount of all military loans purchased were refinancings from outstanding loans. Military Loans Purchased from MBD.We purchase military loans from MBD if they meet our lending guidelines.  In connection with the Transaction, MBD was provided the rights to our lending guidelines and extensive experience with lending to the military marketplace.  Pursuant to the LSMS, we transferred our underwriting model and system to MBD.  However, we retained ownership of this model and the lending system.  MBD now originates these loans directly through its loan production offices and over the Internet.  Prior to June 1, 2007, we originated loans through our retail network of 17 offices located in 13 states. Retail Installment Contracts.We also purchase retail installment contracts, which meet our quality standards and return on investment objectives from approximately 80 retail merchants.  Retail installment contracts are finance receivable notes generated during the purchase of consumer goods by active-duty or retired career U.S. military personnel or U.S. Department of Defense employees.  These customers have demonstrated an apparent need to finance a retail purchase and a willingness to use credit.  We generally acquire these contracts without recourse to the originating merchant.  However, some retail merchant reserve agreements allow us to withhold funds from the merchant's proceeds to create reserves to be used in the event a customer defaults and the loan is deemed uncollectible.  Retail installment contracts generally have maximum terms of 48 months. Management and Record Keeping Services We have retained MBD to provide management and record keeping services pursuant to the LSMS. MBD will service our finance receivables in the same manner as we did prior to the Transaction. For these management and record keeping services, we pay MBD a monthly fee in an amount equal to .67% (8% annually) of the outstanding principal balance of the military loans and retail installment contracts serviced as of the last day of each month. The fee will be adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index.  For these services, we also pay MBD an annual fee of $32.00 for each military loan and retail installment contract owned by us at the end of the prior fiscal year. The annual fee will be paid in monthly installments. This fee will be adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index.  Also, as part of its
compensation for performing these management and recording keeping services, MBD retains all ancillary revenue, including late charges and NSF fees, associated with these loans and retail installment contracts.  The LSMS may be terminated by either party with 180 days written notice and expires on May 13, 2012. To facilitate MBDs servicing of the military loans and retail installment contracts, we have granted MBD (i) the non-exclusive rights to use certain intellectual properties, including our trade names and service marks, and (ii) the right to use our Daybreak system and related hardware and software. We have also granted MBD non-exclusive rights to market additional products and services to our U.S. military borrowers. We retain all other borrower relationships. Sources of Income We obtain revenues primarily from interest earned on the military loans purchased from MBD, loans previously originated by us and retail installment contracts purchased. We also earn revenues from credit reinsurance premiums. For purposes of the following discussion, revenues means the sum of our finance income and reinsurance premiums. In the third quarter of fiscal 2008, our revenues and resulting income came primarily from interest income derived from direct consumer lending and retail installment contracts and credit reinsurance premiums.  14     Finance Receivables Our finance receivables are comprised of military loans and retail installment contracts. The following table sets forth certain information about the components of our finance receivables as of the end of the periods presented:  As of
        
        
        
        
        
        As ofJune 30, 2008
        
        
        
        
        
        June 30, 2007(dollars in thousands, except for average note balance)Finance Receivables:Total Finance receivables balance
        
        
        
        $
        299,509
        
        
        
        
        
        $
        277,659Average note balance
        
        
        
        $
        2,620
        
        
        
        
        
        $
        2,709Total number of notes
        
        
        
        
        114,312
        
        
        
        
        
        
        102,478Military Loans:Total military receivables
        
        
        
        $
        280,122
        
        
        
        
        
        $
        257,395Percent of total finance receivables
        
        
        
        
        93.53
        %
        
        
        
        
        
        92.70
        %Average note balance
        
        
        
        $
        2,682
        
        
        
        
        
        $
        2,801Number of notes
        
        
        
        
        104,431
        
        
        
        
        
        
        91,904Retail Installment Contracts:Total retail installment contract receivables
        
        
        
        $
        19,387
        
        
        
        
        
        $
        20,264Percent of total finance receivables
        
        
        
        
        6.47
        %
        
        
        
        
        
        7.30
        %Average note balance
        
        
        
        $
        1,962
        
        
        
        
        
        $
        1,916Number of notes
        
        
        
        
        9,881
        
        
        
        
        
        
        10,574
    15     Net Interest Margin The principal component of our profitability is net interest margin, which is the difference between the interest earned on our finance receivables and the interest paid on borrowed funds.  Some states and federal statutes regulate the interest rates that may be charged to our customers.  In addition, competitive market conditions also impact the interest rates. Our interest expense is sensitive to general market interest rate fluctuations.  These general market fluctuations directly impact our cost of funds.  General inability to increase the interest rates earned on new and existing finance receivables restricts our ability to react to increases in cost of funds.  Accordingly, increases in market interest rates generally will narrow interest rate spreads and lower profitability, while decreases in market interest rates generally will widen interest rate spreads and increase profitability. The following table presents important data relating to our net interest margin as of the ends of the periods presented:  Successor
        
        
        
        Predecessor
        
        Successor
        
        
        
        PredecessorThree MonthsEnded June 30,2008
        
        Period fromJune 1 June 30,2007
        
        
        
        Period fromApril 1 May 31,2007
        
        Nine MonthsEnded June 30,2008
        
        Period fromJune 1  June 30,2007
        
        
        
        Period fromOctober 1,2006May 31,2007(dollars in thousands)Total finance receivables balance
        
        $
        299,509
        
        $
        277,659
        
        
        
        $
        283,438
        
        $
        299,509
        
        $
        277,659
        
        
        
        $
        283,438Average total finance receivables  (1)
        
        $
        292,583
        
        $
        277,659
        
        
        
        $
        281,975
        
        $
        289,778
        
        $
        277,659
        
        
        
        $
        283,663Average interest bearing liabilities (1)
        
        $
        221,811
        
        $
        217,777
        
        
        
        $
        223,599
        
        $
        223,568
        
        $
        217,777
        
        
        
        $
        223,093Total interest income and fees
        
        $
        20,817
        
        $
        6,248
        
        
        
        $
        13,280
        
        $
        61,377
        
        $
        6,248
        
        
        
        $
        53,171Total interest expense
        
        $
        3,949
        
        $
        1,320
        
        
        
