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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q

(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2010



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

For the transition period from  to

Commission file number: 000-50552

ASSET ACCEPTANCE CAPITAL CORP.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                    
|-------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                       |  | 80-0076779                         
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S.Employer
Identification No.)

28405 Van Dyke Avenue

Warren, Michigan 48093

(Address of principal executive offices)

Registrants telephone number, including area code:

(586) 939-9600

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

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

As of July 23, 2010, 30,604,175 shares of the registrants common stock were outstanding.









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ASSET ACCEPTANCE CAPITAL CORP.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS



|                               |  |                                                                                       |  |                                                                                                                                                    |  |     
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                       |  |                                                                                                                                                    |  | Page
|PART I  Financial Information
|                               |  |                                                                                      
|Item 1.                        |  | Financial Statements (unaudited)                                                      |  | 3                                                                                                                                                 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 20                                                                                                                                                
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 42                                                                                                                                                
|Item 4.                        |  | Controls and Procedures                                                               |  | 43                                                                                                                                                
|                              
|PART II  Other Information   
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 43                                                                                                                                                
|Item 1A.                       |  | Risk Factors                                                                          |  | 43                                                                                                                                                
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 43                                                                                                                                                
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 44                                                                                                                                                
|Item 6.                        |  | Exhibits                                                                              |  | 45                                                                                                                                                
|                               | 
|Signatures                     |  | 46                                                                                   
|Exhibits:                      |  | 10.1                                                                                  |  | Employment Agreement dated May 17, 2010 between Asset Acceptance, LLC and Reid E. Simpson                                                          |  |     
|                               |  | 10.2                                                                                  |  | Third Amendment to the Credit Agreement dated May 28, 2010, between Asset Acceptance Capital Corp. and JPMorgan Chase Bank, N.A. and other lenders |  |     
|                               |  | 31.1                                                                                  |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                            |  |     
|                               |  | 31.2                                                                                  |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                            |  |     
|                               |  | 32.1                                                                                  |  | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer                                                                  |  |     

Quarterly Report on Form 10-Q

We file reports with the Securities and Exchange Commission (SEC), which we make available on our website,
www.assetacceptance.com, free of charge. These reports include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such reports, each of which is provided on our website as
soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC.



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PART I - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Financial Position



|                                                                                                                                                             |  |               |             |   |                   |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                                             |  | June 30, 2010 |             |   | December 31, 2009 |  
|                                                                                                                                                             |  | (Unaudited)   |             |   |                   |  
|ASSETS                                                                                                                                                       | 
|Cash                                                                                                                                                         |  | $             | 5,900,221   |   |                   | $ | 4,935,248   |  
|Purchased receivables, net                                                                                                                                   |  |               | 325,380,271 |   |                   |   | 319,772,006 |  
|Income taxes receivable                                                                                                                                      |  |               | 5,360,500   |   |                   |   | 5,553,181   |  
|Property and equipment, net                                                                                                                                  |  |               | 13,902,380  |   |                   |   | 14,521,666  |  
|Goodwill                                                                                                                                                     |  |               | 14,323,071  |   |                   |   | 14,323,071  |  
|Intangible assets, net                                                                                                                                       |  |               | 979,065     |   |                   |   | 1,079,065   |  
|Other assets                                                                                                                                                 |  |               | 7,797,533   |   |                   |   | 6,231,732   |  
|                                                                                                                                                             |  |               |             |   |                   |   |             |  
|Total assets                                                                                                                                                 |  | $             | 373,643,041 |   |                   | $ | 366,415,969 |  
|                                                                                                                                                             |  |               |             |   |                   |   |             |  
|                                                                                                                                                            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                         | 
|                                                                                                                                                             |  |              
|Liabilities:                                                                                                                                                 |  |               |             |   |                   |   |             |  
|Accounts payable                                                                                                                                             |  | $             | 3,342,798   |   |                   | $ | 3,002,299   |  
|Accrued liabilities                                                                                                                                          |  |               | 17,797,411  |   |                   |   | 21,294,388  |  
|Income taxes payable                                                                                                                                         |  |               | 1,787,460   |   |                   |   | 1,196,071   |  
|Notes payable                                                                                                                                                |  |               | 167,359,956 |   |                   |   | 160,022,514 |  
|Capital lease obligations                                                                                                                                    |  |               | 242,391     |   |                   |   | 278,459     |  
|Deferred tax liability, net                                                                                                                                  |  |               | 57,553,566  |   |                   |   | 57,524,754  |  
|                                                                                                                                                             |  |               |             |   |                   |   |             |  
|Total liabilities                                                                                                                                            |  | $             | 248,083,582 |   |                   | $ | 243,318,485 |  
|                                                                                                                                                             |  |               |             |   |                   |   |             |  
|                                                                                                                                                             |  |              
|Stockholders equity:                                                                                                                                        |  |               |             |   |                   |   |             |  
|Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding                                                             |  |               |            |   |                   |   |            |  
|Common stock, $0.01 par value, 100,000,000 shares authorized; issued shares  33,220,757 and 33,220,132 at June 30,
2010 and December 31, 2009, respectively |  |               | 332,208     |   |                   |   | 332,201     |  
|Additional paid in capital                                                                                                                                   |  |               | 148,942,125 |   |                   |   | 148,243,688 |  
|Retained earnings                                                                                                                                            |  |               | 19,885,191  |   |                   |   | 18,754,217  |  
|Accumulated other comprehensive loss, net of tax                                                                                                             |  |               | (2,321,921  | ) |                   |   | (2,955,451  | )
|Common stock in treasury; at cost, 2,616,582 and 2,616,424 shares at June 30, 2010 and December 31, 2009, respectively                                       |  |               | (41,278,144 | ) |                   |   | (41,277,171 | )
|                                                                                                                                                             |  |               |             |   |                   |   |             |  
|Total stockholders equity                                                                                                                                   |  |               | 125,559,459 |   |                   |   | 123,097,484 |  
|                                                                                                                                                             |  |               |             |   |                   |   |             |  
|Total liabilities and stockholders equity                                                                                                                   |  | $             | 373,643,041 |   |                   | $ | 366,415,969 |  
|                                                                                                                                                             |  |               |             |   |                   |   |             |  

See accompanying notes.



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ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Operations

(Unaudited)



|                                               |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|---------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------ | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                               |  | Three months endedJune 30, |            |   | Six months
endedJune 30, |  
|                                               |  | 2010                       |            |   | 2009                     |   |            | 2010 |  |   | 2009        |  
|Revenues                                       |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Purchased receivable revenues, net             |  | $                          | 50,626,874 |   |                          | $ | 48,819,343 |      |  | $ | 101,713,420 |   |  | $ | 105,559,022 |  
|Gain on sale of purchased receivables          |  |                            | 107,825    |   |                          |   |           |      |  |   | 324,848     |   |  |   |            |  
|Other revenues, net                            |  |                            | 180,152    |   |                          |   | 262,610    |      |  |   | 431,247     |   |  |   | 514,129     |  
|                                               |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Total revenues                                 |  |                            | 50,914,851 |   |                          |   | 49,081,953 |      |  |   | 102,469,515 |   |  |   | 106,073,151 |  
|                                               |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Expenses                                       |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Salaries and benefits                          |  |                            | 18,660,755 |   |                          |   | 18,367,377 |      |  |   | 38,165,621  |   |  |   | 38,213,894  |  
|Collections expense                            |  |                            | 23,072,450 |   |                          |   | 21,640,610 |      |  |   | 47,265,390  |   |  |   | 43,767,293  |  
|Occupancy                                      |  |                            | 1,697,154  |   |                          |   | 1,859,381  |      |  |   | 3,449,281   |   |  |   | 3,670,242   |  
|Administrative                                 |  |                            | 2,201,611  |   |                          |   | 2,228,678  |      |  |   | 3,942,979   |   |  |   | 4,559,064   |  
|Depreciation and amortization                  |  |                            | 1,146,329  |   |                          |   | 959,496    |      |  |   | 2,308,711   |   |  |   | 1,845,314   |  
|Loss on disposal of equipment and other assets |  |                            | 5,342      |   |                          |   | 5,137      |      |  |   | 5,543       |   |  |   | 6,541       |  
|                                               |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Total operating expenses                       |  |                            | 46,783,641 |   |                          |   | 45,060,679 |      |  |   | 95,137,525  |   |  |   | 92,062,348  |  
|                                               |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Income from operations                         |  |                            | 4,131,210  |   |                          |   | 4,021,274  |      |  |   | 7,331,990   |   |  |   | 14,010,803  |  
|Other income (expense)                         |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Interest expense                               |  |                            | (2,888,677 | ) |                          |   | (2,471,838 | )    |  |   | (5,517,102  | ) |  |   | (5,113,964  | )
|Interest income                                |  |                            | 371        |   |                          |   | 3,731      |      |  |   | 1,413       |   |  |   | 4,692       |  
|Other                                          |  |                            | 40,961     |   |                          |   | (67,963    | )    |  |   | 55,563      |   |  |   | 3,814       |  
|                                               |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Income before income taxes                     |  |                            | 1,283,865  |   |                          |   | 1,485,204  |      |  |   | 1,871,864   |   |  |   | 8,905,345   |  
|Income tax expense                             |  |                            | 509,408    |   |                          |   | 642,917    |      |  |   | 740,890     |   |  |   | 3,460,914   |  
|                                               |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Net income                                     |  | $                          | 774,457    |   |                          | $ | 842,287    |      |  | $ | 1,130,974   |   |  | $ | 5,444,431   |  
|                                               |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Weighted-average number of shares:             |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Basic                                          |  |                            | 30,682,152 |   |                          |   | 30,623,320 |      |  |   | 30,676,471  |   |  |   | 30,617,189  |  
|Diluted                                        |  |                            | 30,781,363 |   |                          |   | 30,711,491 |      |  |   | 30,760,432  |   |  |   | 30,668,037  |  
|Earnings per common share outstanding:         |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |             |  
|Basic                                          |  | $                          | 0.03       |   |                          | $ | 0.03       |      |  | $ | 0.04        |   |  | $ | 0.18        |  
|Diluted                                        |  | $                          | 0.03       |   |                          | $ | 0.03       |      |  | $ | 0.04        |   |  | $ | 0.18        |  

See accompanying
notes.



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ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                  |  |                          |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | Six months
endedJune 30, |            
|                                                                                  |  | 2010                     |             |   | 2009 |  
|Cash flows from operating activities                                              |  |                          |             |   |      |   |             |  
|Net income                                                                        |  | $                        | 1,130,974   |   |      | $ | 5,444,431   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |             |   |      |   |             |  
|Depreciation and amortization                                                     |  |                          | 2,308,711   |   |      |   | 1,845,314   |  
|Amortization of deferred financing costs                                          |  |                          | 577,355     |   |      |   | 263,303     |  
|Deferred income taxes                                                             |  |                          | (181,161    | ) |      |   | 176,278     |  
|Share-based compensation expense                                                  |  |                          | 698,444     |   |      |   | 761,230     |  
|Net (reversal of impairment) impairment of purchased receivables                  |  |                          | (965,031    | ) |      |   | 10,295,300  |  
|Non-cash revenue                                                                  |  |                          | (258,845    | ) |      |   | (45,442     | )
|Loss on disposal of equipment and other assets                                    |  |                          | 5,543       |   |      |   | 6,541       |  
|Gain on sale of purchased receivables                                             |  |                          | (324,848    | ) |      |   |            |  
|Changes in assets and liabilities:                                                |  |                          |             |   |      |   |             |  
|Increase (decrease) in accounts payable and other accrued liabilities             |  |                          | 86,857      |   |      |   | (2,840,763  | )
|(Increase) decrease in other assets                                               |  |                          | (1,367,348  | ) |      |   | 1,258,018   |  
|Decrease in income taxes receivable, net                                          |  |                          | 784,070     |   |      |   | 4,120,061   |  
|                                                                                  |  |                          |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |                          | 2,494,721   |   |      |   | 21,284,271  |  
|                                                                                  |  |                          |             |   |      |   |             |  
|                                                                                  |  |                         
|Cash flows from investing activities                                              |  |                          |             |   |      |   |             |  
|Investments in purchased receivables, net of buy backs                            |  |                          | (79,724,106 | ) |      |   | (41,138,254 | )
|Principal collected on purchased receivables                                      |  |                          | 72,939,859  |   |      |   | 65,601,634  |  
|Proceeds from the sale of purchased receivables                                   |  |                          | 324,874     |   |      |   |            |  
|Purchase of property and equipment                                                |  |                          | (1,594,968  | ) |      |   | (1,885,272  | )
|Proceeds from sale of property and equipment                                      |  |                          |            |   |      |   | 210         |  
|                                                                                  |  |                          |             |   |      |   |             |  
|Net cash (used in) provided by investing activities                               |  |                          | (8,054,341  | ) |      |   | 22,578,318  |  
|                                                                                  |  |                          |             |   |      |   |             |  
|                                                                                  |  |                         
|Cash flows from financing activities                                              |  |                          |             |   |      |   |             |  
|Borrowings under notes payable                                                    |  |                          | 60,700,000  |   |      |   | 17,800,000  |  
|Repayment of notes payable                                                        |  |                          | (53,362,558 | ) |      |   | (54,777,486 | )
|Payment of deferred financing costs                                               |  |                          | (775,808    | ) |      |   |            |  
|Purchase of treasury shares                                                       |  |                          | (973        | ) |      |   | (923        | )
|Repayment of capital lease obligations                                            |  |                          | (36,068     | ) |      |   |            |  
|                                                                                  |  |                          |             |   |      |   |             |  
|Net cash provided by (used in) financing activities                               |  |                          | 6,524,593   |   |      |   | (36,978,409 | )
|                                                                                  |  |                          |             |   |      |   |             |  
|Net increase in cash                                                              |  |                          | 964,973     |   |      |   | 6,884,180   |  
|Cash at beginning of period                                                       |  |                          | 4,935,248   |   |      |   | 6,042,859   |  
|                                                                                  |  |                          |             |   |      |   |             |  
|Cash at end of period                                                             |  | $                        | 5,900,221   |   |      | $ | 12,927,039  |  
|                                                                                  |  |                          |             |   |      |   |             |  
|                                                                                  |  |                         
|Supplemental disclosure of cash flow information                                  |  |                          |             |   |      |   |             |  
|Cash paid for interest, net of capitalized interest                               |  | $                        | 4,998,502   |   |      | $ | 5,208,677   |  
|Net cash paid (received) for income taxes                                         |  |                          | 137,980     |   |      |   | (705,644    | )
|Non-cash investing and financing activities:                                      |  |                          |             |   |      |   |             |  
|Increase in fair value of derivative instruments                                  |  |                          | 843,503     |   |      |   | 1,639,023   |  
|Decrease in unrealized loss on cash flow hedge                                    |  |                          | (633,530    | ) |      |   | (1,171,921  | )

See accompanying notes.



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ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis
of Presentation and Summary of Significant Accounting Policies

Nature of Operations

Asset Acceptance Capital Corp. (a Delaware corporation) and its subsidiaries (collectively referred to as the Company) are
engaged in the purchase and collection of defaulted and charged-off accounts receivable portfolios. These receivables are acquired from consumer credit originators, primarily credit card issuers including private label card issuers, consumer finance
companies, healthcare providers, telecommunications and other utility providers, resellers and other holders of consumer debt. The Company may periodically sell receivables from these portfolios to unaffiliated companies.

In addition, the Company finances the sales of consumer product retailers.

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission (SEC) and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of America (U.S. GAAP). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of
the Companys financial position as of June 30, 2010 and its results of operations for the three and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 2010 and 2009, and all adjustments were
of a normal recurring nature. The operations of the Company for the three and six months ended June 30, 2010 and 2009 may not be indicative of future results. These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.

Reporting Entity

The accompanying consolidated financial statements include the accounts of Asset Acceptance Capital Corp. (AACC) and all
wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company currently has two operating segments, one for purchased receivables and one for finance contract receivables. The
finance contract receivables operating segment is not material and therefore is not disclosed separately from the purchased receivables segment.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items related to such
estimates include the timing and amount of future cash collections on purchased receivables, deferred tax assets, goodwill and share-based compensation. Actual results could differ from those estimates making it reasonably possible that a change in
these estimates could occur within one year.

Revenue Recognition

The Company accounts for its investment in purchased receivables using the guidance provided in the Financial Accounting Standards Board
(FASB) Accounting Standard Codification (ASC) Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, (referred to as the Interest Method). Refer to Note 2,
Purchased Receivables and Revenue Recognition, for additional discussion of the Companys method of accounting for purchased receivables and revenue recognition.



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ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Seasonality

Collections tend to be seasonally higher in the first and second quarters of the year due to consumers receipt of tax refunds and
other factors. Conversely, collections tend to be lower in the third and fourth quarters of the year due to consumers spending in connection with summer vacations, the holiday season and other factors. However, revenues remain relatively
level, excluding the impact of impairments, due to the application of the Interest Method of revenue recognition. In addition, the Companys operating results may be affected to a lesser extent by the timing of purchases of charged-off consumer
receivables due to the initial costs associated with purchasing and loading these receivables into the Companys systems. Consequently, income and margins may fluctuate from quarter to quarter.

Collections from Third Parties

The Company regularly utilizes unaffiliated third parties, primarily attorneys and other contingent collection agencies, to collect
certain account balances on behalf of the Company in exchange for a percentage of the balance collected. The Company records gross proceeds received by the unaffiliated third parties as cash collections. The Company records the percentage of the
gross cash collections paid to the third parties and the reimbursement of certain legal and other costs, as a component of collections expense. The percent of gross cash collections from such third party relationships were 35.1% and 31.6% for the
three months ended June 30, 2010 and 2009, respectively, and 33.6% and 31.7% for the six months ended June 30, 2010 and 2009, respectively.

Accrued Liabilities

The details of accrued liabilities were as follows:



|                                            |  |               |            |                   |   |           
|------------------------------------------- |  | ------------- | ---------- | ----------------- | - | ----------
|                                            |  | June 30, 2010 |            | December 31, 2009
|Accrued payroll, benefits and bonuses       |  | $             | 6,348,504  |                   | $ | 6,858,421 
|Fair value of derivative instruments        |  |               | 3,829,656  |                   |   | 4,673,159 
|Accrued general and administrative expenses |  |               | 3,644,407  |                   |   | 3,243,887 
|Deferred rent                               |  |               | 2,996,572  |                   |   | 3,152,922 
|Purchased receivables (1)                   |  |               |           |                   |   | 2,399,832 
|Accrued interest expense                    |  |               | 581,388    |                   |   | 641,556   
|Other accrued expenses                      |  |               | 396,884    |                   |   | 324,611   
|                                            |  |               |            |                   |   |           
|Total accrued liabilities                   |  | $             | 17,797,411 |                   | $ | 21,294,388
|                                            |  |               |            |                   |   |           



|(1) | The rights, title and interest of an acquired portfolio was transferred to the Company as of December 31, 2009 and was funded during January 2010.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

Concentration of Risk

For the three and six months ended June 30, 2010, the Company invested 80.9% and 79.9% (net of buybacks), respectively, in purchased
receivables from its top three sellers. For the three and six months ended June 30, 2009, the Company invested 73.2% and 74.1% (net of buybacks through June 30, 2010), respectively, in purchased receivables from its top three sellers. No
sellers were included in the top three in both of the three-month periods. One seller is included in the top three in the six-month periods for both years.

Interest Expense

Interest expense includes interest on the Companys credit facilities, unused facility fees, the ineffective portion of the change in
fair value of the Companys derivative financial instrument (refer to Note 4, Derivative Financial Instruments and Risk Management), interest payments made on the interest rate swap and amortization of deferred financing costs.
During the three and six months ended June 30, 2010, the Company recorded interest expense of $2,888,677 and $5,517,102, respectively, including amortization of $301,750 and $577,355 of deferred financing costs. During the three and six months
ended June 30, 2009, the Company recorded interest expense of $2,471,838 and $5,113,964, respectively, including amortization of $131,651 and $263,303 of deferred financing costs.



7



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Earnings Per Share

Earnings per share reflect net income divided by the weighted-average number of shares outstanding. Diluted weighted-average shares
outstanding for the three months ended June 30, 2010 and 2009 included 99,211 and 88,171 dilutive shares, respectively, related to outstanding stock options, deferred stock units, restricted shares and restricted share units (collectively the
Share-Based Awards).

Diluted weighted-average shares outstanding for the six months ended June 30, 2010 and
2009 included 83,961 and 50,848 dilutive shares, respectively, related to Share-Based Awards. There were 908,838 and 765,940 outstanding Share-Based Awards that were not included within the diluted weighted-average shares as their fair value or
exercise price exceeded the market price of the Companys stock at June 30, 2010 and 2009, respectively.

Goodwill and Other Intangible Assets

Intangible assets with finite lives are amortized over their estimated useful life, ranging from five to seven years, using the
straight-line method. Goodwill and trademark and trade names with indefinite lives are not amortized, instead, these assets are reviewed annually to assess recoverability or more frequently if impairment indicators are present. Impairment charges
are recorded for intangible assets when the estimated fair value is less than the book value. Refer to Note 8, Fair Value, for additional information about the fair value of goodwill and other intangible assets.

Comprehensive Income (Loss)

Components of comprehensive income are changes in equity other than those resulting from investments by owners and distributions to
owners. Net income is the primary component of comprehensive income. Currently, the Companys only component of comprehensive income other than net income is the change in unrealized gain or loss on derivatives qualifying as cash flow
hedges, which are recorded net of income taxes. The aggregate amount of such changes to equity that have not yet been recognized in net income are reported in stockholders equity in the accompanying consolidated statements of financial
position as Accumulated other comprehensive loss, net of tax.

