Exhibit 99.3































MANAGEMENT'S DISCUSSION AND ANALYSIS





For the three and fifteen months ended September 30, 2010










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TABLE OF CONTENTS


INTRODUCTION


4BUSINESS PROFILE AND STRATEGY


4Operational


5Financial


6Selected Annual Information


7OVERALL FINANCIAL PERFORMANCE


82010 Highlights and Outlook


8Industry and economic review


10SELECTED FINANCIAL INFORMATION


11FINANCIAL ANALYSIS


12Branch Count


12Revenue


13Same Branch Revenues


14Branch Operating Income and Operating Income


15Expenses (excluding retention payments, amortization and class action settlements)


15Retention Payments


16Amortization


16Income Taxes


16LIQUIDITY AND CAPITAL RESOURCES


16Normal Course Issuer Bid


17Contractual Obligations


17SUMMARY OF QUARTERLY RESULTS


18Fifth Quarter


18RELATED PARTY TRANSACTIONS


20RISK FACTORS AFFECTING PERFORMANCE


20Consumer Protection Regulations


21Legal Proceedings


21Third Party Lenders/Retention Payments


23CRITICAL ACCOUNTING ESTIMATES


24Revenue Recognition


24Consumer Loans Receivable


24Provisions for Loan Losses


25Retention Payments


25Amortization Policies and Useful Lives


25Goodwill


26Intangible Assets


26Long-term investments


27Leases


27Contingencies


27Income Tax Estimates and Future Income Taxes


27Stock Based Compensation


27Accounting for the Impairment of Long-Lived Assets


27





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Financial Instruments


28Capital Disclosures


29CHANGES IN ACCOUNTING POLICIES AND PRACTICES


30Goodwill and Intangible Assets


30Business Combinations


30Consolidated Financial Statements


30Non-Controlling Interests


31Financial Instruments - Recognition and Measurement


31Financial Instruments - Disclosures


31Equity


32Comprehensive Revaluation of Assets and Liabilities


32RECENT ACCOUNTING PRONOUCEMENTS NOT YET ADOPTED


32International Financial Reporting Standards (IFRS)


32CONTROLS AND PROCEDURES


32Disclosure Controls and Procedures


32Internal Control over Financial Reporting


33Evaluation of Effectiveness


33Limitations on the Effectiveness of Disclosure Controls and Procedures and Internal Controls over Financial Reporting


33OUTSTANDING SHARE DATA


34DIVIDENDS


34OTHER


34Cautionary Statement Regarding Forward-looking Information


34Non-GAAP Measures


35EBITA Reconciliation


35













































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INTRODUCTION




The following management’s discussion and analysis (MD&A) should be read in conjunction with The Cash Store Financial Services Inc.’s (Cash Store Financial or the Company)  fiscal 2010 audited consolidated financial statements for the fifteen months ended September 30, 2010, which are available on SEDAR (www.sedar.com) and the United States Securities and Exchange Commission (www.sec.gov).





All figures are presented in Canadian dollars and are reported in accordance with Canadian generally accepted accounting principles.





In 2010, we changed our fiscal year end from June 30 to September 30.  The fiscal year end change results in a 15 month reporting period from July 1, 2009 to September 30, 2010.  The information is presented and computed as of and for the fifteen months ended September 30, 2010, and twelve months ended June 30, 2009.





This MD&A is dated as of November 24, 2010.





BUSINESS PROFILE AND STRATEGY




This section contains forward-looking statements.  See Cautionary Statement Regarding Forward-Looking Information located at the end of this MD&A.




Cash Store Financial is an alternative to traditional banks, providing short-term advances and other financial services, to serve the needs of everyday people through our two branch banners: The Cash Store and Instaloans.  The Cash Store and Instaloans, primarily act as brokers to facilitate short-term advances and to provide other financial services to income-earning consumers. We also provide a range of in-demand financial products that are not supplied by traditional financial institutions. Driven by a dynamic workforce, a performance-based culture, and a commitment to strong business fundamentals, at September 30, 2010, we owned and operated 544 branches in nine provinces, two territories and the United Kingdom.  We employed approximately 2,000 associates across Canada and the United Kingdom.  Cash Store Financial is the only broker of short-term advances and provider of other financial services in Canada that is publicly traded on the Toronto Stock Exchange. Cash Store Financial trades under the symbol “CSF” on the Toronto Stock Exchange and under the symbol “CSFS” on the New York Stock Exchange.




Our business is based on the recognition that the needs of a segment of the population are not being met by traditional financial institutions. Our strategic objective is to establish The Cash Store and Instaloans as Canada’s provider of choice for short-term advances and other financial services by offering a wide range of products, a high level of customer service, and convenient locations and hours of operation.




In addition to meeting our customers’ needs by providing small, short-term loans which can be accessed quickly, we also offer financial product insurance, cheque cashing products, bank accounts, money transfers, pre-paid master cards, debit cards, term loans, and prepaid phone cards.




As an important component in the execution of our long term product diversification strategy, bank accounts were introduced nationally across the branch network in February 2010. Accounts are Canada Deposit Insurance Corporation (CDIC) insurable and are offered through an agency agreement with a third party bank that is a federally regulated Schedule I bank. Management continues to be pleased by the interest of our customer base in the product and the revenue generated from these accounts. The agreement also offers Cash Store the opportunity to pursue other banking products and services that will enable the company to continue to diversify its product suite and build ancillary revenue.







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Our commitment to expanding into untapped markets remains strong. Aggressive openings in the Canadian market place as well as testing new markets are two of our primary focuses. The Canadian market potential is strong and with the implementation of provincial regulations, we will take advantage of our large footprint and continue our aggressive expansion. With our openings in the United Kingdom, we are seeing promising results and are excited about the opportunities for future aggressive expansion in this area.




Investor relations are an important part of our future growth plans and we are very excited about the opportunities that have been opened with our listing on the New York Stock Exchange.




To ensure the implementation of our strategic imperatives, our primary areas of focus are in human resources, collections, training and marketing. Improvements to the infrastructure in these areas will continue to occur.




Cash Store Financial is committed to the communities we serve.  As part of this commitment we have partnered with the Alberta Diabetes Foundation and the Alberta Diabetes Institute.  We have committed to raise $7.5 million. In recognition of this commitment, the Company was one of 16 companies recognized with a “Roll of Honour” award by the Alberta Association of Fund Raising Executives. The “Roll of Honour” award celebrates extraordinary commitment and contributions from corporate citizens and individuals around Alberta to the non-profit sector.




Cash Store Financial’s strategic priorities are:




Operational




Operational strategic priorities can be broken down into four main strategic priorities that include:




1)
Maturation of branch network:




•
Continued focus on improving Branch Operating Income (BOI) margins for all our branches;




•
Developing a motivated, knowledgeable team of associates dedicated to serving our customers through an integrated communication and training strategy that includes Cash Store College and Cash Store TV;




•
Further integrating the marketing and training departments to achieve effective alignment with operations; and




•
Providing strong leadership through in-the-field, hands-on involvement of senior management.




2)
New branch openings:




•
Further expanding our leading position in the Canadian alternative financial services industry through aggressive organic growth into underserved communities or via the acquisition of existing operators at accretive EBITA (earnings before interest, income taxes, stock-based compensation, and amortization of capital and intangible assets) multiples.







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3)
Growing existing product lines:




•
Providing superior service and complementary products with further diversification of the revenue stream.




4)
International expansion:




•
Further expanding our branch network in the United Kingdom (UK);




•
Owning an 18% interest in The Cash Store Australia Holdings Inc. (AUC) which owns and operates 63 branches in Australia; and




•
Owning a 16% interest in RTF Financial Holdings Inc. (RTF), which is in the business of short-term lending, by utilizing highly automated mobile technology (SMS text message lending).  RTF currently operates in Finland, Sweden, Denmark, the Netherlands, and the UK with expansion plans to other European countries.




Financial




•
Maximizing shareholder value by growing our earnings per share;




•
Utilizing our strong balance sheet to capitalize on regulatory changes as they occur, namely, through reducing our cost of capital in regulated provinces;




•
Controlling or reducing costs through a strong focus on operational excellence and by taking advantage of our growing buying power; and




•
Accelerating profitability for our newer branches through enhanced branch opening processes.







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Selected Annual Information




Fifteen


Twelve


TwelveThousands of dollars, except for per share amounts and branch figures


Months

Ended


Months

Ended


Months

EndedConsolidated results


September 30


June 30


June 302010


2009


2008No. of branches
Canada


542



424



384United Kingdom


2



-



-544



424



384RevenueBrokerage


$
171,612


$
122,572


$
107,169Other income



50,165



27,933



23,630221,777



150,505



130,799Branch expensesSalaries and benefits



62,265



40,634



35,399Retention payments



28,167



17,988



20,111Selling, general and adminstrative



21,875



17,326



16,621Rent



17,907



11,300



10,279Advertising and promotion



5,536



3,971



4,128Provision for loan losses



788



49



-Amortization of capital assets



7,006



4,679



4,425143,544



95,947



90,963Branch operating income



78,233



54,558



39,836Regional expenses



14,336



8,169



7,440Corporate expenses



21,166



16,627



11,182Other amortization



2,055



1,333



822Income before income taxes and class action settlements



40,676



28,429



20,392Class action settlements



2,915



6,910



-Loss from discontinued operations



-



-



(1,716
)EBITA *



48,100



28,583



26,271Net income and comprehensive income


$
26,464


$
14,647


$
10,806Weighted average number of shares outstanding- basic



16,913



17,958



20,124- diluted



17,522



18,040



20,242Basic earnings per shareIncome from continuing operations


$
1.56


$
0.82


$
0.62Loss from discontinued operations



-



-



(0.08
)Net income and comprehensive income



1.56



0.82



0.54Diluted earnings per shareIncome from continuing operations



1.51



0.81



0.62Loss from discontinued operations



-



-



(0.09
)Net income and comprehensive income


$
1.51


$
0.81


$
0.53Consolidated Balance Sheet InformationWorking capital


$
15,282


$
9,667


$
16,740Total assets



115,045



83,796



81,787Total long-term liabilities



9,882



2,959



1,800Total liabilities



31,690



17,944



10,585Cash dividends declared per share



0.54



0.20



0.15Shareholders' equity


$
83,355


$
65,852


$
71,202


*EBITA - earnings from operations before interest, income taxes, stock-based compensation, amortization of capital and intangible assets













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OVERALL FINANCIAL PERFORMANCE




2010 Highlights and Outlook




This section contains forward-looking statements.  See Cautionary Statement Regarding Forward-Looking Information.