        $
        2,628
        
        $
        12,269
        
        $
        1,320
        
        
        
        $
        10,546
  ____________________________________________ (1)  Averages are computed using month-end balances.   16    Results of Operations Our accounting for the Transaction followed the requirements of Staff Accounting Bulletin (SAB) 54, Topic 5-J, and Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, which required that purchase accounting treatment of the Transaction be pushed down, resulting in the adjustment of all of our net assets to their respective fair values as of the Transaction date.  Although we continued as the same legal entity after the Transaction, the application of push down accounting represents the termination of the old accounting entity and the creation of a new one.  As a result, our consolidated financial statements are presented for two periods:  Predecessor and Successor, which relate to the period preceding the Transaction and the period succeeding the Transaction, respectively.  We have prepared
our discussion of the results of operations by comparing the three and nine months ended June 30, 2008 in the Successor Period with the mathematical combination of the Predecessor Period from April 1, 2007 to May 31, 2007 and the Successor Period from June 1, 2007 to June 30, 2007 (collectively, the three months ended June 30, 2007 or third quarter 2007) and the Predecessor Period from October 1, 2006 to May 31, 2007, and the Successor Period from June 1, 2007 to June 30, 2007 (collectively, the nine months ended June 30, 2007 or the 2007 Combined Periods).  While the presentation in our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is not consistent with the GAAP presentation, we feel it makes the management discussion in the MD&A easier to understand and more consistent with how management evaluates the business. There are significant differences in the way we operated in the Predecessor Period to the Successor Period.  Certain fees and revenue we earned in the Predecessor Period are not collected in the Successor Period.  We are outsourcing origination of military loans and servicing of all loans and pay a fee to MBD in the Successor Period for these activities.  Our expenses include amortization of our intangible assets in the Successor Period pursuant to SFAS No. 142, Goodwill and Other Intangible Assets. Comparisons to prior periods are relevant, and changes have a material effect on our financial condition, results of operations and cash flow.  17     Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007  The following table sets forth selected information from our consolidated statements of operations for the three-month period ended June 30, 2008 (successor), the period from June 1, 2007 to June 30, 2007 (successor) and the period from April 1, 2007 to May 31, 2007 (predecessor).  In the text below, amounts and percentages have been rounded and are based on the financial statement amounts.  Successor
        
        Successor
        
        
        
        Predecessor
        
        CombinedThree MonthsEnded June 30,2008
        
        Period fromJune 1 - June 30,2007
        
        
        
        Period from April 1- May 31,2007
        
        Period from April 1- June 30,2007Interest Income and Fees
        
        $
        20,817,742
        
        $
        6,247,865
        
        
        
        $
        13,279,976
        
        $
        19,527,841Interest Expense
        
        
        3,948,776
        
        
        1,320,233
        
        
        
        
        2,627,550
        
        
        3,947,783Net interest income beforeprovision for loan losses
        
        
        16,868,966
        
        
        4,927,632
        
        
        
        
        10,652,426
        
        
        15,580,058Provision for loan losses
        
        
        3,997,782
        
        
        6,035,321
        
        
        
        
        5,498,632
        
        
        11,533,953Net Interest Income
        
        
        12,871,184
        
        
        (1,107,689
        )
        
        
        
        5,153,794
        
        
        4,046,105Noninterest Income:Insurance premiums andcommissions earned, net
        
        
        959,202
        
        
        380,557
        
        
        
        
        961,438
        
        
        1,341,995Other
        
        
        243
        
        
        (731
        )
        
        
        
        277,737
        
        
        277,006Total noninterest income
        
        
        959,445
        
        
        379,826
        
        
        
        
        1,239,175
        
        
        1,619,001Noninterest Expense:Compensation and benefits
        
        
        79,340
        
        
        34,317
        
        
        
        
        2,520,262
        
        
        2,554,579Management and record keepingservices fee
        
        
        7,172,268
        
        
        2,193,636
        
        
        
        
        
        
        
        2,193,636Occupancy and equipment
        
        
        405,982
        
        
        5,721
        
        
        
        
        750,108
        
        
        755,829Advertising
        
        
        22,724
        
        
        5,005
        
        
        
        
        350,660
        
        
        355,665Professional and regulatory fees
        
        
        226,404
        
        
        13,970
        
        
        
        
        214,649
        
        
        228,619Data processing
        
        
        
        
        
        4,089
        
        
        
        
        38,112
        
        
        42,201Amortization of intangibles
        
        
        1,327,800
        
        
        297,600
        
        
        
        
        
        
        
        297,600Other operating expenses
        
        
        180,210
        
        
        38,590
        
        
        
        
        925,689
        
        
        964,279Total noninterest expense
        
        
        9,414,728
        
        
        2,592,928
        
        
        
        
        4,799,480
        
        
        7,392,408Income before income taxes
        
        
        4,415,901
        
        
        (3,320,791
        )
        
        
        
        1,593,489
        
        
        (1,727,302
        )Provision for income taxes
        
        
        1,672,770
        
        
        (1,206,708
        )
        
        
        
        641,695
        
        
        (565,013
        )Net income
        
        $
        2,743,131
        
        $
        (2,114,083
        )
        