A summary of accumulated other comprehensive loss,
net of tax is as follows:



|                |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|--------------- |  | -------------------------- | ---------- | - | ------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                |  | Three months endedJune 30, |            |   | Six months
endedJune 30, |  
|                |  | 2010                       |            |   | 2009                     |   |            | 2010 |  |   | 2009       |  
|Opening balance |  | $                          | (2,752,974 | ) |                          | $ | (4,195,172 | )    |  | $ | (2,955,451 | ) |  | $ | (4,664,862 | )
|Change          |  |                            | 431,053    |   |                          |   | 702,231    |      |  |   | 633,530    |   |  |   | 1,171,921  |  
|                |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Ending balance  |  | $                          | (2,321,921 | ) |                          | $ | (3,492,941 | )    |  | $ | (2,321,921 | ) |  | $ | (3,492,941 | )
|                |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  

Fair Value of Financial Instruments

The fair value of financial instruments is estimated using available market information and other valuation methods. Refer to Note 8,
Fair Value for more information.



8



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Recently Issued Accounting Pronouncements

The following accounting pronouncements have been issued and will be effective for the Company in or after fiscal year 2010:

In February 2010, the FASB issued updated guidance that no longer requires SEC filers to disclose the date through which it has evaluated
subsequent events and the basis for that date. The adoption of this guidance, as of February 24, 2010, did not have a material impact on the Companys financial position, results of operations or cash flows.

In January 2010, the FASB issued guidance that requires additional disclosures related to the components of the reconciliation of fair
value measurements using unobservable inputs to and transfers between levels in the hierarchy of fair value measurement. The standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for certain
provisions related to Level 3 disclosures that are effective for interim and annual reporting periods beginning after December 15, 2010. The adoption of this guidance did not have a material impact on the Companys financial position,
results of operations or cash flows.

2. Purchased Receivables and Revenue Recognition

Purchased receivables are receivables that have been charged-off as uncollectible by the originating organization and typically have been
subject to previous collection efforts. The Company acquires pools of accounts which are the rights to the unrecovered balances owed by individual debtors through such purchases. The receivable portfolios are purchased at a substantial discount
(generally more than 90%) from their face values due to a deterioration of credit quality since origination and are initially recorded at the Companys acquisition cost, which equals fair value at the acquisition date. Financing for the
purchases is primarily provided by the Companys cash generated from operations and from borrowings on the Companys revolving credit facility.

The Company accounts for its investment in purchased receivables using the Interest Method when the Company has reasonable expectations
of the timing and amount of cash flows expected to be collected. The Company purchases pools of homogenous accounts receivable. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk
characteristics and payer dynamics. Risk characteristics of purchased receivables are generally considered to be similar since purchased receivables are usually in the late stages of the post charged-off collection cycle. The Company therefore
aggregates most pools purchased within each quarter. Pools purchased before 2005 may not be aggregated. Each static pool, either aggregated or non-aggregated, retains its own identity and does not change over the remainder of its life. Each static
pool is accounted for as a single unit for recognition of revenue, principal payments and impairments.

Collections on each
static pool are allocated to revenue and principal reduction based on an internal rate of return (IRR). The IRR is the rate of return that each static pool requires to amortize the cost or carrying value of the pool to zero over its
estimated life. Each pools IRR is determined by estimating future cash flows, which are based on historical collection data for pools with similar characteristics. The actual life of each pool may vary, but will generally range between 36 and
84 months depending on the expected collection period. Monthly cash flows greater than revenue recognized will reduce the carrying value of each static pool. Monthly cash flows lower than revenue recognized will increase the carrying value of each
static pool. Each static pool is reviewed at least quarterly and compared to historical trends and operational data to determine whether it is performing as expected. This comparison is used to determine future estimated cash flows. If the revised
cash flow estimates are greater than the original estimates, the IRR is increased prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. If the revised cash flow estimates are less than the original
estimates, the IRR remains unchanged and an impairment is recognized. If cash flow estimates increase in periods subsequent to recording an impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

The cost recovery method is used when collections on a particular portfolio cannot be reasonably predicted. When appropriate,
the cost recovery method may be used for pools that previously had an IRR assigned to them. Under the cost recovery method, no revenue is recognized until the Company has fully collected the cost of the portfolio. As of June 30, 2010, the
Company had 23 unamortized pools on the cost recovery method with an aggregate carrying value of $1,118,049 or about 0.3% of the total carrying value of all purchased receivables. As of December 31, 2009, the Company had 50 unamortized pools on
the cost recovery method with an aggregate carrying value of $2,271,595 or about 0.7% of the total carrying value of all purchased receivables.



9



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Agreements to purchase receivables typically include general representations and
warranties from the sellers covering account holder death, bankruptcy, fraud and settled or paid accounts prior to sale. These representations and warranties permit the return of certain ineligible accounts from the Company back to the seller. The
general time frame to return accounts is within 90 to 180 days from the date of the purchase agreement. Proceeds from returns, also referred to as buybacks, are applied against the carrying value of the static pool.

Although not its usual business practice, the Company may periodically sell, on a non-recourse basis, all or a portion of a pool to
unaffiliated parties. The Company does not have any significant continuing involvement with the sold pools subsequent to sale. Proceeds of these sales are compared to the carrying value of the accounts and a gain or loss is recognized on the
difference between proceeds received and the carrying value which is included in Gain (loss) on sale of purchased receivables in the accompanying consolidated statements of operations. The agreements to sell receivables typically include
general representations and warranties.

Changes in purchased receivables portfolios were as follows:



|                                                     |  |                            |             |   |                          |   |             |      |  |   |              |   |  |   |              |  
|---------------------------------------------------- |  | -------------------------- | ----------- | - | ------------------------ | - | ----------- | ---- |  | - | ------------ | - |  | - | ------------ | -
|                                                     |  | Three months endedJune 30, |             |   | Six months
endedJune 30, |  
|                                                     |  | 2010                       |             |   | 2009                     |   |             | 2010 |  |   | 2009         |  
|Beginning balance                                    |  | $                          | 310,792,323 |   |                          | $ | 346,048,993 |      |  | $ | 319,772,006  |   |  | $ | 361,808,502  |  
|Investment in purchased receivables, net of buybacks |  |                            | 48,175,147  |   |                          |   | 19,520,505  |      |  |   | 77,324,274   |   |  |   | 41,138,254   |  
|Cost of purchased receivables sold, net of returns   |  |                            |            |   |                          |   |            |      |  |   | (26          | ) |  |   |             |  
|Cash collections                                     |  |                            | (84,214,073 | ) |                          |   | (87,293,577 | )    |  |   | (173,429,403 | ) |  |   | (181,410,514 | )
|Purchased receivable revenues, net                   |  |                            | 50,626,874  |   |                          |   | 48,819,343  |      |  |   | 101,713,420  |   |  |   | 105,559,022  |  
|                                                     |  |                            |             |   |                          |   |             |      |  |   |              |   |  |   |              |  
|Ending balance                                       |  | $                          | 325,380,271 |   |                          | $ | 327,095,264 |      |  | $ | 325,380,271  |   |  | $ | 327,095,264  |  
|                                                     |  |                            |             |   |                          |   |             |      |  |   |              |   |  |   |              |  

Accretable yield represents the amount of revenue the Company expects over the remaining life of existing
portfolios. Nonaccretable yield represents the difference between the remaining expected cash flows and the total contractual obligation outstanding (face value) of purchased receivables. Changes in accretable yield were as follows:



|                                                |  |                            |             |   |                          |   |             |      |  |   |              |   |  |   |              |  
|----------------------------------------------- |  | -------------------------- | ----------- | - | ------------------------ | - | ----------- | ---- |  | - | ------------ | - |  | - | ------------ | -
|                                                |  | Three months endedJune 30, |             |   | Six months
endedJune 30, |  
|                                                |  | 2010                       |             |   | 2009                     |   |             | 2010 |  |   | 2009         |  
|Beginning balance (1)                           |  | $                          | 442,628,674 |   |                          | $ | 536,991,949 |      |  | $ | 466,199,721  |   |  | $ | 534,985,144  |  
|Purchased receivable revenues, net              |  |                            | (50,626,874 | ) |                          |   | (48,819,343 | )    |  |   | (101,713,420 | ) |  |   | (105,559,022 | )
|Additions due to purchases                      |  |                            | 57,615,299  |   |                          |   | 44,305,248  |      |  |   | 86,270,094   |   |  |   | 85,696,634   |  
|Reclassifications from (to) nonaccretable yield |  |                            | 26,775,974  |   |                          |   | (16,804,875 | )    |  |   | 25,636,678   |   |  |   | 550,223      |  
|                                                |  |                            |             |   |                          |   |             |      |  |   |              |   |  |   |              |  
|Ending balance (1)                              |  | $                          | 476,393,073 |   |                          | $ | 515,672,979 |      |  | $ | 476,393,073  |   |  | $ | 515,672,979  |  
|                                                |  |                            |             |   |                          |   |             |      |  |   |              |   |  |   |              |  



|(1) | Accretable yields are a function of estimated remaining cash flows and are based on historical cash collections. Refer to Forward-Looking Statements on page 21 and
Critical Accounting Policies on page 40 for further information regarding these estimates.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash collections
include collections from fully amortized pools of which 100% of the collections were reported as revenue. Components of cash collections from fully amortized pools were as follows:



|                                                        |  |                            |            |                          |   |            |  |      |            |  |   |           
|------------------------------------------------------- |  | -------------------------- | ---------- | ------------------------ | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                        |  | Three months endedJune 30, |            | Six months
endedJune 30,
|                                                        |  | 2010                       |            | 2009                     |   | 2010       |  | 2009
|Fully amortized before the end of their expected life   |  | $                          | 3,198,011  |                          | $ | 6,224,318  |  | $    | 6,957,252  |  | $ | 13,466,278
|Fully amortized after their expected life               |  |                            | 7,396,970  |                          |   | 7,343,413  |  |      | 14,773,786 |  |   | 15,619,146
|Previously accounted for under the cost recovery method |  |                            | 3,242,694  |                          |   | 2,264,848  |  |      | 7,023,452  |  |   | 5,000,716 
|                                                        |  |                            |            |                          |   |            |  |      |            |  |   |           
|Total cash collections from fully amortized pools       |  | $                          | 13,837,675 |                          | $ | 15,832,579 |  | $    | 28,754,490 |  | $ | 34,086,140
|                                                        |  |                            |            |                          |   |            |  |      |            |  |   |           



10



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Changes in purchased receivables portfolios under the cost recovery method were as
follows:



|                                             |  |                            |           |   |                          |   |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------- |  | -------------------------- | --------- | - | ------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                             |  | Three months endedJune 30, |           |   | Six months
endedJune 30, |  
|                                             |  | 2010                       |           |   | 2009                     |   |            | 2010 |  |   | 2009       |  
|Beginning balance                            |  | $                          | 1,531,329 |   |                          | $ | 6,594,228  |      |  | $ | 2,271,595  |   |  | $ | 9,804,318  |  
|Addition of portfolios                       |  |                            | 118,365   |   |                          |   | 43,302     |      |  |   | 128,710    |   |  |   | 132,380    |  
|Buybacks, impairments and resale adjustments |  |                            | (6,933    | ) |                          |   | (240,561   | )    |  |   | (8,425     | ) |  |   | (714,882   | )
|Cash collections until fully amortized       |  |                            | (524,712  | ) |                          |   | (2,414,417 | )    |  |   | (1,273,831 | ) |  |   | (5,239,264 | )
|                                             |  |                            |           |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Ending balance                               |  | $                          | 1,118,049 |   |                          | $ | 3,982,552  |      |  | $ | 1,118,049  |   |  | $ | 3,982,552  |  
|                                             |  |                            |           |   |                          |   |            |      |  |   |            |   |  |   |            |  

During the three and six months ended June 30, 2010, the Company recorded net impairment reversals of
$1,064,711 and $965,031, respectively, related to its purchased receivables. The Company recorded net impairments of $6,846,000 and $10,295,300 during the three and six months ended June 30, 2009, respectively. The net reversal of impairments
increased revenue and the carrying value of purchased receivable portfolios during 2010 whereas net impairments reduced revenue and the carrying value of the purchased receivable portfolios during 2009.

Changes in the purchased receivables valuation allowance were as follows:



|                        |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |            |  
|----------------------- |  | -------------------------- | ---------- | - | ------------------------ | - | ---------- | ---- |  | - | ----------- | - |  | - | ---------- | -
|                        |  | Three months endedJune 30, |            |   | Six months
endedJune 30, |  
|                        |  | 2010                       |            |   | 2009                     |   |            | 2010 |  |   | 2009        |  
|Beginning balance       |  | $                          | 98,882,900 |   |                          | $ | 73,685,026 |      |  | $ | 104,416,455 |   |  | $ | 71,949,326 |  
|Impairments             |  |                            | 284,189    |   |                          |   | 7,144,000  |      |  |   | 383,869     |   |  |   | 10,935,000 |  
|Reversal of impairments |  |                            | (1,348,900 | ) |                          |   | (298,000   | )    |  |   | (1,348,900  | ) |  |   | (639,700   | )
|Deductions (1)          |  |                            | (1,323,689 | ) |                          |   | (314,771   | )    |  |   | (6,956,924  | ) |  |   | (2,028,371 | )
|                        |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |            |  
|Ending balance          |  | $                          | 96,494,500 |   |                          | $ | 80,216,255 |      |  | $ | 96,494,500  |   |  | $ | 80,216,255 |  
|                        |  |                            |            |   |                          |   |            |      |  |   |             |   |  |   |            |  



|(1) | Deductions represent valuation allowances on purchased receivable portfolios that became fully amortized during the period and, therefore, the balance is removed from
the valuation allowance since it can no longer be reversed.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3. Notes Payable

The Companys amended credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named
therein, originated on June 5, 2007 (the Credit Agreement). Under the terms of the Credit Agreement, the Company has a five-year $100,000,000 revolving credit facility (the Revolving Credit Facility) and a six-year
$150,000,000 term loan facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facilities). The Credit Facilities bear interest at 200 to 250 basis points over the banks prime rate
depending upon the Companys liquidity, as defined in the Credit Agreement. Alternately, at the Companys discretion, the Company may borrow by entering into one, two, three, six or twelve-month contracts based on the London Inter Bank
Offer Rate (LIBOR) at rates between 300 to 350 basis points over the respective LIBOR, depending on the Companys liquidity. The Companys Revolving Credit Facility includes an accordion loan feature that allows it to request a
$25,000,000 increase as well as sublimits for $10,000,000 of letters of credit and for $10,000,000 of swingline loans. The Credit Agreement is secured by a first priority lien on all of the Companys assets. The Credit Agreement also contains
certain covenants and restrictions that the Company must comply with, which, as of June 30, 2010 were:



| |  |  | Leverage Ratio (as defined) cannot exceed (i) 1.5 to 1.0 at any time on or before December 30, 2011 or (ii) 1.25 to 1.0 at any time
thereafter;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth (as defined) cannot exceed (i) 2.5 to 1.0 at any time on or before
December 30, 2011, (ii) 2.25 to 1.0 at any time on or after December 31, 2011 and on or before March 30, 2012, (iii) 2.0 to 1.0 at any time thereafter; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Tangible Net Worth (as defined) must equal or exceed $85,000,000 plus 50% of positive consolidated net income for three consecutive fiscal
quarters ending December 31, 2007 and for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and as of the end of each such fiscal year thereafter.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



On May 28, 2010, the Company, JPMorgan Chase Bank, N.A. and other lenders entered
into a Third Amendment to Credit Agreement (Third Amendment). The Third Amendment adjusted the levels of the Leverage Ratio used to set the applicable margin on outstanding borrowings and the respective interest spreads. The Third
Amendment also changed certain financial covenant definitions to allow for adjustments related to charges for the FTC investigation, limited to $7,000,000, and the net impact of the fourth quarter 2009 purchased receivable impairment charges,
limited to $20,000,000. The changes did not impact total available borrowing capacity; however, they did loosen the financial covenant restrictions which in turn increased the Companys ability to borrow under the terms of the agreement. In
exchange for amending the Credit Agreement, the Company incurred deferred financing costs of $775,808.

The Credit Agreement
contains a provision that requires the Company to repay Excess Cash Flow (as defined) to reduce the indebtedness outstanding under its Credit Agreement. The Company made required payments of $8,962,558 and $2,427,486 in March 2010 and 2009,
respectively. The Excess Cash Flow payment is due within 10 days of the issuance of the annual financial statements. The repayment provisions are:



| |  |  | 50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than 1.0 to 1.0 as of the end of such fiscal year;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end
of such fiscal year; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such fiscal year.
| | - |  | -------------------------------------------------------------------------------------------------

Commitment fees on the unused portion of the Revolving Credit Facility are paid quarterly, in arrears, and are calculated as an amount
equal to a margin of 0.50% on the average amount available on the Revolving Credit Facility.

The Credit Agreement requires
the Company to effectively cap, collar or exchange interest rates on a notional amount of at least 25% of the outstanding principal amount of the Term Loan Facility. Refer to Note 4, Derivative Financial Instruments and Risk Management
for additional information.

The Company had $167,359,956 and $160,022,514 of borrowings outstanding on its Credit Facilities
as of June 30, 2010 and December 31, 2009, respectively, of which $134,109,956 and $143,822,514 was outstanding on the Term Loan Facility, respectively, and $33,250,000 and $16,200,000 was outstanding on the Revolving Credit Facility,
respectively. The Term Loan Facility requires quarterly repayments totaling $1,500,000 annually until March 2013 with the remaining balance due in June 2013. The Revolving Credit Facility expires in June 2012.

The Company was in compliance with the covenants of the Credit Agreement as of June 30, 2010.

4. Derivative Financial Instruments and Risk Management

Risk Management

The Company may periodically enter into derivative financial instruments, typically interest rate swap agreements, to reduce its exposure
to fluctuations in interest rates on variable-rate debt and their impact on earnings and cash flows. The Company does not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor
does it enter into or hold derivatives for trading or speculative purposes. The Company periodically reviews the creditworthiness of the swap counterparty to assess the counterpartys ability to honor its obligation.

The Company records derivative financial instruments at fair value. Refer to Note 8, Fair Value for additional information.
Counterparty default would further expose the Company to fluctuations in variable interest rates.

Derivative Financial
Instruments

In September 2007, the Company entered into an amortizing interest rate swap agreement whereby, on a
quarterly basis, it swaps variable rates under its Term Loan Facility for fixed rates. At inception and for the first year, the notional amount of the swap was $125,000,000. Every year thereafter, on the anniversary of the swap agreement the
notional amount decreases by $25,000,000. As of June 30, 2010, the notional amount was $75,000,000. This swap agreement expires on September 13, 2012.



12



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The Companys financial derivative instrument is designated and qualifies as a cash
flow hedge. The effective portion of the gain or loss is reported as a component of other comprehensive income (OCI) in the accompanying consolidated financial statements. To the extent that the hedging relationship is not effective, the
ineffective portion of the change in fair value of the derivative is recorded in interest expense. Hedges that receive designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated as well as throughout
the hedging period.

Changes in fair value are recorded as an adjustment to Accumulated Other Comprehensive Income
(AOCI), net of tax. Amounts in AOCI will be reclassified into earnings under certain situations; for example, if the occurrence of the transaction is no longer probable or no longer qualifies for hedge accounting. In these situations,
all or a portion of the transaction would be ineffective. The Company does not expect to reclassify any material amount currently included in AOCI into earnings due to ineffectiveness within the next twelve months.

As of June 30, 2010, the Company did not have any fair value hedges.

