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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended June 30, 2006

OR



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

For the transition period from  to

Commission File Number 000-50840



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QC
HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Kansas                                                         |  | 48-1209939                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|9401 Indian Creek Parkway, Suite 1500 Overland Park, Kansas    |  | 66210                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(913) 234-5000

(Registrants telephone number, including area code)

Not applicable

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



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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 Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ̈Accelerated filer  x            Non-accelerated filer ̈

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

The number of shares outstanding of the registrants common stock, as of July 31, 2006:

Common Stock $0.01 per share par value  20,219,800 Shares



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##### Table of Contents

QC HOLDINGS, INC.

Form 10-Q

June 30, 2006

Index



|                                                                                                                            |  |                                                                                      |  |     
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | ----
|                                                                                                                            |  |                                                                                      |  | Page
|PART I - FINANCIAL INFORMATION                                                                                              |  |                                                                                     
|                                                                                                                            |  |                                                                                     
|Item 1.                                                                                                                     |  | Financial Statements                                                                 |  |     
|                                                                                                                            | 
|Introductory Comments                                                                                                       |  | 1                                                                                   
|                                                                                                                            | 
|Consolidated Balance Sheets -December 31, 2005 and June 30, 2006                                                            |  | 2                                                                                   
|                                                                                                                            | 
|Consolidated Statements of Income -Three and Six Months Ended June 30, 2005 and 2006                                        |  | 3                                                                                   
|                                                                                                                            | 
|Consolidated Statements of Cash Flows -Six Months Ended June 30, 2005 and 2006                                              |  | 4                                                                                   
|                                                                                                                            | 
|Consolidated Statements of Changes in Stockholders Equity -Year ended December 31, 2005 and Six Months Ended June 30, 2006 |  | 5                                                                                   
|                                                                                                                            | 
|Notes to Consolidated Financial Statements                                                                                  |  | 6                                                                                   
|                                                                                                                            | 
|Computation of Basic and Diluted Earnings per Share                                                                         |  | 10                                                                                  
|                                                                                                                            |  |                                                                                     
|Item 2.                                                                                                                     |  | Managements Discussion and Analysis of FinancialCondition and Results of Operations |  | 19  
|                                                                                                                            |  |                                                                                     
|Item 3.                                                                                                                     |  | Quantitative and Qualitative Disclosures About Market Risk                           |  | 33  
|                                                                                                                            |  |                                                                                     
|Item 4.                                                                                                                     |  | Controls and Procedures                                                              |  | 33  
|                                                                                                                            | 
|PART II - OTHER INFORMATION                                                                                                 |  |                                                                                     
|                                                                                                                            |  |                                                                                     
|Item 2.                                                                                                                     |  | Unregistered Sales of Equity Securities and Use of Proceeds                          |  | 34  
|                                                                                                                            |  |                                                                                     
|Item 4.                                                                                                                     |  | Submission of Matters to a Vote of Security Holders                                  |  | 34  
|                                                                                                                            |  |                                                                                     
|Item 6.                                                                                                                     |  | Exhibits                                                                             |  | 35  
|                                                                                                                            | 
|SIGNATURES                                                                                                                  |  | 36                                                                                  





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##### Table of Contents

QC HOLDINGS, INC.

FORM 10-Q

JUNE 30, 2006

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INTRODUCTORY COMMENTS

The consolidated financial statements included in this report have been prepared by QC
Holdings, Inc. (the Company or QC), without audit, under the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted under those rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. These
consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations, included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2005. Results for the three and six months ended June 30, 2006 are not necessarily indicative of the results expected for the full year 2006.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated
Balance Sheets

(in thousands, except share and per share amounts)



|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                                            |  | December 31,2005 |         |   | June 30,2006 |  
|                                                                                                                                                                                                            |  |                  |         |   | Unaudited    |  
|ASSETS                                                                                                                                                                                                      |  |                  |         |   |              |   |         |  
|Current assets:                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                                                                                                   |  | $                | 31,640  |   |              | $ | 30,068  |  
|Loans receivable, less allowance for losses of $1,705 at December 31, 2005 and $1,780 at June 30, 2006                                                                                                      |  |                  | 52,778  |   |              |   | 49,690  |  
|Prepaid expenses and other current assets                                                                                                                                                                   |  |                  | 2,945   |   |              |   | 3,928   |  
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|Total current assets                                                                                                                                                                                        |  |                  | 87,363  |   |              |   | 83,686  |  
|Property and equipment, net                                                                                                                                                                                 |  |                  | 32,147  |   |              |   | 32,608  |  
|Goodwill                                                                                                                                                                                                    |  |                  | 7,265   |   |              |   | 7,265   |  
|Other assets, net                                                                                                                                                                                           |  |                  | 1,364   |   |              |   | 1,618   |  
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|Total assets                                                                                                                                                                                                |  | $                | 128,139 |   |              | $ | 125,177 |  
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                        |  |                  |         |   |              |   |         |  
|Current liabilities:                                                                                                                                                                                        |  |                  |         |   |              |   |         |  
|Accounts payable                                                                                                                                                                                            |  | $                | 644     |   |              | $ | 350     |  
|Accrued expenses and other liabilities                                                                                                                                                                      |  |                  | 3,033   |   |              |   | 3,965   |  
|Accrued compensation and benefits                                                                                                                                                                           |  |                  | 3,237   |   |              |   | 3,594   |  
|Deferred revenue                                                                                                                                                                                            |  |                  | 4,121   |   |              |   | 3,863   |  
|Deferred income taxes                                                                                                                                                                                       |  |                  | 2,384   |   |              |   | 501     |  
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|Total current liabilities                                                                                                                                                                                   |  |                  | 13,419  |   |              |   | 12,273  |  
|Deferred income taxes                                                                                                                                                                                       |  |                  | 3,167   |   |              |   | 2,825   |  
|Other non-current liabilities                                                                                                                                                                               |  |                  | 737     |   |              |   | 668     |  
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|Total liabilities                                                                                                                                                                                           |  |                  | 17,323  |   |              |   | 15,766  |  
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|Commitments and contingencies                                                                                                                                                                               |  |                  |         |   |              |   |         |  
|Stockholders equity:                                                                                                                                                                                       |  |                  |         |   |              |   |         |  
|Common stock, $0.01 par value: 75,000,000 shares authorized; 20,700,250 shares issued and 20,432,850 outstanding at December 31, 2005;
20,700,250 shares issued and 20,219,800 outstanding at June 30, 2006 |  |                  | 207     |   |              |   | 207     |  
|Additional paid-in capital                                                                                                                                                                                  |  |                  | 71,687  |   |              |   | 70,614  |  
|Retained earnings                                                                                                                                                                                           |  |                  | 42,050  |   |              |   | 44,839  |  
|Treasury stock, at cost                                                                                                                                                                                     |  |                  | (3,128  | ) |              |   | (6,249  | )
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|Total stockholders equity                                                                                                                                                                                  |  |                  | 110,816 |   |              |   | 109,411 |  
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                  |  | $                | 128,139 |   |              | $ | 125,177 |  
|                                                                                                                                                                                                            |  |                  |         |   |              |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated
Statements of Income

(in thousands, except per share amounts)

(Unaudited)



|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                       |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                       |  | 2005                       |        |   | 2006                     |   |        | 2005 |  |   | 2006   |  
|Revenues                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Loan and credit service fees                           |  | $                          | 33,246 |   |                          | $ | 36,625 |      |  | $ | 63,090 |   |  | $ | 71,015 |  
|Other                                                  |  |                            | 2,886  |   |                          |   | 3,142  |      |  |   | 6,503  |   |  |   | 7,184  |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                         |  |                            | 36,132 |   |                          |   | 39,767 |      |  |   | 69,593 |   |  |   | 78,199 |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Branch expenses                                        |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Salaries and benefits                                  |  |                            | 8,841  |   |                          |   | 10,856 |      |  |   | 16,939 |   |  |   | 21,568 |  
|Provision for losses                                   |  |                            | 10,152 |   |                          |   | 9,380  |      |  |   | 16,879 |   |  |   | 14,623 |  
|Occupancy                                              |  |                            | 4,280  |   |                          |   | 5,289  |      |  |   | 8,394  |   |  |   | 10,627 |  
|Depreciation and amortization                          |  |                            | 622    |   |                          |   | 1,230  |      |  |   | 1,079  |   |  |   | 2,491  |  
|Other                                                  |  |                            | 2,963  |   |                          |   | 3,849  |      |  |   | 5,680  |   |  |   | 7,393  |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total branch expenses                                  |  |                            | 26,858 |   |                          |   | 30,604 |      |  |   | 48,971 |   |  |   | 56,702 |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Branch gross profit                                    |  |                            | 9,274  |   |                          |   | 9,163  |      |  |   | 20,622 |   |  |   | 21,497 |  
|Regional expenses                                      |  |                            | 2,265  |   |                          |   | 3,043  |      |  |   | 4,441  |   |  |   | 6,116  |  
|Corporate expenses                                     |  |                            | 4,396  |   |                          |   | 5,272  |      |  |   | 8,171  |   |  |   | 10,147 |  
|Depreciation and amortization                          |  |                            | 215    |   |                          |   | 332    |      |  |   | 357    |   |  |   | 638    |  
|Interest income, net                                   |  |                            | (187   | ) |                          |   | (182   | )    |  |   | (353   | ) |  |   | (277   | )
|Other expense, net                                     |  |                            | 284    |   |                          |   | 145    |      |  |   | 433    |   |  |   | 193    |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations before income taxes  |  |                            | 2,301  |   |                          |   | 553    |      |  |   | 7,573  |   |  |   | 4,680  |  
|Provision for income taxes                             |  |                            | 898    |   |                          |   | 257    |      |  |   | 2,920  |   |  |   | 1,891  |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations                      |  |                            | 1,403  |   |                          |   | 296    |      |  |   | 4,653  |   |  |   | 2,789  |  
|Income from discontinued operations, net of income tax |  |                            | 286    |   |                          |   |        |      |  |   | 652    |   |  |   |        |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net income                                             |  | $                          | 1,689  |   |                          | $ | 296    |      |  | $ | 5,305  |   |  | $ | 2,789  |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Weighted average number of common shares outstanding:  |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                  |  |                            | 20,591 |   |                          |   | 20,278 |      |  |   | 20,544 |   |  |   | 20,378 |  
|Diluted                                                |  |                            | 21,537 |   |                          |   | 21,046 |      |  |   | 21,533 |   |  |   | 21,135 |  
|Earnings per share:                                    |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                  |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                  |  | $                          | 0.07   |   |                          | $ | 0.01   |      |  | $ | 0.23   |   |  | $ | 0.14   |  
|Discontinued operations                                |  |                            | 0.01   |   |                          |   |        |      |  |   | 0.03   |   |  |   |        |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net income                                             |  | $                          | 0.08   |   |                          | $ | 0.01   |      |  | $ | 0.26   |   |  | $ | 0.14   |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                  |  | $                          | 0.07   |   |                          | $ | 0.01   |      |  | $ | 0.22   |   |  | $ | 0.13   |  
|Discontinued operations                                |  |                            | 0.01   |   |                          |   |        |      |  |   | 0.03   |   |  |   |        |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net income                                             |  | $                          | 0.08   |   |                          | $ | 0.01   |      |  | $ | 0.25   |   |  | $ | 0.13   |  
|                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated
Statements of Cash Flows

(in thousands)

(Unaudited)



|                                                                                            |  |                          |         |   |      |   |         |  
|------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                            |  | Six Months EndedJune 30, |        
|                                                                                            |  | 2005                     |         |   | 2006 |  
|Cash flows from operating activities                                                        |  |                          |         |   |      |   |         |  
|Net income                                                                                  |  | $                        | 5,305   |   |      | $ | 2,789   |  
|Adjustments to reconcile net income to net cash provided by operating activities:           |  |                          |         |   |      |   |         |  
|Depreciation and amortization                                                               |  |                          | 1,479   |   |      |   | 3,129   |  
|Provision for losses                                                                        |  |                          | 17,423  |   |      |   | 14,623  |  
|Deferred income taxes                                                                       |  |                          | 121     |   |      |   | (292    | )
|Loss on disposal of property and equipment                                                  |  |                          | 455     |   |      |   | 193     |  
|Other, net                                                                                  |  |                          | 49      |   |      |   | 49      |  
|Lease incentive                                                                             |  |                          | 976     |   |      |   |         |  
|Stock-based compensation                                                                    |  |                          |         |   |      |   | 718     |  
|Excess tax benefits from stock-based payment arrangements                                   |  |                          | 1,784   |   |      |   | (416    | )
|Changes in operating assets and liabilities:                                                |  |                          |         |   |      |   |         |  
|Loans receivable, net                                                                       |  |                          | (18,160 | ) |      |   | (11,534 | )
|Prepaid expenses and other current assets                                                   |  |                          | (611    | ) |      |   | (93     | )
|Other assets                                                                                |  |                          | (144    | ) |      |   | (645    | )
|Accounts payable                                                                            |  |                          | 357     |   |      |   | (294    | )
|Accrued expenses, other liabilities, accrued compensation and benefits and deferred revenue |  |                          | 1,808   |   |      |   | 1,031   |  
|Income taxes                                                                                |  |                          | 351     |   |      |   | (2,408  | )
|Other non-current liabilities                                                               |  |                          | (29     | ) |      |   | (70     | )
|                                                                                            |  |                          |         |   |      |   |         |  
|Net operating                                                                               |  |                          | 11,164  |   |      |   | 6,780   |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Cash flows from investing activities                                                        |  |                          |         |   |      |   |         |  
|Proceeds from sales of investments                                                          |  |                          | 25,100  |   |      |   |         |  
|Purchases of investments                                                                    |  |                          | (4,000  | ) |      |   |         |  
|Purchase of property and equipment                                                          |  |                          | (11,652 | ) |      |   | (3,784  | )
|Proceeds from sale of property and equipment                                                |  |                          | 25      |   |      |   | 55      |  
|Acquisition costs, net                                                                      |  |                          | (860    | ) |      |   |         |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Net investing                                                                               |  |                          | 8,613   |   |      |   | (3,729  | )
|                                                                                            |  |                          |         |   |      |   |         |  
|Cash flows from financing activities                                                        |  |                          |         |   |      |   |         |  
|Repurchase of common stock                                                                  |  |                          | (2,847  | ) |      |   | (5,846  | )
|Exercise of stock options                                                                   |  |                          | 789     |   |      |   | 469     |  
|Excess tax benefits from stock-based payment arrangements                                   |  |                          |         |   |      |   | 416     |  
|Debt issue costs                                                                            |  |                          |         |   |      |   | 338     |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Net financing                                                                               |  |                          | (2,058  | ) |      |   | (4,623  | )
|                                                                                            |  |                          |         |   |      |   |         |  
|Cash and cash equivalents                                                                   |  |                          |         |   |      |   |         |  
|Net increase (decrease)                                                                     |  |                          | 17,719  |   |      |   | (1,572  | )
|At beginning of year                                                                        |  |                          | 16,526  |   |      |   | 31,640  |  
|                                                                                            |  |                          |         |   |      |   |         |  
|At end of period                                                                            |  | $                        | 34,245  |   |      | $ | 30,068  |  
|                                                                                            |  |                          |         |   |      |   |         |  
|Supplementary schedule of cash flow information                                             |  |                          |         |   |      |   |         |  
|Cash paid during the period for                                                             |  |                          |         |   |      |   |         |  
|Interest                                                                                    |  | $                        |        |   |      | $ | 255     |  
|Income taxes                                                                                |  |                          | 1,114   |   |      |   | 3,599   |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated
Statements of Changes in Stockholders Equity

