Prospectus Supplement Dated February 10, 2007   Filed Pursuant to Rule 424(b)(3)
to Prospectus Dated January 30, 2006 of
Pioneer Financial Services, Inc.                  Registration Number 333-103293
================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                     For the period ended: December 31, 2006

                                       OR

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

                        For the transition period from       to

                       Commission file number: 333-103293

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

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

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

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


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

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

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

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

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

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

                 Class                     Outstanding as of February 10, 2007
                 -----                     -----------------------------------
      Common Stock, $100 par value                    17,136 shares


<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

                                    FORM 10-Q
                                December 31, 2006

                                TABLE OF CONTENTS



                                     PART I
                              FINANCIAL INFORMATION
Item No.                                                                  Page

1.   Consolidated Financial Statements......................................1
     Consolidated Balance Sheets at December 31, 2006 and
     September 30, 2006.....................................................1
     Consolidated Statements of Income for the three months ended
     December 31, 2006 and 2005.............................................2
     Consolidated Statements of Stockholder's Equity for the three
     months ended December 31, 2006 and years ended September 30, 2006
     and 2005...............................................................3
     Consolidated Statements of Cash Flows for the three months ended
     December 31, 2006 and 2005.............................................4
     Condensed Notes to Consolidated Financial Statements...................5
2.   Management's Discussion and Analysis of Financial Condition
     and Results of Operations..............................................6
3.   Quantitative and Qualitative Disclosures About Market Risk............16
4.   Controls and Procedures...............................................16


                                     PART II
                                OTHER INFORMATION

1.   Legal Proceedings.....................................................16
1A.  Risk Factors..........................................................18
2.   Unregistered Sales of Equity and Use of Proceeds......................20
3.   Defaults upon Senior Securities.......................................20
4.   Submission of Matters to a Vote of Security Holders...................20
5.   Other Information.....................................................20
6.   Exhibits .............................................................20




<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.  Consolidated Financial Statements

                        PIONEER FINANCIAL SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                             December 31,   September 30,
                                                2006            2006
                                            --------------  -------------
                                             (unaudited)

Cash and cash equivalents                     $ 5,034,843   $  1,762,526
Other investments                               5,017,304      5,420,248

Finance receivables:
   Direct receivables                         259,500,855    246,842,888
   Retail installment contracts                21,284,089     21,704,925
                                            -------------  -------------

Finance receivables before allowance
     for credit losses                        280,784,944    268,547,813
    Allowance for credit losses              (16,834,868)   (16,105,868)
                                            -------------  -------------
Net finance receivables                       263,950,076    252,441,945

Furniture and equipment, net                    1,674,811      1,773,232
Unamortized computer software                   1,062,019      1,276,986
Deferred income taxes                           5,800,948      5,182,499
Prepaid and other assets                          426,202        604,818
                                            --------------  ------------
Total assets                                 $282,966,203   $268,462,254
                                            ==============  ============

                      LIABILITIES AND STOCKHOLDER'S EQUITY

Revolving credit line - banks                $ 17,362,694    $11,836,258
Revolving credit line - affiliate                 479,038      1,448,764
Accounts payable                                  896,885        752,477
Accrued expenses and other liabilities         14,199,590     11,088,552
Amortizing term notes                         183,279,636    170,533,423
Investment notes                               35,157,571     33,792,723
                                            --------------  ------------

Total liabilities                             251,375,414    229,452,197
                                            --------------  ------------
Stockholder's equity:
    Common stock, $100 par value; authorized
    20,000 shares; issued and outstanding
    17,136 shares                               1,713,600      1,713,600
   Retained earnings                           29,877,189     37,296,457
                                            --------------  ------------

Total stockholder's equity                     31,590,789     39,010,057
                                            --------------  ------------


Total liabilities and stockholder's equity   $282,966,203   $268,462,254
                                            ==============  ============


            See Notes to Condensed Consolidated Financial Statements



                                       1
<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

                                            Three Months Ended
                                               December 31,
                                     -------------------------------
                                          2006            2005
                                     ---------------  --------------

Revenue
   Finance income                      $ 19,969,017     $18,502,275
   Insurance premiums and commissions     1,231,333         926,600
   Other income, fees and commissions       510,838         269,060
                                     ---------------  -------------
Total revenue                            21,711,188      19,697,935

Provision for credit losses               5,140,126       4,522,972
Interest expense                          3,887,967       3,421,339
                                     ---------------  -------------

Net revenue                              12,683,095      11,753,624

Operating expenses:
   Employee costs                         5,166,709       5,247,171
   Facilities                             1,432,243       1,427,760
   Marketing                                661,484         923,382
   Professional fees and other            1,291,356       1,127,172
                                     ---------------  --------------

Total operating expenses                  8,551,792       8,725,485
                                     ---------------  -------------

Income before income taxes                4,131,303       3,028,139
Provision for income taxes                1,550,000       1,116,000
                                     ---------------  -------------

Net income                              $ 2,581,303      $1,912,139
                                     ===============  =============

Net income per share, basic and
diluted                                    $ 150.64         $111.59
                                     ===============  =============


            See Notes to Condensed Consolidated Financial Statements



                                       2
<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>

<CAPTION>

                                                                               Accumulated
                                                                                  Other
                                                      Common       Retained    Comprehensive
                                        Total         Stock        Earnings       Income
                                    ------------  ------------ -------------  -------------
                                     <S>           <C>          <C>            <C>

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

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

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


  Net income                                                      8,098,784
  Accumulated other
   comprehensive income -
    change in unrealized gain
    on equity securities, net of
    income taxes                                                                  (11,250)
  Total comprehensive income           8,087,534
  Dividend paid ($67.10 per share)    (1,149,827)                (1,149,827)
                                     ------------  ------------ -------------  -------------

Balance, September 30, 2006         $ 39,010,057  $ 1,713,600   $37,296,457    $           -

  (Unaudited)
  Net income                                                      2,581,303
  Total comprehensive income           2,581,303
  Dividend paid ($583.60 per share)  (10,000,571)               (10,000,571)
                                     ------------  ------------ -------------  -------------