The following tables summarize the fair value of derivative instruments:



|                                                    |  |                            |  |                   |           |                            |                     |            |   |          
|--------------------------------------------------- |  | -------------------------- |  | ----------------- | --------- | -------------------------- | ------------------- | ---------- | - | ---------
|                                                    |  | June 30, 2010              |  | December 31, 2009
|                                                    |  | FinancialPosition Location |  | Fair Value        |           | FinancialPosition Location |                     | Fair Value
|Derivatives designated as hedging instruments       |  |                            |  |                   |           |                            |                     |            |   |          
|Interest rate swap                                  |  | Accrued liabilities        |  | $                 | 3,829,656 |                            | Accrued liabilities |            | $ | 4,673,159
|                                                    |  |                            |  |                   |           |                            |                     |            |   |          
|Total derivatives designated as hedging instruments |  |                            |  | $                 | 3,829,656 |                            |                     |            | $ | 4,673,159
|                                                    |  |                            |  |                   |           |                            |                     |            |   |          

The following tables summarize the impact of
derivatives designated as hedging instruments:



|                   |                            |                                                               |          |      |                                                                               |   |                                                                              |      |                             |                                                                                                                 |      |                                                                                                              |          |   |      |   |          |   |  |                  |  |   |     |  |   |    
|------------------ | -------------------------- | ------------------------------------------------------------- | -------- | ---- | ----------------------------------------------------------------------------- | - | ---------------------------------------------------------------------------- | ---- | --------------------------- | --------------------------------------------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------ | -------- | - | ---- | - | -------- | - |  | ---------------- |  | - | --- |  | - | ---
|Derivative         |                            | Amount of Gain or (Loss)Recognized in
AOCI(Effective Portion) |          |      | Location of Gainor (Loss)Reclassified fromAOCI into
Income(Effective Portion) |   | Amount of Gain or
(Loss)Reclassifiedfrom AOCI into Income(Effective Portion) |      |                             | Location of Gainor (Loss) Recognizedin Income (IneffectivePortion
and AmountExcluded fromEffectiveness Testing) |      | Amount of Gain or(Loss) Recognized inIncome(Ineffective Portion
andAmountExcluded fromEffectiveness Testing)
|                   | Three Months EndedJune 30, |                                                               |          |      | Three Months EndedJune 30,                                                    |   |                                                                              |      | Three Months EndedJune 
30,
|                   | 2010                       |                                                               |          | 2009 |                                                                               |   |                                                                              | 2010 |                             |                                                                                                                 | 2009 |                                                                                                              |          |   | 2010 |   | 2009    
|Interest rate swap |                            | $                                                             | (323,790 | )    |                                                                               | $ | (227,271                                                                     | )    |                             | Interest expense                                                                                                |      | $                                                                                                            | (881,343 | ) |      | $ | (946,369 | ) |  | Interest Expense |  | $ | 675 |  | $ | 157
|                   |                            |                                                               |          |      |                                                                               |   |                                                                              |      |                             |                                                                                                                 |      |                                                                                                              |          |   |      |   |          |   |  |                  |  |   |     |  |   |    
|Total              |                            | $                                                             | (323,790 | )    |                                                                               | $ | (227,271                                                                     | )    |                             | Total                                                                                                           |      | $                                                                                                            | (881,343 | ) |      | $ | (946,369 | ) |  | Total            |  | $ | 675 |  | $ | 157
|                   |                            |                                                               |          |      |                                                                               |   |                                                                              |      |                             |                                                                                                                 |      |                                                                                                              |          |   |      |   |          |   |  |                  |  |   |     |  |   |    



|                   |                          |                                                               |          |                                                                                |  |                                                                              |        |                           |                                                                                                                 |      |                                                                                                              |            |   |      |   |            |   |  |                  |  |   |       |  |   |      
|------------------ | ------------------------ | ------------------------------------------------------------- | -------- | ------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------- | ------ | ------------------------- | --------------------------------------------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------ | ---------- | - | ---- | - | ---------- | - |  | ---------------- |  | - | ----- |  | - | -----
|Derivative         |                          | Amount of Gain or(Loss) Recognized inAOCI (Effective Portion) |          | Location of Gain or(Loss)
Reclassifiedfrom AOCI into Income(Effective Portion) |  | Amount of Gain or
(Loss)Reclassifiedfrom AOCI into Income(Effective Portion) |        |                           | Location of Gain or(Loss) Recognizedin Income (IneffectivePortion and
AmountExcluded fromEffectiveness Testing) |      | Amount of Gain or(Loss) Recognizedin Income(Ineffective 
Portionand AmountExcluded fromEffectivenessTesting)
|                   | Six Months
EndedJune 30, |                                                               |          | Six Months
EndedJune 30,                                                       |  |                                                                              |        | Six Months EndedJune 
30,
|                   | 2010                     |                                                               |          | 2009                                                                           |  |                                                                              | 2010   |                           |                                                                                                                 | 2009 |                                                                                                              |            |   | 2010 |   | 2009      
|Interest rate swap |                          | $                                                             | (919,138 | )                                                                              |  | $                                                                            | 80,549 |                           | Interest expense                                                                                                |      | $                                                                                                            | (1,762,641 | ) |      | $ | (1,719,572 | ) |  | Interest Expense |  | $ | 1,238 |  | $ | 1,217
|                   |                          |                                                               |          |                                                                                |  |                                                                              |        |                           |                                                                                                                 |      |                                                                                                              |            |   |      |   |            |   |  |                  |  |   |       |  |   |      
|Total              |                          | $                                                             | (919,138 | )                                                                              |  | $                                                                            | 80,549 |                           | Total                                                                                                           |      | $                                                                                                            | (1,762,641 | ) |      | $ | (1,719,572 | ) |  | Total            |  | $ | 1,238 |  | $ | 1,217
|                   |                          |                                                               |          |                                                                                |  |                                                                              |        |                           |                                                                                                                 |      |                                                                                                              |            |   |      |   |            |   |  |                  |  |   |       |  |   |      



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



5. Property and Equipment

Property and equipment consisted of the following:



|                                               |  |               |             |   |                   |   |             |  
|---------------------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                               |  | June 30, 2010 |             |   | December 31, 2009 |  
|Computer equipment and software                |  | $             | 20,755,225  |   |                   | $ | 19,453,679  |  
|Furniture and fixtures                         |  |               | 6,163,105   |   |                   |   | 6,096,969   |  
|Office equipment                               |  |               | 4,090,905   |   |                   |   | 4,087,986   |  
|Leasehold improvements                         |  |               | 2,255,542   |   |                   |   | 2,456,788   |  
|Equipment under capital leases                 |  |               | 278,460     |   |                   |   | 278,459     |  
|                                               |  |               |             |   |                   |   |             |  
|Total property and equipment, at cost          |  |               | 33,543,237  |   |                   |   | 32,373,881  |  
|Less accumulated depreciation and amortization |  |               | (19,640,857 | ) |                   |   | (17,852,215 | )
|                                               |  |               |             |   |                   |   |             |  
|Net property and equipment                     |  | $             | 13,902,380  |   |                   | $ | 14,521,666  |  
|                                               |  |               |             |   |                   |   |             |  

6. Share-Based Compensation

The Company adopted a stock incentive plan (the Stock Incentive Plan) during February 2004 that authorizes use of stock
options, stock appreciation rights, restricted stock grants and units, performance share awards and annual incentive awards to eligible key associates, non-associate directors and consultants. The Company reserved 3,700,000 shares of common stock
for issuance in conjunction with share-based awards to be granted under the plan of which 2,187,243 shares remain available to be granted as of June 30, 2010. The purpose of the plan is (i) to promote the best interests of the Company and
its stockholders by encouraging associates and other participants to acquire an ownership interest in the Company, thus aligning their interests with those of stockholders and (ii) to enhance the ability of the Company to attract and retain
qualified associates, non-associate directors and consultants. No participant may be granted options during any one fiscal year to purchase more than 500,000 shares of common stock.

Based on historical experience, the Company uses an annual forfeiture rate of 15% for associate grants. Grants made to non-associate
directors have no forfeiture rates associated with them due to immediate vesting of grants to this group.

The share-based
compensation expense and related tax benefits were as follows:



|                                 |  |                            |         |                          |   |         |  |      |         |  |   |        
|-------------------------------- |  | -------------------------- | ------- | ------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                                 |  | Three Months EndedJune 30, |         | Six Months EndedJune 30,
|                                 |  | 2010                       |         | 2009                     |   | 2010    |  | 2009
|Share-based compensation expense |  | $                          | 479,435 |                          | $ | 524,412 |  | $    | 698,444 |  | $ | 761,230
|Tax benefits                     |  |                            | 190,225 |                          |   | 207,374 |  |      | 276,444 |  |   | 295,814

The Companys
share-based compensation arrangements are described below.

Stock Options

The Company utilizes the Whaley Quadratic approximation model, an intrinsic value method, to calculate the fair value of stock awards on
the date of grant using the assumptions noted in the following table. Changes to the subjective input assumptions can result in different fair market value estimates. With regard to the Companys assumptions stated below, the expected
volatility is based on the historical volatility of the Companys stock and managements estimate of the volatility over the contractual term of the options. The expected term of the options are based on managements estimate of the
period of time for which the options are expected to be outstanding. The risk-free rate is derived from the five-year U.S. Treasury yield curve on the date of grant.

The following table summarizes the assumptions used to determine the fair value of stock options granted:



|                    |  |               |  |              
|------------------- |  | ------------- |  | -------------
|Options issue year: |  | 2010          |  | 2009         
|Expected volatility |  | 57.20%-59.90% |  | 51.37%-54.53%
|Expected dividends  |  | 0.00%         |  | 0.00%        
|Expected term       |  | 4 Years       |  | 5 Years      
|Risk-free rate      |  | 2.20%-2.42%   |  | 1.98%-2.06%  



14



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



As of June 30, 2010, the Company had options outstanding for 1,042,500 shares of
its common stock under the Stock Incentive Plan. These options have been granted to key associates and non-associate directors of the Company. Option awards are generally granted with an exercise price equal to the market price of the Companys
stock at the date of grant and have contractual terms ranging from seven to ten years. The options granted to key associates generally vest between one and five years from the grant date, whereas the options granted to non-associate directors
generally vest immediately. The fair value of stock options is expensed on a straight-line basis over the vesting period.

The
related compensation expense was as follows:



|                            |  |                            |         |                          |   |         |  |      |         |  |   |        
|--------------------------- |  | -------------------------- | ------- | ------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                            |  | Three Months EndedJune 30, |         | Six Months EndedJune 30,
|                            |  | 2010                       |         | 2009                     |   | 2010    |  | 2009
|Administrative expenses (1) |  | $                          | 147,297 |                          | $ | 166,937 |  | $    | 147,297 |  | $ | 166,937
|Salaries and benefits (2)   |  |                            | 99,479  |                          |   | 85,634  |  |      | 197,903 |  |   | 160,075
|                            |  |                            |         |                          |   |         |  |      |         |  |   |        
|Total                       |  | $                          | 246,776 |                          | $ | 252,571 |  | $    | 345,200 |  | $ | 327,012
|                            |  |                            |         |                          |   |         |  |      |         |  |   |        



|(1) | Administrative expenses include amounts for non-associate directors.
|--- | --------------------------------------------------------------------

|(2) | Salaries and benefits include amounts for associates.
|--- | -----------------------------------------------------

The following table summarizes all stock option transactions from January 1, 2010 through June 30, 2010:



|                             |  |                    |   |  |                                |       |                                           |      |                         |   |        
|---------------------------- |  | ------------------ | - |  | ------------------------------ | ----- | ----------------------------------------- | ---- | ----------------------- | - | -------
|                             |  | OptionsOutstanding |   |  | Weighted-AverageExercise
Price |       | Weighted-AverageRemainingContractual
Term |      | AggregateIntrinsicValue
|                             |  |                    |   |  |                                |       | (In years)                                |      |                        
|Beginning balance            |  | 930,417            |   |  | $                              | 11.54 |                                           |      |                         |   |        
|Granted                      |  | 136,958            |   |  |                                | 6.77  |                                           |      |                         |   |        
|Forfeited or expired         |  | (24,875            | ) |  |                                | 7.56  |                                           |      |                         |   |        
|                             |  |                    |   |  |                                |       |                                           |      |                         |   |        
|Outstanding at June 30, 2010 |  | 1,042,500          |   |  |                                | 11.00 |                                           | 6.24 |                         | $ | 108,003
|                             |  |                    |   |  |                                |       |                                           |      |                         |   |        
|Exercisable at June 30, 2010 |  | 703,324            |   |  | $                              | 13.25 |                                           | 6.16 |                         | $ | 28,070 
|                             |  |                    |   |  |                                |       |                                           |      |                         |   |        

The weighted-average grant date fair value of the
options granted during the six months ended June 30, 2010 and 2009 was $3.17 and $4.17, respectively.

As of
June 30, 2010, there was $805,255 of total unrecognized compensation expense related to nonvested stock options granted under the stock incentive plan, which is comprised of $728,972 for options expected to vest and $76,283 for options not
expected to vest. Unrecognized compensation expense for options expected to vest is expected to be recognized over a weighted-average period of 2.38 years.

Deferred Stock Units

As of June 30, 2010, the Company had granted 47,537 deferred stock units (DSUs) of its common stock to non-associate
directors under the Companys Stock Incentive Plan. DSUs represent the Companys obligation to deliver one share of common stock for each unit at a later date elected by the non-associate director, such as when his or her board service
ends. DSUs vest immediately upon grant and are not subject to forfeiture. DSUs do not have voting rights but would receive common stock dividend equivalents in the form of additional DSUs. The value of each DSU is equal to the market price of the
Companys stock at the date of grant.

The fair value of the DSUs granted is expensed immediately to correspond with the
vesting schedule. The related expense for the three months ended June 30, 2010 and 2009 includes $24,985 and $21,878 in administrative expenses, respectively. The related expense for the six months ended June 30, 2010 and 2009 includes
$49,989 and $43,758 in administrative expenses, respectively.

The following table summarizes all DSU related transactions
from January 1, 2010 through June 30, 2010:



|                  |  |        |  |                                      |     
|----------------- |  | ------ |  | ------------------------------------ | ----
|                  |  | DSUs   |  | Weighted-AverageGrant-DateFair Value
|Beginning balance |  | 39,721 |  | $                                    | 8.39
|Granted           |  | 7,816  |  |                                      | 6.40
|                  |  |        |  |                                      |     
|Ending balance    |  | 47,537 |  | $                                    | 8.06
|                  |  |        |  |                                      |     



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



There was no unrecognized compensation expense related to nonvested DSUs as of
June 30, 2010.

Restricted Shares and Restricted Share Units

The Company grants restricted shares and restricted share units (restricted shares and restricted share units are referred to as
RSUs) to key associates and non-associate directors under the Stock Incentive Plan. Each RSU is equal to one share of the Companys common stock. The value of the RSUs is equal to the market price of the Companys stock at the
date of grant.

The RSUs granted to associates generally vest over two to four years, based upon service or performance
conditions. RSUs granted to non-associate directors generally vest when the non-associate director terminates his or her board service. Of the RSUs outstanding at June 30, 2010, 81,828 granted to associates will vest contingent on the
attainment of performance conditions.

The fair value of the RSUs is expensed on a straight-line basis over the vesting period
based on the number of RSUs that are expected to vest. For RSUs with performance conditions, if those conditions are not expected to be met, the compensation expense previously recognized is reversed. The related compensation expense, net of
reversals, was as follows:



|                            |  |                            |         |                          |   |         |  |      |         |  |   |        
|--------------------------- |  | -------------------------- | ------- | ------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                            |  | Three Months EndedJune 30, |         | Six Months EndedJune 30,
|                            |  | 2010                       |         | 2009                     |   | 2010    |  | 2009
|Administrative expenses (1) |  | $                          | 103,221 |                          | $ | 114,823 |  | $    | 103,221 |  | $ | 114,823
|Salaries and benefits (2)   |  |                            | 104,453 |                          |   | 135,140 |  |      | 200,034 |  |   | 275,637
|                            |  |                            |         |                          |   |         |  |      |         |  |   |        
|Total                       |  | $                          | 207,674 |                          | $ | 249,963 |  | $    | 303,255 |  | $ | 390,460
|                            |  |                            |         |                          |   |         |  |      |         |  |   |        



|(1) | Administrative expenses include amounts for non-associate directors.
|--- | --------------------------------------------------------------------

|(2) | Salaries and benefits include amounts for associates.
|--- | -----------------------------------------------------

The Company issues shares of common stock for RSUs as they vest. The following table summarizes all RSU related transactions from
January 1, 2010 through June 30, 2010:



|                  |  |         |   |  |                                      |      
|----------------- |  | ------- | - |  | ------------------------------------ | -----
|Nonvested RSUs    |  | RSUs    |   |  | Weighted-AverageGrant-DateFair Value
|Beginning balance |  | 232,951 |   |  | $                                    | 8.12 
|Granted           |  | 95,698  |   |  |                                      | 6.41 
|Vested and issued |  | (625    | ) |  |                                      | 13.21
|Forfeited         |  | (21,464 | ) |  |                                      | 7.95 
|                  |  |         |   |  |                                      |      
|Ending balance    |  | 306,560 |   |  | $                                    | 7.58 
|                  |  |         |   |  |                                      |      

As of June 30, 2010, there was $1,547,339 of total unrecognized compensation expense related
to nonvested RSUs, which was comprised of $753,690 for RSUs expected to vest and $793,649 for RSUs not expected to vest. Unrecognized compensation expense for RSUs expected to vest is expected to be recognized over a weighted-average period of 2.36
years.

7. Contingencies

Litigation Contingencies

The Company is involved in certain legal matters that management considers incidental to its business. The Company recognizes liabilities
for contingencies and commitments when a loss is probable and estimable. The Company recognizes expense for defense costs when incurred. The Company does not expect these routine legal matters, either individually or in the aggregate, to have a
material impact on the Companys financial position, results of operations, or cash flows.

As previously reported, the
Federal Trade Commission (FTC) has commenced an investigation into the Companys debt collection practices under the Fair Credit Reporting Act, the Fair Debt Collection Practices Act and the Federal Trade Commission Act and has
provided draft pleadings and a proposed consent decree to the Company. The Company, its



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



counsel and the FTC staff are continuing in their discussions to resolve the matter. Because the discussions with the FTC are ongoing, an estimate of the amount or range of loss cannot be made at
this time, and no accrual has been included in the Companys consolidated financial statements as of June 30, 2010.

Registration Rights Agreement

The Company has a registration rights agreement with certain stockholders. Pursuant to the agreement, the Company will pay all costs
related to any secondary securities offering requested by these stockholders and the stockholders may sell any outstanding shares owned by them. The Company filed a registration statement on behalf of one of the selling stockholders in 2008 to
register 10,932,051 shares of common stock held by the stockholder and paid $45,246 in costs related to the registration statement. The selling stockholders collectively retain the right to request two additional registrations of specified shares
under the registration rights agreement, in which case, the Company will be required to bear applicable offering expenses in the period in which any future offering occurs.

8. Fair Value

The
Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:



|        |  |   |  |                                                                                                                                                                                                                                                                             
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  |  |  | Valuation is based upon quoted prices for identical instruments traded in active markets.                                                                                                                                                                                   
|        |  |  
|Level 2 |  |  |  | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and
model-based valuation techniques for which all significant assumptions are observable in the market.
|        |  |  
|Level 3 |  |  |  | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of
assumptions that market participants would use in pricing the asset or liability.         

Disclosure of the estimated
fair value of financial instruments often requires the use of estimates. The Company uses the following methods and assumptions to estimate the fair value of financial instruments.



|                             |  |                                                            |           |                                                 |   |                                        |   |           |  |  
|---------------------------- |  | ---------------------------------------------------------- | --------- | ----------------------------------------------- | - | -------------------------------------- | - | --------- |  | -
|                             |  | Total RecordedFair Value 
atJune 30, 2010                  |           | Fair Value Measurements at Reporting Date Using
|                             |  | Quoted Pricesin ActiveMarkets
forIdentical Assets(Level 1) |           | SignificantOtherObservableInputs(Level 2)       |   | SignificantUnobservableInputs(Level 3)
|Interest rate swap liability |  | $                                                          | 3,829,656 |                                                 |  |                                        | $ | 3,829,656 |  | 

The fair
value of the interest rate swap represents the amount the Company would pay to terminate or otherwise settle the contract at the financial position date, taking into consideration current unearned gains and losses. The fair value was determined
using a market approach, and is based on the three-month LIBOR curve for the remaining term of the swap agreement. Refer to Note 4, Derivative Financial Instruments and Risk Management, for additional information about the fair
value of the interest rate swap.

Goodwill and Other Intangible Assets

Goodwill and certain intangible assets not subject to amortization are assessed annually for impairment using fair value measurement
techniques. Specifically, goodwill impairment is determined using a two-step test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its book value, including
goodwill. If the fair value of the reporting unit exceeds its book value, goodwill is considered not impaired and the second step of the impairment test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second step
of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting units goodwill with the book value of that
goodwill. If the book value of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination
and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The estimate of fair value of the Companys goodwill is determined using various
valuation techniques including market capitalization, which is a Level 1 input, and an analysis of discounted cash flows, which includes Level 3 inputs. At the time of the annual goodwill impairment test in the fourth quarter of 2009, market
capitalization was substantially higher than book value. A discounted cash flow analysis was also performed as of December 31, 2009 for the purchased receivables operating segment. A discounted cash flow analysis requires various judgmental
assumptions including assumptions about future cash flows, growth rates, and discount rates. The Company based assumptions about future cash flows and growth rates on its budget and long-term plans. Discount rate assumptions are based on an
assessment of the risk inherent in the reporting unit. Given recent declines in the Companys stock price, a discounted cash flow analysis was also performed as of June 30, 2010. The fair value of goodwill using a discounted cash flow analysis
exceeded the book value as of June 30, 2010 and therefore, goodwill was not considered to be impaired.

The annual
impairment test for other intangible assets not subject to amortization, for example, trademark and trade names, consists of a comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible
asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using various discounted cash flow valuation methodologies,
which include Level 3 inputs. Significant assumptions are inherent in this process, including estimates of discount rates and future cash flows. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible
assets, and include estimates of the cost of debt and equity for market participants in the Companys industry.

During
the third quarter of 2009, the Company completed its periodic valuation of trademark and trade names and determined that the book value exceeded the fair value as a result of a decline in business activity associated with this intangible asset. As a
result, the Company recognized an impairment charge for the difference between the fair value and the book value of $1,167,600.

The following disclosures pertain to the fair value of certain assets and liabilities, which are not measured at fair value in the
accompanying consolidated financial statements.

Purchased Receivables

The Company initially records purchased receivables at cost, which is discounted from the contractual receivable balance. The balance of
purchased receivables is reduced as cash is received in accordance with the Interest Method. The carrying value of receivables was $325,380,271 and $319,772,006 at June 30, 2010 and December 31, 2009, respectively. The Company computes the
fair value of purchased receivables by discounting the estimated future cash flows generated by its forecasting model using an adjusted weighted-average cost of capital. The fair value of purchased receivables approximated the carrying value at both
June 30, 2010 and December 31, 2009.

Credit Facilities

The Companys Credit Facilities had carrying amounts of $167,359,956 and $160,022,514 as of June 30, 2010 and December 31,
2009, respectively. The fair value of the Credit Facilities approximated carrying value at both June 30, 2010 and December 31, 2009, respectively. The Company computed the fair value of its Credit Facilities based on quoted market prices,
current market rates for similar debt with approximately the same remaining maturities or discounted cash flow models utilizing current market rates.

9. Income Taxes

The
Company recorded income tax expense of $509,408 and $642,917 for the three months ended June 30, 2010 and 2009, respectively, and $740,890 and $3,460,914 for the six months ended June 30, 2010 and 2009, respectively. The provision for
income tax expense reflects an effective income tax rate of 39.7% and 43.3% for the three months ended June 30, 2010 and 2009, respectively, and 39.6% and 38.9% for the six months ended June 30, 2010 and 2009, respectively.



18



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



As of June 30, 2010, the Company had a gross unrecognized tax benefit of $1.0
million that, if recognized, would result in a net tax benefit of approximately $0.7 million which would have a positive impact on net income and the effective tax rate. During the three and six months ended June 30, 2010, there were no
material changes to the unrecognized tax benefit. Since January 1, 2009, the Company has accrued interest related to the unrecognized tax benefits of approximately $161,000, which has been classified as income tax expense in the accompanying
consolidated statements of operations.