Three Months


Three Months


Fifteen


TwelveThousands of dollars, except for per share amounts

Ended


Ended


Months Ended


Months EndedConsolidated results

September 30


September 30


September 30


June 302010


2009


2010


2009Branch operating income

$
16,886


$
15,725


$
78,233


$
54,558Net incomeBefore class action expenses net of tax


7,682



5,640



28,507



19,353Net income and comprehensive income


7,682



5,640



26,464



14,647Earnings before interest, taxes, stock based compensation, amortization, and class action expenses


11,132



10,725



51,015



35,493Earnings before interest, taxes, stock based compensation, and amortization


11,132



10,725



48,100



28,583Diluted earnings per shareBefore class action expenses net of tax


0.42



0.33



1.63



1.07Net income and comprehensive income

$
0.42


$
0.33


$
1.51


$
0.81




Net income for the fifteen month period ended September 30, 2010, after removing class action settlement costs and related taxes was $28.5 million, compared to $19.4 million for the year ended June 30, 2009. Net income and comprehensive income for the fifteen month period ended September 30, 2010, was $26.5 million, compared to $14.6 million for the year ended June 30, 2009.  Diluted earnings per share, before class action settlements costs and related taxes, increased to $1.63 for the fifteen month period ended September 30, 2010, compared to $1.07 for the year ended June 30, 2009.  Diluted earnings per share were $1.51 for the fifteen month period ended September 30, 2010, compared to $0.81 for the year ended June 30, 2009.




Fiscal 2010 earnings were higher as a result of:




•
Record revenues related to the maturation of branches, and the introduction of a new banking product;




•
Increased loan volumes related to the maturing of branches, implementation of new regulatory frameworks, new branch openings and acquisitions; and




•
Record revenue from other services.




We achieved higher earnings, even after taking into consideration the following:




•
Reduced branch operating margins associated with broker fee rate compression experienced in the regulated provinces and increased new branch openings;




•
An increase in retention payments, as a percentage of revenue, as a result of rate compression experienced in the regulated provinces; and




•
The Company’s share of our equity loss on our investments in The Cash Store Australia Holdings Inc. and RTF Financial Holdings Inc.




EBITA, adjusted to remove the impact of class action settlements, was $51.0 million for the fifteen month period ended September 30, 2010, compared to $35.5 million for the year ended June 30, 2009. The increase is due to increased revenues, BOI and the change in the year end. Our EBITA for the fifteen month period ended September 30, 2010, was $48.1 million compared to $28.6 million for the year ended June 30, 2009.







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The implementation of provincial industry rate regulations commenced in August 2009.  We have welcomed the new industry regulations that have provided long-term future stability and growth opportunities.  We have successfully complied with the implementation of regulations in British Columbia, Alberta, Ontario and Nova Scotia, representing 81% of our branches.  With the implementation of regulations, we have experienced a decrease in our margins as a result of the introduction of rate caps. To help us transition through the implementation of regulations, we have utilized short-term incentive programs. The decreased margins and increased expenses have been more than offset by the increases in loan volumes achieved through the maturing of branches, consolidations, and increased loan amounts within regulated provinces, increased branch counts, and increased revenues from other services.




We continue to view regulation as a positive for us and expect the benefits to accrue over the long-term. These are welcome developments that demonstrate to capital markets that the industry is now supported by a high degree of regulatory certainty and that the industry’s long-term stability has been secured.  We have accommodated regulation more effectively than some competitors and there has been industry consolidation as a result.  Regulation has positioned us to lend our own capital which we anticipate will result in improved margins in the future. We believe that industry regulation will encourage previously untapped consumer segments to enter the market and offer new revenue opportunities.




Product and revenue diversification initiatives continue to generate positive results. Revenue from other services (including fees from financial product insurance, cheque cashing, bank accounts, money transfers, pre-paid MasterCard, debit cards, term loans and prepaid phone cards) increased to a record $50.2 million for the fifteen month period ended September 30, 2010, up from $27.9 million for the year ended June 30, 2009. We have made significant improvements in products and services which complement our existing product lines.  We will continue to progress towards our objectives of diversifying our revenue stream with products which enhance and complement our core products, and increasing the value generated from our existing suite of products.




Other revenues have increased significantly as a result of the introduction of new products and other product enhancements.




Management has established, as a strategic priority, the requirement to improve the revenue and earnings contributions from our lowest-performing branches. The effective execution of corporate-directed branch action plans has increased the number of profitable branches, and the earnings contribution from our lowest-performing branches.




Staff turnover remained consistent during the year. We believe this consistency in staff turnover was achieved through increased communications as a result of our Cash Store TV platform, increased training to associates through our Cash Store College platform, integrated marketing and sales training programs, and an innovative profit-sharing compensation program which ties associates’ performance to our strategic vision.




We are well positioned to fund future growth initiatives and working capital requirements with a cash position of $19.6 million and a positive working capital of $15.3 million as at September 30, 2010. During the fifteen month period ended September 30, 2010, working capital increased by $5.6 million from $9.7 million at June 30, 2009, despite our expansion, BC class action payments, acquisitions, and dividend payments. We continue our efforts to capitalize on our strong financial position to secure lower cost capital, which has been made possible as a result of a stable regulatory environment implemented within 81% of our current markets.







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Industry and economic review




Many provinces are currently working through a process to establish consumer protection measures for the payday loan industry.  These measures will include rate caps and a ban on rollovers. The Company expects regulation to be positive for its operations and anticipates that it will be able to accommodate its business model to anticipated rate caps.  In addition, the Company's voluntary implementation of a prohibition on the provision of rollovers has given it a competitive advantage over those companies that have not done so in advance of the now regulated prohibition on these practices.




It should be noted that the provincial legislation does not apply to or affect federally regulated banks.  A number of the services offered at Cash Store and Instaloans locations are provided by an independent third party bank, and are not subject to provincial regulation.





The following rate caps are currently in effect:  Nova Scotia - $31 per hundred dollars loaned; British Columbia - $23 per hundred dollars loaned; Ontario - $21 per hundred dollars loaned; Manitoba - $17 per hundred dollars loaned; and Alberta - $23 per hundred dollars loaned.  Newfoundland has announced that it does not intend to enact local legislation.  While at this stage it remains difficult to specify expected rates for the remaining provinces, all Canadian jurisdictions appear committed to facilitating a competitive industry. Below is a summary of rate caps per province:





Rateper
Date enacted or$100
anticipatedNova Scotia
31
August 1, 2009British Columbia
23
November 18, 2009Ontario
21
December 15, 2009Alberta
23
March 1, 2010Manitoba
17
October 18, 2010Saskatchewan
23
First quarter fiscal 2011











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SELECTED FINANCIAL INFORMATION





Three Months


Three Months


Fifteen Months


Twelve MonthsThousands of dollars, except for per share amounts and branch figures


Ended


Ended


Ended


EndedConsolidated results


September 30


September 30


September 30


June 302010


2009


2010


2009No. of branches
Canada


542



451



542



424United Kingdom


2



-



2



-544



451



544



424RevenueBrokerage


$
36,453


$
34,042


$
171,612


$
122,572Other income



13,306



7,596



50,165



27,93349,759



41,638



221,777



150,505Branch expensesSalaries and benefits



13,698



10,972



62,265



40,634Retention payments



6,934



5,100



28,167



17,988Selling, general and administrative



4,739



4,412



21,875



17,326Rent



4,259



3,082



17,907



11,300Advertising and promotion



1,223



1,059



5,536



3,971Provision for loan losses



454



32



788



49Amortization of capital assets



1,566



1,256



7,006



4,67932,873



25,913



143,544



95,947Branch operating income



16,886



15,725



78,233



54,558Regional expenses



2,582



2,325



14,336



8,169Corporate expenses



5,048



4,141



21,166



16,627Other amortization



13



571



2,055



1,333Income before income taxes and class action settlements



9,243



8,688



40,676



28,429Class action settlements



-



-



2,915



6,910EBITA *



11,132



10,725



48,100



28,583Net income and comprehensive income


$
7,682


$
5,640


$
26,464


$
14,647Weighted average number of shares outstanding- basic



17,071



16,817



16,913



17,958- diluted



17,533



17,197



17,522



18,040Basic earnings per shareIncome before class action settlement costs


$
0.44


$
0.34


$
1.69


$
1.08Net income and comprehensive income



0.44



0.34



1.56



0.82Diluted earnings per shareIncome before class action settlement costs



0.42



0.33



1.63



1.07Net income and comprehensive income


$
0.42


$
0.33


$
1.51


$
0.81Consolidated Balance Sheet InformationWorking capital


$
15,282


$
8,112


$
15,282


$
9,667Total assets



115,045



87,551



115,045



83,796Total long-term liabilities



9,882



3,423



9,882



2,959Total liabilities



31,690



20,841



31,690



17,944Shareholders' equity


$
83,355


$
66,710


$
83,355


$
65,852


*EBITA - earnings from operations before interest, income taxes, stock-based compensation, amortization of capital and intangible assets


























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FINANCIAL ANALYSIS




This analysis provides an overview of our financial results for the fifteen months ended September 30, 2010, compared to the year ended June 30, 2009.