Balance, December 31, 2006          $ 31,590,789  $ 1,713,600   $29,877,189    $           -
                                    ============  ============ =============   =============
</TABLE>


            See Notes to Condensed Consolidated Financial Statements



                                       3
<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                             Three Months Ended December 31,
                                           ----------------------------------
                                                 2006              2005
                                           ----------------  ----------------

Cash Flows from Operating Activities:
   Net income                              $    2,581,303       $ 1,912,139
   Items not requiring (providing) cash:
     Provision for credit losses on
         finance receivables                    5,140,126         3,722,971
      Depreciation and amortization               351,538           343,392
      Compounded interest added to
         investment notes                         379,255           282,907
      Deferred income taxes                      (618,449)         (374,287)
      Loss on disposal/donation of equipment         (778)           (1,098)
   Changes in:
      Accounts payable and accrued
         expenses                               3,070,091           912,126
      Prepaids and other assets                   178,319           171,466
                                           ----------------  ----------------
         Net cash provided by operating
          activities                           11,081,405         6,969,616
                                           ----------------  ----------------

Cash Flows from Investing Activities:
   Loans originated                           (53,535,804)      (55,737,133)
   Loans purchased                             (4,652,377)       (5,287,455)
   Loans repaid                                41,539,924        41,844,070
   Capital expenditures                           (44,131)          (57,887)
   Securities purchased                                 -          (104,930)
   Securities matured                             410,000           223,389
                                           ----------------  ----------------
     Net cash used in investing activities    (16,282,388)      (19,119,946)
                                           ----------------  ----------------

Cash Flows from Financing Activities:
   Net borrowing (repayments) under lines
    of credit                                   4,742,065          (674,393)
   Proceeds from borrowings                    30,269,233        31,844,834
   Repayment of borrowings                    (16,537,427)      (16,367,793)
   Dividends paid                             (10,000,571)         (207,344)
                                           ----------------  ----------------

     Net cash provided by financing
      activities                                8,473,300        14,595,304
                                           ----------------  ----------------

Net Increase in Cash                            3,272,317         2,444,974

Cash and cash equivalents, Beginning
 of Period                                      1,762,526         1,734,925
                                           ----------------  ----------------

Cash and cash equivalents, End of Period   $    5,034,843    $    4,179,899
                                           ================  ================

Additional Cash Flow Information:
   Interest paid                           $    3,327,375    $    3,012,875
   Income taxes paid                       $            -    $      254,825

            See Notes to Condensed Consolidated Financial Statements


                                       4
<PAGE>


                        PIONEER FINANCIAL SERVICES, INC.

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     December 31, 2006 and December 31, 2005
                                   (Unaudited)

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

Nature of Operations and Concentration

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

Principles of Consolidation

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

Use of Estimates

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

      Information with respect to December 31, 2006 and 2005, and the periods
then ended, have not been audited by the Company's independent auditors, but in
the opinion of management reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the financial
condition and operations of the Company. The results of operations for the three
months ended December 31, 2006 and 2005 are not necessarily indicative of
results to be expected for the entire fiscal year. The condensed consolidated
balance sheet as of September 30, 2006 and statements of stockholder's equity
for the years ended September 30, 2006 and 2005 have been derived from the
Company's audited consolidated balance sheet and statements of stockholder's
equity.

NOTE 2:  NET INCOME PER SHARE

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



                                       5
<PAGE>


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

Forward-Looking Statements

      The discussion set forth below, as well as other portions of this
quarterly report, contains forward-looking statements within the meaning of
federal securities law. Words such as "may," "will," "expect," "anticipate,"
"believe," "estimate," "continue," "predict," or other similar words, identify
forward-looking statements. Forward-looking statements include statements
regarding our management's intent, belief or current expectation about, among
other things, trends affecting the markets in which we operate, our business,
financial condition and growth strategies. Although we believe that the
expectations reflected in these forward-looking statements are based on
reasonable assumptions, forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those predicted in the forward-looking statements as a result of
various factors, including, but not limited to, those risk factors set forth in
our annual report on Form 10-K for the period ended September 30, 2006 and set
forth herein under Item 1A--Risk Factors. Other factors not identified herein
could also have such an effect. If any of these risk factors occur, they could
have an adverse effect on our business, financial condition and results of
operation. When considering forward-looking statements keep these risk factors
in mind. These forward-looking statements are made as of the date of this
filing. You should not place undue reliance on any forward-looking statement. We
are not obligated to update forward-looking statements and will not update any
forward-looking statements in this Quarterly Report to reflect future events or
developments.

Overview

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

      Our finance receivables are effectively unsecured. Our finance receivables
have fixed interest rates and typically have a maturity of less than 48 months.
During the first three months of fiscal 2007, the size of our average finance
receivable at origination was approximately $3,577. In general, our customers
are unable to obtain traditional financing from banks, credit unions or savings
and loans associations due to factors such as their age, likelihood of
relocation and lack of credit history, which may not allow them to build
relationships with sources such as commercial banks.

      Further improvement of our profitability is dependent upon the growth in
our finance receivables, the maintenance of loan quality, acceptable levels of
borrowing costs and operating expenses and the ongoing introduction of
innovative new products and services to our customer base. Since September 30,
2001, finance receivables have increased at a 14.4% annual compounded rate from
$137.3 million to $268.5 million at September 30, 2006. The aggregate finance
receivable increase of 8.6% for fiscal year 2006 is attributable in part to the
presence of third party marketing agreements entered into in October 2003 with
companies that market and sell products over the Internet to military service
members. These agreements have expanded our ability to help additional military
customers who need financing to effectuate Internet purchases as well as other
needs. We plan to continue to pursue innovative and efficient methods to
distribute our loans, including looking for opportunities to expand the Internet
portion of our business and adding new retail offices as we evaluate new
military markets and possible products.