        
        $
        951,794
        
        $
        (1,162,289
        )
   Total Finance Receivables.Our aggregate finance receivables increased 7.9% to $299.5 million on June 30, 2008 from $277.7 million on June 30, 2007.  Our aggregate finance receivables increased 4.3% during the third quarter of fiscal 2008 to $299.5 million on June 30, 2008 from $287.2 on March 31, 2008 compared to a 0.5% decrease during the third quarter of fiscal 2007 to $277.7 million on June 30, 2007 from $279.0 million on March 31, 2007.  The primary reason for the increase during third quarter 2008 compared to third quarter 2007 is the one-time charge-off of $5.5 million in connection with the Transaction. Interest Income and Fees.Interest income and fees, which were 95.6% of our total revenue, for the third quarter of fiscal 2008 increased to $20.8 million from $19.5 million for the third quarter of fiscal 2007, an increase of $1.3 million or 6.6%.  This increase was primarily due to an increase in average finance receivables to $292.5 million in the third quarter of fiscal 2008 from $280.5 million in the third quarter of fiscal 2007, an increase of 4.3%.  This increase was in part offset by reduced fees as  MBD now retains certain fees related to military loans as part of the Transaction.  These fees amounted to approximately $1.2 million in the third quarter of fiscal 2007. Interest Expense.Interest expense in the third quarter of fiscal 2008 remained consistent at $3.9 million compared to  third quarter of fiscal 2007.  Our average interest bearing liabilities for the three months ended June 30, 2008 increased slightly by $0.2 million compared to the three months ended June 30, 2007 resulting in similar borrowing costs between the two periods. Provision for Credit Losses.The provision for credit losses in the third quarter of fiscal 2008 decreased to $4.0 million from $11.5 million in the third quarter of fiscal 2007, a decrease of $7.5 million or 65.4%.  During fiscal 2007, we experienced an increase in our net charge-offs due in part to the more frequent and longer term deployments of our military customers, as well as other economic conditions at that time.  As a result, 18    management increased the allowance for credit losses during the third quarter 2007.  During the third quarter of fiscal 2008, we continued to see a decline in our net charge-offs, from 8.09% in second quarter 2008 to 6.08% in third quarter 2008, resulting in a lower provision for credit losses, due to this improving trend.  See further discussion in Allowance for Credit Losses section. Noninterest Income.  Total noninterest income in the third quarter of fiscal 2008 decreased to $1.0 million from $1.6 million in the third quarter of fiscal 2007, a decrease of $.6 million or 37.5%.  Prior to June 1, 2007, we sold non-loan related products and services, including roadside assistance programs and discount cards.  Our revenues from the sale of these products and services consisted of commissions paid by an unaffiliated company.  We discontinued the selling of ancillary products and services as of June 1, 2007. Third quarter 2007 revenue from these programs was $.7 million. Noninterest Expenses.  Noninterest expenses in the third quarter of fiscal 2008 increased to $9.4 million from $7.4 million in the third quarter of fiscal 2007, an increase of $2.0 million or 27.0%.  Included in third quarter fiscal 2008 is $1.3 million of amortization expense for our intangible assets compared to $0.3 million (one month) during the third quarter of 2007.  As a result of the Transaction, many expenses previously charged to PFS are now paid by MBD including, but not limited to, employee expenses, advertising and rent.  We now pay MBD a management and record keeping fee to reimburse for services now performed after the reorganization of our business operations.  For the third quarter of fiscal 2008 this expense was $7.1 million compared to $2.2 million for the one month Successor Period from June 1, 2007 to June 30, 2007. Net Income.Income before taxes in the third quarter of fiscal 2008 was $4.4 million and net income was $2.7 million compared to net loss before taxes of $1.7 million and net loss of $1.2 million during the third quarter of fiscal 2007.  19     Nine Months Ended June 30, 2008 Compared to Nine Months Ended June 30, 2007  The following table sets forth selected information from our consolidated statements of operations for the nine-month period ended June 30, 2008 (successor), the period from June 1, 2007 to June 30, 2007 (successor) and the period from October 1, 2006 to May 31, 2007 (predecessor).  In the text below, amounts and percentages have been rounded and are based on the financial statement amounts.  Successor
        
        Successor
        
        
        
        Predecessor
        
        CombinedNine MonthsEnded June 30,2008
        
        Period from June1 - June 30,2007
        
        
        
        Period fromOctober 1, 2006- May 31, 2007
        
        Period fromOctober 1, 2006- June 30, 2007Interest Income and Fees
        
        $
        61,376,841
        
        $
        6,247,865
        
        
        
        $
        53,170,946
        
        $
        59,418,811Interest Expense
        
        
        12,269,217
        
        
        1,320,233
        
        
        
        
        10,546,509
        
        
        11,866,742Net interest income beforeprovision for loan losses
        
        
        49,107,624
        
        
        4,927,632
        
        
        
        
        42,624,437
        
        
        47,552,069Provision for loan losses
        
        
        17,091,942
        
        
        6,035,321
        
        
        
        
        21,101,441
        
        
        27,136,762Net Interest Income
        
        
        32,015,682
        
        
        (1,107,689
        )
        
        
        
        21,522,996
        
        
        20,415,307Noninterest Income:Insurance premiums andcommissions earned, net
        
        
        2,932,528
        
        
        380,557
        
        
        
        
        3,313,123
        
        
        3,693,680Other
        
        
        (237
        )
        
        (731
        )
        
        
        
        1,120,964
        
        
        1,120,233Total noninterest income
        
        
        2,932,291
        
        
        379,826
        
        
        
        
        4,434,087
        
        
        4,813,913Noninterest Expense:Compensation and benefits
        
        
        371,444
        
        
        34,317
        
        
        
        
        11,596,664
        
        
        11,630,981Management and record keepingservices fee
        
        
        20,427,863
        
        
        2,193,636
        
        
        
        
        
        
        
        2,193,636Occupancy and equipment
        
        
        595,808
        
        
        5,721
        
        
        
        
        2,591,584
        
        
        2,597,305Advertising
        
        
        57,936
        
        
        5,005
        
        
        
        
        1,538,222
        
        
        1,543,227Professional and regulatory fees
        
        
        892,973
        
        
        13,970
        
        
        
        
        1,445,538
        
        
        1,459,508Data processing
        
        
        
        
        
        4,089
        
        
        
        
        162,185
        
        
        166,274Amortization of intangibles
        
        
        3,983,400
        
        
        297,600
        
        
        
        
        
        
        
        297,600Other operating expenses
        
        
        451,863
        
        
        38,590
        
        
        
        
        3,655,073
        
        
        3,693,663Total noninterest expense
        
        
        26,781,287
        
        
        2,592,928
        
        
        
        
        20,989,266
        
        
        23,582,194Income before income taxes
        
        
        8,166,686
        
        
        (3,320,791
        )
        
        
        
        4,967,817
        
        
        1,647,026Provision for income taxes
        
        
        3,152,327
        
        
        (1,206,708
        )
        
        
        
        1,932,728
        
        
        726,020Net income
        
        $
        5,014,359
        
        $
        (2,114,083
        )
        