(in thousands, except share amounts)



|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |               |        |  |                          |        |   |  |   |         |  
|-------------------------------------- |  | ----------------- | - |  | ----------- | --- | ------------------------ | - | ------ | ---------------- |  | ------------- | ------ |  | ------------------------ | ------ | - |  | - | ------- | -
|                                       |  | Outstandingshares |   |  | Commonstock |     | Additionalpaid-incapital |   |        | Retainedearnings |  | Treasurystock |        |  | Totalstockholdersequity |       
|Balance, December 31, 2004             |  | 20,371,000        |   |  | $           | 204 |                          | $ | 69,417 |                  |  | $             | 36,671 |  | $                        |       |   |  | $ | 106,292 |  
|Net income and comprehensive income    |  |                   |   |  |             |     |                          |   |        |                  |  |               | 5,379  |  |                          |        |   |  |   | 5,379   |  
|Common stock repurchases               |  | (313,400          | ) |  |             |     |                          |   |        |                  |  |               |        |  |                          | (3,664 | ) |  |   | (3,664  | )
|Stock option exercises                 |  | 375,250           |   |  |             | 3   |                          |   | 303    |                  |  |               |        |  |                          | 536    |   |  |   | 842     |  
|Tax impact of stock-based compensation |  |                   |   |  |             |     |                          |   | 1,867  |                  |  |               |        |  |                          |        |   |  |   | 1,867   |  
|Other, net                             |  |                   |   |  |             |     |                          |   | 100    |                  |  |               |        |  |                          |        |   |  |   | 100     |  
|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |               |        |  |                          |        |   |  |   |         |  
|Balance, December 31, 2005             |  | 20,432,850        |   |  |             | 207 |                          |   | 71,687 |                  |  |               | 42,050 |  |                          | (3,128 | ) |  |   | 110,816 |  
|Net income and comprehensive income    |  |                   |   |  |             |     |                          |   |        |                  |  |               | 2,789  |  |                          |        |   |  |   | 2,789   |  
|Common stock repurchases               |  | (436,300          | ) |  |             |     |                          |   |        |                  |  |               |        |  |                          | (5,846 | ) |  |   | (5,846  | )
|Stock-based compensation expense       |  |                   |   |  |             |     |                          |   | 718    |                  |  |               |        |  |                          |        |   |  |   | 718     |  
|Stock option exercises                 |  | 223,250           |   |  |             |     |                          |   | (2,256 | )                |  |               |        |  |                          | 2,725  |   |  |   | 469     |  
|Tax impact of stock-based compensation |  |                   |   |  |             |     |                          |   | 416    |                  |  |               |        |  |                          |        |   |  |   | 416     |  
|Other, net                             |  |                   |   |  |             |     |                          |   | 49     |                  |  |               |        |  |                          |        |   |  |   | 49      |  
|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |               |        |  |                          |        |   |  |   |         |  
|Balance, June 30, 2006 (Unaudited)     |  | 20,219,800        |   |  | $           | 207 |                          | $ | 70,614 |                  |  | $             | 44,839 |  | $                        | (6,249 | ) |  | $ | 109,411 |  
|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |               |        |  |                          |        |   |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1  Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of QC Holdings, Inc. and its wholly-owned subsidiary, QC
Financial Services, Inc. (collectively, the Company). QC Financial Services, Inc. is the 100% owner of QC Financial Services of California, Inc., Financial Services of North Carolina, Inc., QC Financial Services of Texas, Inc., QC Advance, Inc.,
Cash Title Loans, Inc. and QC Properties, LLC. In the opinion of the Companys management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal closing procedures) necessary to present
fairly the financial position of the Company and its subsidiary companies as of December 31, 2005 and June 30, 2006, and the results of operations for the three and six months ended June 30, 2005 and 2006 and cash flows for the six
months ended June 30, 2005 and 2006, in conformity with accounting principles generally accepted in the United States of America. The consolidated balance sheet as of December 31, 2005 was derived from the audited financial statements of
the Company, but does not include all disclosures required by generally accepted accounting principles.

The accompanying unaudited interim
consolidated financial statements have been prepared consistently with the accounting policies described in Note 2 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2005. The
results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of the results to be expected for the full year 2006.

Business. QC Holdings, Inc., incorporated in 1998 under the laws of the State of Kansas, was founded in 1984, and has provided various retail consumer financial products and services throughout its 22-year
history. Since 1998, the Company has been primarily engaged in the business of providing short-term consumer loans, known as payday loans, with principal values that typically range from $100 to $500. Payday loans provide customers with cash in
exchange for a promissory note with a maturity of generally two to three weeks and supported by that customers personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state, based on applicable
regulations, and generally ranges from $15 to $20 per $100 borrowed. To repay the cash advance, customers may redeem their check by paying cash or they may allow the check to be presented to the bank for collection.

The Company also provides other consumer financial products and services, such as check cashing services, title loans, credit services, installment
loans, money transfers and money orders. All of the Companys loans and other services are subject to state regulation, which vary from state to state, as well as to federal and local regulation, where applicable. As of June 30, 2006, the
Company operated 551 branches with locations in Alabama, Arizona, California, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, Oregon, South Carolina,
Texas, Utah, Virginia, Washington and Wisconsin.

Beginning in second quarter 2006, the Company started providing installment loans to
customers in its Illinois branches. The installment loans are payable in monthly installments (principal plus accrued interest) with terms of five to six months, and all loans are pre-payable at any time without penalty. The fee for the installment
loan is $30 per $100 borrowed per month. Currently, the maximum amount that the Company will advance under an installment loan is $1,000. The average principal amount for installment loans originated in the second quarter 2006 was approximately
$545.

Prior to September 30, 2005, certain locations in North Carolina and Texas offered payday loans from a third-party financial
institution. In October and November 2005, the Company closed all 19 branches in North Carolina. The decision to close these branches reflected the difficult operating environment in North Carolina associated with the Companys role as a
marketing and servicing provider for a Delaware state-chartered bank. The bank offered payday cash advances in compliance with the revised Payday Lending Guidelines issued by the Federal Deposit Insurance Corporation (FDIC). Prior to the FDIC
issuing the revised Payday Lending



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Guidelines and the Companys subsequent decision to close its North Carolina branches, the North Carolina operations
represented approximately 5% of the Companys total revenue and total gross profit. See additional information in Note 3.

In February
2005, the Company entered into a marketing and servicing agreement with another Delaware chartered-state bank with respect to short-term consumer loans to be made by that bank in Texas. On September 14, 2005, the Company ceased serving as a
marketing and servicing provider for new loans made by the bank. On that same day, the Company, through QC Financial Services of Texas, Inc., began operating as a credit services organization (CSO) in its 18 Texas branches. As a CSO, the Company
acts as a credit services organization on behalf of consumers in accordance with Texas laws. See additional information in Note 6.

Companys Initial Public Offering. Effective July 21, 2004, the Company completed the initial public offering of 5,000,000 shares of its common stock at a price of $14.00 per share (the Public Offering). In addition, the
underwriters for the Companys Public Offering exercised an option to purchase from selling stockholders an additional 750,000 shares of common stock to cover over-allotments in the offering. The Company did not receive any of the proceeds from
the shares of common stock sold by the selling stockholders. The Companys common stock trades on the NASDAQ National Market under the symbol QCCO.

Stock Split.The Companys Board of Directors effected a 10-for-1 stock split in the form of a stock dividend on June 9, 2004. All share and per share information included in the consolidated
financial statements and accompanying notes have been restated to reflect this stock split for all periods presented.

Note 2  Significant
Accounting Policies

Principles of Consolidation. The accompanying unaudited interim consolidated financial statements include
the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications were made to the prior consolidated financial statements to conform to the current year
presentation.

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

Cash and Cash
Equivalents. Cash and cash equivalents include cash on hand and short-term investments with original maturities of three months or less. The carrying amount of cash and cash equivalents is the estimated fair value at December 31, 2005 and
June 30, 2006.

Investments.From time to time, the Company invests a portion of its excess cash in auction rate securities.
Due to the short-term nature of the securities, the Company does not take possession of the securities, which are instead held by third-party financial institutions. Because the legal maturity of the auction rate securities is greater than one year,
the securities are classified as investments pursuant to Statement of Financial Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity Securitiesand classified as available-for-sale pursuant to
SFAS 115. As of December 31, 2005 and June 30, 2006, the Company did not have any investments in auction rate securities.

Revenue recognition. The Company records revenue from payday loans and title loans upon issuance. The term of a loan is generally two to three weeks for a payday loan and 30 days for a title loan. At the end of each month, the
Company records an estimate of the unearned revenue, which results in revenues being recognized on a constant-yield basis ratably over the term of each loan. The Company records revenues from installment loans using the simple interest method. With
respect to the Companys CSO services in Texas, the Company earns a CSO fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the
consumers obligation to the third-party lender. The Company also services the loan for the lender. The CSO fee is recognized ratably over the term of the loan.



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The Company recognizes revenues for its other consumer financial products and services, which includes
check cashing, money transfers and money orders, at the time those services are rendered to the customer, which is generally at the point of sale.

The components of Other revenues as reported in the statements of income are as follows (in thousands):



|                         |  |                            |       |                          |   |       |  |      |       |  |   |      
|------------------------ |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                         |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|                         |  | 2005                       |       | 2006                     |   | 2005  |  | 2006
|Check cashing fees       |  | $                          | 1,345 |                          | $ | 1,455 |  | $    | 3,417 |  | $ | 3,813
|Loan fees on title loans |  |                            | 1,081 |                          |   | 1,158 |  |      | 2,152 |  |   | 2,250
|Other fees               |  |                            | 460   |                          |   | 529   |  |      | 934   |  |   | 1,121
|                         |  |                            |       |                          |   |       |  |      |       |  |   |      
|Total                    |  | $                          | 2,886 |                          | $ | 3,142 |  | $    | 6,503 |  | $ | 7,184
|                         |  |                            |       |                          |   |       |  |      |       |  |   |      

Loans Receivable, Provision for Losses and Allowance for Loan Losses. When the Company
enters into a payday loan with a customer, the Company records a loan receivable for the amount loaned to the customer plus the fee charged by the Company, which varies from state to state based on applicable regulations.

The following table summarizes certain data with respect to the Companys payday loans:



|                                              |  |                            |        |                          |   |        |  |      |        |  |   |       
|--------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                              |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                              |  | 2005                       |        | 2006                     |   | 2005   |  | 2006
|Average loan to customer (principal plus fee) |  | $                          | 357.96 |                          | $ | 360.41 |  | $    | 357.05 |  | $ | 360.25
|Average fee received by the Company           |  | $                          | 53.57  |                          | $ | 53.21  |  | $    | 53.42  |  | $ | 53.03 
|Average term of the loan (days)               |  |                            | 16     |                          |   | 16     |  |      | 16     |  |   | 16    

When checks are presented to the bank for payment and returned as uncollected, all accrued fees,
interest and outstanding principal are charged-off as uncollectible, generally within 15 days after their due date. Accordingly, payday loans included in the receivable balance at any given point in time are typically not older than 30 days. These
charge-offs are recorded as expense through the provision for losses. Any recoveries on losses previously charged to expense are recorded as a reduction to the provision for losses in the period recovered.

With respect to the loans receivable at the end of each reporting period, the Company maintains an aggregate allowance for loan losses (including fees
and interest) for payday loans and title loans at levels estimated to be adequate to absorb estimated incurred losses in the respective outstanding loan portfolios. The Company does not specifically reserve for any individual loan. The Company
aggregates payday loans and title loans for purposes of computing the loss allowance based on very similar historical averages of uncollectible amounts as a percentage of volume for each type of loan (generally ranging from 2% to 4% of the total
volume). The Company began offering installment loans in second quarter 2006 and expects the loss experience for installment loans to be similar to its historical experience with payday loans and title loans.

Beginning on July 1, 2005, the Company changed its methodology for estimating the allowance for loan losses to better reflect the short-term nature
of the loan portfolio at each period-end, the historical collection experience in the month following each reporting period-end and any fluctuations in recent general economic conditions. The current and expected future effect of this change did not
have a material impact on the financial statements. The new methodology utilizes a four-step approach. First, the Company computes the loss/volume ratio for the last month of each reporting period. The loss/volume ratio represents the percentage of
aggregate net payday, installment and title loan losses to total payday, installment and title loan volumes during a given period. Second, the Company computes an adjustment to this percentage to reflect the collections experience in the month
immediately following the reporting period-end. To estimate collections experience, the Company



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computes an average of the change in the loss/volume ratio from the last month of each reporting period to the immediate
subsequent month-end for each of the last three years (excluding the current year). This change is then added to, or subtracted from, the loss/volume ratio computed for the last month of the current reporting period to derive an experience-adjusted
loss/volume ratio. Third, the period-end gross payday, installment and title loans receivable balance is multiplied by the experience-adjusted loss/volume ratio to determine the initial estimate of the allowance for loan losses. Fourth, the Company
reviews and evaluates various qualitative factors that might affect the computed initial estimate of the allowance for loan losses, including, among others, known changes in state regulations or laws, changes to the Companys business and
operating structure, and geographic or demographic developments.