Lending Activities

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



                                       6
<PAGE>


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

      With 20+ years experience underwriting, originating, monitoring and
servicing consumer loans to the Military Market, we have developed a deep
understanding of the military and the military lifestyle. Through this extensive
knowledge of our customer base, we have developed a sophisticated, proprietary
scoring model that focuses on the unique characteristics of the Military Market
as well as traditional credit scoring variables. This has allowed us to
profitably service a market niche. 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.

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

      We believe that the development and continual reinforcement of personal
relationships with customers improves our ability to monitor their
creditworthiness, reduce credit risk and generate loyal repeat customers. It is
not unusual for us to have made a number of loans to the same customer over the
course of several years which were refinanced with a new loan after
approximately one third of the scheduled payments were made. In determining
whether to refinance existing loans, we typically require loans to be current on
a recency basis, and customers are required to complete a new credit
application. It is against our policy to grant extensions or deferments, or
allow account revisions, rewriting, renewal or rescheduling to bring an
otherwise delinquent account current.

      As a customer service, we will consider a new loan request from an
existing customer who has demonstrated a positive payment history with us, where
the transaction creates an economic benefit to the customer and after fully
underwriting the new loan request to ensure proper debt ratio, credit history
and payment performance. No refinancing is available to cure delinquency nor for
the sole purpose of creating fee income to us. Generally, we refinance existing
loans when a portion of the new loan proceeds is used to repay the balance of
the existing loan and the remaining portion is advanced to the customer. In
fiscal 2006, approximately 45.8% of the number and 30.2% of the amount of our
loan originations were refinancings of outstanding loans. If the New Lending Act
for Service Members is implemented as enacted, we will no longer be able to
refinance an existing loan.

      To reduce our credit risk and provide better service, we do not require
but a customer may elect to employ the convenience of making their monthly loan
payments electronically through payroll deduction via the Government Allotment
System or through an automatic debit of their bank account through the National
Automated Clearinghouse Association. In addition, customers may elect to make
monthly loan payments by personal check. As of December 31, 2006, approximately
96% of our customers were utilizing these options.

Sources of Income

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


                                       7
<PAGE>


Finance Receivables

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

                                     As of, and For the Three
                                           Months Ended
                                           December 31,
                                  -------------------------------
                                       2006            2005
                                  ---------------  --------------
                            (dollars in thousands, except for average
                                          note balance)

Finance Receivables:
   Finance receivables balance       $    280,785     $   265,405
   Average note balance              $      2,641     $     2,575
   Total finance income              $     19,969     $    18,502
   Total number of notes                  106,306         103,068

Direct Loans:
   Finance receivables balance       $    259,501         242,320
   Percent of finance receivables          92.42%          91.30%
   Average note balance              $      2,750     $     2,676
   Number of notes                         94,363          90,551

Retail Installment Contracts:
   Finance receivables balance       $     21,284     $    23,085
   Percent of finance receivables           7.58%           8.70%
   Average note balance              $      1,782     $     1,844

   Number of notes                         11,943          12,517


Net Interest Margin

     The principal component of our profitability is our net interest margin,
which is the difference between the interest we earn on finance receivables and
the interest we pay on borrowed funds. Some states and federal statutes regulate
the interest rates that we may charge our customers. In addition, other states
competitive market conditions also impact the interest rates we may charge.
Differences also exist in the interest rates we earn on the various components
of our finance receivable portfolio. With respect to permissible interest rate
levels which may be charged, how such rates are calculated and other
restrictions regarding lender loan documents, if the New Lending Act for Service
Members is implemented as enacted, it will preempt less restrictive state laws
but permits states to impose lower interest rate ceilings. See "Item 1:
Business--Regulations--The New Lending Act for Service Members."

      Unlike our interest income, our interest expense is sensitive to general
market interest rate fluctuations. These general market fluctuations directly
impact our cost of funds. Our general inability to increase the interest rates
earned on new and existing finance receivables restricts our ability to react to
increases in our cost of funds. Accordingly, increases in market interest rates
generally will narrow our interest rate spread and lower our profitability,
while decreases in market interest rates generally will widen our interest rate
spread and increase our profitability.

      The following table presents important data relating to our net interest
margin as of the ends of the periods presented:



                                       8
<PAGE>


                                                As of, and For the Three
                                                      Months Ended
                                                      December 31,
                                        ----------------------------------------
                                                   2006          2005
                                        ----------------------------------------
                                                  (dollars in thousands)

Finance receivables balance                    $    280,785    $   265,405

Average finance receivables (1)                $    276,243    $   260,396

Average interest bearing liabilities (1)       $    222,242    $   214,795

Total finance income                           $     19,969    $    18,502

Total interest expense                         $      3,888    $     3,421

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


Results of Operations

     Three Months Ended December 31, 2006 Compared to Three Months Ended
December 31, 2005

      Finance Receivables. Our aggregate finance receivables increased 4.6%
during the first quarter of fiscal 2007 to $280.8 million on December 31, 2006
from $268.5 million on September 30, 2006. Increased loan originations in the
first quarter of fiscal 2007 helped to contribute to the highest dollar amount
of finance receivables in our company history. This increase was due primarily
to increases in finance receivables from the Internet, which grew by
approximately $10.5 million or 6.4%

      Finance Revenues. Finance revenues for the first quarter of fiscal 2007
increased to $20.0 million from $18.5 million for the first quarter of fiscal
2006, an increase of $1.5 million or 8.1%. This increase was primarily due to an
increase in average finance receivables to $276.2 million in the first quarter
of fiscal 2007 from $260.4 million in the first quarter fiscal 2006, an increase
of 6.1%.