Branch Count




This section contains forward-looking statements.  See Cautionary Statement Regarding Forward-Looking Information.




At September 30, 2010, we had 544 branches, in total, including two branches in the UK.  This is an increase of 120 branches, compared to 424 branches (2009 - Canada - 424 and UK - nil) as at June 30, 2009. During the fifteen months ended September 30, 2010, 126 new branches were added and six branches were consolidated with nearby branches. Branch performance continues to be monitored and consolidations will occur when efficiencies can be achieved.










Jun 30-02


Jun 30-03


Jun 30-04


Jun 30-05


Jun 30-06


Jun 30-07


Jun 30-08


Jun 30-09


Sep 30-10Opening


5



20



57



108



277



338



358



384



424Organic


15



37



51



67



61



20



37



31



104Acquired


0



0



0



102



6



0



0



18



22Consolidations


0



0



0



0



(6
)


0



(11
)


(9
)


(6
)Closing


20



57



108



277



338



358



384



424



544




Surpassing our growth strategy, we increased by 120 new branches over the fifteen month period ended September 30, 2010 due in large part to a greater number of branch openings than anticipated and the acquisition of 22 branches. Branch performance continues to be monitored, and consolidations will occur when efficiencies can be achieved. We anticipate adding 70 to 80 branches over the next year in Canada and anticipate an expansion of eight to ten branches through fiscal 2011 in the UK.







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 Material factors that determine the number of branch openings include availability of suitable locations with suitable lease terms and favorable market rates.




Revenue




Revenue increased 47.4% to $221.8 million for the fifteen month period ended September 30, 2010, from $150.5 million for the year ended June 30, 2009.  The higher revenue reflects an increase in both brokerage fees and other services.  The growth in both areas of revenue is due to:




•
120 additional branches;




•
the maturing of existing branches;




•
positive contributions from our new product initiatives, including bank accounts, which resulted in record revenue from other sources;




•
increased same branch revenues as a result of record revenue from other sources. The most significant impact was the introduction of bank accounts. Also same branch revenue, as it relates to the brokering of loans, remained consistent as a result of brokerage fee rate compression in regulated provinces offset by higher loan volumes; and




•
fifteen months in 2010 compared to twelve in 2009.




The table below illustrates consistent growth in a majority of branch age categories contributing to the overall growth in revenue.


Average Revenue per Branch per(Thousands of dollars, except branch figures)





Revenues





MonthFifteen Months


Twelve Months





Fifteen Months


Twelve MonthsEnded


Ended





Ended


EndedNumber of


September 30


June 30


%


September 30


June 30Year Opened

Branches


2010


2009


Change


2010


20092001*


94


$
49,280


$
39,983



23
%

$
35


$
352002


13



9,202



6,839



35
%


47



442003


35



20,683



15,959



30
%


39



382004


52



27,600



20,805



33
%


35



332005


66



32,722



24,517



33
%


33



312006


53



24,860



18,283



36
%


31



292007**


37



12,104



7,071



71
%


22



162008


34



13,829



9,131



51
%


27



222009


48



14,180



4,093



246
%


20



72010


112



15,657



-



100
%


9



-544



220,117



146,681



50
%

$
27


$
22Consolidation of branches






272



1,316Other






1,388



2,508Continuing operations





$
221,777


$
150,505


* Instaloans branches were acquired by Cash Store Financial on April 22, 2005; they have been operating since 2001.** EZ Cash branches were acquired by Cash Store Financial on April 26, 2010; they have been assumed on average to be operating since 2007.













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The following table depicts the split between brokerage fees and other revenues:


Three Months


Three Months


Fifteen Months


Twelve Months(thousand of dollars)

Ended


Ended


Ended


EndedSeptember


September


September


June2010


2009


2010


2009RevenuesBrokerage fees

$
36,453


$
34,042


$
171,612


$
122,572Other


13,298



7,582



50,142



27,68149,751



41,624



221,754



150,253Interest income


8



14



23



252$
49,759


$
41,638


$
221,777


$
150,505




Broker fees for the fifteen months ended September 30, 2010, increased to $171.6 million, up 40.0% from $122.6 million for the year ended June 30, 2009, as a direct result of improved loan volumes, 120 additional branches, the maturing of existing branches, the longer fiscal period, and the increased focus on growth through the establishment and communication of higher expectations at all levels, improved staff retention, increased marketing initiatives, and more effective compensation structures.




Revenue from other services (including fees from financial product insurance, cheque cashing, bank accounts, money transfers, pre-paid master cards, debit cards, term loans and prepaid phone cards) for the fifteen month period ended September 30, 2010, increased 79.6% to $50.2 million or 22.6% of revenue, up from $27.9 million or 18.6% of revenue for the year ended June 30, 2009.  Other revenues have increased significantly as a result of the introduction of new products and other product enhancements as well as the longer fiscal period. These new products and enhancements are part of our long term strategy to diversify revenue streams through providing our customers with a broader suite of financial services and products.




We have made significant improvements in products and services which complement our existing product lines.  We will continue to progress towards our objectives of diversifying our revenue stream with products which enhance and complement our core products and increasing the value generated from our existing suite of products.




Loans brokered for the fifteen month period ended September 30, 2010, were $847.3 million and averaged $469 per loan, compared to $594.2 million and an average of $456 per loan for the year ended June 30, 2009.




Same Branch Revenues




Same branch revenues for the last 12 months for the 382 locations open since the beginning of October 2008 increased by 4.4% compared to the same period last year, with same branch revenues averaging $401,000 in the current period compared to $384,000 in the prior year.  Same branch revenues increased as a result of record revenues from other sources. The most significant impact on same branch revenues was the introduction of bank accounts. Also, same branch revenue, as it relates to the brokering of loans, remained consistent as a result of brokerage fee rate compression in regulated provinces offset by higher loan volumes. We believe the long-term effects of a stable and effective regulatory environment will be positive for us.







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We continue to maximize shareholder value from our network of branches and products. As the cost structure for the existing branch base is relatively fixed, improving same branch revenues is an important objective. Small increases in same branch revenues currently lead to a direct increase in profitability.




Branch Operating Income and Operating Income




Branch operating income for the fifteen month period ended September 30, 2010, was $78.2 million compared to $54.6 million last year.




BOI was down as a percentage of total revenue as a result of a decrease in our margins given lower rate caps, short-term incentive programs used to help through the transition to regulations, and increased expenses due to the opening of 120 new branches and retention payments. The decreased margins and increased expenses have been partially offset by the increases in loan volumes achieved through the maturing of branches, consolidations and increased loan amounts within regulated provinces, increased branch counts, a longer fiscal period and record revenues from other services. BOI, by maturity level, is outlined below:


(Thousands of dollars, except branch figures)




BOI (Loss)


BOI % of RevenuesFifteen Months


Twelve Months


Fifteen Months


Twelve MonthsEnded


Ended


Ended


EndedNumber of


September 30


June 30


September 30


June 30Year Opened

Branches


2010


2009


2010


20092001*


94


$
21,481


$
17,776



43.6
%


44.5
%2002


13



4,306



2,777



46.8
%


40.6
%2003


35



9,751



7,436



47.1
%


46.6
%2004


52



11,907



8,854



43.1
%


42.6
%2005


66



13,021



9,040



39.8
%


36.9
%2006


53



9,305



6,028



37.4
%


33.0
%2007**


37



4,717



1,910



39.0
%


27.0
%2008


34



5,295



2,400



38.3
%


26.3
%2009


48



969



(1,876
)


6.8
%


-45.8
%2010


112



(2,548
)


-



-16.3
%


0.0
%544



78,204



54,345Branches not yet open






(33
)


(1
)Consolidation of branches






(296
)


(631
)Other






358



845Branch Operating Income





$
78,233


$
54,558



35.3
%


36.2
%


* Instaloans branches were acquired by Cash Store Financial on April 22, 2005; they have been operating since 2001.** EZ Cash branches were acquired by Cash Store Financial on April 26, 2010; they have been assumed on average to be operating since 2007.




Operating income, after removal of non-recurring class action settlement effects, for the fifteen month period ended September 30, 2010, was $28.5 million (12.9% of revenue) compared to $19.4 million (12.9% of revenue) for the year ended June 30, 2009.




Expenses (excluding retention payments, amortization and class action settlements)




Expenses for the fifteen month period ended September 30, 2010, totalled $143.9 million, an increase from $98.1 million for the year ended June 30, 2009.  The increase is primarily due to the addition of 120 new branches, increased bonuses related to higher profitability, short-term incentive programs used to help through the transition to regulations, introduction of new products, an increase in marketing, increased regional and corporate infrastructure costs, a longer fiscal period, and the write-down of our long-term investments as well as one-time costs associated with the start-up in the UK and the listing on the NYSE.