Using this information, the Company records an adjustment to the
allowance for loan losses through the provision for losses.

In periods prior to July 1, 2005, the allowance for loan losses was
determined by evaluating the aggregate payday and title loan portfolio based on the historical level of loans charged to expense, and the Companys collections experience over the three months as of March 31, six months as of June 30,
nine months as of September 30, and twelve months as of December 31 each year.

The following table summarizes the activity in
the allowance for loan losses and the provision for losses during the three and six months ended June 30, 2005 and 2006 (in thousands):



|                                                                                                                       |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                       |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                                                                       |  | 2005                       |        |   | 2006                     |   |        | 2005 |  |   | 2006    |  
|Allowance for loan losses                                                                                              |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Balance, beginning of period                                                                                           |  | $                          | 1,320  |   |                          | $ | 1,049  |      |  | $ | 1,520   |   |  | $ | 1,705   |  
|Adjustment to provision for losses based on evaluation of outstanding receivables and CSO obligation at period end (a) |  |                            | 500    |   |                          |   | 731    |      |  |   | 300     |   |  |   | 75      |  
|                                                                                                                       |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Balance, end of period                                                                                                 |  | $                          | 1,820  |   |                          | $ | 1,780  |      |  | $ | 1,820   |   |  | $ | 1,780   |  
|                                                                                                                       |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Provision for losses                                                                                                   |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Charged-off to expense                                                                                                 |  | $                          | 17,485 |   |                          | $ | 17,335 |      |  | $ | 32,783  |   |  | $ | 34,115  |  
|Recoveries                                                                                                             |  |                            | (7,802 | ) |                          |   | (8,696 | )    |  |   | (16,226 | ) |  |   | (19,518 | )
|Adjustment to provision for losses based on evaluation of outstanding receivables and CSO obligation at period end (a) |  |                            | 469    |   |                          |   | 741    |      |  |   | 322     |   |  |   | 26      |  
|                                                                                                                       |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Total provision for losses                                                                                             |  | $                          | 10,152 |   |                          | $ | 9,380  |      |  | $ | 16,879  |   |  | $ | 14,623  |  
|                                                                                                                       |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  

---

|(a) | Amounts differ in 2005 due to the exclusion of the North Carolina operations (see Note 3) in the provision for losses table and differ in 2006 due to the inclusion of changes in the
credit services organization liability (see Note 6) in the provision for losses table.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Earnings per Share. Basic and
diluted earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share gives effect to all dilutive
potential common shares that were outstanding during the year. The effect of stock options and unvested restricted stock represent the only differences between the weighted average shares used for the basic earnings per share computation compared to
the diluted earnings per share computation for each period presented.



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The following table presents the computations of basic and diluted earnings per share for each of the periods indicated (in thousands, except per share data).



|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|-------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                               |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                                               |  | 2005                       |        | 2006                     |   | 2005   |  | 2006
|Income available to common stockholders:                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|                                                               |  |                            |        |                         
|Income from continuing operations                              |  | $                          | 1,403  |                          | $ | 296    |  | $    | 4,653  |  | $ | 2,789 
|Discontinued operations, net of income tax                     |  |                            | 286    |                          |   |        |  |      | 652    |  |   |       
|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net income                                                     |  | $                          | 1,689  |                          | $ | 296    |  | $    | 5,305  |  | $ | 2,789 
|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|Weighted average shares outstanding:                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|                                                               |  |                            |        |                         
|Weighted average basic common shares outstanding               |  |                            | 20,591 |                          |   | 20,278 |  |      | 20,544 |  |   | 20,378
|Dilutive effect of stock options and unvested restricted stock |  |                            | 946    |                          |   | 768    |  |      | 989    |  |   | 757   
|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|Weighted average diluted common shares outstanding             |  |                            | 21,537 |                          |   | 21,046 |  |      | 21,533 |  |   | 21,135
|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|Basic earnings per share:                                      |  |                            |        |                          |   |        |  |      |        |  |   |       
|                                                               |  |                            |        |                         
|Continuing operations                                          |  | $                          | 0.07   |                          | $ | 0.01   |  | $    | 0.23   |  | $ | 0.14  
|Discontinued operations                                        |  |                            | 0.01   |                          |   |        |  |      | 0.03   |  |   |       
|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net income                                                     |  | $                          | 0.08   |                          | $ | 0.01   |  | $    | 0.26   |  | $ | 0.14  
|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|Diluted earnings per share:                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|                                                               |  |                            |        |                         
|Continuing operations                                          |  | $                          | 0.07   |                          | $ | 0.01   |  | $    | 0.22   |  | $ | 0.13  
|Discontinued operations                                        |  |                            | 0.01   |                          |   |        |  |      | 0.03   |  |   |       
|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net income                                                     |  | $                          | 0.08   |                          | $ | 0.01   |  | $    | 0.25   |  | $ | 0.13  
|                                                               |  |                            |        |                          |   |        |  |      |        |  |   |       

Stock-Based Compensation.The Company adopted Statement of Financial Accounting Standards
No. 123R (SFAS 123R), Share-Based Payments effective January 1, 2006. The adoption of this statement requires the Company to recognize in its financial statements, compensation cost relating to share-based payment transactions.
Under the provisions of SFAS 123R, the stock-based compensation expense is recognized as expense over the vesting period. See additional information in Note 8.

Note 3  Discontinued Operations

In October and November of 2005, the Company closed all 19 branches in North
Carolina. The Companys decision to close its North Carolina branches reflected the difficult operating environment in North Carolina associated with the Companys role as a marketing and servicing provider for a lending bank that was
offering payday cash advances in compliance with the revised Payday Lending Guidelines issued by the FDIC in March 2005. Prior to September 30, 2005, payday loans were offered in the Companys North Carolina branches by a third-party
financial institution. The Company entered into the arrangement with the Delaware state-chartered bank in April 2003. Under the terms of the agreement, the Company marketed and serviced the banks loans in North Carolina and the bank sold to
the Company a pro rata participation in loans that were made to its borrowers. The terms of the loans were generally similar to those of the Companys own loans, though the bank had sole discretion regarding the terms of its loans. In
connection with the closing of the North Carolina branches, the Company terminated its agreement with the bank.



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The Companys North Carolina operations are reported as discontinued operations in accordance with
Statement of Financial Accounting Standards No. 144 (SFAS 144)  Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance with SFAS 144, the Consolidated Statements of Income and related disclosures in the
accompanying notes present the results of the Companys North Carolina operations as discontinued operations for all periods presented. With respect to the Consolidated Balance Sheets and related disclosures in the accompanying notes and the
Consolidated Statements of Cash Flows, the items associated with the discontinued operations are included with the continuing operations for all periods presented.

Summarized financial information for discontinued operations during the three and six months ended June 30, 2005 is presented below (in thousands):



|                                    |  |                                 |       |                              |   |      
|----------------------------------- |  | ------------------------------- | ----- | ---------------------------- | - | -----
|                                    |  | Three MonthsEnded June 30, 2005 |       | Six MonthsEndedJune 30, 2005
|Total revenues                      |  | $                               | 1,873 |                              | $ | 3,523
|                                    |  |                                
|Provision for losses                |  |                                 | 448   |                              |   | 544  
|Other branch expenses               |  |                                 | 790   |                              |   | 1,601
|                                    |  |                                 |       |                              |   |      
|Total branch expenses               |  |                                 | 1,238 |                              |   | 2,145
|                                    |  |                                 |       |                              |   |      
|Branch gross profit                 |  |                                 | 635   |                              |   | 1,378
|Other, net                          |  |                                 | 162   |                              |   | 301  
|                                    |  |                                 |       |                              |   |      
|Income before income taxes          |  |                                 | 473   |                              |   | 1,077
|Provision for income taxes          |  |                                 | 187   |                              |   | 425  
|                                    |  |                                 |       |                              |   |      
|Income from discontinued operations |  | $                               | 286   |                              | $ | 652  
|                                    |  |                                 |       |                              |   |      

Note 4  Property and Equipment

Property and equipment consisted of the following (in thousands):



|                                                |  |                  |         |   |              |   |         |  
|----------------------------------------------- |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                |  | December 31,2005 |         |   | June 30,2006 |  
|Buildings                                       |  | $                | 2,146   |   |              | $ | 2,540   |  
|Leasehold improvements                          |  |                  | 20,009  |   |              |   | 21,266  |  
|Furniture and equipment                         |  |                  | 19,761  |   |              |   | 21,182  |  
|Vehicles                                        |  |                  | 667     |   |              |   | 752     |  
|                                                |  |                  |         |   |              |   |         |  
|                                                |  |                  | 42,583  |   |              |   | 45,740  |  
|Less: Accumulated depreciation and amortization |  |                  | (10,436 | ) |              |   | (13,132 | )
|                                                |  |                  |         |   |              |   |         |  
|Total                                           |  | $                | 32,147  |   |              | $ | 32,608  |  
|                                                |  |                  |         |   |              |   |         |  

In April 2006, the Company purchased a building in St. Louis, Missouri for approximately $400,000.
The building will be used as a branch location that will offer the Companys various financial services.

In February 2005, the
Company entered into a seven-year lease to relocate its corporate headquarters to office space in Overland Park, Kansas. As part of the lease agreement, the Company received a tenant allowance from the landlord for leasehold improvements totaling
$976,000. The tenant allowance was recorded by the Company as a deferred rent liability and is being amortized as a reduction of rent expense over the life of the lease. As of December 31, 2005, the balance of the deferred rent liability was
approximately $877,000, of which $737,000 is classified as a non-current liability. As of June 30, 2006, the balance of the deferred rent liability was approximately $807,000, of which $668,000 is classified as a non-current liability. As of
June 30, 2006, the Company has incurred approximately $4.5 million (including the tenant allowance) in capital expenditures to complete the tenant improvements, furnishings and technology for the new office.



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Note 5  Acquisitions and Goodwill

The following table summarizes the changes in the carrying amount of goodwill (in thousands):



|                               |  |                  |       |   |              |   |      
|------------------------------ |  | ---------------- | ----- | - | ------------ | - | -----
|                               |  | December 31,2005 |       |   | June 30,2006
|Balance at beginning of period |  | $                | 7,298 |   |              | $ | 7,265
|Impairment                     |  |                  | (662  | ) |              |   |      
|Acquisitions                   |  |                  | 629   |   |              |   |      
|                               |  |                  |       |   |              |   |      
|Balance at end of period       |  | $                | 7,265 |   |              | $ | 7,265
|                               |  |                  |       |   |              |   |      

In connection with the Companys decision to close its branches in North Carolina during the
fourth quarter of 2005, the Company reviewed all goodwill associated with its North Carolina operations. The Company determined the estimated fair value of branches in North Carolina was minimal as the Company abandoned the branch locations by
terminating all operating leases. As a result, the Company recorded a charge of $662,000 during the third quarter of 2005 to reflect the impairment of goodwill associated with six of the branches in North Carolina that were purchased in 1998.

During 2005, the Company acquired 10 branches and certain assets for a total of $906,000, which included net book value of depreciable
assets of approximately $80,000 and payday loans receivable of approximately $192,000. The Company used the purchase method of accounting. The excess of the total acquisition cost over the fair value of the net assets acquired totaled $634,000. Of
this amount, the Company allocated $629,000 to goodwill and $5,000 to an identified intangible asset for a non-compete agreement. The purchase price allocations with respect to acquisitions made in 2005 have been completed and no adjustments to the
initial purchase price allocations were necessary. The pro forma results of operations have not been presented because the results of operations for the Company would not have been materially different from those reported for 2005.

Note 6  Credit Services Organization

Payday
loans are originated by the Company at all of its branches, except branches in Texas. For its locations in Texas, the Company began operating as a CSO, through one of its subsidiaries, in September 2005. As a CSO, the Company acts as a credit
services organization on behalf of consumers in accordance with Texas laws. The Company charges the consumer a fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer,
including a guarantee of the consumers obligation to the third-party lender. The Company also services the loan for the lender. The CSO fee is recognized ratably over the term of the loan. The Company is not involved in the loan approval
process or in determining the loan approval procedures or criteria. As a result, loans made by the lender are not included in the Companys loans receivable balance and are not reflected in the Consolidated Balance Sheets. As noted above,
however, the Company absorbs all risk of loss through its guarantee of the consumers loan from the lender. As of December 31, 2005 and June 30, 2006, the consumers had total loans outstanding with the lender of approximately $1.0
million. Because of the economic exposure for potential losses related to the guarantee of these loans, the Company recorded a payable to reflect the anticipated losses related to uncollected loans. The payable is recognized at its fair value
pursuant to FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.Changes in the liability are recognized through the provision for loan losses on the
consolidated statements of income. The balance of the liability for estimated losses reported in accrued liabilities was approximately $110,000 as of December 31, 2005 and $60,000 at June 30, 2006.

Prior to September 2005, the Company had an agreement with a Delaware-chartered state bank with respect to short-term consumer loans made by that bank in
the Companys Texas branches. Under the agreement with the bank, the Company provided various services including marketing and loan servicing for the bank in connection with the banks short-term consumer loans in Texas, for which the
Company was paid fees by the bank. The total revenue the Company earned for marketing and servicing the banks short-term loans during 2005 was $765,000. The agreement with the bank was terminated on September 14, 2005. The outstanding



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balance of the banks advances and fees receivable serviced by the Company was approximately $1.1 million on
September 14, 2005, which the Company purchased from the bank as a result of terminating the agreement with the bank. As of December 31, 2005, the outstanding balance of the banks advances and fees that the Company purchased on
September 14, 2005 was approximately $75,000. The Company provided for the entire loan balances of $75,000 in its allowance for loan losses as of December 31, 2005. As of June 30, 2006, the Company did not have any balance outstanding
with respect to the banks advances and fees that the Company purchased on September 14, 2005.

Note 7  Credit Facility

On January 19, 2006, the Company entered into a credit agreement with a syndicate of banks, which provides for a revolving line of credit
(including provisions permitting the issuance of letters of credit) in the aggregate principal amount of up to $45.0 million (the credit facility). The credit facility is secured by all the capital stock of each subsidiary of the Company and all
personal property (including, without limitation, all present and future accounts receivable, general intangibles (including intellectual property), instruments, chattel paper, deposit accounts, investment property and the proceeds thereof).
Borrowings under the facility are available at rates based on the LIBOR or the Federal Funds rate. The credit facility has a grid that adjusts borrowing costs up or down based upon the Companys leverage ratio. Leverage ratio is defined as the
ratio of total debt to EBITDA (earnings before interest, provision for income taxes, depreciation and amortization). An annual facility fee of 0.25% is required on the credit facility. Among other provisions, the credit facility contains financial
covenants related to EBITDA, total indebtedness, fixed charges and minimum consolidated net worth. The credit facility matures on January 19, 2009. No amounts were borrowed on the credit facility during the first six months of 2006.