The federal income tax returns of the Company for the years 2006-2009 are subject to
examination by the IRS, generally for three years after the latter of their extended due date or when they are filed. The state income tax returns of the Company are subject to examination by the state taxing authorities, for various periods
generally up to four years.

10. Subsequent Event

On July 29, 2010, the Company filed a current report with the SEC on Form 8-K reporting its commitment to exit the healthcare accounts
receivable purchase and collection business conducted by its Premium Asset Recovery Corporation (PARC) subsidiary by selling its healthcare receivables to a third party. In conjunction with this transaction, the Company will close its
Deerfield Beach, Florida office housing that subsidiary and incur approximately $1.3 million in restructuring charges. This includes employee termination benefits of approximately $0.2 million, contract termination costs of approximately $0.1
million for the remaining lease payments on the Deerfield Beach office, accelerated depreciation charges on furniture and equipment of approximately $0.1 million, write-off of intangible assets of approximately $0.8 million and other exit costs of
approximately $0.1 million. The employee termination benefits, contract termination costs and other exit costs will require the outlay of cash, while the accelerated depreciation and write-off of intangible assets represent non-cash charges.

The decision to sell the healthcare receivables and close the PARC subsidiary was made in the third quarter of 2010 and
accordingly the financial impact is not reflected in the accompanying June 30, 2010 financial statements. The actions to close this office are expected to be substantially complete by December 31, 2010.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Company Overview

We have been purchasing and collecting charged-off accounts receivable portfolios from consumer credit originators since the formation of
our predecessor company in 1962. Charged-off receivables are the unpaid obligations of individuals to credit originators, such as credit card issuers including private label card issuers, consumer finance companies, healthcare providers,
telecommunications and utility providers. Since these receivables are delinquent or past due, we purchase them at a substantial discount to face value. Since January 1, 2000, we purchased 1,159 consumer debt portfolios, with an original
charged-off face value of $42.7 billion for an aggregate purchase price of $1.0 billion, or 2.52% of face value, net of buybacks. We purchase and collect charged-off consumer receivable portfolios for our own account as we believe this affords us
the best opportunity to use long-term strategies to maximize our profits.

Macro-economic factors continue to impact our
results of operations both positively and negatively. Factors such as reduced availability of credit for consumers, a depressed housing market, elevated unemployment rates and other factors have a negative impact on us by making it more difficult to
collect from consumers on the charged-off accounts receivable portfolios (paper) we have acquired. Conversely, as a result of these negative macro-economic factors, the supply of available paper has increased while prices we pay have
remained at lower levels than in recent years. Lately we have observed indicators that some of these trends are starting to reverse. For example, we are observing increased competition for available paper coupled with slightly higher pricing.

Our cash collections are typically higher in the first half of the year because of tax refunds and other factors. However,
first half 2010 collections declined when compared to the same period in 2009 as a result of the continuing difficult collections environment. First half 2010 collections have also been negatively impacted by the 21.3% reduction in purchasing in
2009 when compared to 2008 because collections on portfolios are usually the strongest six to 18 months after purchase. Collections were positively impacted in the quarter by further expansion of our relationship with a third party agency in India.

Our levels of purchasing were significantly higher in the first half of 2010 as compared to the same period in 2009; however,
we have not felt the full benefit of that increase on collections because of the lag between the time of purchase and peak collections. We amended our credit agreement in the second quarter of 2010, which significantly increased our ability to
borrow on our Revolving Credit Facility. That increased capacity provides us the opportunity to buy paper at higher levels that we did in 2009.

In the fourth quarter of 2009, we recorded a $32.4 million impairment on our purchased receivables, primarily on the 2006 and older
vintages, because we determined that the IRRs assigned to our portfolios were too high in relation to the timing or amount of estimated remaining collections. During the first half of 2010, we exceeded our revised collection forecasts for certain
portfolios. That consistent performance against expectations allowed us to recognize yield increases on select portfolios and reverse certain previously recorded impairments. As a result of these actions, revenues and purchased receivable
amortization were favorable in the second quarter of 2010 as compared to the same period of 2009, during which we recorded $6.8 million in net impairment charges. If collections continue to exceed our expectations, we may increase IRRs or reverse
previous impairments on certain portfolios. However, if collections do not continue to meet expectations, we may be required to record additional impairments.

We continue to review our business and operations and to look for opportunities to become more efficient. In July 2010, we completed the
purchase of substantially all of the assets of BSI eSolutions, LLC, a software vendor, including its debt collection software, which we are implementing to replace our legacy debt collection software platform. We made the acquisition to protect our
investment in the software we acquired and to enhance our ability to successfully implement it. We expect the acquisition to have a neutral impact to net income for the remainder of 2010 and 2011.

In addition, on July 29, 2010, we filed a current report with the SEC on Form 8-K reporting our commitment to exit the healthcare
accounts receivable purchase and collection business conducted by our PARC subsidiary by selling our healthcare receivables to a third party for expected proceeds between $1.0 million and $1.5 million. The corresponding gain on the sale, based on
the June 30, 2010 receivables balances, would be between approximately $0.4 million and $0.9 million. In conjunction with this transaction, we will close our Deerfield Beach, Florida office housing that subsidiary and will incur approximately $1.3
million in restructuring charges. Restructuring charges include employee termination benefits of approximately $0.2 million, contract termination costs of approximately $0.1 million for the remaining lease payments on the Deerfield Beach
office, accelerated depreciation charges on furniture and equipment of approximately $0.1 million, write-off of intangible assets of approximately $0.8 million and other exit costs of approximately $0.1 million. The employee termination
benefits, contract termination costs and other exit costs will require the outlay of cash, while the accelerated depreciation and write-off of intangible assets represent non-cash charges.



20



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##### Table of Contents

For the three and six months ended June 30, 2010, we collected $1.6 million and $3.5
million, respectively, on the healthcare receivables. We expect operating expenses to decline by approximately $2.5 million per year starting in 2011. In addition, the transaction will result in a one-time tax benefit of approximately $4.7 million
in the third quarter of 2010, depending upon the final proceeds from the sale of the healthcare receivables.

The decision to
sell our healthcare receivables assets and to close the PARC subsidiary was made in the third quarter of 2010 and accordingly the financial impact is not reflected in our June 30, 2010 financial statements. The actions to close this office are
expected to be substantially complete by December 31, 2010 with majority of these restructuring activities and outlay of cash to occur at this time.

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties and that are made in good faith pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements about future events or our future financial performance. In some cases, forward-looking statements
can be identified by terminology such as may, will, should, expect, anticipate, intend, plan, believe, estimate, potential or
continue, the negative of these terms or other comparable terminology. These statements involve a number of risks and uncertainties. Actual events or results may differ materially from any forward-looking statement as a result of various
factors, including those we discuss in our annual report on Form 10-K for the year ended December 31, 2009 in the section titled Risk Factors and elsewhere in this report.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to
changes in our expectations. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include the following:



| |  |  | instability in the financial markets and a prolonged economic recession limiting our ability to access capital and to acquire and collect on
charged-off receivable portfolios;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to maintain existing, and to secure additional financing on acceptable terms;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | a decrease in collections if changes in or enforcement of debt collection laws impair our ability to collect, including any unknown ramifications from
the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | failure to comply with government regulation, including our ability to successfully conclude the on-going FTC matter;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | a decrease in collections as a result of negative attention or news regarding the debt collection industry and debtors willingness to pay the
debt we acquire;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the costs, uncertainties and other effects of legal and administrative proceedings impacting our ability to collect on judgments in our favor;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ongoing risks of litigation in our litigious industry, including individual and class actions under consumer credit, collections and other laws;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to substantiate our application of tax rules against examinations and challenges made by tax authorities;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to make reasonable estimates of the timing and amount of future cash receipts and values and assumptions underlying the calculation
of the net impairment charges for purposes of recording purchased receivable revenues;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to respond to changes in technology to remain competitive, including our ability to successfully complete the conversion of our legacy debt
collection platform to a different software system;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | our ability to successfully hire, train, integrate into our collections operations and retain in-house account representatives;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully seek opportunities to diversify beyond collecting on our purchased receivables portfolios;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to acquire and to collect on charged-off receivable portfolios in industries in which we have little or no experience;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | any significant and unanticipated changes in circumstances leading to goodwill impairment or other impairment of intangible asset, which, in turn,
could adversely impact earnings and reduce our net worth; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other unanticipated events and conditions that may hinder our ability to compete.
| | - |  | ---------------------------------------------------------------------------------



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##### Table of Contents

Results of Operations

The following table sets forth selected consolidated statements of operations data expressed as a percentage of total revenues and as a
percentage of cash collections for the periods indicated.



|                                               |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|---------------------------------------------- |  | -------------------------- | - |  | --------------------------- | - |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                               |  | Percent of Total Revenues  |   |  | Percent of Cash Collections |  
|                                               |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30,    |   |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                               |  | 2010                       |   |  | 2009                        |   |  | 2010                       |   |  | 2009                     |   |  | 2010 |   |  | 2009 |   |  | 2010 |   |  | 2009 |  
|Revenues                                       |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Purchased receivable revenues, net             |  | 99.4                       | % |  | 99.5                        | % |  | 99.3                       | % |  | 99.5                     | % |  | 60.1 | % |  | 55.9 | % |  | 58.6 | % |  | 58.2 | %
|Gain on sale of purchased receivables          |  | 0.2                        |   |  | 0.0                         |   |  | 0.3                        |   |  | 0.0                      |   |  | 0.2  |   |  | 0.0  |   |  | 0.2  |   |  | 0.0  |  
|Other revenues, net                            |  | 0.4                        |   |  | 0.5                         |   |  | 0.4                        |   |  | 0.5                      |   |  | 0.2  |   |  | 0.3  |   |  | 0.3  |   |  | 0.3  |  
|                                               |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Total revenues                                 |  | 100.0                      |   |  | 100.0                       |   |  | 100.0                      |   |  | 100.0                    |   |  | 60.5 |   |  | 56.2 |   |  | 59.1 |   |  | 58.5 |  
|                                               |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Expenses                                       |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Salaries and benefits                          |  | 36.7                       |   |  | 37.4                        |   |  | 37.2                       |   |  | 36.0                     |   |  | 22.2 |   |  | 21.0 |   |  | 22.0 |   |  | 21.1 |  
|Collections expense                            |  | 45.3                       |   |  | 44.1                        |   |  | 46.1                       |   |  | 41.3                     |   |  | 27.4 |   |  | 24.8 |   |  | 27.3 |   |  | 24.2 |  
|Occupancy                                      |  | 3.3                        |   |  | 3.8                         |   |  | 3.4                        |   |  | 3.5                      |   |  | 2.0  |   |  | 2.1  |   |  | 2.0  |   |  | 2.0  |  
|Administrative                                 |  | 4.3                        |   |  | 4.5                         |   |  | 3.8                        |   |  | 4.3                      |   |  | 2.6  |   |  | 2.6  |   |  | 2.3  |   |  | 2.5  |  
|Depreciation and amortization                  |  | 2.3                        |   |  | 2.0                         |   |  | 2.3                        |   |  | 1.7                      |   |  | 1.4  |   |  | 1.1  |   |  | 1.3  |   |  | 1.0  |  
|Loss on disposal of equipment and other assets |  | 0.0                        |   |  | 0.0                         |   |  | 0.0                        |   |  | 0.0                      |   |  | 0.0  |   |  | 0.0  |   |  | 0.0  |   |  | 0.0  |  
|                                               |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Total operating expenses                       |  | 91.9                       |   |  | 91.8                        |   |  | 92.8                       |   |  | 86.8                     |   |  | 55.6 |   |  | 51.6 |   |  | 54.9 |   |  | 50.8 |  
|                                               |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Income from operations                         |  | 8.1                        |   |  | 8.2                         |   |  | 7.2                        |   |  | 13.2                     |   |  | 4.9  |   |  | 4.6  |   |  | 4.2  |   |  | 7.7  |  
|Other income (expense)                         |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Interest expense                               |  | (5.7                       | ) |  | (5.0                        | ) |  | (5.4                       | ) |  | (4.8                     | ) |  | (3.4 | ) |  | (2.8 | ) |  | (3.2 | ) |  | (2.8 | )
|Interest income                                |  | 0.0                        |   |  | 0.0                         |   |  | 0.0                        |   |  | 0.0                      |   |  | 0.0  |   |  | 0.0  |   |  | 0.0  |   |  | 0.0  |  
|Other                                          |  | 0.1                        |   |  | (0.2                        | ) |  | 0.0                        |   |  | 0.0                      |   |  | 0.0  |   |  | (0.1 | ) |  | 0.1  |   |  | 0.0  |  
|                                               |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Income before income taxes                     |  | 2.5                        |   |  | 3.0                         |   |  | 1.8                        |   |  | 8.4                      |   |  | 1.5  |   |  | 1.7  |   |  | 1.1  |   |  | 4.9  |  
|Income tax expense                             |  | 1.0                        |   |  | 1.3                         |   |  | 0.7                        |   |  | 3.3                      |   |  | 0.6  |   |  | 0.7  |   |  | 0.4  |   |  | 1.9  |  
|                                               |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Net income                                     |  | 1.5                        | % |  | 1.7                         | % |  | 1.1                        | % |  | 5.1                      | % |  | 0.9  | % |  | 1.0  | % |  | 0.7  | % |  | 3.0  | %
|                                               |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  

Three Months Ended June 30, 2010 Compared To Three Months Ended June 30, 2009

Revenue

We generate substantially all of our revenue from our main line of business, the purchase and collection of charged-off consumer
receivables. We refer to revenue generated from this line of business as purchased receivable revenues. Purchased receivable revenues is the difference between cash collections and amortization of purchased receivables.

The following table summarizes our purchased receivable revenues including cash collections and amortization:



|                                   |  |                             |      |      |                                                            |        |  |   |                  |   |  |       |    |  |       |   |  |       |  
|---------------------------------- |  | --------------------------- | ---- | ---- | ---------------------------------------------------------- | ------ |  | - | ---------------- | - |  | ----- | -- |  | ----- | - |  | ----- | -
|                                   |  | Three Months Ended June 30, |      |      | Percentage of Cash 
CollectionsThree Months Ended June 30, |       
|(in millions)                      |  | 2010                        |      | 2009 |                                                            | Change |  |   | PercentageChange |   |  | 2010  |    |  | 2009  |  
|Cash collections                   |  | $                           | 84.2 |      | $                                                          | 87.3   |  | $ | (3.1             | ) |  | (3.5  | )% |  | 100.0 | % |  | 100.0 | %
|Purchased receivable amortization  |  |                             | 33.6 |      |                                                            | 38.5   |  |   | (4.9             | ) |  | (12.7 | )  |  | 39.9  |   |  | 44.1  |  
|Purchased receivable revenues, net |  |                             | 50.6 |      |                                                            | 48.8   |  |   | 1.8              |   |  | 3.7   |    |  | 60.1  |   |  | 55.9  |  

We
believe that the decrease in cash collections is primarily a result of macro-economic factors that continue to affect consumers liquidity and their ability to repay their obligations, and is also due to lower levels of purchasing in 2009.
Macro-economic factors reducing consumers ability to pay include the three-month average unemployment rate, which increased from 9.3% in June 2009 to 9.7% in June 2010, a depressed housing market and a continued tight credit environment for
consumers, among other factors. During 2009, we invested 21.3% less in purchased receivables than we did in 2008. Generally, collections are strongest on portfolios six months to 18 months after purchase; therefore, the reduction in purchasing is
having a negative impact on collections in the second quarter of 2010 when compared to the prior year. Cash collections include collections from fully amortized portfolios of $13.8 million and $15.8 million for 2010 and 2009, respectively, of which
100% were reported as revenue.



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##### Table of Contents

Purchased receivable revenues fluctuate based on changes in the balance of purchased
receivables, the IRR associated with each portfolio and the amount of net impairments recognized. Impairments are generated when current yields assigned to portfolios are too high in relation to the timing and/or amount of current or future
collections. When cash collections decline a larger portion of collections is allocated to revenue and less is allocated to amortization of portfolio balances. Portfolio balances that amortize too slowly in relation to current or expected
collections lead to impairments, which increase the amount of amortization and offset revenue. Conversely, when the timing or amount of collections exceed expectations amortization will increase. If portfolio balances amortize too quickly and we
expect collections to continue to exceed expectations, we may reverse previously recognized impairments, or if there are no impairments to reverse, we may increase the assigned yields.

The amortization rate of 39.9% for the second quarter of 2010 was 4.2 percentage points lower than the amortization rate of 44.1% for the
same period of 2009. The improvement in the amortization rate is primarily due to the impact of yield increases on select portfolios, including certain pools within the 2007 to 2009 vintage years, and the $1.1 million net reversal of impairments,
including certain pools within the 2004 to 2006 vintage years, recognized in the second quarter of 2010. The yield increases and impairment reversals were a result of cash collections in excess of expectations on certain portfolios during the first
half of 2010, which resulted in higher than expected amortization on these portfolios. In contrast, the amortization rate in the second quarter of 2009 was negatively impacted by net impairments of $6.8 million which was a result of a significant
decrease in expectations for future collections on certain portfolios. The lower amortization rate in the second quarter of 2010 had the effect of increasing purchased receivable revenues even though collections were lower than during the prior year
period. Refer to Supplemental Performance Data on Page 30 for a summary of purchased receivable revenues and amortization rates by year of purchase.

Revenues on portfolios purchased from our top three sellers during vintage years 1993 through 2010 were $19.0 million and $14.2 million
during the three months ended June 30, 2010 and 2009, respectively. The top three sellers were the same in both three month periods.

Investments in Purchased Receivables

We generate revenue from our investments in portfolios of charged-off consumer accounts receivable. Ongoing investments in purchased
receivables are critical to continued generation of revenues. From period to period, we may buy charged-off receivables of varying age, types and demographics. As a result, the cost of our purchases, as a percent of face value, may fluctuate from
one period to the next. Total purchases consisted of the following:



|                                                     |  |                             |         |   |      |   |       |        |  |                  |       |  |       |  
|---------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ----- | ------ |  | ---------------- | ----- |  | ----- | -
|                                                     |  | Three Months Ended June 30, |        
|(in millions, net of buybacks)                       |  | 2010                        |         |   | 2009 |   |       | Change |  | PercentageChange |      
|Acquisitions of purchased receivables, at cost       |  | $                           | 48.6    |   |      | $ | 19.6  |        |  | $                | 29.0  |  | 147.5 | %
|Acquisitions of purchased receivables, at face value |  | $                           | 1,502.4 |   |      | $ | 716.5 |        |  | $                | 785.9 |  | 109.7 | %
|Percentage of face value                             |  |                             | 3.24    | % |      |   | 2.74  | %      |  |                  |       |  |       |  

Our investment in purchased receivables increased in the second quarter of 2010, which is
consistent with our strategy to significantly increase purchasing levels compared to the prior year. During 2009, we lowered overall purchasing and deferred a significant portion to the second half of the year in order to take advantage of declining
pricing. As a result of fluctuations in the mix of purchases of receivables, the costs of our purchases, as a percent of face value, fluctuate from one period to the next and are not always indicative of our estimates of total return.

Investments under Forward Flow Contracts

Forward flow contracts commit a debt seller to sell a steady flow of charged-off receivables to us, and commit us to purchase receivables
for a fixed percentage of the face value. Forward flow contracts may be attractive to us because they provide operational advantages from the consistent amount and type of accounts acquired.



24



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Forward flow purchases consisted of the following:



|                                                                        |  |                             |       |   |      |   |       |        |  |   |                  |   |  |       |   
|----------------------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | ------ |  | - | ---------------- | - |  | ----- | --
|                                                                        |  | Three Months Ended June 30, |      
|(in millions, net of buybacks)                                          |  | 2010                        |       |   | 2009 |   |       | Change |  |   | PercentageChange |  
|Forward flow purchases, at cost                                         |  | $                           | 13.1  |   |      | $ | 14.2  |        |  | $ | (1.1             | ) |  | (8.0  | )%
|Forward flow purchases, at face value                                   |  | $                           | 332.5 |   |      | $ | 491.3 |        |  | $ | (158.8           | ) |  | (32.3 | )%
|Percentage of face value                                                |  |                             | 3.94  | % |      |   | 2.90  | %      |  |   |                  |   |  |       |   
|Percentage of forward flow purchases, at cost of total purchasing       |  |                             | 27.0  | % |      |   | 72.5  | %      |  |   |                  |   |  |       |   
|Percentage of forward flow purchases, at face value of total purchasing |  |                             | 22.1  | % |      |   | 68.6  | %      |  |   |                  |   |  |       |   

Investments in forward flow contracts were lower in the second quarter of 2010 than in the same
period of 2009 as a result of the timing, number of portfolios purchased and average size of each purchase made under these agreements. Purchases from forward flows in 2010 included 24 portfolios from nine forward flow contracts. Purchases from
forward flows in 2009 included 17 portfolios from seven forward flow contracts.

Operating Expenses

Operating expenses are traditionally measured in relation to revenues. However, our industry measures operating expenses in relation to
cash collections. We believe this is appropriate because amortization rates, the difference between cash collections and revenues recognized, vary from period to period. Amortization rates vary due to seasonality of collections, impairments and
other factors and can distort the analysis of operating expenses when measured against revenues. Additionally, we believe that the majority of our operating expenses are variable in relation to cash collections.