      Provision for Credit Losses. The provision for credit losses in the first
quarter of fiscal 2007 increased to $5.1 million from $4.5 million in the first
quarter of fiscal 2006, an increase of $.6 million or 13.3%. See "Finance
Receivables." This increase resulted from a combination of increases in both the
allowance for loan losses due to the growth in our loan portfolio and an
increase in our net charge-offs. Allowance for credit losses at December 31,
2006 increased to $16.8 million compared to $16.1 million at September 30, 2006.
This increase reflects the 4.6% or $12.3 million increase in our loan portfolio
as mentioned above. In addition, our net charge-offs as a percentage of average
finance receivables for the first quarter of fiscal 2007 increased to 6.9% from
6.3% for the first quarter of fiscal 2006. This increase is due to general
economic factors affecting our customers' ability to repay their loans, the
increase in customers leaving the military prior to repaying their loan and our
continuing concern regarding the uncertainty surrounding Middle-East
hostilities. If this situation were to continue to result in a protracted war,
the involvement of the military personnel in armed hostilities may increase
payment delinquencies and charge-offs. See "Item 1A: Risk Factors--If a customer
leaves the military prior to repaying our loan, there is an increased risk that
our loan will not be repaid". See also "--Credit Loss Experience and Provision
for Credit Losses."

      Interest Expense. Interest expense in the first quarter of fiscal 2007
increased to $3.9 million from $3.4 million in the first quarter of fiscal 2006,
an increase of $.5 million or 14.7%. Our average interest bearing liabilities
for the three months ended December 31, 2006 increased by $7.4 million or 3.5%
compared to the three months ended December 31, 2005. The weighted average
interest rate increased to 7.0% in the first quarter of fiscal 2007 from 6.4% in
the first quarter of fiscal 2006 due to the increase in market interest rates as
well as a 31.0% increase in our investment notes which generally have a higher
rate of interest.




                                       9
<PAGE>


      Operating Expenses. Operating expenses in the first quarter of fiscal 2007
decreased to $8.5 million from $8.7 million in the first quarter of fiscal 2006,
a decrease of $.2 million or 2.0%. This decrease was primarily due to a decrease
in employment costs resulting from more efficient use of technology and a
decrease in marketing expenses with better focused digital marketing efforts.

      Net Income. Income before taxes in the first quarter of fiscal 2007 was
$4.1 million and net income was $2.6 million compared to income before taxes of
$3.0 million and net income of $1.9 million during the first quarter of fiscal
2006. These increases were primarily attributed to higher finance receivables
and relatively stable operating expenses partially reduced by an increased
provision for credit losses and interest expense.

     Three Months Ended December 31, 2005 Compared to Three Months Ended
December 31, 2004

      Finance Receivables. Our aggregate finance receivables increased 7.4%
during the first quarter of fiscal 2006 to $265.4 million on December 31, 2005
from $247.2 million on September 30, 2005. Increased loan originations in the
first quarter of fiscal 2006 helped to contribute to the highest dollar amount
of year to date gain of finance receivables in our company history. This
increase was due primarily to increases in finance receivables from the
Internet, which grew by approximately $18.5 million or 13.8%

      Total Revenues. Finance revenues, which were 93.9% of our total revenue,
in the first quarter of fiscal 2006 increased to $18.5 million from $15.4
million in the first quarter of fiscal 2005, an increase of $3.1 million or
20.2%. This increase was primarily due to an increase in average finance
receivables to $260.4 million in the first quarter of fiscal 2006 from $208.9
million in the first quarter fiscal 2005, an increase of 24.6%.

      Provision for Credit Losses. The provision for credit losses in the first
quarter of fiscal 2006 increased to $4.5 million from $3.3 million in the first
quarter of fiscal 2005, an increase of $1.2 million or 36.4%. Net charge-offs of
finance receivables in the first quarter of fiscal 2006 increased to $3.7
million from $2.3 million in the first quarter of fiscal 2005, an increase of
$1.4 million or 60.9%. Net charge-offs as a percentage of average finance
receivables for the first quarter of fiscal 2006 increased to 5.7% from 4.5% for
the first quarter of fiscal 2005. These changes reflect the increase in our
average finance receivables for the three months ended December 31, 2005
compared to the same period in 2004 as well as an increase of 2,100 in the
number of customers leaving the military prior to repaying their loan and an
increase in bankruptcy filings due in part to the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005, which became effective on October 17, 2005.
Allowance for credit losses at December 31, 2005 increased to $14.8 million
compared to $14.0 million at September 30, 2005. See also "--Credit Loss
Experience and Provision for Credit Losses."

      Interest Expense. Interest expense in the first quarter of fiscal 2006
increased to $3.4 million from $2.5 million in the first quarter of fiscal 2005,
an increase of $.9 million or 36%. Our average interest bearing liabilities for
the three months ended December 31, 2005 increased by $52.2 million or 32.1%
compared to the three months ended December 31, 2004. The weighted average
interest rate was 6.4% in the first quarter of fiscal 2006 compared to 6.1%
fiscal 2005.

      Operating Expense. Operating expense in the first quarter of fiscal 2006
increased to $8.7 million from $8.4 million in the first quarter of fiscal 2005,
an increase of $.3 million or 3.6%. This increase arose from an increase in
marketing expenses related to an increased focus on online marketing and
national advertising.

       Net Income. Income before taxes in the first quarter of fiscal 2006 was
$3.0 million and net income was $1.9 million compared to income before taxes of
$2.9 million and net income of $1.9 million during the first quarter of fiscal
2005.

Delinquency Experience

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

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




                                       10
<PAGE>


                                            As of the Three Months Ended
                                                    December 31,
                                        ----------------------------------
                                             2006                  2005
                                        ------------          ------------
                                               (dollars in thousands)

Finance receivables balances            $    280,785          $    265,405

Finance receivables balances 60 days    $     15,982          $     16,004
  or more past due

Finance receivables balances 60 days
   or more past due as a percent of
   finance receivables                         5.69%                 6.03%


Credit Loss Experience and Provision for Credit Losses

      General. Our provisions for credit losses are charged to income in amounts
sufficient to maintain our allowance for credit losses at a level considered
adequate to cover the probable losses inherent in our existing finance
receivable portfolio. Historical credit loss experience, delinquency of finance
receivables, the value of underlying collateral, current economic conditions,
current military activities and management's judgment are factors used in
assessing the overall adequacy of the allowance and corresponding provision for
credit losses. Our allowance for credit losses is developed primarily for our
direct finance receivable portfolio as our retail installment contracts are
generally covered by dealer reserves.