Note 8  Stock-Based Compensation

As of
June 30, 2006, the Companys stock-based compensation plans include the 1999 Stock Option Plan, the 2004 Equity Incentive Plan (2004 Plan) and an option to purchase 200,000 shares of common stock granted to a current officer of the Company
when he was a consultant to the Company. Securities remaining available for future issuance under equity compensation plans approved by security holders consist solely of shares available under the 2004 Plan. The maximum number of shares of common
stock of the Company originally reserved and available for issuance under the 2004 Plan was 3.0 million shares. As of June 30, 2006, there are 1.3 million shares of common stock remaining available for future issuance under the 2004
Plan that may be issued, in any combination, as incentive stock options, non-qualified stock options, stock appreciation rights, performance-based share awards, restricted stock or other incentive awards of, or based on, the Companys common
stock.

In accordance with the Companys stock-based compensation plans, the exercise price of a stock option is equal to the market
price of the stock on the date of the grant. Generally, options granted will expire 10 years from the date of grant.

Restricted stock
awards are valued on the date of grant, have no purchase price and typically vest over four years in 25% increments on the first, second, third and fourth anniversaries of the grant date. Under the 2004 Plan, unvested shares of restricted stock may
be forfeited upon the termination of employment with the Company, dependent upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of restricted stock have full stockholders
rights during the term of restriction, including voting rights and the right to receive cash dividends.

The Company adopted the provisions
of SFAS 123R effective January 1, 2006. The adoption of this statement requires the Company to recognize in its financial statements compensation costs relating to share-based payment transactions. Under the provisions of SFAS 123R, the
stock-based compensation expense is recognized as expense over the vesting period. The following table summarizes the stock-based compensation expense reported in net income for the three and six months ended June 30, 2006 (in
thousands).



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|                                               |  |                                 |     |                              |   |    
|---------------------------------------------- |  | ------------------------------- | --- | ---------------------------- | - | ---
|                                               |  | Three MonthsEnded June 30, 2006 |     | Six MonthsEndedJune 30, 2006
|Employee stock-based compensation              |  | $                               | 241 |                              | $ | 482
|Non-employee director stock-based compensation |  |                                 | 49  |                              |   | 236
|                                               |  |                                 |     |                              |   |    
|Total stock-based compensation                 |  | $                               | 290 |                              | $ | 718
|                                               |  |                                 |     |                              |   |    

As a result of the adoption of Statement 123R, the Companys financial results were lower
than under its previous accounting method for share-based compensation by the following amounts (in thousands):



|                                                      |  |                                 |      |                              |   |     
|----------------------------------------------------- |  | ------------------------------- | ---- | ---------------------------- | - | ----
|                                                      |  | Three MonthsEnded June 30, 2006 |      | Six MonthsEndedJune 30, 2006
|Income from continuing operations before income taxes |  | $                               | 290  |                              | $ | 718 
|Income from continuing operations                     |  |                                 | 155  |                              |   | 428 
|Net income                                            |  |                                 | 155  |                              |   | 428 
|                                                      |  |                                
|Basic earning per common share                        |  | $                               | 0.01 |                              | $ | 0.02
|Diluted earnings per common share                     |  | $                               | 0.01 |                              | $ | 0.02

Prior to the adoption of SFAS 123R, the Company presented all tax benefits of deductions resulting
from the exercise of share-based awards as operating cash flows in the consolidated statement of cash flows. SFAS 123R requires the cash flows resulting from the tax benefits generated from tax deductions in excess of the compensation costs
recognized for the share-based awards (excess tax benefits) be classified as financing cash inflows with a corresponding reduction of operating cash flows. The excess tax benefit of $416,000 recorded for the six months ended June 30, 2006,
classified as a financing tax inflow, would have been classified as an operating cash inflow prior to the Companys adoption of SFAS 123R.

Prior to January 1, 2006,the Company used the intrinsic value method as described in Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employeesand its related
Interpretations, to measure employee stock-based compensation as permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation.Under this method, compensation expense was
measured as the difference between the current value of the shares involved and the price the employee is required to pay on grant date, if any. Compensation expense is generally measured on the date the awards are granted and recognized over the
vesting period, which approximates the anticipated service period.

The Companys reported net income for the three and six months
ended June 30, 2005 does not include any stock-based employee compensation expense because all stock options granted under the Companys equity compensation plans had an exercise price equal to the fair market value of the underlying
common stock on the date of grant. If the Company had applied the fair value provisions set forth in SFAS 123 to stock option grants to employees, compensation expense would have been higher than is reported in the consolidated financial statements
by approximately $6.2 million and $7.1 million for the three and six months ended June 30, 2005, respectively.

On May 9, 2005,
the Compensation Committee of the Companys Board of Directors approved the acceleration of vesting of all unvested options to purchase common stock of the Company that had an exercise price that was greater than the market price on that date.
This action resulted in the accelerated vesting of options to purchase 964,000 shares of common stock of the Company. The weighted average exercise price of the accelerated options was $15.97 per share. The closing price of the Companys common
stock on the Nasdaq National Market on May 9, 2005 was $13.50 per share.



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The Company accelerated the vesting of these options because it believed it was in the best interest of
the stockholders to reduce future compensation expense that the Company would otherwise have been required to report in its income statement upon adoption of SFAS 123R in the first quarter of 2006. The Company did not accelerate the vesting
requirements for unvested options granted to employees with an exercise price that was less than the market price on May 9, 2005, however, these options were scheduled to vest prior to the adoption of SFAS 123R. As a result, all employee
options outstanding as of January 1, 2006 had vested prior to the adoption of SFAS 123R. In the second quarter of 2005, the company reflected a $6.2 million pre-tax charge in its pro forma earnings disclosures to reflect the acceleration of
vesting.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123 to employee stock options for the three and six months ended June 30, 2005 (in thousands, except per share data):



|                                                                                                                                                |  |                                |        |   |                              |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | -
|                                                                                                                                                |  | Three MonthsEndedJune 30, 2005 |        |   | Six MonthsEndedJune 30, 2005 |  
|Net income as reported                                                                                                                          |  | $                              | 1,689  |   |                              | $ | 5,305  |  
|Deduct total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects
(a) |  |                                | (4,618 | ) |                              |   | (5,242 | )
|                                                                                                                                                |  |                                |        |   |                              |   |        |  
|Pro forma income available to common stockholders                                                                                               |  | $                              | (2,929 | ) |                              | $ | 63     |  
|                                                                                                                                                |  |                                |        |   |                              |   |        |  
|Basic earnings per share:                                                                                                                       |  |                                |        |   |                              |   |        |  
|As reported                                                                                                                                     |  | $                              | 0.08   |   |                              | $ | 0.26   |  
|Pro forma                                                                                                                                       |  | $                              | (0.14  | ) |                              | $ |       |  
|                                                                                                                                                |  |                               
|Diluted earnings per share:                                                                                                                     |  |                                |        |   |                              |   |        |  
|As reported                                                                                                                                     |  | $                              | 0.08   |   |                              | $ | 0.25   |  
|Pro forma                                                                                                                                       |  | $                              | (0.14  | ) |                              | $ |       |  

---

|(a) | The pro forma computations assume that the Company does not receive a tax benefit upon exercise of any incentive stock options granted to its employees.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

The weighted-average fair value of each stock option included in the preceding pro forma amounts are estimated using a Black-Scholes option-pricing model
and is amortized over the vesting period of the underlying options. The following assumptions were utilized.



|                         |  |                |     
|------------------------ |  | -------------- | ----
|                         |  | 2005           |     
|Dividend yield           |  | 0.00           | %   
|Risk-free interest rate  |  | 3.38% to 4.50  | %   
|Expected volatility      |  | 0.00% to 60.94 | %(a)
|Expected life (in years) |  | 6.00           |     

---

|(a) | Expected volatility of 0.00% was for options granted prior to the initial public offering.
|--- | ------------------------------------------------------------------------------------------

In 2002 and in years prior to 2001, the Company granted stock options to non-employees. In accordance with the provisions of SFAS 123, the Company has
recorded compensation expense of approximately $25,000 and $49,000 for each of the three months and six months ended June 30, 2005 and 2006, respectively, related to these non-employee option grants in the consolidated financial statements.

Pursuant to SFAS 123R, the Company elected to use the modified prospective application method, which requires public companies to
(1) record compensation cost for the unvested portion of previously issued awards that remain outstanding at the initial date of adoption and (2) record compensation cost for any awards issued,



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modified, repurchased, or cancelled after the effective date of SFAS 123R. As of January 1, 2006, the Company did
not have any unvested equity awards outstanding other than the options granted to a former consultant, as discussed above.

Stock option
grants. During 2006, the Company has granted 675,000 stock options to certain employees and non-employee directors under the 2004 Plan. The grants consisted of 627,500 stock options to employees that vest equally over four years and 47,500 stock
options to non-employee directors that vested immediately upon grant. The Company estimated that the fair value of these option grants was approximately $3.4 million. The fair value of the options is determined at the grant date using a
Black-Scholes option-pricing model, which requires the Company to make several assumptions. The risk-free interest rate used is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of the grant. The
dividend yield on the Companys common stock is assumed to be zero since the Company did not pay dividends and has no current plans to do so in the future. The expected volatility factor used by the Company is based on the Companys
historical stock trading history. In accordance with the Securities and Exchange Commissions Staff Accounting Bulletin No. 107, the Company computes the expected term of the option by using the simplified method, which is an average of
the vesting term and original contractual term. As of June 30, 2006, there were $2.8 million of total unrecognized compensation costs related to outstanding stock options. The Company expects that these costs will be amortized over a weighted
average period of 3.5 years.

A summary of nonvested stock option activity and related information for the six months ended June 30,
2006 is as follows:



|                                       |  |         |   |  |                                       |     
|-------------------------------------- |  | ------- | - |  | ------------------------------------- | ----
|                                       |  | Options |   |  | Weighted Average GrantDate Fair Value
|Nonvested balance, January 1, 2006 (a) |  | 50,000  |   |  | $                                     | 1.99
|Granted                                |  | 675,000 |   |  |                                       | 5.31
|Vested                                 |  | (47,500 | ) |  |                                       | 4.97
|Forfeited                              |  |         |   |  |                                       |     
|                                       |  |         |   |  |                                       |     
|Nonvested balance, June 30, 2006       |  | 677,500 |   |  | $                                     | 5.09
|                                       |  |         |   |  |                                       |     

---

|(a) | Represent options granted to a former consultant in 2002, as discussed above.
|--- | -----------------------------------------------------------------------------

A summary of all stock option activity under the equity compensation plans for the six months ended June 30, 2006 is as follows:



|                           |  |           |   |  |                               |       |                                                 |      |                          |   |       
|-------------------------- |  | --------- | - |  | ----------------------------- | ----- | ----------------------------------------------- | ---- | ------------------------ | - | ------
|                           |  | Options   |   |  | WeightedAverageExercise Price |       | WeightedAverageRemainingContractualTerm (years) |      | AggregateIntrinsic Value
|                           |  |           |   |  |                               |       |                                                 |      | (in thousands)          
|Balance, January 1, 2006   |  | 2,286,250 |   |  | $                             | 8.54  |                                                 |      |                          |   |       
|Granted                    |  | 675,000   |   |  |                               | 11.93 |                                                 |      |                          |   |       
|Exercised                  |  | (223,250  | ) |  |                               | 2.10  |                                                 |      |                          |   |       
|Forfeited                  |  | (29,500   | ) |  |                               | 15.06 |                                                 |      |                          |   |       
|                           |  |           |   |  |                               |       |                                                 |      |                          |   |       
|Balance, June 30, 2006     |  | 2,708,500 |   |  | $                             | 9.85  |                                                 | 7.18 |                          | $ | 12,525
|                           |  |           |   |  |                               |       |                                                 |      |                          |   |       
|Exercisable, June 30, 2006 |  | 2,031,000 |   |  | $                             | 9.39  |                                                 | 6.47 |                          | $ | 10,974
|                           |  |           |   |  |                               |       |                                                 |      |                          |   |       

Restricted stock grants. In January 2006, the Company granted 62,825 shares of restricted
stock to various non-executive employees pursuant to restricted stock agreements. The restricted shares vest equally over four years. The fair market value of the restricted shares under these grants was approximately $748,000. For the three months
and six months ended June 30, 2006, the Company recognized $42,300 and $84,600, respectively, in



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stock-based compensation related to the restricted stock grants. As of June 30, 2006, there was $592,300 of total
unrecognized compensation costs related to the restricted stock grants. The Company expects that these costs will be amortized over a weighted average period of 3.5 years.

A summary of all restricted stock activity under the equity compensation plans for the six months ended June 30, 2006 is as follows:



|                                   |  |                 |   |  |                                      |      
|---------------------------------- |  | --------------- | - |  | ------------------------------------ | -----
|                                   |  | RestrictedStock |   |  | WeightedAverage GrantDate Fair Value
|Nonvested balance, January 1, 2006 |  |                |   |  | $                                    |     
|Granted                            |  | 62,825          |   |  |                                      | 11.90
|Vested                             |  |                 |   |  |                                      |      
|Forfeited                          |  | (3,675          | ) |  |                                      | 11.92
|                                   |  |                 |   |  |                                      |      
|Nonvested balance, June 30, 2006   |  | 59,150          |   |  | $                                    | 11.90
|                                   |  |                 |   |  |                                      |      

Note 9  Commitments and Contingencies

North Carolina. On February 8, 2005, the Company, two of its subsidiaries, including its subsidiary doing business in North Carolina, and
Mr. Don Early, the Companys Chairman of the Board and Chief Executive Officer, were sued in Superior Court of New Hanover County, North Carolina in a putative class action lawsuit filed by James B. Torrence, Sr. and Ben Hubert Cline, who
were customers of a Delaware state-chartered bank for whom the Company provided certain services in connection with the banks origination of payday loans in North Carolina, prior to the closing of the Companys North Carolina branches in
fourth quarter 2005. The lawsuit alleges that the Company violated various North Carolina laws, including the North Carolina Consumer Finance Act, the North Carolina Check Cashers Act, the North Carolina Loan Brokers Act, the state unfair trade
practices statute and the state usury statute, in connection with payday loans made by the bank to the two plaintiffs through the Companys retail locations in North Carolina. The lawsuit alleges that the Company made the payday loans to the
plaintiffs in violation of various state statutes, and that if the Company is not viewed as the actual lenders or makers of the payday loans, the Companys services to the bank that made the loans violated various North Carolina
statutes. Plaintiffs are seeking certification as a class, unspecified monetary damages, and treble damages and attorneys fees under specified North Carolina statutes. Plaintiffs have not sued the bank in this matter and have specifically stated in
the complaint that plaintiffs do not challenge the right of out-of-state banks to enter into loans with North Carolina residents at such rates as the banks home state may permit, all as authorized by North Carolina and federal law. This case
is in the preliminary stages.