The following table summarizes the significant components of our operating expenses:



|                         |  |                             |      |      |                                                            |        |  |   |                  |   |  |      |   |  |      |   |  |      |  
|------------------------ |  | --------------------------- | ---- | ---- | ---------------------------------------------------------- | ------ |  | - | ---------------- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                         |  | Three Months Ended June 30, |      |      | Percentage of Cash 
CollectionsThree Months Ended June 30, |       
|(in millions)            |  | 2010                        |      | 2009 |                                                            | Change |  |   | PercentageChange |   |  | 2010 |   |  | 2009 |  
|Salaries and benefits    |  | $                           | 18.7 |      | $                                                          | 18.4   |  | $ | 0.3              |   |  | 1.6  | % |  | 22.2 | % |  | 21.0 | %
|Collections expense      |  |                             | 23.1 |      |                                                            | 21.6   |  |   | 1.5              |   |  | 6.6  |   |  | 27.4 |   |  | 24.8 |  
|Administrative           |  |                             | 2.2  |      |                                                            | 2.2    |  |   |                 |   |  | (1.2 | ) |  | 2.6  |   |  | 2.6  |  
|Other                    |  |                             | 2.8  |      |                                                            | 2.9    |  |   | (0.1             | ) |  | 0.9  |   |  | 3.4  |   |  | 3.2  |  
|                         |  |                             |      |      |                                                            |        |  |   |                  |   |  |      |   |  |      |   |  |      |  
|Total operating expenses |  | $                           | 46.8 |      | $                                                          | 45.1   |  | $ | 1.7              |   |  | 3.8  | % |  | 55.6 | % |  | 51.6 | %
|                         |  |                             |      |      |                                                            |        |  |   |                  |   |  |      |   |  |      |   |  |      |  

Salaries and Benefits.The following table summarizes the significant components of our salaries and
benefits expense:



|                                  |  |                             |      |      |                                                            |        |  |   |                  |   |  |       |   |  |      |   |  |      |  
|--------------------------------- |  | --------------------------- | ---- | ---- | ---------------------------------------------------------- | ------ |  | - | ---------------- | - |  | ----- | - |  | ---- | - |  | ---- | -
|                                  |  | Three Months Ended June 30, |      |      | Percentage of Cash 
CollectionsThree Months Ended June 30, |       
|(in millions)                     |  | 2010                        |      | 2009 |                                                            | Change |  |   | PercentageChange |   |  | 2010  |   |  | 2009 |  
|Compensation - revenue generating |  | $                           | 11.3 |      | $                                                          | 11.1   |  | $ | 0.2              |   |  | 1.7   | % |  | 13.4 | % |  | 12.7 | %
|Compensation - administrative     |  |                             | 4.3  |      |                                                            | 3.6    |  |   | 0.7              |   |  | 20.3  |   |  | 5.1  |   |  | 4.0  |  
|Benefits and other                |  |                             | 3.1  |      |                                                            | 3.7    |  |   | (0.6             | ) |  | (16.4 | ) |  | 3.7  |   |  | 4.3  |  
|                                  |  |                             |      |      |                                                            |        |  |   |                  |   |  |       |   |  |      |   |  |      |  
|Total salaries and benefits       |  | $                           | 18.7 |      | $                                                          | 18.4   |  | $ | 0.3              |   |  | 1.6   | % |  | 22.2 | % |  | 21.0 | %
|                                  |  |                             |      |      |                                                            |        |  |   |                  |   |  |       |   |  |      |   |  |      |  

The increases in compensation were a result of increased variable compensation for management based on
expected achievement of financial and performance objectives, which were not considered achievable during the same period of the prior year. Benefits were favorable to the prior year as we continued our suspension of the Company matching component
of our 401(k) plan.



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##### Table of Contents

Collections Expense.The following table summarizes the significant components of
collections expense and the changes in each:



|                                                |  |                             |      |      |                                                            |        |  |   |                  |   |  |      |   |  |      |   |  |      |  
|----------------------------------------------- |  | --------------------------- | ---- | ---- | ---------------------------------------------------------- | ------ |  | - | ---------------- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                                |  | Three Months Ended June 30, |      |      | Percentage of Cash 
CollectionsThree Months Ended June 30, |       
|(in millions)                                   |  | 2010                        |      | 2009 |                                                            | Change |  |   | PercentageChange |   |  | 2010 |   |  | 2009 |  
|Forwarding fees                                 |  | $                           | 10.2 |      | $                                                          | 9.5    |  | $ | 0.7              |   |  | 8.2  | % |  | 12.1 | % |  | 10.8 | %
|Court and process server costs                  |  |                             | 6.1  |      |                                                            | 5.9    |  |   | 0.2              |   |  | 2.9  |   |  | 7.2  |   |  | 6.8  |  
|Lettering campaign and telecommunications costs |  |                             | 3.9  |      |                                                            | 4.0    |  |   | (0.1             | ) |  | (3.3 | ) |  | 4.6  |   |  | 4.6  |  
|Data provider costs                             |  |                             | 1.5  |      |                                                            | 1.1    |  |   | 0.4              |   |  | 34.1 |   |  | 1.8  |   |  | 1.3  |  
|Other                                           |  |                             | 1.4  |      |                                                            | 1.1    |  |   | 0.3              |   |  | 20.6 |   |  | 1.7  |   |  | 1.3  |  
|                                                |  |                             |      |      |                                                            |        |  |   |                  |   |  |      |   |  |      |   |  |      |  
|Total collections expense                       |  | $                           | 23.1 |      | $                                                          | 21.6   |  | $ | 1.5              |   |  | 6.6  | % |  | 27.4 | % |  | 24.8 | %
|                                                |  |                             |      |      |                                                            |        |  |   |                  |   |  |      |   |  |      |   |  |      |  

Forwarding fees include fees paid to third parties to collect on our behalf including our agency firm in
India. These fees increased in 2010 compared to 2009 because of higher cash collections generated by third parties. Collections from such third party relationships were $29.5 million and $27.6 million, or 35.1% and 31.6% of cash collections, for
2010 and 2009, respectively, primarily driven by continued increases in work allocated to our agency firm in India. Rates paid to forwarding agencies vary based on the age and type of paper that we outsource. Rates also vary based on the mix of work
performed by our agency firm in India, which is generally at a lower percentage than on collections we outsource domestically.

During 2010, our variable collection activities, such as telecommunications, lettering campaigns, and use of data provider services,
increased in total as a result of higher purchasing activities during the first half of 2010 and the fourth quarter of 2009 compared to similar periods of prior years. Generally, these costs are higher in the first six months after purchase of a
portfolio as we ramp up collection activities. Court and process server costs increased in 2010 over 2009 in part due to the increases in recent purchasing noted above. In addition, we have shifted forwarding activity from a third party that incurs
court costs for outsourced accounts on our behalf to third parties for which we expense court costs as incurred.

Income
Taxes. We recognized income tax expense of $0.5 million and $0.6 million for 2010 and 2009, respectively. The 2010 tax expense reflects a federal tax rate of 35.7% and a state tax rate of 4.0% (net of federal tax effect). For 2009, the federal
tax rate was 36.4% and state tax rate was 6.9% (net of federal tax effect). The 0.7 percentage point decrease in the federal tax rate was a result of permanent book versus tax differences and the net effect of state taxes. The 2.9 percentage point
decrease in the state rate was due to changes in apportionment percentages and tax rates among the various states. The overall decrease in tax expense was also impacted by the decrease in pre-tax income, which was $1.3 million for 2010 compared to
$1.5 million for the same period of 2009.

Six Months Ended June 30, 2010 Compared To Six Months Ended
June 30, 2009

Revenue

We generate substantially all of our revenue from our main line of business, the purchase and collection of charged-off consumer
receivables. We refer to revenue generated from this line of business as purchased receivable revenues. Purchased receivable revenues is the difference between cash collections and amortization of purchased receivables.

The following table summarizes our purchased receivable revenues including cash collections and amortization:



|                                   |  |                           |       |      |                                                          |        |  |   |                  |   |  |      |    |  |       |   |  |       |  
|---------------------------------- |  | ------------------------- | ----- | ---- | -------------------------------------------------------- | ------ |  | - | ---------------- | - |  | ---- | -- |  | ----- | - |  | ----- | -
|                                   |  | Six Months Ended June 30, |       |      | Percentage of Cash 
CollectionsSix Months Ended June 30, |       
|(in millions)                      |  | 2010                      |       | 2009 |                                                          | Change |  |   | PercentageChange |   |  | 2010 |    |  | 2009  |  
|Cash collections                   |  | $                         | 173.4 |      | $                                                        | 181.4  |  | $ | (8.0             | ) |  | (4.4 | )% |  | 100.0 | % |  | 100.0 | %
|Purchased receivable amortization  |  |                           | 71.7  |      |                                                          | 75.8   |  |   | (4.1             | ) |  | (5.5 | )  |  | 41.4  |   |  | 41.8  |  
|Purchased receivable revenues, net |  |                           | 101.7 |      |                                                          | 105.6  |  |   | (3.9             | ) |  | (3.6 | )  |  | 58.6  |   |  | 58.2  |  



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We believe that the decrease in cash collections is primarily a result of macro-economic
factors that continue to affect consumers liquidity and their ability to repay their obligations, and is also due to lower levels of purchasing in 2009. Macro-economic factors reducing consumers ability to pay include the six-month
average unemployment rate, which increased from 8.7% in June 2009 to 9.7% in June 2010, a depressed housing market and a continued tight credit environment for consumers, among other factors. During 2009, we invested 21.3% less in purchased
receivables than we did in 2008. Generally, collections are strongest on portfolios six months to 18 months after purchase, therefore, the reduction in purchasing is having a negative impact on collections in the first half of 2010 when compared to
the prior year. Cash collections include collections from fully amortized portfolios of $28.8 million and $34.1 million for 2010 and 2009, respectively, of which 100% were reported as revenue.

The amortization rate of 41.4% for the first half of 2010 was 0.4 percentage points lower than the amortization rate of 41.8% for the
first half of 2009. The improvement in the amortization rate is primarily due to the impact of yield increases on select portfolios, including certain pools within the 2007 to 2009 vintage years, and the impact of $1.0 million net reversal of
impairments, including certain pools within the 2004 to 2006 vintage years, we recognized in 2010. The yield increases and impairment reversals were a result of cash collections in excess of expectations on certain portfolios during the first half
of 2010, which resulted in higher than expected amortization on these portfolios. In contrast, the amortization rate in 2009 was negatively impacted by net impairments of $10.3 million, which was a result of a significant decrease in expectations
for future collections on certain portfolios. Even though amortization as a percent was slightly favorable to the prior year, revenues were lower as a result of a decrease in the average carrying value of purchased receivables, primary due to the
impairments recognized in the fourth quarter of 2009, and lower average IRRs on recent purchases. Refer to Supplemental Performance Data on Page 30 for a summary of purchased receivable revenues and amortization rates by year of
purchase.

Revenues on portfolios purchased from our top three sellers during vintage years 1993 through 2010 were $37.5
million and $29.4 million during the six months ended June 30, 2010 and 2009, respectively. The top three sellers were the same in both six month periods.

Investments in Purchased Receivables

We generate revenue from our investments in portfolios of charged-off consumer accounts receivable. Ongoing investments in purchased
receivables are critical to continued generation of revenues. From period to period, we may buy charged-off receivables of varying age, types and demographics. As a result, the cost of our purchases, as a percent of face value, may fluctuate from
one period to the next. Total purchases consisted of the following:



|                                                     |  |                           |         |   |      |   |         |        |  |                  |       |  |      |  
|---------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | ------ |  | ---------------- | ----- |  | ---- | -
|                                                     |  | Six Months Ended June 30, |        
|(in millions, net of buybacks)                       |  | 2010                      |         |   | 2009 |   |         | Change |  | PercentageChange |      
|Acquisitions of purchased receivables, at cost       |  | $                         | 78.4    |   |      | $ | 41.4    |        |  | $                | 37.0  |  | 89.3 | %
|Acquisitions of purchased receivables, at face value |  | $                         | 2,324.7 |   |      | $ | 1,453.8 |        |  | $                | 870.9 |  | 59.9 | %
|Percentage of face value                             |  |                           | 3.37    | % |      |   | 2.85    | %      |  |                  |       |  |      |  

Our investment in purchased receivables increased in the first half of 2010 compared to the prior
year, which is consistent with our strategy to significantly increase purchasing levels. During 2009, we lowered overall purchasing and deferred a significant portion to the second half of the year in order to take advantage of declining pricing. As
a result of fluctuations in the mix of purchases of receivables, the costs of our purchases, as a percent of face value, fluctuate from one period to the next and are not always indicative of our estimates of total return.



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##### Table of Contents

Investments under Forward Flow Contracts

Forward flow contracts commit a debt seller to sell a steady flow of charged-off receivables to us, and commit us to purchase receivables
for a fixed percentage of the face value. Forward flow contracts may be attractive to us because they provide operational advantages from the consistent amount and type of accounts acquired. Forward flow purchases consisted of the following:



|                                                                        |  |                           |       |   |      |   |       |        |  |   |                  |   |  |       |   
|----------------------------------------------------------------------- |  | ------------------------- | ----- | - | ---- | - | ----- | ------ |  | - | ---------------- | - |  | ----- | --
|                                                                        |  | Six Months Ended June 30, |      
|(in millions, net of buybacks)                                          |  | 2010                      |       |   | 2009 |   |       | Change |  |   | PercentageChange |  
|Forward flow purchases, at cost                                         |  | $                         | 30.6  |   |      | $ | 29.5  |        |  | $ | 1.1              |   |  | 3.9   | % 
|Forward flow purchases, at face value                                   |  | $                         | 753.1 |   |      | $ | 879.3 |        |  | $ | (144.2           | ) |  | (16.1 | )%
|Percentage of face value                                                |  |                           | 4.06  | % |      |   | 3.28  | %      |  |   |                  |   |  |       |   
|Percentage of forward flow purchases, at cost of total purchasing       |  |                           | 39.0  | % |      |   | 71.1  | %      |  |   |                  |   |  |       |   
|Percentage of forward flow purchases, at face value of total purchasing |  |                           | 32.4  | % |      |   | 61.7  | %      |  |   |                  |   |  |       |   

Investments in forward flow contracts were higher in the first half of 2010 than in the same
period in 2009, which is consistent with the increase in our total purchases for the same period. Purchases from forward flows in 2010 included 43 portfolios from 13 forward flow contracts. Purchases from forward flows in 2009 included 42 portfolios
from nine forward flow contracts.

Operating Expenses

Operating expenses are traditionally measured in relation to revenues. However, our industry measures operating expenses in relation to
cash collections. We believe this is appropriate because amortization rates, the difference between cash collections and revenues recognized, vary from period to period. Amortization rates vary due to seasonality of collections, impairments and
other factors and can distort the analysis of operating expenses when measured against revenues. Additionally, we believe that the majority of our operating expenses are variable in relation to cash collections.

The following table summarizes the significant components of our operating expenses:



|                         |  |                           |      |      |                                                          |        |  |   |                  |   |  |       |    |  |      |   |  |      |  
|------------------------ |  | ------------------------- | ---- | ---- | -------------------------------------------------------- | ------ |  | - | ---------------- | - |  | ----- | -- |  | ---- | - |  | ---- | -
|                         |  | Six Months Ended June 30, |      |      | Percentage of Cash 
CollectionsSix Months Ended June 30, |       
|(in millions)            |  | 2010                      |      | 2009 |                                                          | Change |  |   | PercentageChange |   |  | 2010  |    |  | 2009 |  
|Salaries and benefits    |  | $                         | 38.2 |      | $                                                        | 38.2   |  | $ |                 |   |  | (0.1  | )% |  | 22.0 | % |  | 21.1 | %
|Collections expense      |  |                           | 47.3 |      |                                                          | 43.8   |  |   | 3.5              |   |  | 8.0   |    |  | 27.3 |   |  | 24.2 |  
|Administrative           |  |                           | 3.9  |      |                                                          | 4.6    |  |   | (0.7             | ) |  | (13.5 | )  |  | 2.3  |   |  | 2.5  |  
|Other                    |  |                           | 5.7  |      |                                                          | 5.5    |  |   | 0.2              |   |  | 4.4   |    |  | 3.3  |   |  | 3.0  |  
|                         |  |                           |      |      |                                                          |        |  |   |                  |   |  |       |    |  |      |   |  |      |  
|Total operating expenses |  | $                         | 95.1 |      | $                                                        | 92.1   |  | $ | 3.0              |   |  | 3.3   | %  |  | 54.9 | % |  | 50.8 | %
|                         |  |                           |      |      |                                                          |        |  |   |                  |   |  |       |    |  |      |   |  |      |  

Salaries and Benefits.The following table summarizes the significant components of our salaries and
benefits expense:



|                                |  |                           |      |      |                                                          |        |  |   |                  |   |  |       |    |  |      |   |  |      |  
|------------------------------- |  | ------------------------- | ---- | ---- | -------------------------------------------------------- | ------ |  | - | ---------------- | - |  | ----- | -- |  | ---- | - |  | ---- | -
|                                |  | Six Months Ended June 30, |      |      | Percentage of Cash 
CollectionsSix Months Ended June 30, |       
|(in millions)                   |  | 2010                      |      | 2009 |                                                          | Change |  |   | PercentageChange |   |  | 2010  |    |  | 2009 |  
|Compensationrevenue generating |  | $                         | 23.3 |      | $                                                        | 22.7   |  | $ | 0.6              |   |  | 2.5   | %  |  | 13.4 | % |  | 12.5 | %
|Compensationadministrative     |  |                           | 7.9  |      |                                                          | 7.6    |  |   | 0.3              |   |  | 3.5   |    |  | 4.6  |   |  | 4.2  |  
|Benefits and other              |  |                           | 7.0  |      |                                                          | 7.9    |  |   | (0.9             | ) |  | (11.2 | )  |  | 4.0  |   |  | 4.4  |  
|                                |  |                           |      |      |                                                          |        |  |   |                  |   |  |       |    |  |      |   |  |      |  
|Total salaries and benefits     |  | $                         | 38.2 |      | $                                                        | 38.2   |  | $ |                 |   |  | (0.1  | )% |  | 22.0 | % |  | 21.1 | %
|                                |  |                           |      |      |                                                          |        |  |   |                  |   |  |       |    |  |      |   |  |      |  

The increase in compensation for revenue generating departments, including our call center and legal
collections, was a result of higher average headcount for in-house account representatives and incentive compensation for management. The increase in administrative compensation was a result of increased variable compensation for management based on
expected achievement of financial and performance objectives, which were not considered achievable during the same period of the prior year. Benefits were favorable to the prior year as we continued our suspension of the Company matching component
of our 401(k) plan.



28



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##### Table of Contents

Collections Expense.The following table summarizes the significant components of
collections expense and the changes in each:



|                                                |  |                           |      |      |                                                          |        |  |                  |     |  |      |   |  |      |   |  |      |  
|----------------------------------------------- |  | ------------------------- | ---- | ---- | -------------------------------------------------------- | ------ |  | ---------------- | --- |  | ---- | - |  | ---- | - |  | ---- | -
|                                                |  | Six Months Ended June 30, |      |      | Percentage of Cash 
CollectionsSix Months Ended June 30, |       
|(in millions)                                   |  | 2010                      |      | 2009 |                                                          | Change |  | PercentageChange |     |  | 2010 |   |  | 2009 |  
|Forwarding fees                                 |  | $                         | 20.1 |      | $                                                        | 19.7   |  | $                | 0.4 |  | 1.8  | % |  | 11.6 | % |  | 10.9 | %
|Court and process server costs                  |  |                           | 12.8 |      |                                                          | 11.4   |  |                  | 1.4 |  | 12.7 |   |  | 7.4  |   |  | 6.3  |  
|Lettering campaign and telecommunications costs |  |                           | 8.4  |      |                                                          | 7.8    |  |                  | 0.6 |  | 7.7  |   |  | 4.8  |   |  | 4.3  |  
|Data provider costs                             |  |                           | 3.3  |      |                                                          | 2.5    |  |                  | 0.8 |  | 31.1 |   |  | 1.9  |   |  | 1.4  |  
|Other                                           |  |                           | 2.7  |      |                                                          | 2.4    |  |                  | 0.3 |  | 13.5 |   |  | 1.6  |   |  | 1.3  |  
|                                                |  |                           |      |      |                                                          |        |  |                  |     |  |      |   |  |      |   |  |      |  
|Total collections expense                       |  | $                         | 47.3 |      | $                                                        | 43.8   |  | $                | 3.5 |  | 8.0  | % |  | 27.3 | % |  | 24.2 | %
|                                                |  |                           |      |      |                                                          |        |  |                  |     |  |      |   |  |      |   |  |      |  

Forwarding fees include fees paid to third parties to collect on our behalf including our agency firm in
India. These fees increased in 2010 compared to 2009 because of higher cash collections generated by third parties. Collections from such third party relationships were $58.2 million and $57.5 million, or 33.6% and 31.7% of cash collections, for
2010 and 2009, respectively, primarily driven by continued increases in work allocated to our agency firm in India. Rates paid to forwarding agencies vary based on the age and type of paper that we outsource. Rates also vary based on the mix of work
performed by our agency firm in India, which is generally at a lower percentage than on collections we outsource domestically.

During 2010, our variable collection activities, such as telecommunications, lettering campaigns, and use of data provider services,
increased as a result of higher purchasing activities during the first half of 2010 and the fourth quarter of 2009 compared to similar periods of prior years. Generally, these costs are higher in the first six months after purchase of a portfolio as
we ramp up collection activities. Court and process server costs increased in 2010 over 2009 in part due to the increases in recent purchasing noted above. In addition, we have shifted forwarding activity from a third party that incurs court costs
for outsourced accounts on our behalf to third parties for which we expense court costs as incurred.

Income Taxes.We
recognized income tax expense of $0.7 million and $3.5 million for the six months ended June 30, 2010 and 2009, respectively. The 2010 tax expense reflects a federal tax rate of 35.9% and a state tax rate of 3.7% (net of federal tax effect).
For 2009, the federal tax rate was 35.7% and state tax rate was 3.2% (net of federal tax effect). The 0.2 percentage point increase in the federal tax rate was a result of permanent book versus tax differences and the net effect of state taxes. The
0.5 percentage point increase in the state rate was due to changes in apportionment percentages and tax rates among the various states. The overall decrease in tax expense was also impacted by the decrease in pre-tax income, which was $1.9 million
for 2010 compared to $8.9 million for the same period of 2009.