      Direct Loans. Our charge-off policy is based on an account-by-account
review of delinquent receivables on a recency basis. Finance receivables are
charged-off when management deems them to be uncollectible through our normal
collection procedures or they become 270 days past due. The 270-day limit is
required by our senior lending agreement. Greater than 15% of our charge-offs
occur before an account is 180 days delinquent. Our primary source of
charge-offs is when a customer leaves the military prior to repaying the finance
receivable. We generally structure our loans so that the entire amount is repaid
prior to a customer's estimated separation from the military, and the number of
our customers who depart from the military early has remained relatively
constant over time. We, however, cannot predict when or whether a customer may
depart from the military early. Accordingly, we can not implement policies or
procedures to ensure that we are repaid in full prior to our customer leaving
the military.

      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:

                                     As of, and For the Three
                                           Months Ended
                                           December 31,
                                   -----------------------------
                                       2006            2005
                                   --------------  -------------
                                      (dollars in thousands)
Direct Loans:
   Loans charged-off               $       4,792   $      3,999
   Less recoveries                           374            272
                                   --------------  -------------
   Net charge-offs                 $       4,418   $      3,727
                                   ==============  =============

Average monthly balance of
   outstanding (1)                 $     254,832   $    237,051
Percentage of net charge-offs
 to average monthly balance
 outstanding (2)                           6.93%          6.29%

--------------------------------
      (1) Averages are computed using month-end balances.
      (2) December 31, 2006 and 2005 are annualized for comparison purpose.



                                       11
<PAGE>


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

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

                                     As of, and For the Three
                                           Months Ended
                                           December 31,
                                   ------------------------------
                                       2006            2005
                                   --------------  --------------
                                      (dollars in thousands)
Retail Installment Contracts:
   Contracts charged-off           $          14   $           -
   Less recoveries                            21               4
                                   --------------  --------------
   Net charge-offs (recoveries)    $          (7)  $          (4)
                                   ==============  ==============

Average monthly balance of
   outstanding (1)                 $      21,411   $      23,345
Percentage of net charge-offs
 to average monthly balance
 outstanding (2)                          -0.13%          -0.07%
--------------------------------
      (1) Averages are computed using month-end balances.
      (2) December 31, 2006 and 2005 are annualized for comparison purpose.

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


                                     As of, and For the Three
                                           Months Ended
                                           December 31,
                                   -----------------------------
                                       2006            2005
                                   --------------  -------------
                                      (dollars in thousands)

Average finance receivables (1)        $ 276,243      $ 260,396
Provision for credit losses            $   5,140      $   4,523
Net charge-offs                        $   4,411      $   3,723
Net charge-offs as a percentage of
   average finance receivables (2)         6.39%          5.72%
Allowance for credit losses            $  16,835      $  14,802
Allowance as a percentage of average
   finance receivables                     6.09%          5.68%

--------------------------------
      (1) Averages are computed using month-end balances.
      (2) December 31, 2006 and 2005 are annualized for comparison purpose.




                                       12
<PAGE>


       The allowance for credit losses is maintained at an amount which
management considers sufficient to cover estimated future losses. The Company
has developed policies and procedures for assessing the adequacy of the
allowance for credit losses which take into consideration the historical credit
loss experience of the Company, delinquency trends, current economic conditions,
current or future military deployments, and the composition of the finance
receivable portfolio. The Company uses various ratio analyses in evaluating
prior finance receivable losses and delinquency experience. These and other
analyses are used to measure historical movement of finance receivables through
various levels of repayment, delinquency, and loss. These results and
management's judgment are used to estimate future losses and in establishing the
current provision and allowance for credit losses. These estimates are
influenced by factors outside the Company's 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 "Item 1A: Risk Factors--If a customer leaves the military prior to
repaying our loan, there is an increased risk our loan will not be repaid."

      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:

                                    As of, and For the Three
                                         Months Ended
                                         December 31,
                                -------------------------------
                                      2006             2005
                                --------------  ---------------
                                -------------------------------
                                      (dollars in thousands)

Balance, beginning of period   $       16,106  $        14,002
                               --------------  ---------------
Charge-offs:
   Loans charged-off                   (4,806)          (3,999)
   Recoveries                             395              276
                               --------------  ---------------
Net charge-offs                        (4,411)          (3,723)
Provision for credit losses             5,140            4,523
                               --------------  ---------------
Balance, end of period         $       16,835  $        14,802
                               ==============  ===============


Loan Origination

      Our loan origination is an important factor in determining our future
revenues. Loan originations increased for the first three months of fiscal 2007
to $90.6 million from $88.7 million for the first three months of fiscal year
2006, an increase of $1.9 million or 2.1%. See "Results of Operations - Three
Months Ended December 31, 2006 Compared to the Three Months ended December 31,
2005 - Finance Receivables." The record volume in the first three months of
fiscal 2007 was achieved through an increase in loan referrals from our retail
offices and the expansion of our Internet distribution channel. The increase in
Internet loan production was due in part to our digital marketing efforts which
increased 24% over prior year with a greater emphasis on internally directed
activities.

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



                                       13
<PAGE>



                                            As of, and For the Three
                                                  Months Ended
                                                  December 31,
                                  -----------------------------------------
                                          2006                 2005
                                  -------------------  --------------------
                                       (dollars in thousands, except for
                                              average note amounts)
Total Loan Origination:
   Gross balance                        $   90,611            $   88,689
   Number of finance receivable notes       25,332                25,681
   Average note amount                  $    3,577            $    3,453

Direct Loans:
   Gross balance                        $   85,746            $   83,402
   Number of finance receivable notes       23,702                23,757
   Average note amount                  $    3,618            $    3,511

Retail Installment Contracts:
   Gross balance                        $    4,865            $    5,287
   Number of finance receivable notes        1,630                 1,924
   Average note amount                  $    2,985            $    2,748

Liquidity and Capital Resources

      A relatively high ratio of borrowings to invested capital is customary in
consumer finance activities due to the quality and term of the assets employed.
Our principal use of cash is to make new loans and purchase retail installment
contracts. We use our borrowings to fund the difference, if any, between the
cash used to make new loans and purchase retail installment contracts, and the
cash generated from loan repayments and operations. This amount is generally our
cash used in investing activities. Cash used in investing activities in the
first three months of fiscal 2007 was approximately $16.3 million, which was
funded from $11.1 million of cash from operating activities and $8.5 million
from financing activities. Cash used in investing activities in the first three
months of fiscal 2006 was approximately $19.1 million, which were funded from
$7.0 million of cash from operating activities and $14.6 million from financing
activities.