There are three similar purported class action lawsuits filed in North Carolina against three other
companies unrelated to the Company. In December 2005, the judge in those three cases (1) granted the defendants motions to stay the purported class action lawsuits and to compel arbitration in accordance with the terms of the arbitration
provisions contained in the consumer loan contracts, (2) ruled that the class action waivers in those consumer loan contracts are valid, and (3) denied plaintiffs motions for class certifications. The plaintiffs in those three cases,
who are represented by the same law firms as the plaintiffs in the case filed against the Company, have appealed that ruling. The judge handling the lawsuit against the Company in North Carolina is the same judge who issued these three orders in
December. The Company has not had a ruling on the similar pending motions by the plaintiffs and the Company in its North Carolina case. There is a stay in the North Carolina lawsuit, pending the outcome of the appeal in the other three North
Carolina cases concerning the enforceability of the arbitration provision in the consumer contracts. Accordingly, there will be no ruling on the Companys motion to enforce arbitration in North Carolina during the pendency of that appeal. There
can be no assurance that the Company will receive a similar ruling in its case.

Arizona.An Arizona customer filed a case against
the Company in Superior Court of Pima County, Arizona, alleging that a loan to that customer violated the Arizona Deferred Presentment Companies Statute and asserting various other claims based in tort, contract and violations of state law and
seeking class. The Company has filed a motion to remove this matter to federal court, and the Company will seek a stay of any proceedings and a dismissal of any motions for class certifications in accordance with the mandatory arbitration provisions
in the consumer loan contracts signed by the plaintiff in this matter.



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New Mexico. In September 2005, the New Mexico Attorney General issued proposed regulations that
have the practical effect of limiting the fees and interest on payday loans to 54% per annum, thus effectively prohibiting payday loans in New Mexico. On January 23, 2006, the Attorney General purported to adopt the regulations in final
form, effective February 15, 2006. The Company believes that the Attorney General does not have the authority to promulgate the purported regulations and that the purported regulations are in direct contravention of laws adopted by the New
Mexico legislature. On February 10, 2006, the Company filed a Civil Complaint for Injunctive Relief and Declaratory Judgment against the New Mexico Attorney General in District Court in Bernalillo County, New Mexico. In this suit, the Company
is seeking temporary and permanent injunctions against the Attorney General enjoining her from taking any actions to enforce the purported regulations and seeking a declaratory judgment that the purported regulations are unenforceable. The New
Mexico Attorney General has also issued civil investigative demands to the Company and several other payday lenders in New Mexico seeking information from the Company as part of her investigation of alleged unfair trade practices by payday lenders
in New Mexico. The Company has filed a lawsuit against the Attorney General contesting the enforceability of the civil investigative demand issued to the Company.

All legal proceedings with the Attorney General have been stayed until the New Mexico Financial Institutions Division (FID) has an opportunity to promulgate new regulations for the payday loan industry. The FID has
promulgated new regulations, which are scheduled to go into effect on August 31, 2006. Although either the New Mexico Attorney General or the other parties (including the Company) to the cases filed against the New Mexico Attorney General may
reactivate the cases against the Attorney General upon 15 days notice to the other parties in that case, the Company does not anticipate that those cases will be reactivated in light of the new regulations promulgated by the FID.

The new regulations include provisions limiting loans and loan rates and include other consumer protections. Although the Company cannot predict the
impact of any new regulations on its New Mexico operations, the regulations, if enacted as adopted on the scheduled implementation date, could have an adverse impact on the Companys revenues and earnings in New Mexico.

Other Matters.The Company is also currently involved in ordinary, routine litigation and administrative proceedings incidental to its business,
including customer bankruptcy and employment-related matters. The Company believes the likely outcome of these other cases and proceedings will not be material to its business or its financial condition.

Note 10  Certain Concentrations of Risk

The
Company is subject to regulation by federal and state governments, that affects both the products and services provided by the Company, particularly payday loans. As of June 30, 2006, the Company offered payday loans in 25 states throughout the
United States. The level and type of regulation of payday loans varies greatly from state to state, ranging from states with no specific payday lending legislation to other states with very strict guidelines and requirements.

Company branches located in the states of Missouri, California, Arizona, Kansas, New Mexico and Washington represented approximately 28%, 14%, 9%, 7%, 5%
and 5%, respectively, of total revenues for the six months ended June 30, 2006. To the extent that laws and regulations are passed that affect the Companys ability to offer payday loans or the manner by which the Company offers its payday
loans in any one of those states, the Companys financial position, results of operations and cash flows could be affected.

As
discussed above in Note 9  Commitments and Contingencies, there are new regulations in New Mexico that could adversely affect the Companys revenues and gross profit at its New Mexico branches.

Note 11  Stock Repurchase Program

In August
2006, the Companys board of directors increased the authorization limit of the Companys common stock repurchase program to $20 million and extended the program through June 30, 2007. The program would have otherwise expired on December
31, 2006, or earlier if the Company had repurchased common stock with an aggregate cost of $10 million. As of June 30, 2006, the Company has repurchased 749,700 shares at a total cost of approximately $9.5 million.



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

FORWARD-LOOKING
STATEMENTS

The discussion below includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995 regarding, among other things, our plans, strategies and prospects, both business and financial. All statements other than statements of current or historical fact contained in this discussion are forward-looking statements. The words
believe, expect, anticipate, should, would, could, plan, will, may, intend, estimate, potential,
continue or similar expressions or the negative of these terms are intended to identify forward-looking statements.

These
forward-looking statements are based on our current expectations and are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. These risks include
(1) changes in laws or regulations or governmental interpretations of existing laws and regulations governing consumer protection or payday lending practices, (2) litigation or regulatory action directed towards us or the payday loan
industry, (3) volatility in our earnings, primarily as a result of fluctuations in loan loss experience and the rate of growth in unit branches, (4) negative media reports and public perception of the payday loan industry and the impact on
state legislatures and federal and state regulators, (5) changes in our key management personnel, (6) integration risks and costs associated with contemplated and completed acquisitions, and (7) the other risks detailed under
Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission.In light of these risks, uncertainties and assumptions, the forward-looking
statements in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. When investors consider these forward-looking statements, they should keep in mind the risk
factors and other cautionary statements in this discussion.

Our forward-looking statements speak only as of the date they are made. We
undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The discussion in this item is intended to clarify and focus on our results of operations, certain changes in financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial
statements included under Item 1 of this Form 10-Q. This discussion should be read in conjunction with these consolidated financial statements, the audited financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2005, and the related notes thereto and is qualified by reference thereto.

OVERVIEW

We are the parent company of QC Financial Services, Inc. and its wholly owned subsidiaries. We derive our revenues primarily by providing short-term
consumer loans, known as payday loans. We also earn fees for various other financial services, such as check cashing services, title loans, credit services, installment loans, money transfers and money orders. We operated 551 branches in 25 states
at June 30, 2006. In all but one of these states, Texas, we fund our payday loans or installment loans directly to the customer and receive a fee. Payday loan fees charged to customers vary from state to state, generally ranging from $15 to $20
per $100 borrowed, and in most cases, are limited by state law. In Texas, through one of our subsidiaries, we operate as a credit services organization (CSO) on behalf of consumers in accordance with Texas laws. We charge the consumer a CSO fee for
arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers obligation to the third-party lender.



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Beginning in second quarter 2006, we started providing installment loans to our customers in our Illinois
branches. The installment loans are payable in monthly installments with terms of five to six months, and all loans are pre-payable at any time without penalty. The fee for the installment loan is $30 per $100 borrowed per month. Currently, the
maximum amount that we will advance under an installment loan is $1,000. The average principal amount for installment loans originated during the second quarter 2006 was approximately $545.

Our expenses primarily relate to the operations of our branch network. The most significant expenses include salaries and benefits for our branch
employees, provisions for losses and occupancy expense for our leased real estate. Regional and corporate expenses, including compensation of employees and occupancy expenses, are our other primary costs.

We evaluate our branches based on revenue growth, gross profit contributions and loss ratio (which is losses as a percentage of revenues), with
consideration given to the length of time the branch has been open. We consider changes in comparable branch metrics, including improvements in these metrics, a strong indicator of operating efficiency. We define comparable branches as those
branches that are open during the full periods for which a comparison is being made. For example, comparable branches for the three months ended June 30, 2006 have been open at least 15 months on that date. We monitor newer branches for their
progress to profitability and rate of loan growth. With respect to our cost structure, salaries and benefits are one of our largest costs and are driven primarily by the addition of branches throughout the year. Our provision for losses is also a
significant expense. If a customers check is returned by the bank as uncollected, we generally make an immediate charge-off to the provision for losses for the amount of the customers loan, which includes accrued fees and interest. Any
recoveries on amounts previously charged off are recorded as a reduction to the provision for losses in the period recovered. Our business is seasonal due to fluctuating demand for payday loans during the year. Historically, we have experienced our
highest demand for payday loans in January and in the fourth calendar quarter. As a result of the receipt by customers of their income tax refunds, demand for payday loans has historically declined in the balance of the first quarter of each
calendar year and the first month of the second quarter.

According to the Community Financial Services Association of America (CFSA) and
industry analysts, the industry has grown to approximately 23,000 payday loan branches. We believe our industry is highly fragmented as 10 companies operate approximately 9,000 branches in the United States.

With this fragmentation and industry growth, we believe there are opportunities to expand through acquisitions and new branch openings. As we consider
acquisitions and open new branches, there are various execution risks associated with any such transactions. Since December 31, 1998, we have grown from 48 branches to 551 branches as of June 30, 2006. The following table sets forth our
growth through de novo branch openings and branch acquisitions since December 31, 1998.



|                                      |  |      |  |      |  |      |  |      |  |      |  |      |  |      |  |             
|------------------------------------- |  | ---- |  | ---- |  | ---- |  | ---- |  | ---- |  | ---- |  | ---- |  | ------------
|                                      |  | 1999 |  | 2000 |  | 2001 |  | 2002 |  | 2003 |  | 2004 |  | 2005 |  | June 30,2006
|De novo branches opened during period |  | 5    |  | 8    |  | 22   |  | 55   |  | 45   |  | 54   |  | 174  |  | 27          
|Acquired branches during period       |  | 69   |  | 50   |  | 12   |  | 6    |  |      |  | 29   |  | 10   |  |             
|Branches closed during period         |  |      |  | 4    |  | 6    |  | 7    |  | 9    |  | 6    |  | 23   |  | 8           

The growth of the payday loan industry has followed, and continues to be significantly affected
by, increasing acceptance of payday lending by state legislatures. To the extent that states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction, loan caps or other loan limitations, our
business has been, and in the future could be, adversely affected. We actively monitor and evaluate regulatory initiatives in each of the states and nationally, and are closely involved with the efforts of the CFSA.

In October and November 2005, we closed all 19 branches in North Carolina. Our decision to close these branches reflected the difficult operating
environment in North Carolina associated with our role as a marketing



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and service provider for a Delaware state-chartered bank. The bank offered payday cash advances in compliance with the
revised Payday Lending Guidelines issued by the FDIC. Prior to the FDIC issuing the revised Payday Lending Guidelines and our subsequent decision to close our North Carolina branches, our North Carolina operations represented approximately 5% of our
total revenue and our total gross profit.

Recent Accounting Developments

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 is an interpretation of FASB Statement No. 109, Accounting for Income Taxes and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in
accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact, if any, that FIN
48 will have on our financial statements.

Critical Accounting Policies and Estimates

Management believes certain critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated
financial statements. Due to the implementation of SFAS 123R, we identified a new critical accounting policy related to share-based compensation, which is listed below. Our other critical accounting policies and estimates are disclosed in the
Critical Accounting Policies and Estimates section of our Annual Report on Form 10-K for the year ended December 31, 2005.

Share-Based Compensation. In December 2004, the Financial Accounting Standards Board issued SFAS 123R, which the Company adopted effective January 1, 2006. The revised standard eliminated the intrinsic value method of accounting
required under Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employeesand its related Interpretations and requires entities to measure the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award. The Company adopted SFAS 123R using the modified prospective transition method of adoption, which does not require restatement of prior periods. Under that transition method,
compensation expense recognized in 2006, for all share-based payments granted subsequent to December 31, 2005, is based on the grant date fair value of the stock grants less estimated forfeitures.

Under the fair value recognition provisions of this statement, our share-based compensation cost is measured at the grant date based on the value of the
award and is recognized as expense based on the applicable vesting schedule. Determining the fair value of share-based awards at grant date requires judgment, including estimating the amount of share-based awards expected to be forfeited. The
Black-Scholes option pricing model is used to measure fair value, which is the same method used in prior years for disclosure purposes.

During the six months ended June 30, 2006, we granted 675,000 options to certain employees and directors under the 2004 Equity Incentive Plan. The options consisted of 627,500 options that vest equally over four years and 47,500
options that vested immediately upon grant. The Company estimated that the fair value of these option grants (using the Black-Scholes option valuation model) was approximately $3.4 million. With respect to the 47,500 options that vested immediately,
the Company recorded $236,000 in expense for non-employee director stock-based compensation during the six months ended June 30, 2006. All options expire 10 years from the date of grant. In addition, the Company granted 62,825 restricted shares
to various non-executive employees pursuant to restricted stock agreements. The restricted shares vest equally over four years. The fair market value of the restricted shares under these grants was approximately $748,000.