        
        $
        3,035,089
        
        $
        921,006
   Finance Receivables.Our aggregate finance receivables increased 7.1% during the first nine months of fiscal 2008 to $299.5 million from $279.8 million on September 30, 2007, compared to a 1.1% increase during the first nine months of fiscal 2007 to $277.7 million from $276.8 million on September 30, 2006.  Our primary supplier of loans, MBD, saw an increase in its originations of military loans during the first nine months of fiscal 2008 over the same period in fiscal 2007, thus increasing our ability to acquire more loans.  Our average finance receivables also increased during this period to $289.8 million in the first nine months of fiscal 2008 from $283.7 million in the first nine months of fiscal 2007. Interest Income and Fees.Interest income and fees for the first nine months of fiscal 2008 increased to $61.4 million from $59.4 million for the first nine months of fiscal 2007, an increase of $2.0 million or 3.3%.  This increase was primarily due to an increase in average finance receivables to $289.8 million in the first nine months of 2008 from $283.7 in the first nine months of 2007, an increase of 2.2%.  This increase was in part offset by reduced fees as MBD now retains certain fees related to military loans as part of the Transaction.  These fees amounted to approximately $4.9 million in the first nine months of fiscal 2007. Interest Expense.Interest expense in the first nine months of fiscal 2008 increased to $12.3 million from $11.9 million in the first nine months of fiscal 2007, an increase of $.4 million or 3.4%.  Our average  20    interest bearing liabilities for the nine months ended June 30, 2008 increased slightly by $1.1 million compared to the nine months ended June 30, 2007 resulting in increased borrowing costs between the two periods. Provision for Credit Losses.The provision for credit losses in the first nine months of fiscal 2008 decreased to $17.1 million from $27.1 million in the first nine months of fiscal 2007, a decrease of $10.0 million or 37.0%.  This decrease is primarily due to positive trends in net-charge-offs and delinquency during the first nine months of fiscal year 2008.  During the first nine months of fiscal year 2007, we began experiencing an increase in our net charge-offs, from 5.95% of our average finance receivables during fiscal 2006 to 9.59% in the nine months ended June 30, 2007.  This increase was due in part to the more frequent and longer term deployments of our military customers, as well as other economic conditions at that time.  As a result, management increased the allowance for credit losses during the first three quarters of
2007.  During the first nine months of fiscal year 2008, we saw a decline in our net charge-offs to 7.51%.  Loans that are 60 days or more delinquent have also decreased to $7.8 million at June 30, 2008 from $11.7 million at September 30, 2007, a decrease of $3.9 million or 33.6%.  See further discussion in Allowance for Credit Losses section. Noninterest Income.  Total noninterest income in the first nine months of fiscal 2008 decreased to $2.9 million from $4.8 million in the first nine months of fiscal 2007, a decrease of $1.9 million or 39.0%.  Prior to June 1, 2007, we sold non-loan related products and services, including roadside assistance programs and discount cards.  Our revenues from the sale of these products and services consisted of commissions paid by an unaffiliated company.  We discontinued the selling of ancillary products and services as of June 1, 2007.  Revenue from these programs during the first nine months of 2007 was $2.6 million. Noninterest Expenses.Noninterest expenses in the first nine months of fiscal 2008 increased to $26.8 million from $23.6 million in the first nine months of fiscal 2007, an increase of $3.2 million or 13.6%.  Included in the first nine months of fiscal 2008 is $4.0 million of amortization expense for our intangible assets compared to $0.3 million in the first nine months of 2007.  As a result of the Transaction, many expenses previously charged to PFS are now paid by MBD including, but not limited to, employee expenses, advertising and rent.  We now pay MBD a management and record keeping fee to reimburse for services now performed after the reorganization of our business operations. For the first nine months of fiscal 2008 this expense was $20.4 million compared to $2.2 million for the first nine months of 2007 which represents one
month of expense due to the timing of the Transaction. Net Income.Income before taxes in the first nine months of fiscal 2008 was $8.2 million and net income was $5.0 million compared to income before taxes of $1.6 million and net income of $0.9 million during the first nine months of fiscal 2007.  21     Delinquency Experience Our customers are required to make monthly payments of interest and principal.   Our servicer, MBD, under our supervision, analyzes our delinquencies on a recency delinquency basis utilizing our guidelines.  A loan is delinquent under the recency method when a full payment (95% or more of the contracted payment amount) has not been received for 30 days after the last full payment.  We rarely grant extensions or deferments, or allow account revision, rewriting, renewal or rescheduling in order to bring otherwise delinquent accounts current. Prior to the Transaction, finance receivables were charged-off when management deemed them to be uncollectible through normal collection procedures or before they become 270 days past due. In connection with the Transaction, we changed our charge-off methodology to coordinate it with MCFCs charge-off methodology.   Accordingly, we now charge-off finance receivables at 180 days past due or earlier if management deems it appropriate.  As ofJune 30,2008
        
        
        
        
        
        As ofSeptember 30,2007(dollars in thousands)Total finance receivables
        
        
        
        $
        299,509
        
        
        
        
        
        $
        279,778Total finance receivables balances 60days or more past due
        
        
        
        $
        7,763
        
        
        
        
        
        $
        11,693Total finance receivables balances 60days or more past due as a percent of total finance receivables
        
        
        
        
        2.59
        %
        
        
        
        
        
        4.18
        %
  Credit Loss Experience and Provision for Credit Losses  General.The allowance for credit losses is maintained at an amount which management considers sufficient to cover estimated future losses. We utilize a statistical model based on potential credit risk trends incorporating both historical and prospective factors to estimate losses.  These results and management's judgment are used to estimate future losses and in establishing the current provision and allowance for credit losses. These estimates are influenced by factors outside our control, such as economic conditions, current or future military deployments and completion of military service prior to repayment of loan. There is uncertainty inherent in these estimates, making it reasonably possible that they could change in the near term.  See our annual report Item 1A. Risk Factors  If a customer leaves the military prior to repaying loans,
there is an increased risk loans will not be repaid.  22     Military Loans.Our charge-off policy is based on an account-by-account review of delinquent receivables on a recency basis.  Primarily,  charge-offs occur when a customer leaves the military prior to repaying the finance receivable or is subject to longer term and more frequent deployments.  Generally, loans purchased or originated by us are structured so that the entire amount is repaid prior to a customers estimated separation from the military. When buying loans, however, we cannot predict when or whether a customer may depart from the military early.  Accordingly, we cannot implement policies or procedures for MBD to follow to ensure that we will be repaid in full prior to a customer leaving the military.  Nor can we predict when a customer may be subject to deployment at a duration or frequency that causes a default on their loans. Another
source of loss is when a customer declares bankruptcy.  See our annual report Item 7: Management Discussion and Analysis of Financial Condition and Results of Operations  Nonearning Assets. In connection with the Transaction, we implemented a change in our charge-off methodology to charge-off loans no later than 180 days delinquent from 270 days delinquent. The following table presents net charge-offs on direct loans and net charge-offs as a percentage of direct loans as of the ends of the periods presented:  Successor
        