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

      On December 18, 2006, our board of directors paid a $10 million cash
dividend to our parent, Pioneer Financial Industries, Inc. by borrowing said
amount under our senior lending agreement thus reducing the amount of borrowing
capacity we have available to us. This dividend is permitted under the indenture
applicable to the investment notes, our senior bank debt agreements and our
revolving note to our parent. By reducing the borrowing capacity, this dividend
will reduce the amount currently available to pay interest and principal due on
our senior indebtedness, trade debt and the investment notes. In addition, it
will increase our interest expense therefore reducing our net income. This could
have a material adverse impact on our ability to pay interest and principal on
the investment notes. See "Item 1A: Risk Factors - Large cash dividend declared
in December 2006 to our parent.

      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 December 31, 2006, all
the 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 $270
million.


                                       14
<PAGE>


      Senior Indebtedness-Bank Debt. Our senior lending agreement is an
uncommitted facility which provides common terms and conditions pursuant to
which individual banks that are a party to this agreement may choose to make
loans to us in the future. Any bank may elect not to participate in any future
fundings at any time without penalty. As of December 31, 2006, we could request
up to $23.5 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 December 31, 2006, we were
in material compliance with all loan covenants.

      Senior Indebtedness-Parent Debt. We also have a revolving line of credit,
payable on demand, from our parent, Pioneer Financial Industries, Inc. Interest
on this facility accrues at the prime rate plus 2%. At December 31, 2006, there
was $.5 million outstanding under this credit facility with an interest rate of
10.25%.

      Senior Indebtedness Table. As of December 31, 2006 and 2005, the total
borrowings and availability under our senior lending agreement and our revolving
line of credit from our parent company consisted of the following amounts for
the ends of the periods presented:

                                                      As of December 31,
                                              ---------------  ---------------
                                                     2006             2005
                                              ---------------  ---------------
                                                    (dollars in thousands)
Revolving Credit Line (1):
   Total facility                             $    50,016        $     46,695
   Balance at end of period                   $    17,842        $     14,860
   Maximum available credit (3)               $    32,174        $     31,835

Term Notes (2):
   Total facility                             $   225,000        $    207,000
   Balance at end of period                   $   183,280        $    178,017
   Maximum available credit (3)               $    41,720        $     28,983

Total Revolving and Term Notes (1)(2):
   Total facility                             $   275,016        $    253,695
   Balance at end of period                   $   201,122        $    192,877
   Maximum available credit (3)               $    73,894        $     60,818
   Credit facility available (4)              $    23,498        $     20,068
   Percent utilization of the total facility       73.13%              76.03%

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

      Outstanding Investment Notes. We also fund our liquidity needs through the
sale of our 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 December 31, 2006, we had issued
approximately $35.2 million of these notes at a weighted average interest rate
of 9.32%.

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

      Recent Events. On January 31, 2007, Pioneer Financial Industries, Inc.,
the parent and sole shareholder of Pioneer Financial Services, Inc. (the
"Company") signed an agreement to sell 100% of its stock in the Company to a
bank holding company. The stock transaction is anticipated to close on May 31,
2007 but is subject to customary closing conditions.



                                       15
<PAGE>


      Trends

      As we continue to assess and align our products to the increasingly
competitive market of military lending, we continue to look for ways to remain
the responsible alternative. The growth of the payday or "balloon loans" and
significant increases in credit card costs or "revolving loans", suggest we
fine-tune our disciplined, installment loan program. As a result, we have
limited our secured lending to loans that are secured by real property and/or
titled vehicles. The majority of our loans will continue to be unsecured and we
will no longer accept other personal property as security for our secured loans.
We anticipate this will have a slight decrease in insurance commission revenue
as a result of this new focus, but our focus on helping military families
eliminate the high cost of balloon and revolving loans should improve our loan
originations and more than off set the commission decrease.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk.

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

ITEM 4.  Controls and Procedures

      The Company maintains disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to
ensure that information required to be disclosed in the Company's reports under
the Exchange Act is recorded, processed, summarized and reported as of the end
of the period covered by this report (evaluation date), and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures. Any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives. Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures as of
December 31, 2006. Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that the design and operation of our
disclosure controls and procedures are effective. There were no significant
changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date the evaluation was completed.

                           PART II - OTHER INFORMATION

ITEM 1.  Legal Proceedings

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

      State Actions. In September 2006, we made the decision to change our
business model to require our subsidiaries to become licensed or registered in
each state where such lender may extend a loan to a customer located in such
state at the time the loan is made even if such state is not the permanent home
of record of such customer. We may decide not to extend loans in certain states
where the cost of doing business is prohibitive. This change in business model
will eliminate our need to rely upon Pioneer Military Lending v. Manning,
2 F.3d 280 (8th Cir. 1993) ("Manning"), which stated that the
Commerce Clause of the U.S. Constitution prevents the lending laws of the state
in which a non-resident military borrower is stationed from regulating such loan
transactions. Our new practice will coincide well with the provisions of the New
Lending Law for Service Members, signed on October 17, 2006 by the President of
the United States, which will become effective not later than October 1, 2007
and prohibit States from waiving consumer protection laws for the benefit of
residents of the state on the basis of nonresidence or military status
regardless of the customer's permanent home of record and thus will effectively
overrule Manning.