29



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##### Table of Contents

Supplemental Performance Data

Portfolio Performance

The following table summarizes our historical portfolio purchase price and cash collections on an annual vintage basis by year of purchase
as of June 30, 2010:



|                 |  |                        |  |                   |         |                  |   |                                     |  |                           |         |                                                            |   |           |  |     |  
|---------------- |  | ---------------------- |  | ----------------- | ------- | ---------------- | - | ----------------------------------- |  | ------------------------- | ------- | ---------------------------------------------------------- | - | --------- |  | --- | -
|Year of Purchase |  | Number ofPortfolios    |  | PurchasePrice
(1) |         | Cash Collections |   | EstimatedRemainingCollections (2,3) |  | TotalEstimatedCollections |         | Total EstimatedCollections as
aPercentage ofPurchase Price |  
|                 |  | (dollars in thousands) | 
|2003             |  | 76                     |  | $                 | 87,147  |                  | $ | 434,396                             |  | $                         | 2,282   |                                                            | $ | 436,678   |  | 501 | %
|2004             |  | 106                    |  |                   | 86,537  |                  |   | 263,994                             |  |                           | 11,164  |                                                            |   | 275,158   |  | 318 |  
|2005             |  | 104                    |  |                   | 100,747 |                  |   | 202,168                             |  |                           | 11,711  |                                                            |   | 213,879   |  | 212 |  
|2006(4)          |  | 154                    |  |                   | 142,235 |                  |   | 289,092                             |  |                           | 49,689  |                                                            |   | 338,781   |  | 238 |  
|2007             |  | 158                    |  |                   | 169,378 |                  |   | 227,439                             |  |                           | 104,934 |                                                            |   | 332,373   |  | 196 |  
|2008             |  | 164                    |  |                   | 154,063 |                  |   | 160,393                             |  |                           | 180,356 |                                                            |   | 340,749   |  | 221 |  
|2009             |  | 123                    |  |                   | 121,025 |                  |   | 71,235                              |  |                           | 271,790 |                                                            |   | 343,025   |  | 283 |  
|2010(5)          |  | 69                     |  |                   | 78,365  |                  |   | 5,939                               |  |                           | 169,847 |                                                            |   | 175,786   |  | 224 |  
|                 |  |                        |  |                   |         |                  |   |                                     |  |                           |         |                                                            |   |           |  |     |  
|Total            |  | 954                    |  | $                 | 939,497 |                  | $ | 1,654,656                           |  | $                         | 801,773 |                                                            | $ | 2,456,429 |  | 261 | %
|                 |  |                        |  |                   |         |                  |   |                                     |  |                           |         |                                                            |   |           |  |     |  



|(1) | Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price refunded by a seller due to the return of non-compliant accounts (also
defined as buybacks) less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Estimated remaining collections are based on historical cash collections. Refer to Forward-Looking Statements on page 21 and Critical Accounting Policies on page 40 for
further information regarding these estimates.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Estimated remaining collections refers to the sum of all future projected cash collections on our owned portfolios using up to an 84 month collection forecast from the
date of purchase. Estimated remaining collections for pools on a cost recovery method for revenue recognition purposes are equal to the carrying value. There are no estimated remaining collections for pools on a cost recovery method that are fully
amortized.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were allocated a purchase price value of $8.3 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes only six months of activity through June 30, 2010.
|--- | -----------------------------------------------------------

The following table summarizes the remaining unamortized balances of our purchased receivables portfolios by year of purchase as of
June 30, 2010:



|                 |  |                        |         |                   |   |                                                    |  |      |                                           |  |       |  
|---------------- |  | ---------------------- | ------- | ----------------- | - | -------------------------------------------------- |  | ---- | ----------------------------------------- |  | ----- | -
|Year of Purchase |  | UnamortizedBalance     |         | PurchasePrice
(1) |   | UnamortizedBalance as
aPercentage ofPurchase Price |  |      | UnamortizedBalance as
aPercentage ofTotal | 
|                 |  | (dollars in thousands) |        
|2003             |  | $                      | 1,164   |                   | $ | 87,147                                             |  | 1.3  | %                                         |  | 0.4   | %
|2004             |  |                        | 5,189   |                   |   | 86,537                                             |  | 6.0  |                                           |  | 1.6   |  
|2005             |  |                        | 5,509   |                   |   | 100,747                                            |  | 5.5  |                                           |  | 1.7   |  
|2006(2)          |  |                        | 23,381  |                   |   | 142,235                                            |  | 16.4 |                                           |  | 7.2   |  
|2007             |  |                        | 50,607  |                   |   | 169,378                                            |  | 29.9 |                                           |  | 15.5  |  
|2008             |  |                        | 68,986  |                   |   | 154,063                                            |  | 44.8 |                                           |  | 21.2  |  
|2009             |  |                        | 93,627  |                   |   | 121,025                                            |  | 77.4 |                                           |  | 28.8  |  
|2010(3)          |  |                        | 76,917  |                   |   | 78,365                                             |  | 98.2 |                                           |  | 23.6  |  
|                 |  |                        |         |                   |   |                                                    |  |      |                                           |  |       |  
|Total            |  | $                      | 325,380 |                   | $ | 939,497                                            |  | 34.6 | %                                         |  | 100.0 | %
|                 |  |                        |         |                   |   |                                                    |  |      |                                           |  |       |  



|(1) | Purchase price refers to the cash paid to a seller to acquire a portfolio less buybacks and the purchase price of accounts that were sold at the time of purchase to
another debt purchaser.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes portfolios from the acquisition of PARC on April 28, 2006 that were allocated a purchase price value of $8.3 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes only six months of activity through June 30, 2010.
|--- | -----------------------------------------------------------



30



---

##### Table of Contents

The following tables provide details of purchased receivable revenues by year of purchase:



|                 |  |                                  |            |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|---------------- |  | -------------------------------- | ---------- | ------- | - | -------------------- |  | ---- | ---------------- |  | ----- | -------------- |  | - | --------------------- | - |  | - | ----------
|                 |  | Three months ended June 30, 2010
|Year of Purchase |  | Collections                      |            | Revenue |   | AmortizationRate (1) |  |      | MonthlyYield (2) |  |       | NetImpairments |  |   | Zero
BasisCollections
|2004 and prior   |  | $                                | 14,012,401 |         | $ | 12,232,427           |  | N/M  |                  |  | N/M   |                |  | $ | 38,089                |   |  | $ | 10,501,033
|2005             |  |                                  | 4,047,269  |         |   | 3,018,844            |  | 25.4 | %                |  | 15.44 | %              |  |   | (1,153,800            | ) |  |   | 786,911   
|2006             |  |                                  | 9,974,216  |         |   | 5,363,233            |  | 46.2 |                  |  | 6.78  |                |  |   | 51,000                |   |  |   | 1,241,187 
|2007             |  |                                  | 13,156,759 |         |   | 6,923,550            |  | 47.4 |                  |  | 4.22  |                |  |   |                      |   |  |   | 847,372   
|2008             |  |                                  | 16,654,669 |         |   | 7,599,601            |  | 54.4 |                  |  | 3.38  |                |  |   |                      |   |  |   | 98,532    
|2009             |  |                                  | 21,343,084 |         |   | 11,633,662           |  | 45.5 |                  |  | 3.87  |                |  |   |                      |   |  |   | 362,640   
|2010             |  |                                  | 5,025,675  |         |   | 3,855,557            |  | 23.3 |                  |  | 2.88  |                |  |   |                      |   |  |   |          
|                 |  |                                  |            |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|Totals           |  | $                                | 84,214,073 |         | $ | 50,626,874           |  | 39.9 |                  |  | 5.36  |                |  | $ | (1,064,711            | ) |  | $ | 13,837,675
|                 |  |                                  |            |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|                 | 
|                 |  | Three months ended June 30, 2009
|Year of Purchase |  | Collections                      |            | Revenue |   | AmortizationRate (1) |  |      | MonthlyYield (2) |  |       | NetImpairments |  |   | Zero
BasisCollections
|2003 and prior   |  | $                                | 14,882,021 |         | $ | 13,402,082           |  | N/M  |                  |  | N/M   |                |  | $ | 489,000               |   |  | $ | 12,484,108
|2004             |  |                                  | 5,633,013  |         |   | 2,475,410            |  | 56.1 | %                |  | 4.96  | %              |  |   | 1,941,000             |   |  |   | 901,949   
|2005             |  |                                  | 6,103,487  |         |   | 864,320              |  | 85.8 |                  |  | 1.23  |                |  |   | 2,488,000             |   |  |   | 34,537    
|2006             |  |                                  | 14,512,193 |         |   | 9,086,793            |  | 37.4 |                  |  | 5.11  |                |  |   | 1,701,000             |   |  |   | 1,610,591 
|2007             |  |                                  | 18,191,261 |         |   | 9,907,523            |  | 45.5 |                  |  | 3.67  |                |  |   |                      |   |  |   | 706,439   
|2008             |  |                                  | 22,974,091 |         |   | 9,838,611            |  | 57.2 |                  |  | 2.85  |                |  |   | 227,000               |   |  |   | 88,705    
|2009             |  |                                  | 4,997,511  |         |   | 3,244,604            |  | 35.1 |                  |  | 3.90  |                |  |   |                      |   |  |   | 6,250     
|                 |  |                                  |            |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|Totals           |  | $                                | 87,293,577 |         | $ | 48,819,343           |  | 44.1 |                  |  | 4.83  |                |  | $ | 6,846,000             |   |  | $ | 15,832,579
|                 |  |                                  |            |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           



|                 |  |                                |             |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|---------------- |  | ------------------------------ | ----------- | ------- | - | -------------------- |  | ---- | ---------------- |  | ----- | -------------- |  | - | --------------------- | - |  | - | ----------
|                 |  | Six months ended June 30, 2010
|Year of Purchase |  | Collections                    |             | Revenue |   | AmortizationRate (1) |  |      | MonthlyYield (2) |  |       | NetImpairments |  |   | Zero
BasisCollections
|2004 and prior   |  | $                              | 30,205,907  |         | $ | 25,612,953           |  | N/M  |                  |  | N/M   |                |  | $ | 137,769               |   |  | $ | 21,485,227
|2005             |  |                                | 9,253,696   |         |   | 5,487,498            |  | 40.7 | %                |  | 12.06 | %              |  |   | (1,153,800            | ) |  |   | 1,903,412 
|2006             |  |                                | 21,619,661  |         |   | 11,857,884           |  | 45.2 |                  |  | 6.78  |                |  |   | 51,000                |   |  |   | 2,654,458 
|2007             |  |                                | 28,096,125  |         |   | 14,521,971           |  | 48.3 |                  |  | 4.14  |                |  |   |                      |   |  |   | 1,737,603 
|2008             |  |                                | 35,005,726  |         |   | 16,342,011           |  | 53.3 |                  |  | 3.40  |                |  |   |                      |   |  |   | 211,662   
|2009             |  |                                | 43,308,909  |         |   | 23,399,814           |  | 46.0 |                  |  | 3.69  |                |  |   |                      |   |  |   | 762,128   
|2010             |  |                                | 5,939,379   |         |   | 4,491,289            |  | 24.4 |                  |  | 2.78  |                |  |   |                      |   |  |   |          
|                 |  |                                |             |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|Totals           |  | $                              | 173,429,403 |         | $ | 101,713,420          |  | 41.4 |                  |  | 5.35  |                |  | $ | (965,031              | ) |  | $ | 28,754,490
|                 |  |                                |             |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|                 | 
|                 |  | Six months ended June 30, 2009
|Year of Purchase |  | Collections                    |             | Revenue |   | AmortizationRate (1) |  |      | MonthlyYield (2) |  |       | NetImpairments |  |   | Zero
BasisCollections
|2003 and prior   |  | $                              | 32,115,952  |         | $ | 29,595,638           |  | N/M  |                  |  | N/M   |                |  | $ | 412,700               |   |  | $ | 26,617,497
|2004             |  |                                | 12,509,541  |         |   | 5,799,086            |  | 53.6 | %                |  | 5.23  | %              |  |   | 3,958,600             |   |  |   | 1,934,285 
|2005             |  |                                | 13,541,643  |         |   | 4,641,864            |  | 65.7 |                  |  | 2.97  |                |  |   | 2,745,000             |   |  |   | 77,042    
|2006             |  |                                | 30,784,791  |         |   | 20,327,073           |  | 34.0 |                  |  | 5.44  |                |  |   | 2,497,000             |   |  |   | 3,608,141 
|2007             |  |                                | 39,310,080  |         |   | 21,131,396           |  | 46.2 |                  |  | 3.70  |                |  |   |                      |   |  |   | 1,664,748 
|2008             |  |                                | 47,118,967  |         |   | 20,260,841           |  | 57.0 |                  |  | 2.76  |                |  |   | 682,000               |   |  |   | 178,177   
|2009             |  |                                | 6,029,540   |         |   | 3,803,124            |  | 36.9 |                  |  | 3.82  |                |  |   |                      |   |  |   | 6,250     
|                 |  |                                |             |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|Totals           |  | $                              | 181,410,514 |         | $ | 105,559,022          |  | 41.8 |                  |  | 5.08  |                |  | $ | 10,295,300            |   |  | $ | 34,086,140
|                 |  |                                |             |         |   |                      |  |      |                  |  |       |                |  |   |                       |   |  |   |           



|(1) | N/M indicates that the calculated percentage for aggregated vintage years is not meaningful.
|--- | ----------------------------------------------------------------------------------------------

|(2) | The monthly yield is the weighted-average yield determined by dividing purchased receivable revenues recognized in the period by the average of the beginning monthly
carrying values of the purchased receivables for the period presented.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



---

##### Table of Contents

Account Representative Tenure and Productivity

We measure traditional call center account representative tenure by two major categories, those with less than one year of experience and
those with one or more years of experience. The following table displays our account representatives experience:

In-House Account Representatives by Experience



|                                   |      |                             |      |                           |      |                        |      |     |      |       |      |    
|---------------------------------- | ---- | --------------------------- | ---- | ------------------------- | ---- | ---------------------- | ---- | --- | ---- | ----- | ---- | ---
|Number of account representatives: |      | Three months endedJune 
30, |      | Six months endedJune 
30, |      | Year
endedDecember 31,
|                                   | 2010 |                             | 2009 |                           | 2010 |                        | 2009 |     | 2009 |       | 2008
|One year or more (1)               |      | 524                         |      | 588                       |      | 546                    |      | 580 |      | 587   |      | 515
|Less than one year (2)             |      | 401                         |      | 341                       |      | 440                    |      | 362 |      | 422   |      | 437
|                                   |      |                             |      |                           |      |                        |      |     |      |       |      |    
|Total account representatives      |      | 925                         |      | 929                       |      | 986                    |      | 942 |      | 1,009 |      | 952
|                                   |      |                             |      |                           |      |                        |      |     |      |       |      |    



|(1) | Based on number of average traditional call center Full Time Equivalent (FTE) account representatives and supervisors with one or more years of service.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Based on number of average traditional call center FTE account representatives and supervisors with less than one year of service, including new associates in training.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Shore Account Representatives



|                                      |  |                             |  |                           |  |                        |  |      |  |         |  |     
|------------------------------------- |  | --------------------------- |  | ------------------------- |  | ---------------------- |  | ---- |  | ------- |  | ----
|                                      |  | Three months endedJune 
30, |  | Six months endedJune 
30, |  | Year
endedDecember 31,
|                                      |  | 2010                        |  | 2009                      |  | 2010                   |  | 2009 |  | 2009(2) |  | 2008
|Number of account representatives (1) |  | 226                         |  |                          |  | 192                    |  |     |  | 17      |  |    



|(1) | Based on number of average off-shore account representatives measured on a per seat basis.
|--- | ------------------------------------------------------------------------------------------

|(2) | Includes activity beginning in November 2009 averaged over the 12 month period.
|--- | -------------------------------------------------------------------------------

The following table displays our account representative productivity:

In-House Account Representative Collection Averages



|                             |  |                             |  |                          |  |                        |  |        |  |         |  |        
|---------------------------- |  | --------------------------- |  | ------------------------ |  | ---------------------- |  | ------ |  | ------- |  | -------
|                             |  | Three months endedJune 
30, |  | Six months
endedJune 30, |  | Year
endedDecember 31,
|                             |  | 2010                        |  | 2009                     |  | 2010                   |  | 2009   |  | 2009    |  | 2008   
|In-house collection averages |  | 36,132                      |  | 38,858                   |  | 73,933                 |  | 81,854 |  | 141,141 |  | 173,209

In-house account
representation average collections per FTE decreased for the three and six months ended June 30, 2010 by 7.0% and 9.7%, respectively, compared to the prior year periods. Account representative productivity has declined because of the continuing
difficult collections environment and the timing of our receivables purchases. Not only was purchasing 21.3% lower in 2009 when compared to 2008, but in 2010 purchases have been completed later in each calendar quarter. Staffing levels have been
maintained to accommodate purchasing that was expected to be more evenly spaced throughout the year.



32



---

##### Table of Contents

Cash Collections

The following tables provide further detailed vintage collection analysis on an annual and a cumulative basis:

Historical Collections (1)



|                 |  |                        |         |                         |   |                            |  |      |        |      |   |         |  |      |         |      |   |         |  |      |         |  |   |         |  |   |         |  |   |         |  |   |         |  |   |        
|---------------- |  | ---------------------- | ------- | ----------------------- | - | -------------------------- |  | ---- | ------ | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | -------
|Year of
Purchase |  | PurchasePrice
(3)      |         | Year Ended December 31, |   | SixMonthsEndedJune 30,2010
|                 |  | 2000                   |         | 2001                    |   | 2002                       |  | 2003 |        | 2004 |   | 2005    |  | 2006 |         | 2007 |   | 2008    |  | 2009 |        
|                 |  | (dollars in thousands)
|Pre-2000         |  |                        |         |                         | $ | 35,110                     |  | $    | 29,994 |      | $ | 25,315  |  | $    | 19,655  |      | $ | 15,066  |  | $    | 12,287  |  | $ | 9,295   |  | $ | 7,154   |  | $ | 5,025   |  | $ | 3,464   |  | $ | 1,430  
|2000             |  | $                      | 20,592  |                         |   | 8,896                      |  |      | 23,444 |      |   | 22,559  |  |      | 20,318  |      |   | 17,196  |  |      | 14,062  |  |   | 10,603  |  |   | 7,410   |  |   | 5,258   |  |   | 3,736   |  |   | 1,369  
|2001             |  |                        | 43,029  |                         |   |                           |  |      | 17,630 |      |   | 50,327  |  |      | 50,967  |      |   | 45,713  |  |      | 39,865  |  |   | 30,472  |  |   | 21,714  |  |   | 13,351  |  |   | 8,738   |  |   | 3,209  
|2002             |  |                        | 72,255  |                         |   |                           |  |      |       |      |   | 22,339  |  |      | 70,813  |      |   | 72,024  |  |      | 67,649  |  |   | 55,373  |  |   | 39,839  |  |   | 24,529  |  |   | 15,957  |  |   | 6,547  
|2003             |  |                        | 87,147  |                         |   |                           |  |      |       |      |   |        |  |      | 36,067  |      |   | 94,564  |  |      | 94,234  |  |   | 79,423  |  |   | 58,359  |  |   | 38,408  |  |   | 23,842  |  |   | 9,499  
|2004             |  |                        | 86,537  |                         |   |                           |  |      |       |      |   |        |  |      |        |      |   | 23,365  |  |      | 68,354  |  |   | 62,673  |  |   | 48,093  |  |   | 32,276  |  |   | 21,082  |  |   | 8,151  
|2005             |  |                        | 100,747 |                         |   |                           |  |      |       |      |   |        |  |      |        |      |   |        |  |      | 23,459  |  |   | 60,280  |  |   | 50,811  |  |   | 35,638  |  |   | 22,726  |  |   | 9,254  
|2006(2)          |  |                        | 142,235 |                         |   |                           |  |      |       |      |   |        |  |      |        |      |   |        |  |      |        |  |   | 32,751  |  |   | 101,529 |  |   | 79,953  |  |   | 53,239  |  |   | 21,620 
|2007             |  |                        | 169,378 |                         |   |                           |  |      |       |      |   |        |  |      |        |      |   |        |  |      |        |  |   |        |  |   | 36,269  |  |   | 93,183  |  |   | 69,891  |  |   | 28,096 
|2008             |  |                        | 154,063 |                         |   |                           |  |      |       |      |   |        |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   | 41,957  |  |   | 83,430  |  |   | 35,006 
|2009             |  |                        | 121,025 |                         |   |                           |  |      |       |      |   |        |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   |        |  |   | 27,926  |  |   | 43,309 
|2010             |  |                        | 78,365  |                         |   |                           |  |      |       |      |   |        |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   |        |  |   |        |  |   | 5,939  
|                 |  |                        |         |                         |   |                            |  |      |        |      |   |         |  |      |         |      |   |         |  |      |         |  |   |         |  |   |         |  |   |         |  |   |         |  |   |        
|Total            |  |                        |         |                         | $ | 44,006                     |  | $    | 71,068 |      | $ | 120,540 |  | $    | 197,820 |      | $ | 267,928 |  | $    | 319,910 |  | $ | 340,870 |  | $ | 371,178 |  | $ | 369,578 |  | $ | 334,031 |  | $ | 173,429
|                 |  |                        |         |                         |   |                            |  |      |        |      |   |         |  |      |         |      |   |         |  |      |         |  |   |         |  |   |         |  |   |         |  |   |         |  |   |        