        
        
        Predecessor
        
        Successor
        
        
        
        PredecessorThree MonthsEnded June 30,2008
        
        Period fromJune 1 -June 30,2007
        
        
        
        Period fromApril 1-May 31,2007
        
        Nine MonthsEnded June 30,2008
        
        Period fromJune 1 -June 30,2007
        
        
        
        Period fromOct. 1-June 30,2007Military Loans:Loans charged-off (1)
        
        $
        4,852
        
        $
        6,545
        
        
        
        $
        3,794
        
        $
        17,369
        
        $
        6,545
        
        
        
        $
        14,277Less recoveries
        
        
        591
        
        
        161
        
        
        
        
        292
        
        
        1,793
        
        
        161
        
        
        
        
        1,141Net charge-offs
        
        $
        4,261
        
        $
        6,384
        
        
        
        $
        3,502
        
        $
        15,576
        
        $
        6,384
        
        
        
        $
        13,136Average military receivables (2)
        
        $
        273,674
        
        $
        257,394
        
        
        
        $
        260,616
        
        $
        270,878
        
        $
        257,394
        
        
        
        $
        261,388Percentage of net charge-offs toaverage military receivables
        
        
        6.23
        %
        
        29.8
        %
        
        
        
        8.06
        %
        
        7.67
        %
        
        29.8
        %
        
        
        
        7.54
        %
  _________________________ (1) June 2007 includes a one-time charge-off of $4.5 million relating to the change in the charge-off methodology. (2) Averages are computed using month-end balances.  23     Retail Installment Contracts.Under some of our arrangements with retail merchant, we may withhold a percentage (usually between five and ten percent) of the principal amount of the retail installment contract purchased.  The amounts withheld from a particular retail merchant are recorded in a specific reserve account.  Any losses incurred on the retail installment contracts purchased from that retail merchant are charged against its specific reserve account, as specified in the agreement.  Upon the retail merchant's request, and no more often than annually, we will pay the retail merchant the amount by which its specific reserve account exceeds 15% of the aggregate outstanding balance on all retail installment contracts purchased from them, less losses we have sustained, or reasonably could sustain, due to debtor defaults, collection expenses,
delinquencies and breaches of our agreement with the retail merchant.  Our allowance for credit losses is charged only to the extent that the loss on a retail installment contract exceeds the originating retail merchant's specific reserve account at the time of the loss. The following table presents net charge-offs on retail installment contracts and net charge-offs as a percentage of retail installment contracts as of the ends of the periods presented.  Successor
        
        
        
        Predecessor
        
        Successor
        
        
        
        PredecessorThree MonthsEnded June 30,2008
        
        Period fromJune 2 -June 30,2007
        
        
        
        Period fromApril 1  May 31,2007
        
        Nine MonthsEnded June 30,2008
        
        Period fromJune 1 -June 30,2007
        
        
        
        Period fromOctober 1 -June 30,2007(dollars in thousands)Retail Installment Contracts:Contracts charged-off
        
        $
        253
        
        $
        88
        
        
        
        $
        251
        
        $
        904
        
        $
        88
        
        
        
        $
        796Less recoveries
        
        
        67
        
        
        8
        
        
        
        
        12
        
        
        157
        
        
        8
        
        
        
        
        51Net charge-offs
        
        $
        186
        
        $
        80
        
        
        
        $
        239
        
        $
        747
        
        $
        80
        
        
        
        $
        745Average retail installmentcontact receivables (1)
        
        $
        18,909
        
        $
        20,264
        
        
        
        $
        21,358
        
        $
        18,900
        
        $
        20,264
        
        
        
        $
        22,275Percentage of net charge-offs to retail installmentcontract receivables
        
        
        3.93
        %
        
        4.72
        %
        
        
        
        6.72
        %
        
        5.27
        %
        
        4.72
        %
        
        
        
        5.02
        %
  _________________________________________ (1) Averages are computed using month-end balances.  Allowance for Credit Losses.The following table presents our allowance for credit losses on finance receivables as of the ends of the periods presented:  Successor
        
        
        
        Predecessor
        
        Successor
        
        
        
        PredecessorThree MonthsEnded June 30,2008
        
        Period fromJune 1 June 30,2007
        
        
        
        Period fromApril 1  May 31,2007
        
        Nine MonthsEnded June 30,2008
        
        Period fromJune 1 June 30,2007
        
        
        
        Period fromOctober 1 -June 30,2007(dollars in thousands)Average total finance receivables (1)
        
        $
        292,583
        
        $
        277,659
        
        
        
        $
        260,616
        
        $
        289,778
        
        $
        277,659
        
        
        
        $
        283,663Provision for credit losses
        
        $
        3,998
        
        $
        6,035
        
        
        
        $
        5,499
        
        $
        17,092
        
        $
        6,035
        
        
        
        $
        21,101Net charge-offs (2)
        
        $
        4,447
        
        $
        6,464
        
        
        
        $
        3,741
        
        $
        16,323
        
        $
        6,464
        
        
        
        $
        13,881Net charge-offs as apercentage of averagetotal finance receivables
        
        
        6.08
        %
        
        27.94
        %
        
        
        
        8.61
        %
        
        7.51
        %
        
        27.94
        %
        
        
        
        7.34
        %Allowance for credit losses
        
        $
        22,408
        
        $
        22,897
        
        
        
        $
        23,326
        
        $
        22,408
        
        $
        22,897
        
        
        
        $
        23,326Allowance as a percentageof average total financereceivables
        
        
        7.66
        %
        
        8.25
        %
        
        
        
        8.95
        %
        
        7.73
        %
        
        8.25
        %
        
        
        