                                       16
<PAGE>


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

      On June 28, 2006, PMLI, joined by PML-Nevada, filed a Complaint for
Declaratory Judgment, Injunctive Relief and Damages against Preston DuFauchard,
Commissioner of the Department, in the United States District Court for the
Eastern District of California. Pioneer Military Lending, Inc., and Pioneer
Military Lending of Nevada, Inc. v. Preston DuFauchard, Case No.
2:06-CV-01445-LKK-PAN (E.D. Cal.). The Complaint seeks a determination that,
among other things, we and our affiliates are not subject to California lending
laws and licensing requirements.

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

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

The time for appealing of this Order expired on August 21, 2006.

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

      However, as noted above, we made the decision to change our business model
to require our internet lending subsidiary and any other subsidiary making loans
to persons located in a state at the time of the loan to become licensed under
the state consumer lending laws. With respect to California, we have filed our
application for registration of PML-Nevada and PMLI under the CFLL. We have
notified the Commissioner of the Department of this action, and we believe he is
supportive of our decision and we are working to resolve this matter with the
Department. However, no assurance can be given that the Department will find
this action sufficient to settle the matter against PML-Nevada. See "Item 1A:
Risk Factors-- We are subject to many laws and governmental regulations, and any
changes in these laws or regulations may materially adversely affect our
financial condition and business operations."

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



                                       17
<PAGE>


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

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

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

ITEM 1A.  Risk Factors

      In our annual report on Form 10-K for the period ended September 30, 2006,
we have identified important risks and uncertainties that could affect our
results of operations, financial position, cash flow or business and that could
cause them to differ materially from our historical results of operations,
financial position, cash flow or business, or those contemplated by
forward-looking statements made herein or elsewhere, by, or on behalf of, us. In
this quarterly report we have identified material changes in these important
risks and uncertainties which include, but are not limited to, those factors
described below. These factors should be read in conjunction with the factors
identified in our annual report on Form 10-K for the period ended September 30,
2006 under "Item 1. Business--Factors That May Affect Future Results of
Operations, Financial Condition or Business."

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

       The terms of repayment on the loans we make are generally structured so
the entire loan amount is repaid prior to the customer's estimated separation
from the military. If, however, a customer unexpectedly leaves the military or
other events occur which result in the loan not being repaid prior to our
customer's departure from the military, there is an increased chance that our
loan will not be repaid. Because we do not know whether or when a customer will
leave the military early, we cannot institute policies or procedures to ensure
that the entire loan is repaid before the customer leaves the military. As of
December 31, 2006, we had approximately 6,053 customers who separated from the
military prior to repaying our loan and who in the aggregate owed us
approximately $12.3 million. Based on historical charge-off models, management
believes this could result in approximately $7.3 million in charge-offs. If that
amount increases or the number of our customers who separate from the military
prior to their scheduled separation date materially increases, our charge-offs
may increase. This may have a materially adverse effect on cash flow, results of
operations and financial conditions.



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<PAGE>


      The new federal law entitled "Limitations on Terms of Consumer Credit
Extended to Service Members and Dependents" may materially adversely affect our
business operation and profitability.

      On October 17, 2006, the President signed into law Section 670 of title
10, chapter 49, of the United States Code entitled "Limitations on Terms of
Consumer Credit Extended To Service Members and Dependents" (the "New Lending
Act for Service Members"), which, among other things, provides limitations on
the annual percentage interest rate a lender may charge borrowers and requires
that the amount of all fees and charges to the borrower in connection with a
credit transaction, including those for single premium credit insurance and
other ancillary products sold to the borrower, be included in the calculation of
the annual percentage rate. These reductions in the amount of interest and fees
we may charge apply in all jurisdictions in which we lend as the regulations are
federal. State law or market conditions may further restrict the interest rate
we may charge borrowers. If states were to significantly decrease interest rates
we may charge borrowers, this could unfavorably impact our profitability by
reducing the interest rate spread between the rate of interest we receive on
loans and interest rates we must pay under our outstanding investment notes and
bank debts. In addition, the law includes limitations on refinancing with the
proceeds of other credit extended by us to the same US military service member
or dependent, arbitration clauses and certain penalties and fees. If implemented
as enacted, we will likely be required to modify our current practices and
procedures in the way we conduct business to reduce the impact of the New
Lending Act for Service Members on our business and profitability. We are
subject to many laws and governmental regulations, and any changes in these laws
or regulations may materially adversely affect our financial condition and
business operations.

      Our operations are subject to regulation by federal authorities and state
banking, finance, consumer protection and insurance authorities and are subject
to various laws and judicial and administrative decisions imposing various
requirements and restrictions on our operations which, among other things,
require that we obtain and maintain certain licenses and qualifications, and
limit the interest rates, fees and other charges we may impose. Although we
believe we are in compliance in all material respects with applicable laws,
rules and regulations, there can be no assurance that we are or that any change
in such laws, or in the interpretations thereof, will not make our compliance
therewith more difficult or expensive or otherwise adversely affect our
financial condition or business operations.

      We are subject to regulation by states where our lending subsidiaries are
located. At this time, we are not subject to consumer lending regulation in the
states in which we only have retail offices. If this were to change in the
future, any resulting regulation by the states in which we only have retail
offices could adversely impact our operating costs and our ability to repay the
investment notes. In September 2006, in consideration of potential increased
risk of heightened state regulation, management decided to begin requiring
subsidiaries to become licensed in states where a majority of our customers are
located at the time of making a loan for which the cost is not prohibitive. We
do not plan to extend loans in a state where the lending subsidiary is not
licensed if the borrower is located in that state when the loan is made.

      Large cash dividend declared in December 2006 to our parent

      On December 8, 2006, our board of directors declared a $10 million cash
dividend to our parent, Pioneer Financial Industries, Inc. This dividend is
permitted under the indenture applicable to the investment notes, our senior
bank debt agreements and our revolving note to our parent. This dividend was
paid on December 18, 2006, and reduced the amount of borrowing capacity we have
available to us from $33.5 million to $23.5 million. By reducing the borrowing
capacity, this dividend reduced the amount currently available to pay interest
and principal due on our senior indebtedness, trade debt and the investment
notes. In addition, it will increase our interest expense therefore reducing our
net income. This could have a material adverse impact on our ability to pay
interest and principal on the investment notes.