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The following table summarizes the stock-based compensation expense reported in net income for the three
and six months ended June 30, 2006 (in thousands):



|                                               |  |                                |     |                               |   |    
|---------------------------------------------- |  | ------------------------------ | --- | ----------------------------- | - | ---
|                                               |  | Three MonthsEndedJune 30, 2006 |     | Six MonthsEnded June 30, 2006
|Employee stock-based compensation              |  | $                              | 241 |                               | $ | 482
|Non-employee director stock-based compensation |  |                                | 49  |                               |   | 236
|                                               |  |                                |     |                               |   |    
|Total stock-based compensation                 |  | $                              | 290 |                               | $ | 718
|                                               |  |                                |     |                               |   |    

As of June 30, 2006, there was $2.8 million of total unrecognized compensation costs related
to stock options and $592,300 of total unrecognized compensation costs related to the restricted stock grants. We expect that these costs will be amortized over a weighted average period of 3.5 years. See the Notes to the Unaudited Consolidated
Financial Statements, Note 8 Stock-Based Compensation for additional information.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2006 Compared with the Three Months Ended June 30, 2005

The following table sets forth our results of operations for the three months ended June 30, 2006 compared to the three months ended June 30,
2005:



|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|------------------------------------------------------ |  | -------------------------- | ------ | - | -------------------------- | - | ------ | ---- |  | ----- | ---- |  | ----- | --
|                                                       |  | Three Months EndedJune 30, |        |   | Three Months EndedJune 30, |  
|                                                       |  | 2005                       |        |   | 2006                       |   |        | 2005 |  |       | 2006 | 
|                                                       |  | (in thousands)             |        |   | (percentage of revenues)   |  
|Revenues                                               |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Loan and credit service fees                           |  | $                          | 33,246 |   |                            | $ | 36,625 |      |  | 92.0  | %    |  | 92.1  | % 
|Other                                                  |  |                            | 2,886  |   |                            |   | 3,142  |      |  | 8.0   | %    |  | 7.9   | % 
|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Total revenues                                         |  |                            | 36,132 |   |                            |   | 39,767 |      |  | 100.0 | %    |  | 100.0 | % 
|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Branch expenses                                        |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Salaries and benefits                                  |  |                            | 8,841  |   |                            |   | 10,856 |      |  | 24.5  | %    |  | 27.3  | % 
|Provision for losses                                   |  |                            | 10,152 |   |                            |   | 9,380  |      |  | 28.1  | %    |  | 23.6  | % 
|Occupancy                                              |  |                            | 4,280  |   |                            |   | 5,289  |      |  | 11.8  | %    |  | 13.3  | % 
|Depreciation and amortization                          |  |                            | 622    |   |                            |   | 1,230  |      |  | 1.7   | %    |  | 3.1   | % 
|Other                                                  |  |                            | 2,963  |   |                            |   | 3,849  |      |  | 8.2   | %    |  | 9.7   | % 
|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Total branch expenses                                  |  |                            | 26,858 |   |                            |   | 30,604 |      |  | 74.3  | %    |  | 77.0  | % 
|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Branch gross profit                                    |  |                            | 9,274  |   |                            |   | 9,163  |      |  | 25.7  | %    |  | 23.0  | % 
|                                                       |  |                            |        |  
|Regional expenses                                      |  |                            | 2,265  |   |                            |   | 3,043  |      |  | 6.3   | %    |  | 7.7   | % 
|Corporate expenses                                     |  |                            | 4,396  |   |                            |   | 5,272  |      |  | 12.2  | %    |  | 13.3  | % 
|Depreciation and amortization                          |  |                            | 215    |   |                            |   | 332    |      |  | 0.6   | %    |  | 0.8   | % 
|Interest income, net                                   |  |                            | (187   | ) |                            |   | (182   | )    |  | (0.5  | )%   |  | (0.5  | )%
|Other expense, net                                     |  |                            | 284    |   |                            |   | 145    |      |  | 0.7   | %    |  | 0.4   | % 
|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Income from continuing operations before income taxes  |  |                            | 2,301  |   |                            |   | 553    |      |  | 6.4   | %    |  | 1.3   | % 
|                                                       |  |                            |        |  
|Provision for income taxes                             |  |                            | 898    |   |                            |   | 257    |      |  | 2.5   | %    |  | 0.6   | % 
|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Income from continuing operations                      |  |                            | 1,403  |   |                            |   | 296    |      |  | 3.9   | %    |  | 0.7   | % 
|                                                       |  |                            |        |  
|Income from discontinued operations, net of income tax |  |                            | 286    |   |                            |   |        |      |  | 0.8   | %    |  |       |   
|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   
|Net income                                             |  | $                          | 1,689  |   |                            | $ | 296    |      |  | 4.7   | %    |  | 0.7   | % 
|                                                       |  |                            |        |   |                            |   |        |      |  |       |      |  |       |   



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The following table sets forth selected financial and statistical information for the three months ended
June 30, 2005 and 2006:



|                                                                         |  |                            |         |   |      |   |         |  
|------------------------------------------------------------------------ |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                                         |  | Three Months EndedJune 30, |        
|                                                                         |  | 2005                       |         |   | 2006 |  
|Other Information:                                                       |  |                            |         |   |      |   |         |  
|Loan volume (in thousands)                                               |  | $                          | 233,602 |   |      | $ | 251,003 |  
|Average revenue per branch                                               |  |                            | 86,856  |   |      |   | 72,304  |  
|                                                                         |  |                           
|Average loan size (principal plus fee)                                   |  | $                          | 357.96  |   |      | $ | 360.41  |  
|Average fees per loan                                                    |  |                            | 53.57   |   |      |   | 53.21   |  
|                                                                         |  |                           
|Branch Information:                                                      |  |                            |         |   |      |   |         |  
|Number of branches, beginning of period                                  |  |                            | 414     |   |      |   | 549     |  
|De novo branches opened                                                  |  |                            | 42      |   |      |   | 9       |  
|Acquired branches                                                        |  |                            | 4       |   |      |   |         |  
|Branches closed                                                          |  |                            | (1      | ) |      |   | (7      | )
|                                                                         |  |                            |         |   |      |   |         |  
|Number of branches, end of period                                        |  |                            | 459     |   |      |   | 551     |  
|                                                                         |  |                            |         |   |      |   |         |  
|Average number of branches open during period (excluding North Carolina) |  |                            | 416     |   |      |   | 550     |  
|                                                                         |  |                            |         |   |      |   |         |  



|                                                                   |  |                            |        |      |   |       
|------------------------------------------------------------------ |  | -------------------------- | ------ | ---- | - | ------
|                                                                   |  | Three Months EndedJune 30,
|                                                                   |  | 2005                       |        | 2006
|Comparable Branch Information (a):                                 |  |                            |        |      |   |       
|Total revenues generated by all comparable branches (in thousands) |  | $                          | 35,257 |      | $ | 34,434
|Total number of comparable branches                                |  |                            | 384    |      |   | 384   
|Average revenue per comparable branch                              |  | $                          | 91,815 |      | $ | 89,671

---

|(a) | Comparable branches are those branches that were open for all of the two periods being compared, which means the 15 months since March 31, 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

Income from continuing operations.For the three months ended June 30, 2006, income from continuing operations was $296,000 compared to $1.4
million for the same period in 2005. The decline in income from continuing operations of $1.1 million was primarily attributable to higher costs to accommodate the large number of newer branches as those branches build their customer bases and
revenues. In addition, we incurred approximately $600,000 ($360,000 after consideration of income taxes) in costs related to professional fees and other costs associated with our evaluation of a potential acquisition. Discussions with the
acquisition candidate, which are subject to customary confidentiality provisions, have been terminated. A discussion of the various components of income from continuing operations follows.

Revenues.For the three months ended June 30, 2006, revenues were $39.8 million, a 10.2% increase from $36.1 million during the three months
ended June 30, 2005. This revenue growth was primarily a result of higher payday loan volumes, which reflects increases in the number of branches, the number of customer transactions and average loan size. We originated approximately $251.0
million through payday loans during second quarter 2006, which was an increase of 7.4% over the $233.6 million during second quarter 2005. The average loan (including fee) totaled $360.41 versus $357.96 during second quarter 2005. Average fees
received from customers per loan declined from $53.57 in second quarter 2005 to $53.21 in second quarter 2006 due to a decline in the fee rate as we expand in states that have lower fee structures or as states have revised statutes or regulations to
lower rates, partially offset by a higher average loan size.

We anticipate that our fee rate will continue a slight decline in 2006 as we
enter into or expand in states that have lower fee structures or as rates are modified based on changing legislation or regulation. For example, Illinois adopted legislation (effective December 2005) that reduced the rate that may be charged to a
customer from $20.32 per $100.00 every two weeks to $15.50 per $100.00 every two weeks. In addition, the legislation included restrictions on the number of transactions a customer may have and the amount that can be borrowed, which



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adversely affected revenues and gross profit in our Illinois branches in December 2005 and the first half of 2006.
Revenues from our Illinois branches declined from $3.1 million in the second quarter of 2005 to $1.1 million in the second quarter 2006 as a result of the change in Illinois legislation. As another example, effective July 1, 2005, Kansas
changed its law regarding payday lending to provide for a fee of $15.00 per $100.00 up to a maximum loan of $500.00 per customer every two weeks from the previous fee that declined from $15.00 for the first $100.00 borrowed to less than $10.00 for
each incremental $100.00 borrowed. As a result, payday loan volumes in Kansas during the second quarter 2006 were 269% higher than comparable second quarter 2005. The growth of volumes in Kansas, at $15.00 per $100.00, had the effect of reducing the
blended fee rate of the Company during second quarter 2006.

One manner by which we evaluate our branches is revenue growth, with
consideration given to the length of time the branch has been open. We define comparable branches as those branches that are open during the full periods for which a comparison is being made. For example, comparable branches for the quarterly
analysis as of June 30, 2006 have been open at least 15 months. The following table provides a summary of our revenues by comparable branches and new branches:



|                        |  |                            |        |      |   |       
|----------------------- |  | -------------------------- | ------ | ---- | - | ------
|                        |  | Three Months EndedJune 30,
|                        |  | 2005                       |        | 2006
|                        |  | (in thousands)            
|Comparable branches     |  | $                          | 35,257 |      | $ | 34,434
|Branches opened in 2005 |  |                            | 229    |      |   | 4,679 
|Branches opened in 2006 |  |                            |        |      |   | 435   
|Other                   |  |                            | 646    |      |   | 219   
|                        |  |                            |        |      |   |       
|Total                   |  | $                          | 36,132 |      | $ | 39,767
|                        |  |                            |        |      |   |       

Revenues for comparable branches (branches open at least 15 months as of June 30, 2006)
decreased 2.3%, or $823,000, to $34.4 million during the three months ended June 30, 2006. This decrease is attributable to the negative effects of the new Illinois payday loan legislation as discussed above, partially offset by the positive
effects of the new Kansas legislation that increased loan limits beginning on July 1, 2005. As discussed above, we began offering installment loans in our Illinois branches during second quarter 2006. Revenues in second quarter 2006 included
approximately $4.7 million from the 140 branches added during the last nine months of 2005 and $435,000 from the 27 branches added during 2006.

Revenues from check cashing, title loans and other sources totaled $3.1 million during second quarter 2006, up slightly from the $2.9 million in the comparable prior year quarter. The revenue increase reflects a greater number of branches
providing check cashing and associated increases in check cashing and title loan volumes. Check cashing and title loan revenues represented 3.7% and 2.9% of total revenues, respectively, for the three months ended June 30, 2006 versus 3.7% and
3.0%, respectively, for the three months ended June 30, 2005.

Branch Expenses.Total branch expenses increased $3.7 million,
or 13.8%, from $26.9 million during second quarter 2005 to $30.6 million in second quarter 2006. Branch-level salaries and benefits increased by $2.1 million for the three months ended June 30, 2006 compared to the same period in the prior year
primarily as a result of a 17% increase in field personnel associated with our new branches.

The provision for losses declined from $10.2
million in second quarter 2005 to $9.4 million during second quarter 2006. Comparable branches totaled $7.5 million in loan losses during the second quarter 2006, while branches opened during the last nine months of 2005 and the first half of 2006
had approximately $1.9 million in loan losses. In our comparable branches, the loss ratio was 21.8% during the second quarter 2006 versus 28.3% in the same period of the prior year. The favorable loss experience reflects the benefits of our focus on
reducing losses through loan origination-based verification procedures and through higher quality and greater quantity of collection calls. As a result, our collections as a percentage of charge-offs improved to 50% during the second quarter 2006
versus 45% in prior years second quarter.



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##### Table of Contents

Occupancy costs as a percentage of revenues increased from 11.8% to 13.3% in second quarter 2006, which
reflects the high number of branches at early stages in the branch lifecycle. Depreciation and amortization increased by $608,000 as a result of depreciation associated with capital expenditures for de novo branches added in 2005 and 2006.

Branch Gross Profit.Branch gross profit decreased slightly from $9.3 million in second quarter 2005 to $9.2 million in second
quarter 2006. Branch gross margin, which is branch gross profit as a percentage of revenues, declined from 25.7% to 23.0%. The following table summarizes our branch gross profit by comparable branches and new branches.



|                        |  |                            |        |   |      |   |        |  
|----------------------- |  | -------------------------- | ------ | - | ---- | - | ------ | -
|                        |  | Three Months EndedJune 30, |       
|                        |  | 2005                       |        |   | 2006 |  
|                        |  | (in thousands)             |       
|Comparable branches     |  | $                          | 10,323 |   |      | $ | 11,425 |  
|Branches opened in 2005 |  |                            | (1,023 | ) |      |   | (1,552 | )
|Branches opened in 2006 |  |                            |        |   |      |   | (549   | )
|Other                   |  |                            | (26    | ) |      |   | (161   | )
|                        |  |                            |        |   |      |   |        |  
|Total                   |  | $                          | 9,274  |   |      | $ | 9,163  |  
|                        |  |                            |        |   |      |   |        |  

Comparable branches during second quarter 2006 reported a gross margin of 33.1% versus 29.2% in
the second quarter 2005, with the improvements resulting from stronger results in the majority of states and the favorable change in Kansas being partially offset by reduced gross profit due to the challenges in Illinois as discussed above. The 140
branches added during the last nine months of 2005 and the 27 branches added in 2006 reported net losses of $1.5 million and $549,000, respectively.