Cumulative Collections (1)



|                 |  |                        |         |                            |   |                           |  |      |        |      |   |        |  |      |         |      |   |         |  |      |         |  |   |         |  |   |         |  |   |         |  |   |         |  |   |        
|---------------- |  | ---------------------- | ------- | -------------------------- | - | ------------------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | -------
|Year of
Purchase |  | PurchasePrice
(3)      |         | Total Through December 31, |   | TotalThroughJune 
30,2010
|                 |  | 2000                   |         | 2001                       |   | 2002                      |  | 2003 |        | 2004 |   | 2005   |  | 2006 |         | 2007 |   | 2008    |  | 2009 |        
|                 |  | (dollars in thousands)
|2000             |  | $                      | 20,592  |                            | $ | 8,896                     |  | $    | 32,340 |      | $ | 54,899 |  | $    | 75,217  |      | $ | 92,413  |  | $    | 106,475 |  | $ | 117,078 |  | $ | 124,448 |  | $ | 129,746 |  | $ | 133,482 |  | $ | 134,851
|2001             |  |                        | 43,029  |                            |   |                          |  |      | 17,630 |      |   | 67,957 |  |      | 118,924 |      |   | 164,637 |  |      | 204,502 |  |   | 234,974 |  |   | 256,688 |  |   | 270,039 |  |   | 278,777 |  |   | 281,986
|2002             |  |                        | 72,255  |                            |   |                          |  |      |       |      |   | 22,339 |  |      | 93,152  |      |   | 165,176 |  |      | 232,825 |  |   | 288,198 |  |   | 328,037 |  |   | 352,566 |  |   | 368,523 |  |   | 375,070
|2003             |  |                        | 87,147  |                            |   |                          |  |      |       |      |   |       |  |      | 36,067  |      |   | 130,631 |  |      | 224,865 |  |   | 304,288 |  |   | 362,647 |  |   | 401,055 |  |   | 424,897 |  |   | 434,396
|2004             |  |                        | 86,537  |                            |   |                          |  |      |       |      |   |       |  |      |        |      |   | 23,365  |  |      | 91,719  |  |   | 154,392 |  |   | 202,485 |  |   | 234,761 |  |   | 255,843 |  |   | 263,994
|2005             |  |                        | 100,747 |                            |   |                          |  |      |       |      |   |       |  |      |        |      |   |        |  |      | 23,459  |  |   | 83,739  |  |   | 134,550 |  |   | 170,188 |  |   | 192,914 |  |   | 202,168
|2006(2)          |  |                        | 142,235 |                            |   |                          |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   | 32,751  |  |   | 134,280 |  |   | 214,233 |  |   | 267,472 |  |   | 289,092
|2007             |  |                        | 169,378 |                            |   |                          |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   |        |  |   | 36,269  |  |   | 129,452 |  |   | 199,343 |  |   | 227,439
|2008             |  |                        | 154,063 |                            |   |                          |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   | 41,957  |  |   | 125,387 |  |   | 160,393
|2009             |  |                        | 121,025 |                            |   |                          |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   |        |  |   | 27,926  |  |   | 71,235 
|2010             |  |                        | 78,365  |                            |   |                          |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   |        |  |   |        |  |   | 5,939  

Cumulative
Collections as Percentage of Purchase Price (1)



|                 |  |                   |         |                            |      |   |                           |      |   |  |      |   |  |      |   |  |      |   |  |      |   |  |      |   |  |      |   |  |      |   |  |     |   |  |     |  
|---------------- |  | ----------------- | ------- | -------------------------- | ---- | - | ------------------------- | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | --- | - |  | --- | -
|Year of
Purchase |  | PurchasePrice
(3) |         | Total Through December 31, |      |   | TotalThroughJune 
30,2010 |     
|                 |  | 2000              |         |                            | 2001 |   |                           | 2002 |   |  | 2003 |   |  | 2004 |   |  | 2005 |   |  | 2006 |   |  | 2007 |   |  | 2008 |   |  | 2009 |   | 
|2000             |  | $                 | 20,592  |                            | 43   | % |                           | 157  | % |  | 267  | % |  | 365  | % |  | 449  | % |  | 517  | % |  | 569  | % |  | 605  | % |  | 630  | % |  | 648 | % |  | 655 | %
|2001             |  |                   | 43,029  |                            |     |   |                           | 41   |   |  | 158  |   |  | 276  |   |  | 383  |   |  | 475  |   |  | 546  |   |  | 597  |   |  | 628  |   |  | 648 |   |  | 655 |  
|2002             |  |                   | 72,255  |                            |     |   |                           |     |   |  | 31   |   |  | 129  |   |  | 229  |   |  | 322  |   |  | 399  |   |  | 454  |   |  | 488  |   |  | 510 |   |  | 519 |  
|2003             |  |                   | 87,147  |                            |     |   |                           |     |   |  |     |   |  | 41   |   |  | 150  |   |  | 258  |   |  | 349  |   |  | 416  |   |  | 460  |   |  | 488 |   |  | 498 |  
|2004             |  |                   | 86,537  |                            |     |   |                           |     |   |  |     |   |  |     |   |  | 27   |   |  | 106  |   |  | 178  |   |  | 234  |   |  | 271  |   |  | 296 |   |  | 305 |  
|2005             |  |                   | 100,747 |                            |     |   |                           |     |   |  |     |   |  |     |   |  |     |   |  | 23   |   |  | 83   |   |  | 134  |   |  | 169  |   |  | 191 |   |  | 201 |  
|2006(2)          |  |                   | 142,235 |                            |     |   |                           |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  | 23   |   |  | 94   |   |  | 151  |   |  | 188 |   |  | 203 |  
|2007             |  |                   | 169,378 |                            |     |   |                           |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  | 21   |   |  | 76   |   |  | 118 |   |  | 134 |  
|2008             |  |                   | 154,063 |                            |     |   |                           |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  | 27   |   |  | 81  |   |  | 104 |  
|2009             |  |                   | 121,025 |                            |     |   |                           |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  | 23  |   |  | 59  |  
|2010             |  |                   | 78,365  |                            |     |   |                           |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |    |   |  | 8   |  



|(1) | Does not include proceeds from sales of any receivables.
|--- | --------------------------------------------------------

|(2) | Includes portfolios from the acquisition of PARC on April 28, 2006 that were allocated a purchase price value of $8.3 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(3) | Purchase price refers to the cash paid to a seller to acquire a portfolio less buybacks less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



33



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Seasonality

The success of our business depends on our ability to collect on our purchased portfolios of charged-off consumer receivables. Collections
tend to be seasonally higher in the first and second quarters of the year due to consumers receipt of tax refunds and other factors. Conversely, collections tend to be lower in the third and fourth quarters of the year due to consumers
spending in connection with summer vacations, the holiday season and other factors. However, revenue recognized is relatively level, excluding the impact of impairments, due to the application of the provisions prescribed by the Interest Method of
accounting. In addition, our operating results may be affected to a lesser extent by the timing of purchases of charged-off consumer receivables due to the initial costs associated with purchasing and integrating these receivables into our system.
Consequently, income and margins may fluctuate from quarter to quarter.

The following table illustrates our quarterly cash
collections:

Cash Collections



|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            
|---------------------- |  | ---- | ----------- | ---- | - | ----------- |  | ---- | ----------- | ---- | - | ----------- |  | - | -----------
|Quarter                |  | 2010 |             | 2009 |   | 2008        |  | 2007 |             | 2006
|First                  |  | $    | 89,215,330  |      | $ | 94,116,937  |  | $    | 100,264,281 |      | $ | 95,853,350  |  | $ | 89,389,858 
|Second                 |  |      | 84,214,073  |      |   | 87,293,577  |  |      | 95,192,743  |      |   | 95,432,021  |  |   | 89,609,982 
|Third                  |  |      |            |      |   | 77,832,357  |  |      | 90,775,528  |      |   | 90,748,442  |  |   | 80,914,791 
|Fourth                 |  |      |            |      |   | 74,787,726  |  |      | 83,345,578  |      |   | 89,144,650  |  |   | 80,955,115 
|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            
|Total cash collections |  | $    | 173,429,403 |      | $ | 334,030,597 |  | $    | 369,578,130 |      | $ | 371,178,463 |  | $ | 340,869,746
|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            

The following table illustrates cash collections and
percentage by source:



|                            |  |                             |            |   |                           |   |        |      |            |  |         |        |  |   |             |  |        |   |   |   |             |  |       |  
|--------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ------ | ---- | ---------- |  | ------- | ------ |  | - | ----------- |  | ------ | - | - | - | ----------- |  | ----- | -
|                            |  | Three months ended June 30, |            |   | Six months ended June 30, |  
|                            |  | 2010                        |            |   | 2009(3)                   |   |        | 2010 |            |  | 2009(3) |       
|                            |  | Amount                      |            | % |                           |   | Amount |      | %          |  |         | Amount |  | % |             |  | Amount |   | % |  
|Call center collections (1) |  | $                           | 45,493,986 |   | 54.0                      | % |        | $    | 45,894,400 |  | 52.6    | %      |  | $ | 95,955,024  |  | 55.3   | % |   | $ | 98,243,167  |  | 54.2  | %
|Legal collections (2)       |  |                             | 38,720,087 |   | 46.0                      |   |        |      | 41,399,177 |  | 47.4    |        |  |   | 77,474,379  |  | 44.7   |   |   |   | 83,167,347  |  | 45.8  |  
|                            |  |                             |            |   |                           |   |        |      |            |  |         |        |  |   |             |  |        |   |   |   |             |  |       |  
|Total cash collections      |  | $                           | 84,214,073 |   | 100.0                     | % |        | $    | 87,293,577 |  | 100.0   | %      |  | $ | 173,429,403 |  | 100.0  | % |   | $ | 181,410,514 |  | 100.0 | %
|                            |  |                             |            |   |                           |   |        |      |            |  |         |        |  |   |             |  |        |   |   |   |             |  |       |  



|(1) | Includes in-house, agency and off-shore agency collections.
|--- | -----------------------------------------------------------

|(2) | Includes in-house legal, legal forwarding, bankruptcy and probate collections.
|--- | ------------------------------------------------------------------------------

|(3) | Amounts have been reclassified to conform to the current period presentation.
|--- | -----------------------------------------------------------------------------

The following chart categorizes our purchased receivables portfolios acquired from January 1, 2000 through June 30, 2010 into
major asset types, as of June 30, 2010:



|                               |  |                                         |            |   |       |   |                |        |   |       |  
|------------------------------ |  | --------------------------------------- | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Asset Type                     |  | Face Value ofCharged-offReceivables (2) |            | % |       |   | No. ofAccounts |        | % |      
|                               |  | (in thousands)                          |            |   |       |   | (in thousands) |        |   |      
|General Purpose Credit Cards   |  | $                                       | 22,042,904 |   | 53.0  | % |                | 8,930  |   | 26.4  | %
|Private Label Credit Cards     |  |                                         | 6,143,514  |   | 14.8  |   |                | 8,163  |   | 24.1  |  
|Telecommunications/Utility/Gas |  |                                         | 3,159,517  |   | 7.6   |   |                | 7,998  |   | 23.6  |  
|Healthcare                     |  |                                         | 2,509,940  |   | 6.0   |   |                | 4,118  |   | 12.2  |  
|Health Club                    |  |                                         | 1,562,689  |   | 3.8   |   |                | 1,272  |   | 3.8   |  
|Auto Deficiency                |  |                                         | 1,352,244  |   | 3.3   |   |                | 240    |   | 0.7   |  
|Installment Loans              |  |                                         | 1,343,459  |   | 3.2   |   |                | 353    |   | 1.0   |  
|Other (1)                      |  |                                         | 3,439,960  |   | 8.3   |   |                | 2,784  |   | 8.2   |  
|                               |  |                                         |            |   |       |   |                |        |   |       |  
|Total                          |  | $                                       | 41,554,227 |   | 100.0 | % |                | 33,858 |   | 100.0 | %
|                               |  |                                         |            |   |       |   |                |        |   |       |  



|(1) | Other includes charged-off receivables of several debt types, including student loan, mobile home deficiency and retail mail order. This excludes the
purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value), consisting of approximately 3.8 million accounts.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amounts in this table are not adjusted for payments received,
settlements or additional accrued interest on any accounts in such portfolios that occur after the purchase date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The age of a charged-off consumer receivables portfolio, the time since an account has been
charged-off by the credit originator and the number of times a portfolio has been placed with third parties for collection purposes are important factors in determining the price at which we will offer to purchase a portfolio. Generally, there is an
inverse relationship between the age of a portfolio and the price at which we will purchase it. This relationship is due to the fact that older receivables are typically more difficult to collect. The consumer debt collection industry places
receivables into the following categories depending on the age and number of third parties that have previously attempted to collect on the receivables:



| |  |  | fresh accounts are typically 120 to 180 days past due, have been charged-off by the credit originator and are being sold prior to any post charged-off
collection activity. These accounts typically sell for the highest purchase price;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | primary accounts are typically 180 to 360 days past due, have been previously placed with one third party collector and typically receive a lower
purchase price; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | secondary and tertiary accounts are typically more than 360 days past due, have been placed with two or more third party collectors and receive even
lower purchase prices.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We will purchase accounts at any point in the delinquency cycle. We deploy our
capital within these delinquency stages based upon the relative values of the available debt portfolios.

The following chart
categorizes our purchased receivables portfolios acquired from January 1, 2000 through June 30, 2010 into the major account types as of June 30, 2010:



|             |  |                                         |            |   |       |   |                |        |   |       |  
|------------ |  | --------------------------------------- | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Account Type |  | Face Value
ofCharged-offReceivables (2) |            | % |       |   | No. ofAccounts |        | % |      
|             |  | (in thousands)                          |            |   |       |   | (in thousands) |        |   |      
|Fresh        |  | $                                       | 2,833,818  |   | 6.8   | % |                | 1,568  |   | 4.6   | %
|Primary      |  |                                         | 4,929,672  |   | 11.9  |   |                | 4,599  |   | 13.6  |  
|Secondary    |  |                                         | 9,902,284  |   | 23.8  |   |                | 8,606  |   | 25.4  |  
|Tertiary (1) |  |                                         | 23,888,453 |   | 57.5  |   |                | 19,085 |   | 56.4  |  
|             |  |                                         |            |   |       |   |                |        |   |       |  
|Total        |  | $                                       | 41,554,227 |   | 100.0 | % |                | 33,858 |   | 100.0 | %
|             |  |                                         |            |   |       |   |                |        |   |       |  



|(1) | Excludes the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value), consisting of
approximately 3.8 million accounts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amount is not adjusted for payments received, settlements or
additional accrued interest on any accounts in such portfolios that occur after the purchase date.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also
review the geographic distribution of accounts within a portfolio because collection laws differ from state to state. The following chart illustrates our purchased receivables portfolios acquired from January 1, 2000 through June 30, 2010
based on geographic location of debtor, as of June 30, 2010:



|                    |  |                                            |            |   |       |   |                |        |   |       |  
|------------------- |  | ------------------------------------------ | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Geographic Location |  | Face Value ofCharged-offReceivables (3)(4) |            | % |       |   | No. ofAccounts |        | % |      
|                    |  | (in thousands)                             |            |   |       |   |                |        |   |      
|Texas (1)           |  | $                                          | 5,992,087  |   | 14.4  | % |                | 5,418  |   | 16.0  | %
|California          |  |                                            | 5,028,648  |   | 12.1  |   |                | 3,862  |   | 11.4  |  
|Florida (1)         |  |                                            | 4,233,115  |   | 10.2  |   |                | 2,498  |   | 7.4   |  
|New York            |  |                                            | 2,514,661  |   | 6.0   |   |                | 1,468  |   | 4.3   |  
|Michigan (1)        |  |                                            | 2,164,088  |   | 5.2   |   |                | 2,586  |   | 7.6   |  
|Ohio (1)            |  |                                            | 1,896,017  |   | 4.6   |   |                | 2,371  |   | 7.0   |  
|Illinois (1)        |  |                                            | 1,662,692  |   | 4.0   |   |                | 1,775  |   | 5.3   |  
|Pennsylvania        |  |                                            | 1,479,609  |   | 3.6   |   |                | 1,049  |   | 3.1   |  
|New Jersey (1)      |  |                                            | 1,421,402  |   | 3.4   |   |                | 1,194  |   | 3.5   |  
|North Carolina      |  |                                            | 1,229,985  |   | 3.0   |   |                | 792    |   | 2.4   |  
|Georgia             |  |                                            | 1,195,117  |   | 2.9   |   |                | 927    |   | 2.7   |  
|Arizona             |  |                                            | 847,805    |   | 2.0   |   |                | 632    |   | 1.9   |  
|Other (2)           |  |                                            | 11,889,001 |   | 28.6  |   |                | 9,286  |   | 27.4  |  
|                    |  |                                            |            |   |       |   |                |        |   |       |  
|Total               |  | $                                          | 41,554,227 |   | 100.0 | % |                | 33,858 |   | 100.0 | %
|                    |  |                                            |            |   |       |   |                |        |   |       |  



35



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|(1) | Collection site(s) located in this state.
|--- | -----------------------------------------

|(2) | Each state included in Other represents less than 2.0% of the face value of total charged-off receivables.
|--- | ------------------------------------------------------------------------------------------------------------

|(3) | Excludes the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value), consisting of
approximately 3.8 million accounts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amounts in this table are not adjusted for payments received,
settlements or additional accrued interest on any accounts in such portfolios that occur after the purchase date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Historically, our primary sources of cash have been from operations and bank borrowings. We have traditionally used cash for acquisitions
of purchased receivables, repayment of bank borrowings, purchasing property and equipment and working capital to support growth. We believe that cash generated from operations combined with borrowings currently available under our Credit Facilities,
will be sufficient to fund our operations for the next twelve months, although no assurance can be given in this regard. In the future, if we need additional capital for investment in purchased receivables, working capital to grow our business or
acquire other businesses, we may seek to sell additional equity or debt securities or we may seek to increase the availability under our Revolving Credit Facility.

Borrowings

We maintain an amended credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named therein,
that originated on June 5, 2007 (the Credit Agreement). Under the terms of the Credit Agreement, we have a five-year $100.0 million revolving credit facility (the Revolving Credit Facility) which may be limited by
financial covenants, and a six-year $150.0 million term loan facility (the Term Loan Facility and together with the Revolving Credit Facility, the Credit Facilities). The Credit Facilities bear interest at 200 to 250
basis points over the banks prime rate depending upon our liquidity, as defined in the Credit Agreement. Alternately, at our discretion, we may borrow by entering into one, two, three, six or twelve-month London Inter Bank Offer Rate
(LIBOR) contracts at rates between 300 to 350 basis points over the respective LIBOR rates, depending on our liquidity. Our Revolving Credit Facility includes an accordion loan feature that allows us to request a $25.0 million increase
as well as sublimits for $10.0 million of letters of credit and for $10.0 million of swingline loans. The Credit Agreement is secured by a first priority lien on all of our assets. The Credit Agreement also contains certain covenants and
restrictions that we must comply with, which as of June 30, 2010 were:



| |  |  | Leverage Ratio (as defined) cannot exceed (i) 1.5 to 1.0 at any time before December 30, 2011 or (ii) 1.25 to 1.0 at any time
thereafter;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth (as defined) cannot exceed (i) 2.5 to 1.0 at any time on or before
December 30, 2011, (ii) 2.25 to 1.0 at any time on or after December 31, 2011 and on or before March 30, 2012, (iii) 2.0 to 1.0 at any time thereafter; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Tangible Net Worth (as defined) must equal or exceed $85.0 million plus 50% of positive consolidated net income for three consecutive
fiscal quarters ending December 31, 2007 and for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and as of the end of each such fiscal year thereafter.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On May 28, 2010, the Company, JPMorgan Chase Bank, N.A. and other lenders entered into a Third Amendment to Credit Agreement
(Third Amendment). The Third Amendment adjusted the levels of the Leverage Ratio used to set the applicable margin on outstanding borrowings and the respective interest spreads. The Third Amendment also changed certain financial covenant
definitions to allow for adjustments related to charges for the FTC investigation, limited to $7.0 million, and the net impact of the fourth quarter 2009 purchased receivable impairment charges, limited to $20.0 million. The changes did not impact
total available borrowing capacity, however, they did loosen the financial covenant restrictions, which in turn increased our ability to borrow under the terms of the agreement. In exchange for amending the Credit Agreement, we incurred deferred
financing costs of $775,808.

The financial covenants restrict our ability to borrow against the Revolving Credit Facility. At
June 30, 2010, total available borrowings on our Revolving Credit Facility were $66.7 million, however, our capacity to borrow under the terms



36



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##### Table of Contents

of the financial covenants was limited to $46.6 million. The limitation is based on the Leverage Ratio, our most restrictive covenant at June 30, 2010. Our borrowing capacity could be
reduced further if we incur cumulative net losses in future periods that reduce our Consolidated Tangible Net Worth, or we are not able to maintain the current level of Adjusted EBITDA in relation to outstanding borrowings.

The Credit Agreement contains a provision that requires us to repay Excess Cash Flow (as defined) to reduce the indebtedness outstanding
under our Term Loan Facility. The Excess Cash Flow repayment provisions are:



| |  |  | 50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than 1.0 to 1.0 as of the end of such fiscal year;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end
of such fiscal year; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such fiscal year.
| | - |  | -------------------------------------------------------------------------------------------------

Based on the Excess Cash Flow provisions, we made required payments of $9.0 million and $2.4 million on the Term Loan Facility during
March 2010 and 2009, respectively. Payment of the Excess Cash Flow did not reduce our total borrowing capacity under the Revolving Credit Facility.

Commitment fees on the unused portion of the Revolving Credit Facility are paid quarterly, in arrears, and are calculated as an amount
equal to a margin of 0.50%, depending on our liquidity, on the average amount available on the Revolving Credit Facility.

The
Credit Agreement requires us to effectively cap, collar or exchange interest rates on a notional amount of at least 25% of the outstanding principal amount of the Term Loan Facility. As such, we have an interest rate swap agreement that hedges a
portion of the interest on the Term Loan Facility. Refer to Note 4 of the consolidated financial statements, Derivative Financial Instruments and Risk Management for additional information.