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Retention Payments




Third-party lender retention payments for the fifteen months ended September 30, 2010, totalled $28.2 million (3.3% of loans brokered), compared to $18.0 million (3.0% of loans brokered) for the year ended June 30, 2009.  As a percentage of revenue, retention payments have increased to 12.7% for the fifteen months ended September 30, 2010, compared to 12.0% for the year ended June 30, 2009.  The increases as a percentage of revenue and loans brokered are as a result of external collection agencies not meeting expectations, as well as the rate compression experienced as a result of provincial regulation which resulted in higher loan volume offset by lower rates.




Amortization




Amortization of capital and intangible assets for the fifteen months ended September 30, 2010, totalled $9.1 million, compared to $6.0 million for the year ended June 30, 2009. The increase is the result of the addition of 120 new branches, a large scale refresh program for our mature branches and a longer fiscal period.




Income Taxes




Our effective tax rate was 29.9% for the fifteen month period ended September 30, 2010, compared to 31.9% for the year ended June 30, 2009, which was due to reductions in federal tax rates.




LIQUIDITY AND CAPITAL RESOURCES




Our cash increased to $19.6 million at September 30, 2010, compared to $18.5 million at June 30, 2009. Significant items impacting cash for the fifteen month period:




•
Cash generated from operating activities, before non-cash operating items of $38.1 million;




•
Receipt of the RIA Financial Services, a division of Euronet Worldwide Inc., signing bonus of $7.0 million;




•
A $7.5 million increase in other receivables;




•
BC Class action payments of $6.5 million;




•
Capital and intangible asset expenditures of $20.6 million primarily relating to branch openings and retrofits;




•
Acquisition of EZ Cash and Affordable Payday Loans for a total of $5.3 million;




•
Increase in consumer loans receivable of $5.0 million as a result of on balance sheet lending;




•
Dividend payments of $9.1 million;




•
The repurchase of our shares in the amount of $3.3 million pursuant to a normal course issuer bid;




•
Issuance of common shares for proceeds from exercised options of $2.4 million; and




•
Investment in RTF Financial Holdings Inc. of $360,000.







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At September 30, 2010, our working capital position totalled $15.3 million compared to $9.7 million as of June 30, 2009.




Normal Course Issuer Bid




On June 30, 2009, we announced our intention to make a normal course issuer bid (Bid) to purchase, through the facilities of the Toronto Stock Exchange, certain of our outstanding common shares. We repurchased 387,799 common shares (June 30, 2009 - 1,218,470 common shares) at a cost of $3.3 million for the fifteen months ended September 30, 2010 (June 30, 2009 - $7.1 million).  Common shares purchased pursuant to the Bid were cancelled.




Contractual Obligations




Our contractual obligations over the next five years and thereafter are summarized in the table below. For additional information, see Notes 15 and 20 (a) of our audited consolidated financial statements for the fifteen month period ending September 30, 2010.




5 Years(thousands of dollars)

1 Year

2 Years

3 Years

4 Years


and >


TotalObligations under capital leases

$
1,081


$
640


$
323


$
123


$
-


$
2,167Operating leases


17,443



15,908



12,787



9,570



5,759



61,467$
18,524


$
16,548


$
13,110


$
9,693


$
5,759


$
63,634








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SUMMARY OF QUARTERLY RESULTS




The financial results for each of the last eight quarters are summarized in the following table. The results demonstrate a continued emphasis on revenue growth compared to the prior quarters with an equal emphasis on management programs for underperforming branches.




In general, improved results reflect a pattern of maturation in our branch network. There was an increase in brokerage revenue over prior periods due to our renewed emphasis on revenue growth. Branch expenses and overall expenses have also steadily increased due to an increased number of branches in operation and costs associated with adding infrastructure at the regional and corporate levels, enhancements to our information technology (IT) infrastructure, and costs associated with the class action settlements and regulations.




From a seasonality perspective, we believe that our revenues are generally stronger in the third and fourth quarters followed by the first and second quarter. In addition, quarterly results of operations are impacted by the number and timing of new branch openings.


(thousands of dollars, except for per share amounts and branch figures)








Twelve Months EndedF2010


F2009


September 30Q5



Q4



Q3



Q2



Q1



Q4



Q3



Q2



2010



2009Consolidated ResultsNo. of branches
Canada


542



523



489



469



451



424



423



415



542



451United Kingdom


2



2



-



-



-



-



-



-



2



-544



525



489



469



451



424



423



415



544



451Loan volume


$
184,110


$
174,902


$
157,653


$
164,819


$
165,866


$
156,831


$
142,465


$
147,041


$
681,484


$
612,203Brokerage


$
36,453


$
35,346


$
31,440


$
34,332


$
34,041


$
32,380


$
29,519


$
30,276


$
137,571


$
126,216Other income



13,306



12,016



9,317



7,954



7,598



7,351



6,787



6,774



42,593



28,51049,759



47,362



40,757



42,286



41,639



39,731



36,306



37,049



180,164



154,725Branch expensesSalaries and benefits



13,698



13,695



12,206



11,694



10,972



11,068



10,249



9,801



51,293



42,090Retention payments



6,934



5,833



5,300



5,000



5,100



4,600



4,537



4,600



23,067



18,837Selling, general and administrative



4,739



4,361



4,248



4,114



4,412



4,027



4,752



4,318



17,462



17,509Rent



4,259



3,780



3,479



3,307



3,082



2,987



2,956



2,671



14,825



11,696Advertising and promotion



1,223



1,171



1,023



1,060



1,059



1,028



942



1,005



4,477



4,034Provision for loan losses



454



200



86



16



32



24



13



12



756



81Amortization of capital assets



1,566



1,477



1,374



1,334



1,256



1,218



1,211



1,141



5,751



4,82632,873



30,517



27,716



26,525



25,913



24,952



24,660



23,548



117,631



99,073Branch operating income



16,886



16,845



13,041



15,761



15,726



14,779



11,646



13,501



62,533



55,652Regional expenses



2,582



3,862



3,045



2,850



2,357



2,333



2,140



2,024



12,339



8,854Corporate expenses



5,048



4,526



3,700



3,751



4,141



5,011



4,523



3,688



17,025



17,363Other amortization



13



405



279



787



571



527



311



282



1,484



1,691Net income before income taxes and class action settlements



9,243



8,052



6,017



8,373



8,657



6,908



4,672



7,507



31,685



27,744Class action settlements



-



100



2,715



100



-



5,000



-



1,910



2,915



6,910EBITA*



11,132



10,325



5,275



10,643



10,725



3,891



6,460



7,303



37,375



28,379Net income and comprehensive income


$
7,682


$
5,476


$
2,199


$
5,467


$
5,640


$
1,232


$
3,067


$
4,292



20,824



14,231Basic earnings per shareNet income and comprehensive income


$
0.44


$
0.32


$
0.13


$
0.33


$
0.34


$
0.07


$
0.18


$
0.23


$
1.22


$
0.82Diluted earnings per shareNet income and comprehensive income


$
0.42


$
0.31


$
0.13


$
0.32


$
0.33


$
0.07


$
0.18


$
0.23


$
1.18


$
0.81


*EBITA - earnings from operations before interest, income taxes, stock-based compensation, amortization of capital and intangible assets




Fifth Quarter




The first quarter of 2010 (July 1, 2009 to September 30, 2009) is used as the comparison to the fifth quarter of 2010 (July 1, 2010 to September 30, 2010) as they are comprised of the same calendar months.




Net income from continuing operations for the fifth quarter of fiscal 2010 increased to $7.7 million, compared to $5.6 million for the first quarter.  Diluted earnings per share for continuing operations for the fifth quarter were $0.42 per share ($0.44 basic), compared to $0.33 per share ($0.34 basic) for the first quarter.







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BOI for the quarter, by maturity level, is outlined below:




(Thousands of dollars, except branch figures)


BOI (Loss)


BOI % of RevenuesNumber of


September 30


September 30


September 30


September 30Year Opened

Branches


2010


2009


2010


20092001*


94


$
4,905


$
4,940



48.9
%


48.1
%2002


13



1,016



834



52.8
%


44.5
%2003


35



2,162



1,916



50.6
%


45.7
%2004


52



2,477



2,345



43.6
%


42.7
%2005


66



2,911



2,590



42.3
%


39.6
%2006


53



1,844



1,822



36.4
%


36.3
%2007**


37



1,246



813



38.4
%


39.2
%2008


34



1,334



878



45.5
%


32.9
%2009


48



296



(202
)


9.2
%


-7.1
%2010


112



(1,188
)


-



-19.4
%


-544



17,003



15,936Branches not yet open






(29
)


(311
)Consolidation of branches






(26
)


(209
)Other






(62
)


309Branch Operating Income





$
16,886


$
15,725


* Instaloans branches were acquired by Cash Store Financial on April 22, 2005; they have been operating since 2001.** EZ Cash branches were acquired by Cash Store Financial on April 26, 2010; they have been assumed on average to be operating since 2007.




BOI has increased 7.4% to $16.9 million in the fifth quarter compared to $15.7 million in the first quarter.  The increase was caused by the maturing of branches, increased emphasis on growth, increased same branch revenues and effective execution of action plans for underperforming branches.




Revenue for the fifth quarter of fiscal 2010 increased to a record $49.8 million, compared to $41.6 million for the first quarter due to an additional net 93 new branches operating since the first quarter of fiscal 2010 and increases in same branch revenues.