Regional and Corporate Expenses.Regional and corporate expenses increased $1.6 million during the three months ended June 30, 2006, to $8.3 million from $6.7 million in second quarter 2005. The higher
level of expenses in second quarter 2006 is attributable to equity award compensation (which we began to expense on January 1, 2006 in connection with the required adoption of SFAS 123R), salaries associated with a 18% increase in home office
and regional personnel quarter-to-quarter and approximately $600,000 in costs associated with evaluating a potential significant acquisition that did not materialize.

Income Tax Provision. The effective income tax rate during second quarter 2006, increased to 46.5% from 39.0% in prior years second quarter, primarily due to the effect of the permanent tax differences in
second quarter 2006 on a lower level of pre-tax income.

Discontinued Operations. In October and November 2005, we closed all 19 of
our branches in North Carolina. The decision to close our North Carolina branches reflected the difficult operating environment in North Carolina associated with our role as a marketing and servicing provider for a lending bank that was offering
payday cash advances in compliance with the revised Payday Lending Guidelines issued by the FDIC in March 2005. Prior to September 30, 2005, payday loans were offered in our North Carolina branches by a third-party financial institution. We
entered into the arrangement with the Delaware state-chartered bank in April 2003. Under the terms of the agreement, we marketed and serviced the banks loans in North Carolina and the bank sold to us a pro rata participation in loans that were
made to its borrowers. The terms of the loans were generally similar to those of our own loans, though the bank had sole discretion regarding the terms of its loans. In connection with the closing of the North Carolina branches, we terminated our
agreement with the bank.

Our North Carolina operations are reported as discontinued operations in accordance with Statement of Financial
Accounting Standards No. 144 (SFAS 144)  Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance with SFAS 144, the Consolidated Statements of Income and related disclosures in the accompanying notes present
the results of our North Carolina operations as discontinued operations for all periods presented. With respect to the Consolidated Balance Sheets and related disclosures in the accompanying notes and the Consolidated Statements of Cash Flows, the
items associated with the discontinued operations are included with the continuing operations for all periods presented.



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##### Table of Contents

Summarized financial information for discontinued operations during the three months ended June 30,
2005 is presented below (in thousands):



|                                    |  |                                 |      
|----------------------------------- |  | ------------------------------- | -----
|                                    |  | Three Months EndedJune 30, 2005
|Total revenues                      |  | $                               | 1,873
|                                    | 
|Provision for losses                |  |                                 | 448  
|Other branch expenses               |  |                                 | 790  
|                                    |  |                                 |      
|Total branch expenses               |  |                                 | 1,238
|                                    |  |                                 |      
|Branch gross profit                 |  |                                 | 635  
|Other, net                          |  |                                 | 162  
|                                    |  |                                 |      
|Income before income taxes          |  |                                 | 473  
|Provision for income taxes          |  |                                 | 187  
|                                    |  |                                 |      
|Income from discontinued operations |  | $                               | 286  
|                                    |  |                                 |      

Six Months Ended June 30, 2006 Compared with the Six Months Ended June 30, 2005

The following table sets forth our results of operations for the six months ended June 30, 2006 compared to the six months
ended June 30, 2005:



|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|------------------------------------------------------ |  | ------------------------ | ------ | - | ------------------------ | - | ------ | ---- |  | ----- | ---- |  | ----- | --
|                                                       |  | Six Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                       |  | 2005                     |        |   | 2006                     |   |        | 2005 |  |       | 2006 | 
|                                                       |  | (in thousands)           |        |   | (percentage of revenues) |  
|Revenues                                               |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Loan and credit service fees                           |  | $                        | 63,090 |   |                          | $ | 71,015 |      |  | 90.7  | %    |  | 90.8  | % 
|Other                                                  |  |                          | 6,503  |   |                          |   | 7,184  |      |  | 9.3   | %    |  | 9.2   | % 
|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Total revenues                                         |  |                          | 69,593 |   |                          |   | 78,199 |      |  | 100.0 | %    |  | 100.0 | % 
|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Branch expenses                                        |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Salaries and benefits                                  |  |                          | 16,939 |   |                          |   | 21,568 |      |  | 24.3  | %    |  | 27.6  | % 
|Provision for losses                                   |  |                          | 16,879 |   |                          |   | 14,623 |      |  | 24.3  | %    |  | 18.7  | % 
|Occupancy                                              |  |                          | 8,394  |   |                          |   | 10,627 |      |  | 12.1  | %    |  | 13.6  | % 
|Depreciation and amortization                          |  |                          | 1,079  |   |                          |   | 2,491  |      |  | 1.6   | %    |  | 3.2   | % 
|Other                                                  |  |                          | 5,680  |   |                          |   | 7,393  |      |  | 8.1   | %    |  | 9.4   | % 
|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Total branch expenses                                  |  |                          | 48,971 |   |                          |   | 56,702 |      |  | 70.4  | %    |  | 72.5  | % 
|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Branch gross profit                                    |  |                          | 20,622 |   |                          |   | 21,497 |      |  | 29.6  | %    |  | 27.5  | % 
|                                                       |  |                          |        |  
|Regional expenses                                      |  |                          | 4,441  |   |                          |   | 6,116  |      |  | 6.4   | %    |  | 7.8   | % 
|Corporate expenses                                     |  |                          | 8,171  |   |                          |   | 10,147 |      |  | 11.7  | %    |  | 13.0  | % 
|Depreciation and amortization                          |  |                          | 357    |   |                          |   | 638    |      |  | 0.5   | %    |  | 0.8   | % 
|Interest income, net                                   |  |                          | (353   | ) |                          |   | (277   | )    |  | (0.5  | )%   |  | (0.4  | )%
|Other expense, net                                     |  |                          | 433    |   |                          |   | 193    |      |  | 0.6   | %    |  | 0.3   | % 
|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Income from continuing operations before income taxes  |  |                          | 7,573  |   |                          |   | 4,680  |      |  | 10.9  | %    |  | 6.0   | % 
|Provision for income taxes                             |  |                          | 2,920  |   |                          |   | 1,891  |      |  | 4.2   | %    |  | 2.4   | % 
|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Income from continuing operations                      |  |                          | 4,653  |   |                          |   | 2,789  |      |  | 6.7   | %    |  | 3.6   | % 
|Income from discontinued operations, net of income tax |  |                          | 652    |   |                          |   |        |      |  | 0.9   | %    |  |       |   
|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   
|Net income                                             |  | $                        | 5,305  |   |                          | $ | 2,789  |      |  | 7.6   | %    |  | 3.6   | % 
|                                                       |  |                          |        |   |                          |   |        |      |  |       |      |  |       |   



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The following table sets forth selected financial and statistical information for the six months ended
June 30, 2005 and 2006:



|                                                                         |  |                          |         |   |      |   |         |  
|------------------------------------------------------------------------ |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                         |  | Six Months EndedJune 30, |        
|                                                                         |  | 2005                     |         |   | 2006 |  
|Other Information:                                                       |  |                          |         |   |      |   |         |  
|Loan volume (in thousands)                                               |  | $                        | 439,534 |   |      | $ | 482,701 |  
|Average revenue per branch                                               |  |                          | 176,185 |   |      |   | 144,279 |  
|                                                                         |  |                         
|Average loan size (principal plus fee)                                   |  | $                        | 357.05  |   |      | $ | 360.25  |  
|Average fees per loan                                                    |  |                          | 53.42   |   |      |   | 53.03   |  
|                                                                         |  |                         
|Branch Information:                                                      |  |                          |         |   |      |   |         |  
|Number of branches, beginning of period                                  |  |                          | 371     |   |      |   | 532     |  
|De novo branches opened                                                  |  |                          | 83      |   |      |   | 27      |  
|Acquired branches                                                        |  |                          | 7       |   |      |   |         |  
|Branches closed                                                          |  |                          | (2      | ) |      |   | (8      | )
|                                                                         |  |                          |         |   |      |   |         |  
|Number of branches, end of period                                        |  |                          | 459     |   |      |   | 551     |  
|                                                                         |  |                          |         |   |      |   |         |  
|Average number of branches open during period (excluding North Carolina) |  |                          | 395     |   |      |   | 542     |  
|                                                                         |  |                          |         |   |      |   |         |  



|                                                                   |  |                           |         |      |   |        
|------------------------------------------------------------------ |  | ------------------------- | ------- | ---- | - | -------
|                                                                   |  | Six Months Ended June 30,
|                                                                   |  | 2005                      |         | 2006
|Comparable Branch Information (a):                                 |  |                           |         |      |   |        
|Total revenues generated by all comparable branches (in thousands) |  | $                         | 66,906  |      | $ | 64,370 
|Total number of comparable branches                                |  |                           | 340     |      |   | 340    
|Average revenue per comparable branch                              |  | $                         | 196,782 |      | $ | 189,324

---

|(a) | Comparable branches are those branches that were open for all of the two periods being compared, which means the 18 months since December 31, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

Income from continuing operations.For the six months ended June 30, 2006, income from continuing operations was $2.8 million compared to
$4.7 million for the same period in 2005. The decline in income from continuing operations of $1.9 million was primarily attributable to higher costs to accommodate the large number of newer branches as those branches build their customer bases and
revenues. In addition, we incurred approximately $600,000 in professional costs associated with our efforts to pursue a potential acquisition as noted in the quarterly discussion. A discussion of the various components of income from continuing
operations follows.

Revenues.For the six months ended June 30, 2006, revenues were $78.2 million, a 12.4% increase from $69.6
million during the six months ended June 30, 2005. The increase in revenues was primarily a result of higher payday loan volumes, which reflects increases in the number of branches, the number of customer transactions and average loan size. We
originated approximately $482.7 million through payday loans during the six months ended June 30, 2006, which was an increase of 9.8% over the $439.5 million during the same period in the prior year. The average loan (including fee) totaled
$360.25 during the first half of 2006 versus $357.05 in comparable 2005. Average fees received from customers per loan declined from $53.42 in first half of 2005 to $53.03 in comparable 2006 due to a decline in the fee rate as we expand in states
that have lower fee structures or as states have revised statutes or regulations to lower rates, partially offset by a higher average loan size.

As noted in the quarterly discussion, we anticipate that our fee rate will continue a modest decline as we enter into or expand in states that have lower fee structures or as rates are modified based on changing legislation, such as in
Kansas and Illinois.



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One manner by which we evaluate our branches is revenue growth, with consideration given to the length of
time the branch has been open. We define comparable branches as those branches that are open during the full periods for which a comparison is being made. For example, comparable branches for the year-to-date analysis as of June 30, 2006 have
been open at least 18 months. The following table provides a summary of our revenues by comparable branches and new branches:



|                        |  |                          |        |      |   |       
|----------------------- |  | ------------------------ | ------ | ---- | - | ------
|                        |  | Six Months EndedJune 30,
|                        |  | 2005                     |        | 2006
|                        |  | (in thousands)          
|Comparable branches     |  | $                        | 66,906 |      | $ | 64,370
|Branches opened in 2005 |  |                          | 1,379  |      |   | 12,691
|Branches opened in 2006 |  |                          |        |      |   | 501   
|Other                   |  |                          | 1,308  |      |   | 637   
|                        |  |                          |        |      |   |       
|Total                   |  | $                        | 69,593 |      | $ | 78,199
|                        |  |                          |        |      |   |       

Revenues for comparable branches (branches open at least 18 months as of June 30, 2006)
decreased 3.7%, or $2.5 million, to $64.4 million for the six months ended June 30, 2006. As discussed in the quarterly discussion, this decline is attributable to the negative effects of the new Illinois payday loan legislation, partially
offset by the positive effects of the new Kansas legislation.

We expected a revenue decline of approximately $3.2 million from our
Illinois branches due to the reduced fee (from $20.32 per $100.00 to $15.50 per $100.00) and the restrictions that the legislation placed on the customers ability to borrow. The actual decline, however, was $4.0 million, or $800,000 greater
than was expected. Our branches operated at a competitive disadvantage as we sought to strengthen relationships with state regulators during this key transition phase in Illinois. In May 2006, after continued discussions with state officials, we
began to offer a longer-term loan product to meet customers needs.

Revenues from check cashing, title loans and other sources
totaled $6.5 million and $7.2 million for the six months ended June 30, 2005 and 2006, respectively. The revenue increase reflects a greater number of branches providing check cashing and associated increases in check cashing and title loan
volumes. Check cashing and title loan revenues represented 4.9% and 2.9% of total revenues, respectively, for the six months ended June 30, 2006 versus 4.9% and 3.1%, respectively, for the six months ended June 30, 2005.

Branch Expenses.Total branch expenses increased $7.7 million, or 15.7%, from $49.0 million during first half of 2005 to $56.7 million in first
half of 2006. Branch-level salaries and benefits increased by $4.7 million for the six months ended June 30, 2006 compared to the same period in the prior year primarily due to an increase in field personnel associated with our new branches.
The total number of field personnel averaged 1,393 for the six months ended June 30, 2005 compared to 1,696 for the six months ended June 30, 2006, an increase of 21.8%.

The provision for losses declined from $16.9 million for the six months ended June 30, 2005 to $14.6 million during for the six months ended
June 30, 2006. Comparable branches totaled $10.7 million in loan losses for the first half of 2006. Our loss ratio was 18.7% for the six months ended June 30, 2006 versus 24.3% for the six months ended June 30, 2005. In our comparable
branches, the loss ratio was 16.6% for the six months ended June 30, 2006. The favorable loss experience reflects the benefits of our focus on reducing losses through loan origination-based verification procedures and through higher quality and
greater quantity of collection calls. As a result, our collections as a percentage of charge-offs improved to 57.2% during the first half of 2006 versus 49.5% in the same period of the prior year.



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Occupancy costs increased from $8.4 million for the six months ended June 30, 2005 to $10.6 million
in the current year period. Occupancy costs as a percentage of revenues increased from 12.1% for the six months ended June 30, 2005 to 13.6% in the current year, which reflects the high number of branches at early stages in the branch
lifecycle. Depreciation and amortization increased by $1.4 million as a result of depreciation associated with capital expenditures for de novo branches added in 2005 and 2006.

Other costs, which include advertising and office supplies increased by $1.7 million, primarily due to growth in the number of branches.