        8.22
        %
  _________________________________________ (1) Averages are computed using month-end balances. (2) June 2007 includes a one-time charge-off of $4.5 million relating to the change in the charge-off methodology.  We maintain an allowance for credit losses, which represents managements best estimate of probable losses in the outstanding finance receivable portfolio.  The allowance for credit losses is reduced by actual credit losses and is increased by the provision for loan losses and recoveries of previous losses.  The provision for finance receivable losses are charged to earnings to bring the total allowance to a level considered necessary by management.  As the portfolio of finance receivables consists of a large number of relatively small, homogenous accounts, the finance receivables are evaluated for impairment as a group.  Management considers numerous factors in estimating losses in our credit portfolio, including the following: 
        Prior credit losses and recovery experience
 
        Current economic conditions
 
        Current finance receivable delinquency trends
  24    
        Demographics of the current finance receivable portfolio
 In connection with the Transaction, we changed our charge-off methodology to coordinate it with MCFCs charge-off policy.  MCFC charges-off delinquent loans when management deems them to be uncollectible or when they become 180 days past due on a recency basis. Prior to the Transaction, we used a maximum of 270 days past due. The following table sets forth changes in the components of our allowance for credit losses on finance receivables as of the ends of the periods presented:  Successor
        
        
        
        
        
        Predecessor
        
        
        
        
        
        Successor
        
        
        
        
        
        PredecessorPeriod from
        
        
        
        
        
        Period from
        
        
        
        
        
        
        
        
        
        
        
        
        
        Period fromThree Months
        
        June 1 -
        
        
        
        
        
        April 1 -
        
        
        
        
        
        Nine Months
        
        Period from
        
        
        
        
        
        October 1, 2006Ended June 30,
        
        June 30,
        
        
        
        
        
        May 31,
        
        
        
        
        
        Ended June 30,
        
        June 1-June 30,
        
        
        
        
        
        - June 30,2008
        
        2007
        
        
        
        
        
        2007
        
        
        
        
        
        2008
        
        2007
        
        
        
        
        
        2007(dollars in thousands)Balance, beginningof period
        
        
        
        $
        22,857
        
        $
        23,326
        
        
        
        
        
        $
        21,568
        
        
        
        
        
        $
        21,639
        
        $
        23,326
        
        
        
        
        
        $
        16,106Charge-offs:Loans charged-off
        
        
        
        
        (5,105
        )
        
        (6,633
        )
        
        
        
        
        
        (4,045
        )
        
        
        
        
        
        (18,273
        )
        
        (6,633
        )
        
        
        
        
        
        (15,073
        )Recoveries
        
        
        
        
        658
        
        
        169
        
        
        
        
        
        
        304
        
        
        
        
        
        
        1,950
        
        
        169
        
        
        
        
        
        
        1,192Net charge-offs
        
        
        
        
        (4,447
        )
        
        (6,464
        )
        
        
        
        
        
        (3,741
        )
        
        
        
        
        
        (16,323
        )
        
        (6,464
        )
        
        
        
        
        
        (13,881
        )Provision for credit losses
        
        
        
        
        3,998
        
        
        6,035
        
        
        
        
        
        
        5,499
        
        
        
        
        
        
        17,092
        
        
        6,035
        
        
        
        
        
        
        21,101Balance, end of period
        
        
        
        $
        22,408
        
        $
        22,897
        
        
        
        
        
        $
        23,326
        
        
        
        
        
        $
        22,408
        
        $
        22,897
        
        
        
        
        
        $
        23,326
   Changes in the provision for credit losses primarily are a result of changes in net charge-offs, growth in the finance receivables and changes in the trends of our portfolio quality.  The decline in our provision for credit losses for third quarter 2008 from the same period in fiscal 2007 was due to an improvement in the trend of our net charge-offs from 8.09% in second quarter 2008 to 6.08% in third quarter 2008.  Thus we have not had to increase the allowance for credit losses as dramatically this quarter due to these improving trends.  25     Loan Acquisition / Origination Asset growth is the most important factor in determining our future revenues.  We are dependent upon MBD and retail merchants to increase their originations for our future growth.  Loans purchased from MBD and retail merchants increased for the first nine months of fiscal 2008 to $253.3 million from $226.7 million for the first nine months of fiscal year 2007, an increase of $26.7 million or 11.8%.  See Results of Operations  Nine Months Ended June 30, 2008 Compared to Nine Months ended June 30, 2008  Finance Receivables. The following table sets forth our overall loan originations and purchases of military loans and retail installment contracts as of the end of the periods presented:  Successor
        
        
        
        
        
        Predecessor
        
        
        
        Successor
        
        
        
        
        
        PredecessorPeriod from
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Period fromThree Months
        
        
        
        June 1 -
        
        
        
        
        
        Period from
        
        
        
        Nine Months
        
        
        
        Period from
        
        
        
        
        
        October 1 -Ended June 30,
        
        
        
        June 30,
        
        
        
        
        
        April 1-May 31,
        
        
        
        Ended June 30,
        
        
        
        June 1-June 30,
        
        
        
        
        
        June 30,2008
        
        
        
        2007
        
        
        
        
        
        2007
        
        
        
        2008
        
        
        
        2007
        
        
        
        
        
        2007(dollars in thousands)Total Loans Acquired/Originated:Gross balance
        
        $
        91,098
        
        
        
        $
        26,099
        
        
        
        
        
        $
        52,568
        
        
        
        $
        253,302
        
        
        
        $
        26,099
        
        
        
        
        
        $
        200,552Number of financereceivable notes
        
        
        29,143
        
        
        
        
        7,485
        
        
        
        
        
        
        15,077
        
        
        
        
        79,296
        
        
        
        
        7,485
        
        
        
        
        
        
        57,139Average note amount
        
        $
        3,126
        
        
        
        $
        3,487
        
        
        
        
        
        $
        3,487
        
        
        
        $
        3,194
        
        
        
        $
        3,487
        
        
        
        
        
        $
        3,510Military Loans:Gross balance
        
        $
        85,875
        
        
        
        $
        24,915
        
        
        
        
        
        $
        49,914
        
        
        
        $
        239,727
        
        
        
        $
        24,915
        
        
        
        
        