Average Revenue per Branch per(Thousands of dollars, except branch figures)


Revenues


MonthNumber of


September 30


September 30


%


September 30


September 30Year Opened

Branches


2010


2009


Change


2010


20092001*


94


$
10,021


$
10,261



-2
%

$
36


$
362002


13



1,923



1,876



3
%


49



482003


35



4,269



4,194



2
%


41



402004


52



5,684



5,497



3
%


36



352005


66



6,876



6,540



5
%


35



332006


53



5,069



5,022



1
%


32



322007**


37



3,243



2,075



56
%


29



192008


34



2,935



2,665



10
%


29



262009


48



3,204



2,865



12
%


22



202010


112



6,132







100
%


18



-544



49,356



40,995



20
%

$
30


$
25Consolidation of branches






9



101Other






394



542Continuing operations





$
49,759


$
41,638


* Instaloans branches were acquired by Cash Store Financial on April 22, 2005; they have been operating since 2001.** EZ Cash branches were acquired by Cash Store Financial on April 26, 2010; they have been assumed on average to be operating since 2007.




Same branch revenues for the 419 locations open since the beginning of July 2009 for the three month period, increased by 4.1% compared to the same period last year, with same branch revenue averaging $101,000 this period compared to $97,000 in the same period last year. Same branch revenues increased through improved associate retention, more effective bonus structures, communication of expectations at all levels of the organization and action plans for our lowest-performing branches.







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Loans brokered for the three months ended September 30, 2010, were $184.1 million and averaged $474 per loan, compared to $165.9 million and an average of $377 per loan for the three months ended September 30, 2009.




Expenses for the fifth quarter of fiscal 2010 totalled $32.0 million, compared to $26.0 million in the same first quarter. These increased costs are due to increases in the number of branches, increased bonuses and benefits at all levels, the Company’s share of our equity loss on our long-term investments, infrastructure additions at the regional and corporate levels along with enhancements in our IT infrastructure and increased costs associated with provincial regulations. Retention payments totalled $6.9 million in the fifth quarter, compared to $5.1 million in the first quarter. The amortization of capital and intangible assets was $1.6 million.




Our effective tax rate was 16.9% for the quarter ended September 30, 2010, compared to 35.1% for the first quarter. The decrease was caused by lower effective rates being applied on current and future taxes.




RELATED PARTY TRANSACTIONS




We own 18.3% of the outstanding common shares of The Cash Store Australia Holdings Inc. Included in other receivables as of September 30, 2010, was $7,000 (June 30, 2009 - $1,000) receivable from The Cash Store Australia Holdings Inc.  We entered into an interim service agreement with AUC to provide ongoing services such as financial and accounting support and contracts administrative services, and the use of our IT and telecommunication systems. Included in selling, general, and administrative expenses is a recovery of $362,000 (June 30, 2009 - $82,000).  These transactions were subject to normal trade terms and were measured at the actual exchange amount. Amounts due are non-interest bearing, unsecured and have no specified terms of repayment. Certain employees, directors, and officers have an ownership in AUC. The receivable was repaid subsequent to year-end.




We own 15.7% of the outstanding common shares of RTF Financial Holdings Inc. We entered into an interim service agreement with RTF to provide ongoing services such as financial and accounting support and contracts administrative services.  Included in selling, general, and administrative expenses is a recovery of $120,000 (June 30, 2009 - $nil) relating to these services. These transactions were subject to normal trade terms and were measured at the actual exchange amount.  We have a $485,000 (June 30, 2009 - $nil) receivable from RTF. Amounts due are non-interest bearing, unsecured and have no specified terms of repayment. Certain employees, directors, and officers have an ownership in RTF. The receivable was repaid subsequent to year-end.





RISK FACTORS AFFECTING PERFORMANCE




Our financial and operational performance is potentially affected by a number of factors including, but not limited to, changing consumer protection regulations, industry and company specific class action lawsuits, access to third-party lenders and other issues described in our most recent Annual Information Form (AIF).  As a company, we identify risks in four main categories: 1) operational; 2) financial; 3) legal and regulatory; and 4) strategic.  A more detailed discussion of our risk factors is presented in our most recent AIF filed with the securities regulatory authorities on SEDAR (www.sedar.com). Our Risk Management department works continually to assess and mitigate the impact of potential risks to our stakeholders.





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Consumer Protection Regulations




Cash Store Financial’s business is subject to various federal and provincial laws and regulations, including federal interest rate laws and the various provincial consumer protection laws and regulations. The laws and regulations are subject to change and could impose unforeseen costs or limitations on the way we conduct or expand our business.





Five provinces have worked through a process to establish consumer protection measures for the payday loan industry which represents 81% of our branches.  These measures include rate caps and a ban on rollovers. The Company expects regulation to be positive for its operations and anticipates that it will be able to accommodate its business model to anticipated rate caps.  In addition, the Company's voluntary implementation of a prohibition on the provision of rollovers has given it a competitive advantage over those companies that have not done so in advance of the now regulated prohibition on these practices.




It should be noted that the provincial legislation does not apply to or affect federally regulated banks.  A number of the services offered at Cash Store and Instaloans locations are provided by an independent third party bank, and are not subject to provincial regulation.





The following rate caps are currently in effect:  Nova Scotia - $31 per hundred dollars loaned; British Columbia - $23 per hundred dollars loaned; Ontario - $21 per hundred dollars loaned; Manitoba - $17 per hundred dollars loaned; and Alberta - $23 per hundred dollars loaned.  Newfoundland has announced that it does not intend to enact local legislation.  While at this stage it remains difficult to specify expected rates for the remaining provinces, all Canadian jurisdictions appear committed to facilitating a competitive industry. Below is a summary of rate caps per province:




Rateper
Date enacted or$100
anticipatedNova Scotia
31
August 1, 2009British Columbia
23
November 18, 2009Ontario
21
December 15, 2009Alberta
23
March 1, 2010Manitoba
17
October 18, 2010Saskatchewan
23
First quarter fiscal 2011




Legal Proceedings




Ontario and the rest of Canada, with the exception of British Columbia and Alberta




On April 13, 2004, a legal proceeding was commenced against The Cash Store Inc. and Instaloans Inc., by Thompson McCutcheon (Plaintiff), a customer.  The Plaintiff obtained an order pursuant to the Class Proceedings Act, 1992, S.O. 1992 c.6 (Class Proceeding Act), as amended, certifying the action as a class proceeding and appointing him as the representative of the class.  The Plaintiff asserted that we were in breach of the Criminal Code of Canada and the Fair Trading Act as the aggregate of all charges, including interest, broker fees and card fees charged, was in excess of those allowed by law.  The Statement of Claim stated that the members of the Class would seek to recover all amounts charged, collected or received by the defendants at a criminal rate of interest and/or at an excessive rate, as well as damages, costs and interest.







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On December 2, 2008, the Ontario Superior Court of Justice certified the class action lawsuit as a class proceeding under the Act, and granted approval of the settlement that had been agreed to between us and the representative Plaintiff on behalf of the Class. The settlement does not constitute any admission of liability by Cash Store Financial.




Under the terms of the settlement, we are to pay to the class a minimum of $750,000 and a maximum of $1.5 million in cash and a minimum of $750,000 and a maximum of $1.5 million in credit vouchers to those customers of The Cash Store and Instaloans, exclusive of Alberta and British Columbia, who were advanced funds under a loan agreement and who repaid the payday loan plus brokerage fees and interest in full. The credit vouchers may be used to pay existing outstanding brokerage fees and interest or to pay a portion of brokerage fees and interest which may arise in the future through new loans advanced. The credit vouchers are fully transferable and have no expiry date. Based on our estimate of the rate of take-up of the available cash and vouchers, a provision of $2.0 million has been recorded to cover the estimated costs of the settlement, including legal fees and other costs.   In addition, we paid the legal fees and costs of the class.  On August 6, 2009, the claims process was concluded and we issued $750,000 in vouchers and $750,000 in cheques to the class members as full and final satisfaction of all claims. As at September 30, 2010, the remaining accrual is $52,000.




British Columbia




On March 5, 2004, an action under the Class Proceedings Act was commenced in the Supreme Court of British Columbia by Andrew Bodnar and others proposing that a class action be certified on his own behalf and on behalf of all persons who have borrowed money from the defendants: The Cash Store Inc., Cash Store Financial and All Trans Credit Union Ltd. The action stems from the allegations that all Payday Loan fees collected by the defendants constitute interest and therefore violate s. 347 of the Criminal Code of Canada. On May 25, 2006, the claim in British Columbia was affirmed as a certified class proceeding of Canada by the B.C. Court of Appeal. In fiscal 2007, the plaintiffs in the British Columbia action brought forward an application to have certain of our customers’ third-party lenders added to the claim.  On March 18, 2008, another action commenced in the Supreme Court of British Columbia by David Wournell and others against Cash Store Financial, Instaloans Inc., and others in respect of the business carried out under the name Instaloans since April 2005, collectively, the “Related Actions”.




On May 12, 2009, we settled the British Columbia Related Actions in principle.  The settlement has been approved by the Court. The settlement does not constitute any admission of liability by us.




Under the terms of the court approved settlement, we are to pay to the eligible class members who were advanced funds under a loan agreement and who repaid the Payday Loan plus brokerage fees and interest in full, or who met certain other eligibility criteria, a maximum estimated amount of $9.4 million in cash and $9.4 million in credit vouchers. Thus, the estimated maximum exposure with respect to this settlement is approximately $18.8 million including approved legal expenses.  The credit vouchers may be used to pay existing outstanding brokerage fees and interest or to pay a portion of brokerage fees and interest which may arise in the future through new loans advanced. The credit vouchers are not transferable and have no expiry date. In addition, we are to pay the legal fees and costs of the class. Based on our estimate of the rate of take-up of the available cash and credit vouchers, an expense of $7.7 million to date has been recorded to cover the estimated costs of the settlement, including legal fees of the Class and costs to administer the settlement fund.  It is possible that additional settlement costs could be required. As at September 30, 2010, the remaining accrual is $2.0 million.