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<PAGE>


ITEM 2.  Unregistered Sales of Equity and Use of Proceeds

     On May 13, 2003, the Securities and Exchange Commission declared our
registration statement on Form S-1, as amended (File No. 333-103293), effective.
On January 13, 2004 the Securities and Exchange Commission declared our post
effective amendment number 1 as filed on Form S-1 (File No. 333-103293),
effective. On February 10, 2005, the Securities and Exchange Commission declared
our post effective amendment number 2 as filed on From S-2 (File No.
333-103293), effective. On January 30, 2006 the Securities and Exchange
Commission declared our post effective amendment number 3 as filed on Form S-2
(File No. 333-103293), effective. Pursuant to the registration statement and the
accompanying prospectus, we registered and are offering up to $25,000,000 in
aggregate principal amount of our investment notes, with a maximum aggregate
offering price of $25,000,000 on a continuous basis with an expected termination
of January 31, 2007. We commenced the offering of these investment notes on May
20, 2003. We are currently offering the notes through our officers and employees
directly without an underwriter or agent. From May 20, 2003 to December 31,
2006, we sold 773 notes in an approximate aggregate principal amount of
$23,187,000. For the quarter ended December 31, 2006, we sold 47 notes in the
approximate aggregate principal amount of $1,330,000. Costs incurred in
connection with the preparation of the initial registration statement on Form
S-1 were approximately $315,000. Our expenses incurred in connection with the
issuance and distribution of the investment notes from the date our registration
statement became effective, May 13, 2003, through December 31, 2006 were
approximately $750,000. Expenses incurred in the first quarter of fiscal 2007
were approximately $18,000. Net proceeds from the offering through December 31,
2006, were approximately $22,437,000.

ITEM 3.  Defaults upon Senior Securities

      None.

ITEM 4.  Submission of Matters to a Vote of Security Holders

      None.

ITEM 5.  Other Information

      None.

ITEM 6.  Exhibits

(a)   Exhibits

3.1  Restated Articles of Incorporation of the Company (Incorporated by
     reference to Exhibit 3.1 of the Company's Registration Statement on Form
     S-1, as amended, filed with the Securities and Exchange Commission on
     February 8, 2003 (Commission No. 333-103293) (the "Initial Registration
     Statement")).
3.2  Certificate of Amendment to Articles of Incorporation of the Company
     (Incorporated by reference to Exhibit 3.2 of the Initial Registration
     Statement).
3.3  Amended and Restated By-Laws of the Company (Incorporated by reference to
     Exhibit 3.3 of the Initial Registration Statement).
4.1  Amended and Restated Indenture dated as of December 15, 2004 (Incorporated
     by reference to Exhibit 4.1 of the Post Effective Amendment No. 2 to the
     Registration Statement filed with the Securities and Exchange Commission
     dated December 17, 2004 (Commission No. 333-103293) ("Post Effective
     Amendment No.2").
4.2  Form of investment note certificate (Incorporated by reference to Exhibit
     4.2 of the Post Effective Amendment No. 2).
4.3  Form of Investment Note prior to November 1, 2002 (Incorporated by
     reference to Exhibit 4.3 of the Initial Registration Statement).
4.7  Form of Agreement between the Company and various banks named in Amended
     and Restated Senior Lending Agreement (Incorporated by reference to Exhibit
     4.7 of the Initial Registration Statement).
4.9  Amended and Restated Senior Lending Agreement dated October 1, 2003 among
     the Company and various banks named therein (Incorporated by reference to
     Exhibit 4.9 of the Post Effective Amendment No. 1 to the Registration
     Statement filed with the Securities and Exchange Commission dated December
     12, 2003 (Commission No. 333-103293) ("Post Effective Amendment No.1").



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<PAGE>


4.10 Promissory Note dated October 1, 2003 between the Company and Pioneer
     Financial Industries, Inc. (Incorporated by reference to Exhibit 4.10 of
     the Post Effective Amendment No. 2)
4.11 Form of Rate Supplement (Incorporated by reference to Exhibit 4.11 of the
     Post Effective Amendment No. 2).
4.12 Form of IRA Application (Incorporated by reference to Exhibit 4.12 of the
     Post Effective Amendment No. 2).
4.13 Form of Offer to Purchase (Incorporated by reference to Exhibit 4.13 of the
     Post Effective Amendment No. 2).
10.1 Form of Readi-Loan Licensing Agreement (Incorporated by reference to
     Exhibit 10 of the Initial Registration Statement).
10.2 Office Building Lease dated January 31, 2001, between the Company and
     Belletower Partners, L.L.C. (Incorporated by reference to Exhibit 10.2 of
     the Initial Registration Statement).
10.3 Addendum to Office Building Lease between the Company and Belletower
     Partners, L.L.C. (Incorporated by reference to Exhibit 10.3 of the Initial
     Registration Statement).
10.4 First Amendment to Office Building Lease dated July 19, 2001, between the
     Company and Belletower Partners, L.L.C. (Incorporated by reference to
     Exhibit 10.4 of the Initial Registration Statement).
10.5 Employment Contract between the Company and Randall J. Opliger
     (Incorporated by reference to Exhibit 10.5 of the Initial Registration
     Statement).
10.6 Trademark Licensing Agreement dated October 10, 2000 between the Company
     and Pioneer Licensing Services, Inc. (Incorporated by reference to Exhibit
     10.6 of the Initial Registration Statement).

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



                                       21
<PAGE>


                                   SIGNATURES


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

PIONEER FINANCIAL SERVICES, INC.



By:  /s/ William D. Sullivan
   -------------------------
William D. Sullivan
Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.



Name                               Title                    Date


/s/ William D. Sullivan       Chief Executive Officer       February 14, 2007
--------------------------    and Sole Director
William D. Sullivan           (Principal Executive Officer)



/s/ Randall J. Opliger        Chief Financial Officer,      February 14, 2007
--------------------------    Treasurer and Secretary
Randall J. Opliger            (Principal Financial Officer
                              and Principal Accounting Officer)




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