        $
        188,843Number of financereceivable notes
        
        
        27,338
        
        
        
        
        7,058
        
        
        
        
        
        
        14,208
        
        
        
        
        74,563
        
        
        
        
        7,058
        
        
        
        
        
        
        53,198Average note amount
        
        $
        3,141
        
        
        
        $
        3,530
        
        
        
        
        
        $
        3,513
        
        
        
        $
        3,215
        
        
        
        $
        3,530
        
        
        
        
        
        $
        3,550Retail Installment Contracts:Gross balance
        
        $
        5,223
        
        
        
        $
        1,183
        
        
        
        
        
        $
        2,654
        
        
        
        $
        13,575
        
        
        
        $
        1,183
        
        
        
        
        
        $
        11,709Number of financereceivable notes
        
        
        1,805
        
        
        
        
        427
        
        
        
        
        
        
        869
        
        
        
        
        4,733
        
        
        
        
        427
        
        
        
        
        
        
        3,941Average note amount
        
        $
        2,894
        
        
        
        $
        2,772
        
        
        
        
        
        $
        3,054
        
        
        
        $
        2,868
        
        
        
        $
        2,772
        
        
        
        
        
        $
        2,971
   Liquidity and Capital Resources A relatively high ratio of borrowings to invested capital is customary in the consumer finance industry.  Our principal use of cash is to purchase military loans and retail installment contracts.  We use borrowings to fund the difference, if any, between the cash used to purchase military loans and retail installment contracts and operations, and the cash generated from loan repayments and operations.  This amount is generally cash used in investing activities.  Cash used in investing activities in the first nine months of fiscal year 2008 was approximately $36.0 million, which was funded from operating activities of $29.9 million and $8.4 million from financing activities.  The high volume of cash activities in the first nine months of fiscal 2007 is attributable to the Transaction.  Cash used in investing activities in the first nine months of fiscal 2007 (Combined Period) was
approximately $102.9 which was funded from $42.1 million of cash from operating activities and $61.3 million from financing activities. In the first nine months of fiscal 2007, financing activities primarily consisted of borrowings and repayments relating to bank debt, an unsecured revolving credit line from our parent (for predecessor company only), investment notes and dividends.  We have not sold any investment notes since December 31, 2006.  In the first nine months of fiscal 2008, financing activities primarily consist of borrowing and repayments relating to our Senior Lending Agreement. We anticipate that our cash inflow from operations and borrowings under our Senior Lending Agreement will be adequate to meet our cash outflows to fund anticipated growth in finance receivables, operating expenses, repayment of indebtedness, and planned capital expenditures.  26    On or before March 31st of each year, each bank that is a party to the senior lending agreement is to deliver to us a written indication of whether or not it wishes to participate in future fundings and the amounts that it expects to be willing to fund during the next 12 months.  As of June 30, 2008, banks that are a party to our senior lending agreement have indicated in writing their willingness to participate in fundings up to an aggregate of $278.0 million. Senior Indebtedness-Bank Debt.As of June 30, 2008 we had $196.3 million of senior debt outstanding compared to $184.8 million at September 30, 2007, an increase of $11.5 million or 6.2%.  Our senior lending agreement is an uncommitted facility which provides common terms and conditions pursuant to which individual banks that are a party to this agreement may choose to make loans to us in the future.  Any bank may elect not to participate in any future fundings at any time without penalty.  As of June 30, 2008, we could request up to $30.5 million in additional funds and remain in compliance with the terms of our senior lending agreement.  No bank, however, has any contractual obligation to lend us these additional funds.  As of June 30, 2008, we were in compliance with all loan covenants. Senior Indebtedness-Related Party.We had a revolving line of credit, payable on demand, from our former parent, Pioneer Financial Industries, Inc.  Interest on this facility accrued at the prime rate plus 2%.  At June 30, 2007, there was $.5 million outstanding under this credit facility with an interest rate of 10.25%. As of June 30, 2008 we had no outstanding line of credit with a related party. Senior Indebtedness Table.As of June 30, 2008 and 2007, the total borrowings and availability under our senior lending agreement and our revolving line of credit from our parent company consisted of the following amounts for the ends of the periods presented:  Successor
        
        
        
        PredecessorAs ofAs of June 30,
        
        
        
        
        
        As of June 30,
        
        
        
        September 30,2008
        
        
        
        
        
        2007
        
        
        
        2007(dollars in thousands)Revolving Credit Line (1):Total facility
        
        $
        40,000
        
        
        
        
        
        $
        40,000
        
        
        
        $
        45,000Balance at end of period
        
        $
        23,507
        
        
        
        
        
        $
        10,896
        
        
        
        $
        15,463Maximum available credit (2)
        
        $
        16,493
        
        
        
        
        
        $
        29,104
        
        
        
        $
        29,537Term Notes (3):Total facility
        
        $
        238,000
        
        
        
        
        
        $
        235,000
        
        
        
        $
        260,000Balance at end of period
        
        $
        172,774
        
        
        
        
        
        $
        171,325
        
        
        
        $
        169,345Maximum available credit (3)
        
        $
        92,588
        
        
        
        
        
        $
        63,675
        
        
        
        $
        116,100Total Revolving and Term Notes (1) (3):Total facility
        
        $
        278,000
        
        
        
        
        
        $
        275,000
        
        
        
        $
        305,000Balance at end of period
        
        $
        196,281
        
        
        
        
        
        $
        182,221
        
        
        
        $
        184,808Maximum available credit (2)
        
        $
        109,081
        
        
        
        
        
        $
        92,779
        
        
        
        $
        145,637Credit facility available (4)
        
        $
        30,477
        
        
        
        
        
        $
        33,509
        
        
        
        $
        27,558Percent utilization of the total facility
        
        
        70.60
        %
        
        
        
        
        
        66.26
        %
        
        
        