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Alberta





We have been served in a prior fiscal period with a Statement of Claim issued in Alberta alleging that we are in breach of s. 347 of the Criminal Code of Canada (the interest rate provision) and certain provincial consumer protection statutes.




The certification motion has been pending since fiscal 2006 and has not yet been heard.  On January 19, 2010, the plaintiffs in the Alberta action brought forward an application to have a related subsidiary, certain of our customers’ third-party lenders, directors and officers added to the Claim.




We believe that we conduct our business in accordance with applicable laws and are defending the action vigorously. However, the likelihood of loss, if any, is not determinable.




Manitoba





On April 23, 2010, an action under the Manitoba Class Proceedings Act was commenced in the Manitoba Court of Queen’s Bench by Scott Meeking against The Cash Store, Instaloans, and Cash Store Financial proposing that a class action be certified on his own behalf and on behalf of all persons in Manitoba and others outside the province who elect to claim in Manitoba and who obtained a payday loan from The Cash Store or Instaloans.  The action stems from the allegations that all payday loan fees collected by the defendants constitute interest and therefore violate s. 347 of the Criminal Code of Canada.




We believe that we conducted our business in accordance within applicable laws and are defending the action vigorously.  Further it will be maintained that most of the proposed class members our bound by the judgment in the settlement of the Ontario class action, as approved by the Ontario Superior Court of Justice and the action may not be maintained in its present form.  However, the likelihood of loss, if any, is not determinable.  Accordingly, no provision has been made for this action in the accounts.




Other





We are also involved in other claims related to the normal course of operations.  Management believes that it has adequately provided for these claims.




Third Party Lenders/Retention Payments




Most funding of short-term advances is currently provided by independent third party lenders. As a result, our business is highly dependent on third party lenders who are willing to make significant funds available for lending to our customers. There are no assurances that the existing or new third party lenders will continue to make funds available. Any reduction or withdrawal of funds could have a significant material adverse impact on our results of operations and financial condition.




To facilitate the short-term advance business, we have entered into written agreements with a number of third party lenders who are prepared to consider lending to our customers. Pursuant to these agreements, we provide services to the lenders related to the collection of documents and information as well as loan collection services. The agreements also provide that the third party lenders are responsible for losses suffered on account of uncollectible loans provided we have properly performed our duties under the terms of the agreements. In the event we do not properly perform our duties and the lenders make a claim as required under the agreement, we may be liable to the lenders for losses they have incurred. A liability is recorded when it is determined that we have a liability under the agreement.







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Our Board of Directors regularly approves a resolution which authorizes us to pay a maximum amount of retention payments per quarter to third party lenders as consideration to those lenders who continue to be willing to fund advances to our customers. While the third party lenders have not been guaranteed a return, the decision has been made to voluntarily make retention payments to the lenders to deflect the impact of the loan losses they experienced.  Retention payments are recorded in the period in which a commitment is made to a lender pursuant to the resolution approved by the Board of Directors.




CRITICAL ACCOUNTING ESTIMATES




Our accounting policies are integral to understanding and interpreting the financial results reported in this MD&A. The significant accounting policies used in preparing our consolidated financial statements are summarized in Note 1 to those statements which are available on SEDAR at www.sedar.com. Certain policies included in Note 1 are considered to be particularly important to the presentation of our financial position and results of operations, because they require Management to make difficult, complex or subjective judgments and estimates, often as a result of matters that are inherently uncertain, which may result in materially different results under different assumptions and conditions. The following is a discussion of those critical accounting estimates. These estimates are adjusted in the normal course to reflect changing underlying circumstances. The impact and any associated risks related to these critical accounting estimates on our business may also be discussed elsewhere in this MD&A.




Revenue Recognition




Revenue arising from brokering short-term advances for customers is recognized once all services have been rendered, all advance amounts have been received by the customer and we have received the brokerage fee.




Revenue arising from direct lending of short-term advances to customers is recognized on a constant yield basis ratably over the term of the related loan.




Revenue from the our cheque cashing, money order sales, money transfer, bill payment services and other miscellaneous services is recognized when the transactions are completed at the point-of-sale in the branch and the related fee charged has been received.




Consumer Loans Receivable




Unsecured short-term and longer-term advances that we originate on our own behalf are reflected on the balance sheet in consumer loans receivable. Consumer loans receivables are reported net of a provision.

















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Provisions for Loan Losses




Loans in default consist of short-term consumer loans originated by us, which are past due. A provision for loan losses are recorded when we no longer have reasonable assurance of timely collection of the full amount of principal and interest. The provision for loan losses reduces the carrying amount of consumer loan receivables to their estimated realizable amounts. The estimated realizable amount is determined by discounting expected future cash flows associated with the consumer loan receivables at the original effective interest rate inherent in the loans. The provision is reviewed monthly and any additional provision as a result of historical loan performance, current and expected collection patterns and current economic trends is included with our loan losses at that time. If the loans remain past due for an extended period of time, an allowance for the entire amount of the loan is recorded and the receivable is ultimately written off.




Retention Payments




The Company, through The Cash Store and Instaloans banners, acts as a broker on behalf of income earning consumers seeking short-term advances.  Funding of most short-term advances is provided by independent third party lenders.  The advances are repayable by the customer to the third party lenders and represent assets of the lenders; accordingly, they are not included on our balance sheet.





To facilitate the short term advance business, we have entered into written agreements with a number of third party lenders that are prepared to consider lending to our customers.  Pursuant to these agreements, we provide services to the lenders related to the collection of documents and information as well as loan collection services.  The agreements also provide that the third party lenders are responsible for losses suffered on account of uncollectible loans provided that we have properly performed our duties under the terms of the agreements. In the event that we do not properly perform our duties and the lenders make a claim as required under the agreement, we may be liable to the lenders for losses they have incurred. A liability is recorded when it is determined that we have a liability under the agreement.





Our Board of Directors regularly approves a resolution which authorizes management to pay a maximum amount of retention payments per quarter to third party lenders as consideration to those lenders that continue to be willing to fund advances to our customers. While the third party lenders have not been guaranteed a return, the decision has been made to voluntarily make retention payments to the lenders to lessen the impact of loan losses experienced by the third party lenders.  Retention payments are recorded in the period in which a commitment is made to a lender pursuant to the resolution approved by our Board of Directors.




Amortization Policies and Useful Lives




We depreciate the cost of capital assets and intangible assets over the estimated useful service lives of the items.  These estimates of useful lives involve considerable judgment.  In determining these estimates, we take into account industry trends and company-specific factors, including changing technologies and expectations for the in-service period of these assets.  On an annual basis, we reassess our existing estimates of useful lives to ensure they match the anticipated life of the asset from a revenue-producing perspective.  If the in-service period change happens more quickly than we have anticipated, we may have to shorten the estimated life of certain capital or intangible assets, which could result in higher depreciation expenses in future periods or an impairment charge to write down the value of capital or intangible assets.







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Goodwill




Goodwill represents the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, fewer liabilities assumed, based on their fair values. Goodwill is allocated as of the date of the business combination to the Company’s reporting units that are expected to benefit from the business combination. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.





Goodwill is not amortized and is tested for impairment annually on July 1stof each year, or more frequently if events or changes in circumstances indicate it may be impaired. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit is compared to its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determined in a business combination described in the preceding paragraph, using the fair value of the reporting unit as if it was the purchase price.





When the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.





Intangible Assets




Intangible assets acquired individually or as part of a group of other assets are initially recognized and measured at cost.  The cost of a group of intangible assets acquired in a transaction, including those acquired in a business combination that meet the specified criteria for recognition apart from goodwill, is allocated to the individual assets acquired based on their  fair values.





Intangible assets with finite useful lives are amortized over their useful lives.  Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.





The amortization methods and estimated useful lives of intangible assets, which are reviewed annually, are as follows:




Customer list, contracts and relationships
Straight-line - 3 yearsComputer software
Straight-line - 5 yearsNon-compete agreements
Term of the agreementsFavourable and unfavourable leases
Term of leasesBrand name
Indefinite life











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Long-term investments




The Company applies the equity method of accounting for its investment in The Cash Store Australia Holdings Inc. and RTF Financial Holdings Inc. These investments are recorded at cost plus our share of net income or loss to date.





Leases




Leases are classified as capital or operating depending upon the terms and conditions of the contracts. Obligations under capital leases are recorded as an asset with a corresponding liability. Asset values recorded under capital leases are amortized on a straight-line basis over the period of expected use. Obligations under capital leases are reduced by lease payments net of imputed interest. Operating lease expenses are recorded to selling, general, and administrative expenses.





Contingencies




We are subject to various claims and contingencies related to lawsuits, taxes and commitments under contractual and other commercial obligations.  We recognize liabilities for contingencies and commitments when a loss is probable and capable of being reasonably estimated.  Significant changes in assumptions as to the likelihood and estimates of the amount of a loss could result in recognition of an additional liability.




Income Tax Estimates and Future Income Taxes




Income taxes are accounted for under the asset and liability method. Future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment or substantive enactment date. A valuation allowance is recorded against any future tax assets if it is more likely than not that the asset will not be realized.





Stock Based Compensation




We have a stock based compensation plan, which is described in Note 16 (b) of our audited consolidated financial statements.  We account for all stock based compensation payments that are settled by the issuance of equity in accordance with a fair value-based method of accounting. Stock based compensation awards are recognized in the financial statements over the period in which the related services are rendered, which is usually the vesting period of the option, or as applicable, over the period to the date an employee is eligible to retire, whichever is shorter, with a corresponding increase recorded in contributed surplus. The fair value is calculated using the Black-Scholes option-pricing model. When options are exercised, the proceeds received by us, together with the amount in contributed surplus associated with the exercised options, are credited to share capital.