We had $167.4 million and $160.0 million of borrowings outstanding on our Credit Facilities at June 30, 2010 and December 31,
2009, respectively, of which $134.1 million and $143.8 million was outstanding on the Term Loan Facility and $33.3 million and $16.2 million was outstanding on the Revolving Credit Facility. Along with the Excess Cash Flow prepayment requirements,
the Term Loan Facility requires quarterly repayments totaling $1.5 million annually until expiration. The increase in total outstanding borrowings in 2010 was a result of increased levels of purchasing receivables portfolios.

We were in compliance with the covenants of the Credit Agreement as of June 30, 2010.

Cash Flows

The majority of our purchases of receivables have been funded with internal cash flow and borrowings against our Revolving Credit
Facility. For the six months ended June 30, 2010, we invested $79.7 million in purchased receivables, net of buybacks, excluding payments in 2010 for receivables accrued at December 31, 2009, funded primarily by internal cash flow. Our
cash balance has increased from $4.9 million at December 31, 2009 to $5.9 million as of June 30, 2010. We also made net borrowings against our Credit Facilities of $7.3 million during 2010.

Our operating activities provided cash of $2.5 million and $21.3 million for the six months ended June 30, 2010 and 2009,
respectively. Cash provided by operating activities for these periods was generated primarily from operating income earned through cash collections as adjusted for non-cash items and the timing of payments of income taxes, accounts payable and
accrued liabilities. We rely on cash generated from our operating activities to allow us to fund operations and re-invest in purchased receivables. Cash provided by operations has decreased as a result of lower purchased receivable revenues,
including the effect of net amortization of receivables balances including the impact of impairments, and higher operating expenses. In the current year period, we recorded a net impairment reversal of $1.0 million, which is a negative non-cash
adjustment to net income when determining cash flow from operating activities. In the prior year period, we recorded a net impairment charge of $10.3 million, which is a positive non-cash adjustment to net income when



37



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##### Table of Contents

determining cash flow from operating activities. Lower cash collections and higher amortization, if not offset by reductions in operating expenses, will further decrease cash provided by
operating activities in future periods.

Investing activities used cash of $8.1 million and provided cash of $22.6 million for
the six months ended June 30, 2010 and 2009, respectively. The change in cash used by investing activities in 2010 is a result of the significant increase in receivable purchasing in the period as compared to the prior year. The increase in
purchasing has been partially offset by increased amortization of receivables balances excluding the impact of impairments and impairment reversals ,which are included in cash flow from operating activities. We believe that we have sufficient
liquidity available to meet our purchasing objectives. However, continued pressure on collections in 2010 coupled with the borrowing constraints under our Revolving Credit Facility may cause 2010 purchasing to be at lower levels than we have seen
historically.

We acquired $1.6 million and $1.9 million in property and equipment in 2010 and 2009, respectively. The amounts
in 2010 and 2009 were primarily related to software and computer equipment for our new collection platform and improvements to our telecommunications systems. Implementation of the new collection platform is funded through cash flow from operating
activities and borrowings under our Revolving Credit Facility.

Financing activities provided cash of $6.5 million and $37.0
million for the six months ended June 30, 2010 and 2009. Cash provided by financing activities in 2010 was primarily due to net borrowings on our Credit Facilities of $7.3 million. We also made a payment of $0.8 million in the current year to
amend our Credit Agreement. Cash provided by financing activities would increase in future periods to the extent we use net borrowings on our Revolving Credit Facility to fund purchases of paper.

Adjusted EBITDA

We define Adjusted EBITDA as net income plus the provision for income taxes, interest expense, net, depreciation and amortization,
share-based compensation, (gain) loss on sale of assets, impairment of assets, extraordinary gains and losses and purchased receivables amortization. Adjusted EBITDA is not a measure of liquidity calculated in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP), and should not be considered an alternative to, or more meaningful than, net income prepared on a U.S. GAAP basis. Adjusted EBITDA does not purport to represent cash flow
provided by, or used in, operating activities as defined by U.S. GAAP, which is presented in our statements of cash flows. In addition, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance for the following reasons:



| |  |  | Adjusted EBITDA is widely used by investors to measure a companys operating performance without regard to items such as interest expense, taxes,
depreciation and amortization including purchased receivable amortization, and share-based compensation, which can vary substantially from company to company depending upon accounting methods and the book value of assets, capital structure and the
method by which assets were acquired; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

Our management uses Adjusted EBITDA:



| |  |  | for planning purposes, including in the preparation of our internal annual operating budget and periodic forecasts;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | in communications with the Board of Directors, stockholders, analysts and investors concerning our financial performance;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | as a significant factor in determining bonuses under managements annual incentive compensation program; and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | as a measure of operating performance for the financial covenants in our amended Credit Agreement, because it provides information related to our
ability to provide cash flows for investments in purchased receivables, capital expenditures, acquisitions and working capital requirements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

The following table reconciles net income, the most directly comparable U.S. GAAP measure,
to Adjusted EBITDA:



|                                   |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|---------------------------------- |  | --------------------------- | ---------- | ------------------------- | ---- | - | ---------- |  | - | ---------- | - |  | - | ----------
|                                   |  | Three Months Ended June 30, |            | Six Months Ended June 30,
|                                   |  | 2010                        |            |                           | 2009 |   | 2010       |  |   | 2009      
|Net income                         |  | $                           | 774,457    |                           |      | $ | 842,287    |  | $ | 1,130,974  |   |  | $ | 5,444,431 
|Adjustments:                       |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Income tax expense                 |  |                             | 509,408    |                           |      |   | 642,917    |  |   | 740,890    |   |  |   | 3,460,914 
|Interest expense, net              |  |                             | 2,888,306  |                           |      |   | 2,468,107  |  |   | 5,515,689  |   |  |   | 5,109,272 
|Depreciation and amortization      |  |                             | 1,146,329  |                           |      |   | 959,496    |  |   | 2,308,711  |   |  |   | 1,845,314 
|Share-based compensation           |  |                             | 479,435    |                           |      |   | 524,412    |  |   | 698,444    |   |  |   | 761,230   
|(Gain) loss on sale of assets, net |  |                             | (102,483   | )                         |      |   | 5,137      |  |   | (319,305   | ) |  |   | 6,541     
|Purchased receivables amortization |  |                             | 33,587,199 |                           |      |   | 38,474,234 |  |   | 71,715,983 |   |  |   | 75,851,492
|Other                              |  |                             | 219,137    |                           |      |   |           |  |   | 219,137    |   |  |   |          
|                                   |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Adjusted EBITDA                    |  | $                           | 39,501,788 |                           |      | $ | 43,916,590 |  | $ | 82,010,523 |   |  | $ | 92,479,194
|                                   |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           



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##### Table of Contents

Future Contractual Cash Obligations

The following table summarizes our future contractual cash obligations as of June 30, 2010:



|                                               |  |                          |            |      |   |           |  |      |            |      |   |             |  |   |           |  |   |          
|---------------------------------------------- |  | ------------------------ | ---------- | ---- | - | --------- |  | ---- | ---------- | ---- | - | ----------- |  | - | --------- |  | - | ---------
|                                               |  | Year Ending December 31, |            |     
|                                               |  | 2010                     |            | 2011 |   | 2012      |  | 2013 |            | 2014 |   | Thereafter 
|Operating lease obligations                    |  | $                        | 2,531,854  |      | $ | 4,930,576 |  | $    | 4,552,094  |      | $ | 4,188,049   |  | $ | 4,239,939 |  | $ | 5,412,873
|Capital leases                                 |  |                          | 47,012     |      |   | 112,828   |  |      | 112,828    |      |   | 17,808      |  |   |          |  |   |         
|Purchase obligations                           |  |                          | 956,000    |      |   |          |  |      |           |      |   |            |  |   |          |  |   |         
|Forward flow obligations (1)                   |  |                          | 22,961,750 |      |   |          |  |      |           |      |   |            |  |   |          |  |   |         
|Revolving credit (2)                           |  |                          |           |      |   |          |  |      | 33,250,000 |      |   |            |  |   |          |  |   |         
|Term loan (3)                                  |  |                          | 750,000    |      |   | 1,500,000 |  |      | 1,500,000  |      |   | 130,359,956 |  |   |          |  |   |         
|Contractual interest on derivative instruments |  |                          | 1,565,642  |      |   | 2,198,781 |  |      | 946,267    |      |   |            |  |   |          |  |   |         
|                                               |  |                          |            |      |   |           |  |      |            |      |   |             |  |   |           |  |   |          
|Total (4)                                      |  | $                        | 28,812,258 |      | $ | 8,742,185 |  | $    | 40,361,189 |      | $ | 134,565,813 |  | $ | 4,239,939 |  | $ | 5,412,873
|                                               |  |                          |            |      |   |           |  |      |            |      |   |             |  |   |           |  |   |          



|(1) | We have eight forward flow contracts that have terms beyond June 30, 2010 with the last contract expiring in December 2010. Five forward flow contracts expire in
September 2010 with estimated monthly purchases of approximately $1.7 million. The remaining three forward flow contracts expire in December 2010 and have estimated monthly purchases of approximately $3.0 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | To the extent that a balance is outstanding on our Revolving Credit Facility, it would be due in June 2012 or earlier as defined in the Credit Agreement. Interest on
our Revolving Credit Facility is estimated and is not included within the amount outstanding as of June 30, 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | To the extent that a balance is outstanding on our Term Loan Facility, it would be due in June 2013. The variable interest is not included within the amount outstanding
as of June 30, 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | We have a liability of $1.0 million relating to uncertain tax positions, which has been excluded from the table above because the amount and fiscal year of payment
cannot be reliably estimated.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Critical Accounting Policies

Revenue Recognition

We generally account for our revenues from collections on our purchased receivables by using the interest method of accounting
(Interest Method) in accordance with U.S. GAAP, which requires making reasonable estimates of the timing and amount of future cash collections. Application of the Interest Method requires the use of estimates, primarily estimated
remaining collections, to calculate a projected IRR for each pool. These estimates are primarily based on historical cash collections and payer dynamics. If future cash collections are materially different in amount or timing than the remaining
collections estimate, earnings could be affected, either positively or negatively. The estimates of remaining collections are sensitive to the inputs used and the performance of each pool. Performance is dependent on macro-economic factors and the
specific demographic makeup of the debtors in the pool. Higher collection amounts or cash collections that occur sooner than projected will have a favorable impact on reversal of impairments or an increase in yields and revenues. Lower collection
amounts or cash collections that occur later than projected will have an unfavorable impact and may result in an impairment. Impairments to purchased receivables reduce our Consolidated Tangible Net Worth and put pressure on the financial covenants
in our Credit Facilities.

We use the cost recovery method when collections on a particular portfolio cannot be reasonably
predicted. Under the cost recovery method, no revenue is recognized until we have fully collected the cost of the portfolio.

We adopted the Interest Method in January 2005 and apply it to purchased receivables acquired after December 31, 2004. The
provisions of the Interest Method that relate to decreases in expected cash flows amend previously followed guidance, for consistent treatment and apply prospectively to purchased receivables acquired before January 1, 2005. We purchase pools
of homogenous accounts receivable and record each pool at its acquisition cost. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk characteristics. Risk



40



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##### Table of Contents

characteristics of purchased receivables are assumed to be similar since purchased receivables are usually in the late stages of the post charged-off collection cycle. We therefore aggregate most
pools purchased within each quarter. Pools purchased before 2005 may not be aggregated with other pool purchases. Each static pool, either aggregated or non-aggregated, retains its own identity and does not change over the remainder of its life.
Each static pool is accounted for as a single unit for recognition of revenue, principal payments and impairments.

Each
static pool of receivables is statistically modeled to determine its projected cash flows based on historical cash collections for pools with similar characteristics. An IRR is calculated for each static pool of receivables based on projected cash
flows. The IRR is applied to the remaining balance of each static pool of accounts to determine the revenue recognized. Each static pool is analyzed at least quarterly to assess the actual performance compared to the expected performance. This
review includes an assessment of the actual results of cash collections, the work effort used and expected to be used in future periods, the components of the static pool including type of paper, the average age of purchased receivables, certain
demographics and other factors that help us understand how a pool may perform in future periods. We also review the actual performance against expected cash collections using our historical model. Generally, to the extent the differences in actual
performance versus expected performance are favorable and the results of the review by pool is also favorable, the IRR is adjusted prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. If the
differences in actual performance results in revised cash flow estimates that are less than the original estimates, and if the results of the review lead us to believe the decline in performance is not temporary, the IRR remains unchanged and an
impairment is recognized. If cash flow estimates increase subsequent to recording an impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

These periodic reviews, and any adjustments or impairments, are discussed with our Audit Committee.

Goodwill and Intangible Assets not Subject to Amortization

We periodically review the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether an
impairment may exist. U.S. GAAP requires that goodwill and certain intangible assets not subject to amortization be assessed annually for impairment using fair value measurement techniques.

Specifically, goodwill impairment is determined using a two-step test. The first step of the goodwill impairment test is used to identify
potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds its book value, goodwill is considered not impaired and the second step of the impairment
test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test
compares the implied fair value of the reporting units goodwill with the book value of that goodwill. If the book value of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in
an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and
liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

The estimate of fair value of our goodwill reporting unit, the purchased receivables operating segment, is determined using various
valuation techniques including market capitalization and an analysis of discounted cash flows. Given recent declines in the Companys stock price, a discounted cash flow analysis was performed as of June 30, 2010. A discounted cash flow
analysis requires us to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. We base assumptions about future cash flows and growth rates on our budget and long-term plans. We used a
discount rate of 19.6%, which reflected our estimate of cost of equity and our assessment of the risk inherent in the reporting unit. The fair value of goodwill using a discounted cash flow analysis exceeded the book value as of June 30, 2010.
However, a 1.5% increase in the discount rate, or a decrease in cash flow of approximately $2.0 million in each year would result in an excess of book value over fair value and indicate that goodwill may be impaired.

The annual impairment test for other intangible assets not subject to amortization, for example, trademark and trade names, consists of a
comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of
intangible assets not subject to amortization are determined using various discounted cash flow valuation



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##### Table of Contents

methodologies. Significant assumptions are inherent in this process, including estimates of discount rates and future cash flows. Discount rate assumptions are based on an assessment of the risk
inherent in the respective intangible assets and include estimates of the cost of debt and equity for market participants in the Companys industry. We performed a discounted cash flow analysis of our trademark and trade names as of
September 30, 2009 using a discount rate of 18% and determined that the carrying value exceeded the fair value, and we recorded an impairment of $1,167,000.

Income Taxes

We record a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is
computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities,
and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed.

We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning
strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. In the event that all or part of the deferred tax assets are determined not to be realizable in the
future, a valuation allowance would be established and charged to earnings in the period such determination is made. Similarly, if we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective
valuation allowance would be reversed, resulting in a positive adjustment to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties
in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position. We account for uncertain tax positions
using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Recently Issued Accounting Pronouncements

Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the accompanying consolidated
financial statements for further information.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our exposure to market risk relates to the interest rate risk with our Credit Facilities. We may periodically enter into interest rate
swap agreements to modify the interest rate exposure associated with our outstanding debt. The outstanding borrowings on our Credit Facilities were $167.4 million and $160.0 million as of June 30, 2010 and December 31, 2009, respectively.
In September 2007, we entered into an amortizing interest rate swap agreement whereby, on a quarterly basis, we swap variable rates equal to three-month LIBOR for fixed rates on the notional amount of $125.0 million. Every year thereafter, on the
anniversary of the swap agreement the notional amount decreases by $25.0 million. The outstanding unhedged borrowings on our Credit Facilities were $92.4 million as of June 30, 2010. Interest rates on unhedged borrowings may be based on
the prime rate or LIBOR, at our discretion. Assuming a 200 basis point increase in interest rates on the unhedged borrowings, interest expense would have increased approximately $0.8 million and $0.6 million on the unhedged borrowings for the six
months ended June 30, 2010 and 2009, respectively.

The interest rate swap was determined to be highly effective in
hedging against fluctuations in variable interest rates associated with the underlying debt since we entered into the agreement. Interest rates have decreased since we entered into our swap agreement, reducing the fair value and resulting in a
liability balance. Additional declines in interest rates will further reduce the fair value, while increasing interest rates will increase the fair value.

Interest rate fluctuations do not have a material impact on interest income.



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##### Table of Contents

|Item 4. | Controls and Procedures
|------- | -----------------------

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that
evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level to cause material information required to be disclosed by us in the reports
that we file or submit under the Securities Exchange Act of 1934 to be recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms.

There have been no changes in our internal controls over financial reporting that occurred during the three months ended June 30,
2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In the
ordinary course of our business, we are involved in numerous legal proceedings. We regularly initiate collection lawsuits, using both our in-house attorneys and our network of third party law firms, against consumers and are occasionally countersued
by them in such actions. Also, consumers occasionally initiate litigation against us, in which they allege that we have violated a federal or state law in the process of collecting on their account. It is not unusual for us to be named in a class
action lawsuit relating to these allegations, with these lawsuits routinely settling for immaterial amounts. We do not believe that these ordinary course matters, individually or in the aggregate, are material to our business or financial condition.
However, there can be no assurance that a lawsuit would not, if decided against us, have a material and adverse effect on our financial condition.

As previously reported, the Federal Trade Commission (FTC) has commenced an investigation into our debt collection practices
under the Fair Credit Reporting Act, the Fair Debt Collection Practices Act and the Federal Trade Commission Act and has provided draft pleadings and a proposed consent decree to the Company. The Company and its counsel have since entered into
discussions with the FTC staff to resolve this matter. We do not believe that the resolution of this matter will have a material adverse effect on our business.



|Item 1A. | Risk Factors
|-------- | ------------

There were
no material changes in any risk factors previously disclosed in the Companys Report on Form 10-K filed with the Securities & Exchange Commission on March 12, 2010.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Companys Repurchases of Its Common Stock

The following table provides information about the Companys common stock repurchases during the second quarter of 2010:



|        |  |                                |  |                           |      |                                                                                |   |                                                                             |  
|------- |  | ------------------------------ |  | ------------------------- | ---- | ------------------------------------------------------------------------------ | - | --------------------------------------------------------------------------- | -
|Month   |  | Total Numberof
SharesPurchased |  | AveragePricePaid perShare |      | Total Number ofShares Purchased 
as Partof Publicly AnnouncedPlans or Programs |   | Maximum Number ofShares that May YetBe Purchased Underthe Plans or Programs
|April   |  |                               |  | $                         |     |                                                                                |  |                                                                             | 
|May (1) |  | 158                            |  |                           | 6.16 |                                                                                |  |                                                                             | 
|June    |  |                               |  |                           |     |                                                                                |  |                                                                             | 
|        |  |                                |  |                           |      |                                                                                |   |                                                                             |  
|Total   |  | 158                            |  | $                         | 6.16 |                                                                                |  |                                                                             | 
|        |  |                                |  |                           |      |                                                                                |   |                                                                             |  



|(1) | The shares were withheld for tax obligations in connection with the vesting of restricted share units. The shares were withheld at the fair market value on the vesting
date of the restricted share units.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We did not sell any equity securities during the second quarter of 2010
that were not registered under the Securities Act.



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##### Table of Contents

|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

The annual meeting of the shareholders of the Company was held on May 13, 2010. The results of the voting were as follows:

1. The following individuals were elected as directors for a three-year term:



|                        |  |            |  |                |  |               
|----------------------- |  | ---------- |  | -------------- |  | --------------
|Director                |  | Votes for  |  | Votes Withheld |  | BrokerNon-Vote
|Nathaniel F. Bradley IV |  | 18,100,668 |  | 9,619,334      |  | 2,199,739     
|Anthony R. Ignaczak     |  | 17,634,753 |  | 10,085,249     |  | 2,199,739     
|William I Jacobs        |  | 18,125,480 |  | 9,594,522      |  | 2,199,739     

The following is
a list of the other directors whose term of office continues beyond the annual shareholder meeting:

Jennifer
Adams

Terrence D Daniels

Donald Haider

H. Eugene Lockhart

William F. Pickard

2. The ratification of Grant Thornton LLP as the Companys independent registered public accounting firm for the fiscal year ending
December 31, 2010:



|           |  |               |  |                  
|---------- |  | ------------- |  | -----------------
|Votes For  |  | Votes Against |  | Votes Abstentions
|24,963,575 |  | 4,945,771     |  | 10,395           



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|               |  |                                                                                                                                                                                                                                                                  
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                                                                                                                                                                                      
|               | 
|10.1*          |  | Employment Agreement dated May 17, 2010 between Asset Acceptance, LLC and Reid E. Simpson                                                                                                                                                                        
|               | 
|10.2           |  | Third Amendment to the Credit Agreement dated May 28, 2010, between Asset Acceptance Capital Corp. and JPMorgan Chase Bank, N.A. and other lenders (Incorporated by reference to
Exhibit 10.1 included with the Current Report on Form 8-K filed on June 4, 2010)
|               | 
|31.1*          |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                          
|               | 
|31.2*          |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                                                                                                                                          
|               | 
|32.1*          |  | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer                                                                                                                                                                                



|* | Filed herewith
|- | --------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized on July 29, 2010.



|                    |  |                                |  |                                                            
|------------------- |  | ------------------------------ |  | -----------------------------------------------------------
|                    |  | ASSET ACCEPTANCE CAPITAL CORP.
|                    |  |                               
|Date: July 29, 2010 |  | By:                            |  | /S/    RION B.
NEEDS                                       
|                    |  |                                |  | Rion B. Needs                                              
|                    |  |                                |  | President and Chief Executive Officer                      
|                    |  |                                |  | (Principal Executive Officer)                              
|                    |  |                               
|Date: July 29, 2010 |  | By:                            |  | /S/    REID E.
SIMPSON                                     
|                    |  |                                |  | Reid E. Simpson                                            
|                    |  |                                |  | Senior Vice President  Finance and Chief Financial Officer
|                    |  |                                |  | (Principal Financial and Accounting Officer)               



46