        60.59
        %
  _____________________________________ (1)
        Includes revolving credit line from our parent (from predecessor company only).
 (2)
        Maximum available credit assuming proceeds in excess of the amounts shown below under Credit Facility
 Available are used to increase qualifying finance receivables and all terms of the senior lending agreement are met, including maintaining a Senior Indebtedness to Net Receivable Ratio of not more than 80.0%. (3)
        Includes 48-month amortizing term notes.
 (4)
        Credit facility available based on the existing asset borrowing base and maintaining a Senior Indebtedness to
 Net Receivable Ratio of not more than 80.0%.  27    Outstanding Investment Notes.Prior to December 31, 2006, we funded certain capital and financial needs through the sale of investment notes.  These notes have varying fixed interest rates and are subordinate to all senior indebtedness.  We can redeem these notes at any time upon 30 days written notice.  As of June 30, 2008, we had outstanding $34.6 million of these notes at a weighted average interest rate of 9.38%.  We do not intend to issue any additional investment notes at this time.  As part of the Transaction, we recorded certain liabilities at market value.  The table below is a reconciliation of these adjustments as of June 30, 2008.  Amortizing Term Notes
        
        
        
        Investment NotesNotional value
        
        
        
        $
        172,877,032
        
        
        
        $
        34,603,984Purchase adjustment  (1)
        
        
        
        
        (103,019
        )
        
        
        
        716,424Recorded Value
        
        
        
        $
        172,774,013
        
        
        
        $
        35,320,408
  (1) Relates to the fair value adjustment recorded as part of the Transaction.  ITEM 3.Quantitative and Qualitative Disclosures About Market Risk. Our profitability and financial performance are sensitive to changes in the U.S. Treasury yields and the spread between the effective rate of interest we receive on customer loans and the interest rates we pay on our borrowings.  Our finance income is generally not sensitive to fluctuations in market interest rates.  The primary exposure that we face is changes in interest rates on our borrowings.  A substantial and sustained increase in market interest rates could adversely affect our growth and profitability.  The overall objective of our interest rate risk management strategy is to mitigate the effects of changing interest rates on our interest expense through the utilization of short-term variable rate debt and medium and long term fixed rate debt.  We have not entered into any derivative instruments to manage our interest rate risk.  For more information about this item see our annual
report of Form 10-K; Item 7, Liquidity and Capital Resources-Interest Rate Risk Management. The following shows the estimated impact on earnings of changes in interest rates on variable rate debt:  Decrease/increase:
        
        -2%
        
        
        
        -1%
        
        
        
        0%
        
        
        
        +1%
        
        
        
        +2%Revolving credit line
        
        $
        (470,140
        )
        
        
        $
        (235,070
        )
        
        
        $
        
        
        
        
        $
        235,070
        
        
        
        $
        470,140Amortizing term notes
        
        
        (2,411,023
        )
        
        
        
        (1,667,883
        )
        
        
        
        (927,743
        )
        
        
        
        (181,603
        )
        
        
        
        561,536Total impact on interest expense
        
        $
        (2,881,163
        )
        
        
        $
        (1,902,953
        )
        
        
        $
        (927,743
        )
        
        
        $
        53,467
        
        
        
        $
        1,031,676
  ITEM 4T.Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported as of the end of the period covered by this report (evaluation date), and that such information is accumulated and communicated to our management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.  Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of June 30, 2008.   Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures are effective.  There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date the evaluation was completed.  28    PART II - OTHER INFORMATION ITEM 1.Legal Proceedings We are currently involved in various litigation matters in the ordinary course of business.  29    ITEM 6.Exhibits Exhibit No.
        Description
 3.1
        Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of our Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission on February 18, 2003 (Commission No. 333-103293) (the "Initial Registration Statement").
 3.2
        Certificate of Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of the Initial Registration Statement).
 3.3
        Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.3 of the Initial Registration Statement).
 4.1
        Amended and Restated Indenture dated as of December 15, 2004 (Incorporated by reference to Exhibit 4.1 of the Post Effective Amendment No. 2 to the Registration Statement filed with the Securities and Exchange Commission dated December 17, 2004 (Commission No. 333-103293) ("Post Effective Amendment No.2").
 4.2
        Form of investment note certificate (Incorporated by reference to Exhibit 4.2 of the Post Effective Amendment No. 2).
 4.3
        Form of junior subordinated debenture prior to November 1, 2002 (Incorporated by reference to Exhibit 4.3 of the Initial Registration Statement).
 4.9
        Amended and Restated Senior Lending Agreement dated May 31, 2007 among us and various banks named therein.  (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K dated May 31, 2007 and filed with the Securities and Exchange Commission on June 6, 2007).
 4.11
        Form of Rate Supplement (Incorporated by reference to Exhibit 4.11 of the Post Effective Amendment No. 2).
 4.12
        Form of IRA Application (Incorporated by reference to Exhibit 4.12 of the Post Effective Amendment No. 2).
 4.13
        Form of Offer to Purchase (Incorporated by reference to Exhibit 4.13 of the Post Effective Amendment No. 2).
 4.14
        Form of IRA Application (Incorporated by reference to Exhibit 4.14 of the Post Effective Amendment No. 3 to the Registration Statement filed with the Securities and Exchange Commission dated January 6, 2006 (Commission No. 333-103293)).
 10.6
        Trademark Licensing Agreement dated October 10, 2000 between us and Pioneer Licensing Services, Inc. (Incorporated by reference to Exhibit 10.6 of the Initial Registration Statement).
 10.11
        Loan Sale and Master Servicing Agreement dated as of June 1, 2007 between us and MBD (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 31, 2007 and filed with the Securities and Exchange Commission on June 6, 2007).
 21
        Subsidiaries (Incorporated by reference to Exhibit 21 of the annual report on form 10-Q filed with the Securities and Exchange Commission on April 7, 2008).
 31.1
        Certification of Chief Executive Officer pursuant to Rule 15d-15e.
 31.2
        Certification of Chief Financial Officer pursuant to Rule 15d-15e.
 32.1
        18 U.S.C. Section 1350 Certification of Chief Executive Officer.
 32.2
        18 U.S.C. Section 1350 Certification of Chief Financial Officer.
  30    SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIONEER FINANCIAL SERVICES, INC.   Name
        
        Title
        Date/s/ Thomas H. Holcom
        
        Chief Executive Officer
        August 14, 2008Thomas H. Holcom
        
        and Sole Director(Principal Executive Officer)/s/ Laura V. Stack
        
        Chief Financial Officer,
        August 14, 2008Laura V. Stack
        
        Treasurer and Asst. Secretary(Principal Financial Officerand Principal Accounting Officer)
    31