Accounting for the Impairment of Long-Lived Assets




Long-lived assets and identifiable intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of group of assets may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset to the sum of future undiscounted cash flows expected to be generated from the use and eventual disposition of the group of assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the group of assets exceeds the fair value of the group of assets. Any assets to be disposed by sale are reported at the lower of carrying amount or fair value less costs to sell. Such assets are not amortized while they are classified as held-for-sale.







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Financial Instruments




The financial instruments standard establishes the recognition and measurement criteria for financial assets, financial liabilities and derivatives. All financial instruments are generally required to be measured at fair value on initial recognition of the instrument, except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as “held-for-trading”, “available-for-sale”, “held-to-maturity”, “loans and receivables”, or “other financial liabilities” as defined by the standard.




Financial assets and financial liabilities “held-for-trading” are measured at fair value with changes in those fair values recognized in net earnings. “Available-for-sale” are measured at fair value, with changes in those fair values recognized in Other Comprehensive Income (OCI). “Held-to-maturity”, “loans and receivables” and “other financial liabilities” are measured at amortized cost using the effective interest method.




Cash and cash equivalents has been designated as “held-for-trading”. Other receivables and consumer loans receivable are designated as “loans and receivables”. Accounts payable and obligations under capital leases are designated as “other financial liabilities”.




Section 3862 is based on International Financial Reporting Standards (IFRS) 7 “Financial Instruments: Disclosures” and requires disclosures, by class of financial instrument that enables users to evaluate the significance of financial instruments for an entity’s financial position and performance, including disclosures about fair value. In addition, disclosure is required of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The quantitative disclosures must also include a sensitivity analysis of each type of market risk to which an entity is exposed and show how net income and other comprehensive income would have been affected by reasonably possible changes in the relevant risk variable.




In March 2007, the CICA also issued Handbook Section 3863 to enhance financial statement users’ understanding of the significance of financial instruments to an entity’s financial position, performance and cash flows. This Section establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, gains and losses, and the circumstances in which financial assets and financial liabilities are offset. This standard also harmonizes disclosures with IFRS 7. As a result of adopting this standard, new or enhanced disclosure is provided in Note 23.




The main financial risks arising from our financial instruments include interest rate risk, credit risk, liquidity risk, and other market price risk. On a quarterly basis, we review financial risks and set appropriate limits and controls where necessary. Our strategy for managing these risks and our exposure to risks and how they arise has not changed significantly from the prior fiscal year. We do not currently use derivative financial instruments to manage our foreign exchange, interest rate, and credit or liquidity risk and do not hold or issue derivative financial instruments for trading or speculative purposes.









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 We are not significantly exposed to foreign exchange risk as the majority of operations are in Canada and no significant transactions are being entered into in a foreign denominated currency.  We do not have significant amounts of interest bearing obligations; therefore, our exposure to interest rate fluctuations relative to financial instruments is minimal. Credit risk is the risk of financial loss to us if a customer or counter-party to a financial instrument fails to meet its contractual obligations and arises principally from our cash and cash equivalents, other receivables, supplier receivables, consumer loans receivable, and long-term receivable. The maximum amount of credit risk exposure is limited to the carrying amount of the balances disclosed in these financial statements.


We manage the credit risk associated with our cash and cash equivalents by holding our funds with reputable Canadian financial institutions.  We act primarily as a broker and have no concentration of credit risk with any particular individual, supplier or other entity related to the brokering of payday advance services.  Funding of these short-term advances is provided by independent third party lenders. The advances are repayable by the customer to the third party lenders and represent assets of the lenders.  We also directly lend to our customers and have no significant concentration of credit risk with any particular individual related to short-term advances. To mitigate our credit risk, we perform on-going credit evaluations, aging of the receivable, payment history, security, and allow for uncollectible amounts when determinable. As at September 30, 2010, there are no significant past due accounts and there have been no impairment adjustments made to the accounts.  The maximum exposures to credit risk are represented by the carrying amount of other receivables and consumer loans  receivable which are approximately $14.9 million.




We are exposed to liquidity risk as there is a chance that we will not be able to meet our financial obligations as they become due or will not receive sufficient funds from our third party lenders to advance to our customers.  We manage all liquidity risk by maintaining a sufficient working capital amount through daily monitoring of controls, cash balances and operating results.  Our principal sources of cash are funds from operations.  The maximum exposures to liquidity risk are represented by the carrying amount of accounts payable and accrued liabilities and obligations under capital leases which is approximately $19.0 million.




Capital Disclosures




In December 2006, the CICA issued Handbook Section 1535. This standard requires that an entity disclose information that enables users of its financial statements to evaluate an entity’s objectives, policies and processes for managing capital, including disclosures of any externally imposed capital requirements and the consequences of non-compliance.




Our objective when managing capital is to provide a return to our shareholders by fairly pricing our services with the associated level of risk while being able to sufficiently fund future growth initiatives.  We define capital that we manage as the aggregate of our shareholders’ equity, which is comprised of share capital, contributed surplus and retained earnings.




In order to maintain or adjust our capital structure, we, upon approval from our Board of Directors, may issue shares, repurchase shares through a normal course issuer bid, pay dividends or undertake other activities as deemed appropriate under the specific circumstances. Our Board of Directors reviews and approves any material transactions out of the ordinary course of business, including proposals on acquisitions or other major investments or divestures, as well as capital and operating budgets.







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We set the amount of capital in proportion to risk and manage the capital structure and make adjustments to it based on economic or regulatory changes.  In order to maintain or modify the capital structure, we may seek additional sources of capital.  We have limited reliance on debt facilities and are not subject to any restrictive covenants.  Our capital management objectives, policies and procedures were unchanged since the prior year-end.




CHANGES IN ACCOUNTING POLICIES AND PRACTICES




Goodwill and Intangible Assets




In February 2008, the CICA issued Handbook Section 3064 (Section 3064) Goodwill and Intangible Assets. Section 3064, which replaces Section 3062, Goodwill and Intangible Assets and Section 3450, Research and Development Costs, establishes standards for the recognition, measurement, and disclosure of goodwill and intangible assets. The provisions relating to the definition and initial recognition of intangible assets, including internally generated intangible assets, are equivalent to the corresponding provisions of International Reporting Standard IAS 38, Intangible Assets.  We have adopted this standard commencing July 1, 2009, and it has been applied retroactively resulting in $3.2 million of net assets being reclassified from capital assets to intangible assets in the comparative June 30, 2009, balance sheet, as well as $40,000 of amortization being reclassified from amortization of capital assets to amortization of intangible assets for the year-ended June 30, 2009.





Business Combinations




In January 2009, the CICA issued Handbook Section 1582, “Business Combinations,” which replaces the existing standard. This section establishes the standards for accounting for business combinations, and states that all assets and liabilities of an acquired business will be recorded at fair value. Obligations for contingent considerations and contingencies will also be recorded at fair value at the acquisition date. The standard also states that acquisition related costs will be expensed as incurred, and that restructuring charges will be expensed in the periods after the acquisition date and non-controlling interests will be measured at fair value at the date of acquisition. This standard is equivalent to the International Financial Reporting Standards on business combinations. This standard is applied prospectively to business combinations with acquisition dates on or after January 1, 2011, and earlier adoption is permitted. We have adopted this standard effective July 1, 2009. The adoption of this standard did not have a significant impact on our consolidated financial statements.




Consolidated Financial Statements




In January 2009, the CICA issued Handbook Section 1601, “Consolidated Financial Statements” which replaces the existing standard. This Section carries forward existing Canadian guidance for preparing consolidated financial statements other than non-controlling interests. The Section is effective for interim and annual financial statements beginning on January 1, 2011, and earlier adoption is permitted. We have adopted this standard effective July 1, 2009.  The adoption of this standard did not have a significant impact on our consolidated financial statements.







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Non-Controlling Interests




In January 2009, the CICA issued Handbook Section 1602, “Non-Controlling Interests” which establishes standards for accounting for non-controlling interests of a subsidiary in the preparation of consolidated financial statements subsequent to a business combination. This standard is equivalent to the International Financial Reporting Standards on consolidated and separate financial statements. The Section is effective for interim and annual financial statements beginning on January 1, 2011, and earlier adoption is permitted. We have adopted this standard effective July 1, 2009. The adoption of this standard did not have a significant impact on our consolidated financial statements.




Financial Instruments - Recognition and Measurement




In June 2009, the CICA amended Handbook Section 3855, "Financial Instruments - Recognition and Measurement," to clarify the application of the effective interest method after a debt instrument has been impaired. The Section has also been amended to clarify when an embedded prepayment option is separated from its host instrument for accounting purposes. The amendments related to the application of the effective interest method apply to interim and annual financial statements relating to fiscal years beginning on or after May 1, 2009, for the amendments relating to the effective interest method. There were no material impacts on our financial position, net earnings or cash flows as a result of adopting these amendments.





The amendments relating to embedded prepayment options apply to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. We are currently evaluating the impact of this amendment.





Financial Instruments - Disclosures




In June 2009, the CICA amended Handbook Section 3862, “Financial Instruments - Disclosures”, to enhance liquidity risk disclosure requirements and to include additional disclosure requirements about inputs to fair value measurements within the financial instruments, including their measurement within a hierarchy that prioritizes the input to fair value measurement. The hierarchy for inputs used in measuring fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of fair value hierarchy based on the reliability of inputs are as follows:





Level 1 - inputs are unadjusted quoted prices of identical instruments in active markets.





Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.





Level 3 - inputs used in a valuation technique are not based on observable market data in determining fair values of these instruments.








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Equity




In August 2009, the CICA amended presentation requirements of Handbook Section 3251, “Equity”, as a result of issuing Section 1602, “Non-Controlling Interests”.  The amendments apply only to entities that have adopted Section 1602.  We have evaluated the impact of adopting this standard on our consolidated financial statements and no changes were made.





Comprehensive Revaluation of Assets and Liabilities




In August 2009, the CICA amended Handbook Section 1625, “Comprehensive Revaluation of Assets and Liabilities” as a result of issuing Section 1582, “Business Combinations”, Section 1601, “Consolidated Financial Statements”, and Section 1602, “Non-Controlling Interest” in January 2009.  The amendments apply prospectively to comprehensive revaluations of assets and liabilities occurring in fiscal years beginning on or after January 1, 2011.  Earlier adoption is permitted provided that Section 1582 is also adopted.  We have adopted this standard effective July 1, 2009.  The adoption of this standard did not have a significant impact on our consolidated financial statements.




RECENT ACCOUNTING PRONOUCEMENTS NOT YET ADOPTED




International Financial Reporting Standards (IFRS)




In 2006, the Canadian Accounting Standards Board (AcSB) published a new strategic plan that significantly affects financial reporting requirements for Canadian public companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five-year transitional period.





In February 2008, the AcSB confirmed that IFRS will be mandatory in Canada for profit-oriented publicly accountable entities for fiscal periods beginning on or after January 1, 2011, unless, as permitted by Canadian securities regulations, the entity was to adopt United States Generally Accepted Accounting Principles (U.S. GAAP) on or before this date. Should the Company decide to adopt IFRS, its first annual IFRS financial statements would be for the year ending September 30, 2012. Beginning with the three month period ending December 31, 2011, the Company would provide unaudited consolidated financial information in accordance with IFRS including comparative figures for the three month period ending December 31, 2010.





We have completed a gap analysis of the accounting and reporting differences under IFRS, Canadian GAAP, and U.S. GAAP, however, management has not yet finalized its determination of the impact of these differences on the consolidated financial statements. This analysis will, in part, determine whether the Company adopts IFRS or U.S. GAAP once Canadian GAAP ceases to exist. We are also closely monitoring standard setting activity and regulatory developments in Canada, the United States and internationally that may affect the timing of its adoption of either IFRS or U.S. GAAP in future periods.





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CONTROLS AND PROCEDURES




Disclosure Controls and Procedures




Management is responsible for establishing and maintaining a system of controls and procedures over the public disclosure of financial and non-financial information regarding the Company. Such controls and procedures are designed to provide reasonable assurance that all material information relating to the Company is recorded, processed, summarized and reported to senior management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), on a timely basis so that appropriate decisions can be made regarding public disclosure.





Internal Control over Financial Reporting




Management is responsible for establishing and maintaining adequate internal control over financial reporting. Management has designed internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP. There has been no change in the design of the Company’s internal control over financial reporting during the three months ended September 30, 2010, that would materially affect, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.





Evaluation of Effectiveness




As required by National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings(NI 52-109) issued by the Canadian Securities regulatory authorities, an evaluation ofthe effectiveness of the design and operation of the Company’s disclosure controls and procedures andinternal control over financial reporting was conducted as of September 30, 2010, by and under thesupervision of management, including the CEO and CFO. In making the assessment of the effectiveness ofthe Company’s disclosure controls and procedures and internal control over financial reporting, management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. The evaluation included the certifying officers’ daily interaction with the control systems, walkthroughs, documentation review, observations, enquiries, re-performance, analytical procedures and other tests of controls and audit proceduresconsidered by management to be appropriate in the circumstances.Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures andinternal control over financial reporting were effective as at September 30, 2010.





Limitations on the Effectiveness of Disclosure Controls and Procedures and Internal Controls over Financial Reporting




Our management, including the CEO and CFO, do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system objectives will be met. The likelihood of achievement is affected by limitations inherent in all internal control systems. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented in numerous ways including collusion, overrides and deception. Another inherent limitation in any system of internal control over financial reporting is the increasing complexity of GAAP. With the changing standards, increasing abundance of Canadian, U.S. and International standards and the varying interpretations of GAAP by professional accountants and regulatory authorities, it is possible that the judgments and interpretations made by us may differ from that of others. In addition to the inherent limitations, the design of a control system must reflect that there are resource constraints, and the expected benefit of controls must be considered relative to the expected costs. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Further, no evaluation of controls can provide absolute assurance that all control issues within a company will be detected.







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OUTSTANDING SHARE DATA




As at November 24, 2010, we had 17,094,111 common shares outstanding.  There were also options to purchase 1,010,938 common shares, which if exercised, would provide us with proceeds of approximately $8.2 million.




DIVIDENDS




Prior to August 31, 2007, we had not declared or paid a dividend on the common shares.  We declared our first dividend on August 31, 2007, in the amount of $.025 cents per common share.  In total, dividends of $3.6 million were paid to holders of common shares in fiscal 2008, $5.3 million in fiscal 2009, and $9.1 million in the fifteen months of fiscal 2010 ($1.7 million in the fifth quarter of fiscal 2010). On November 24, 2010, we declared a quarterly dividend of $0.10 per common share. The dividend is payable on December 21, 2010, to shareholders of record on December 6, 2010.




Our current dividend policy is to declare and pay quarterly cash dividends at the discretion of our Board of Directors, as circumstances permit, in an aggregate annual amount equal to approximately 30% of the prior year’s net income.  Our dividend policy and practice will be reviewed from time to time in the context of our earnings, financial condition, the need to retain earnings to fund future growth of our business, and other relevant factors. The declaration of a dividend will always be at the discretion of our Board of Directors.




OTHER




Cautionary Statement Regarding Forward-looking Information




This MD&A contains “forward-looking information” within the meaning of applicable Canadian and United States securities legislation. Forward-looking information includes, but is not limited to, information with respect to our objectives, strategies, operations and financial results, competition as well initiatives to grow revenue or reduce retention payments. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects", or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "does not anticipate", or "believes" or variations of such words and phrases, or statements that certain actions, events or results "may", "could", "would", "might", or "will be taken", "occur", or "be achieved". Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company, to be materially different from those expressed or implied by such forward-looking information, including, but not limited to, changes in economic and political conditions, legislative or regulatory developments, technological developments, third-party arrangements, competition, litigation, risks associated with but not limited to, market conditions, the availability of alternative transactions, shareholder, legal, regulatory and court approvals and third party consents, and other factors described in the our latest Annual Information Form filed on SEDAR at www.sedar.com under the heading “Risk Factors”. Although we have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. We do not undertake to update any forward-looking information, except in accordance with applicable securities laws.







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Non-GAAP Measures




This MD&A refers to certain financial measures that are not determined in accordance with GAAP in Canada.  These measures do not have standardized meanings and may not be comparable to similar measures presented by other companies.  Although a measure such as ‘Earnings Before Interest, Income Taxes, Stock-based Compensation, Amortization of Capital and Intangible Assets’ (EBITA) do not have standardized meanings prescribed by GAAP, these measures are used herein or can be determined by reference to our financial statements.  “Same branch revenues” is a non-GAAP measure tracked and reported by us and is generally used to compare the average revenue for a particular group of branches in a current period to that same particular group of branches in a prior period. This non-GAAP measure is a way to gauge the performance of a particular group of branches and is directly related to, and helps explain, changes in total revenue.  Average revenue is defined as revenue for the period divided by the number of branches. “Branch operating income” (BOI) is a non-GAAP measure tracked and reported by us and is generally used to compare the performance at branch level and includes expenses which primarily relate to the operations of the branch network. “Operating income” (OI) is a non-GAAP measure tracked and reported by us and is generally used to compare the income before income taxes and other non-recurring items which primarily relates to the overall operations of the branch, regional and corporate network.  “Regional expenses” is a non-GAAP measure which is used to gauge expenditures at the regional and divisional level and includes compensation of associates including centralized regional departments, Regional Managers, Divisional Vice Presidents and President, as well as other expenses related to the functions of these groups. “Corporate expenses” is a non-GAAP measure which is used to gauge expenditures at the corporate level and includes compensation of associates and related expenses at the corporate office level. These measures are discussed because management believes that they facilitate the understanding of our results as it relates to our operational and financial position.




The following table provides a reconciliation of net income in accordance with GAAP to EBITA for the past eight quarters.




EBITA Reconciliation


(thousands of dollars)

2010 (Fifteen Months)


2009 (Twelve Months)Q5



Q4



Q3



Q2



Q1


YTD



Q4



Q3



Q2Consolidated ResultsNet income and comprehensive income

$
7,682


$
5,476


$
2,199


$
5,467


$
5,640


$
26,464


$
1,232


$
3,067


$
4,292Interest


51



44



29



29



27



180



41



12



10Income tax


1,561



2,676



1,190



2,822



3,048



11,297



700



1,618



1,316Stock-based compensation


260



247



205



204



182



1,098



174



240



264Amortization of capital and intangible assets


1,578



1,882



1,652



2,121



1,828



9,061



1,744



1,523



1,421EBITA

$
11,132


$
10,325


$
5,275


$
10,643


$
10,725


$
48,100


$
3,891


$
6,460


$
7,303EBITA adjusted for class action settlements

$
11,132


$
10,425


$
7,990


$
10,743


$
10,725


$
51,015


$
8,891


$
6,460


$
9,213









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