Branch Gross Profit.Branch gross profit increased by $900,000, or 4.4%, from $20.6 million for the six months ended June 30, 2005 to $21.5
million for the six months ended June 30, 2006. Branch gross margin, which is branch gross profit as a percentage of revenues, declined from 29.6% to 27.5%. The following table summarizes our branch gross profit by comparable branches and new
branches.



|                        |  |                          |        |   |      |   |        |  
|----------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                        |  | Six Months EndedJune 30, |       
|                        |  | 2005                     |        |   | 2006 |  
|                        |  | (in thousands)           |       
|Comparable branches     |  | $                        | 23,541 |   |      | $ | 25,519 |  
|Branches opened in 2005 |  |                          | (2,984 | ) |      |   | (2,757 | )
|Branches opened in 2006 |  |                          |        |   |      |   | (971   | )
|Other                   |  |                          | 65     |   |      |   | (294   | )
|                        |  |                          |        |   |      |   |        |  
|Total                   |  | $                        | 20,622 |   |      | $ | 21,497 |  
|                        |  |                          |        |   |      |   |        |  

Comparable branches for the six months ended June 30, 2006 reported a gross margin of 39.6%
versus 35.1% in the comparable prior year period, with the improvements resulting from stronger results in the majority of states and the favorable change in Kansas being partially offset by reduced gross profit due to the challenges in Illinois as
discussed above. The 184 branches added during the 2005 and the 27 branches added in 2006 reported net losses of $2.8 million and $1.0 million, respectively.

Regional and Corporate Expenses.Regional and corporate expenses increased $3.6 million from $12.6 million during the six months ended June 30, 2005 to $16.2 million in the current year period. The higher
level of expenses in 2006 is attributable to equity award compensation (which we began to expense on January 1, 2006 in connection with the required adoption of SFAS 123R), salaries associated with a 20% increase in home office and regional
personnel from June 30, 2005, rent expense for the Companys corporate office and professional fees and other costs associated with our efforts to pursue a potential acquisition.

Interest and Other Expenses.Interest income totaled $277,000 during the six months ended June 30, 2006 compared to interest income of
$353,000 during the six months ended June 30, 2005. This decline was due to lower balances in cash and cash equivalents and short-term investments during 2006 compared to 2005. Other expenses during the first half of 2005 was higher than the
same period in 2006 as a result of losses on the disposal of assets during 2005.

Income Tax Provision. Our provision for income
taxes decreased $1.0 million to $1.9 million during the six months ended June 30, 2006 from $2.9 million during the same period in the prior year as a result of lower pre-tax income. The effective income tax rate for the six months ended
June 30, 2006 was 40.4% compared to 38.6%. This increase was primarily due to the effect of the permanent tax differences on a lower level of pre-tax income in the current year.



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Discontinued Operations. As noted in the quarterly discussion, in October and November 2005, we
closed all 19 of our branches in North Carolina. Summarized financial information for discontinued operations during the six months ended June 30, 2005 is presented below (in thousands):



|                                    |  |                               |      
|----------------------------------- |  | ----------------------------- | -----
|                                    |  | Six Months EndedJune 30, 2005
|Total revenues                      |  | $                             | 3,523
|Provision for losses                |  |                               | 544  
|Other branch expenses               |  |                               | 1,601
|                                    |  |                               |      
|Total branch expenses               |  |                               | 2,145
|                                    |  |                               |      
|Branch gross profit                 |  |                               | 1,378
|Other, net                          |  |                               | 301  
|                                    |  |                               |      
|Income before income taxes          |  |                               | 1,077
|Provision for income taxes          |  |                               | 425  
|                                    |  |                               |      
|Income from discontinued operations |  | $                             | 652  
|                                    |  |                               |      

LIQUIDITY AND CAPITAL RESOURCES

Summary cash flow data is as follows (in thousands):



|                                                     |  |                          |        |   |      |   |        |  
|---------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                     |  | Six Months EndedJune 30, |       
|                                                     |  | 2005                     |        |   | 2006 |  
|Cash flows provided by (used for):                   |  |                          |        |   |      |   |        |  
|Operating activities                                 |  | $                        | 11,164 |   |      | $ | 6,780  |  
|Investing activities                                 |  |                          | 8,613  |   |      |   | (3,729 | )
|Financing activities                                 |  |                          | (2,058 | ) |      |   | (4,623 | )
|                                                     |  |                          |        |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents |  |                          | 17,719 |   |      |   | (1,572 | )
|Cash and cash equivalents, beginning of year         |  |                          | 16,526 |   |      |   | 31,640 |  
|                                                     |  |                          |        |   |      |   |        |  
|Cash and cash equivalents, end of period             |  | $                        | 34,245 |   |      | $ | 30,068 |  
|                                                     |  |                          |        |   |      |   |        |  

Cash Flow Discussion. Net cash provided by operating activities for the six months ended
June 30, 2006 was $6.8 million, approximately $4.4 million lower than the $11.2 million in comparable 2005. This decrease is primarily attributable to lower earnings and amounts paid for income taxes. In addition, operating cash inflows for
2005 included tax benefits associated with the exercise of stock options and an allowance from the landlord of our corporate office for leasehold improvements.

Net cash used by investing activities for the six months ended June 30, 2006 was $3.7 million, which primarily consisted of capital expenditures. The capital expenditures included $1.2 million to open 27 de novo
branches in 2006, $1.2 million for renovations to existing and acquired branches, $467,000 for tenant improvements, furnishings and technology for the corporate office space, $402,000 for branches not yet open as of June 30, 2006, $400,000 for
the purchase of a building in St. Louis, Missouri to be used as a branch location and other expenditures. Net investing cash inflows for the six months ended June 30, 2005 were $8.6 million, which consisted of $25.1 million in proceeds from the
sales of investments offset by the purchase of investments of $4.0, capital expenditures of $11.7 million and acquisition costs of $860,000.

Cash used for financing activities for the six months ended June 30, 2006 was $4.6 million, which primarily consisted of the repurchase of 436,300 shares of our common stock for $5.8 million partially offset by proceeds received from
the exercise of stock options by employees. During the six months ended June 30, 2005, cash outflows consisted of the repurchase 244,800 shares of our common stock for approximately $2.8 million, partially offset by proceeds received in
connection with stock option exercises totaling $789,000.



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Liquidity and Capital Resource Discussion.In July 2004, we repaid all outstanding indebtedness
with a portion of the proceeds received from our initial public offering. The remaining portion of the proceeds from the offering is being used to pursue growth and to fund working capital needs. We believe that cash flows from operations and the
remaining net proceeds from the public offering will allow us to fund our liquidity and capital expenditure requirements for the foreseeable future. We anticipate that any remaining cash after satisfaction of operations and capital expenditure
requirements will be used primarily to fund anticipated increases in payday loans, to finance new branch expansion, and to complete acquisitions.

Credit Facility. On January 19, 2006, we entered into a credit agreement with a syndicate of banks, which provides for a revolving line of credit (including provisions permitting the issuance of letters of credit) in the
aggregate principal amount of up to $45.0 million (the credit facility). The credit facility is secured by all the capital stock of each subsidiary of the Company and all personal property (including, without limitation, all present and future
accounts receivable, general intangibles (including intellectual property), instruments, chattel paper, deposit accounts, investment property and the proceeds thereof). Borrowings under the facility are available at rates based on the LIBOR or the
Federal Funds rate. The credit facility has a grid that adjusts borrowing costs up or down based upon our leverage ratio. Leverage ratio is defined as the ratio of total debt to EBITDA (earnings before interest, provision for income taxes,
depreciation and amortization). An annual facility fee of 0.25% is required on the credit facility. Among other provisions, the credit facility contains financial covenants related to EBITDA, total indebtedness, fixed charges and minimum
consolidated net worth. The credit facility matures on January 19, 2009. The credit facility improves our flexibility with respect to executing our growth strategy. We have not borrowed under this credit facility since it was established.

As part of our business strategy, we intend to open de novo branches and consider acquisitions in existing and new markets. During 2004
and 2005, we were able to achieve de novo unit branch growth of 18.4% and 46.9%, respectively. In addition, we acquired 29 branches and 10 branches in 2004 and 2005, respectively. During the first six months of 2006, we opened 27 branches. We expect
to open approximately 25 additional branches during the second half of 2006. We believe our current cash position and our expected cash flow from operations should provide the capital needed to fund this level of growth, assuming no material
acquisitions.

The capital costs of opening a de novo branch include leasehold improvements, signage, computer equipment and security
systems, and the costs vary depending on the branch size, location and the services being offered. In fiscal 2005, we opened 174 de novo branches. The average cost of capital expenditures for these new branches was approximately $68,000 per branch.
For de novo branches opened during 2003 and 2004, loans receivable balances averaged approximately $80,000 at the end of the first year of operations. For branches opened in 2002 and 2003, loans receivable balances averaged approximately $131,000 at
the end of the second year. With respect to losses, a first-year branch will incur a higher loss rate than older branches because the new branch is establishing itself in the community and collecting information about the customer base. For example,
for de novo branches opened during 2003 and 2004, branch loss ratios averaged approximately 37.7% after the first twelve months of operations.

In February 2005, we entered into a seven-year lease agreement to relocate our corporate headquarters to office space in Overland Park, Kansas. We moved into the new location in the second quarter of 2005. Rent expense associated with the
lease is approximately $675,000 per year.

Common Stock Repurchase Program.In August 2006, our board of directors increased the
authorization limit of our common stock repurchase program to $20 million and extended the program through June 30, 2007. The program would have otherwise expired on December 31, 2006, or earlier if we had repurchased common stock with an
aggregate cost of $10 million. As of June 30, 2006, we have repurchased 749,700 shares at a total cost of approximately $9.5 million.

Concentration of Risk. Our branches located in the states of Missouri, California, Arizona, Kansas, New Mexico and Washington represented approximately 28%, 14%, 9%, 7%, 5% and 5%, respectively, of total



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revenues for the six months ended June 30, 2006. To the extent that laws and regulations are passed that affect our
ability to offer payday loans or the manner by which we offer our payday loans in any one of those states, our financial position, results of operations and cash flows could be affected.

As discussed above, legislative and regulatory changes in Illinois have adversely affected our revenues and earnings in the state during the first six
months of 2006. Illinois accounted for 8% of our total revenues for the year ended December 31, 2005. For example, branch earnings from our Illinois branches in first six months of 2006 were approximately $3.8 million lower than comparable
2005. During second quarter 2006, we began offering installment loans in our Illinois branches. However, we expect gross profit from our Illinois branches will continue to be negatively impacted during the remainder of 2006 compared to the same
period in the prior year. See the Notes to the Unaudited Consolidated Financial Statements, Note 9 Commitments and Contingencies for additional information concerning recently adopted regulations in New Mexico.

Seasonality

Our business is seasonal due to
fluctuating demand for payday loans during the year. Historically, we have experienced our highest demand for payday loans in January and in the fourth calendar quarter. As a result of the receipt by customers of their income tax refunds, demand for
payday loans has historically declined in the balance of the first quarter of each calendar year and the first month of the second quarter. Our loss ratio historically fluctuates with these changes in payday loan demand, with a higher loss ratio in
the second and third quarters of each calendar year and a lower loss ratio in the first and fourth quarters of each calendar year. Due to the seasonality of our business, results of operations for any quarter are not necessarily indicative of the
results of operations that may be achieved for the full year.

Off-Balance Sheet Arrangements

In February 2005, we entered into a marketing and servicing agreement with a Delaware chartered-state bank to originate and service payday loans for that
bank in Texas. In September 2005, we terminated the agreement with the bank and began operating through a new subsidiary as a CSO in our 18 Texas branches. Under the agreement with the bank, we provided various services including marketing and loan
servicing for the bank in connection with the banks short-term consumer loans in Texas, for which we were paid fees by the bank. The total revenue we earned for marketing and servicing the banks short-term loans during the year ended
December 31, 2005 was approximately $765,000. The outstanding balance of the banks advances and fees receivable serviced by us was approximately $1.1 million on September 14, 2005, which we purchased from the bank as a result of
terminating our agreement with the bank. As of December 31, 2005, the outstanding balance of the banks advances and fees that we purchased on September 14, 2005 was approximately $75,000. We have provided for the entire loan balances
in our allowance for loan losses as of December 31, 2005. As of June 30, 2006, the Company did not have any balance outstanding with respect to the banks advances and fees that the Company purchased on September 14, 2005.

As a CSO, we act as a credit services organization on behalf of consumers in accordance with Texas laws. We charge the consumer a fee for
arranging for an unrelated third-party lender to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers obligation to the third-party lender. We also service the loan for the
lender. We are not involved in the loan approval process or in determining the loan approval procedures or criteria, and we will not acquire or own any participation interest in the loans. Consequently, loans made by the lender will not be included
in our loans receivable balance and will not be reflected in the consolidated balance sheet. Under the agreement with the current lender, however, we absorb all risk of loss through our guarantee of the consumers loan from the lender. As of
December 31, 2005, and June 30, 2006, consumers had total loans outstanding with the lender of approximately $1.0 million. Because of the economic exposure for potential losses related to the guarantee of these loans, we record a payable
to reflect the anticipated losses related to uncollected loans. The payable is recognized at its fair value pursuant to FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others.The balance of the liability for estimated losses reported in accrued liabilities as of December 31, 2005 was approximately $110,000 and $60,000 at June 30, 2006.



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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have had no significant changes in
our Quantitative and Qualitative Disclosures About Market Risk from that previously reported in our Annual Report on Form 10-K for the year ended December 31, 2005.

Item 4. Controls and Procedures

We maintain a system of disclosure controls and procedures that are
designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Acts)) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms.

Our internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)) is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.



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PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds

Use of Proceeds. On
July 21, 2004, we closed the sale of 5,000,000 shares of our common stock at a price of $14.00 per share in a firm commitment underwritten initial public offering. Through June 30, 2006, the $70.0 million in gross proceeds raised by us in
the public offering were used as follows: (1) $4.9 million for underwriting discount; (2) $1.4 million for offering fees and expenses; (3) $26.1 million to repay principal on all of our then outstanding indebtedness; (4) $27.6
million for capital expenditures and the funding of payday loan growth for 244 de novo branches opened since the offering; (5) $3.4 million for the acquisition of 39 branches since the offering; and (6) $600,000 for a potential acquisition
that did not materialize. The balance of approximately $6.0 million is available to us for general corporate purposes and is held in cash and cash equivalents.

Issuer Purchases of Equity Securities.The following table sets forth certain information about the shares of common stock we repurchased during the second quarter 2006.



|                   |  |                                |  |                            |       |                                                                   |         |                                                                                   |   |          
|------------------ |  | ------------------------------ |  | -------------------------- | ----- | ----------------------------------------------------------------- | ------- | --------------------------------------------------------------------------------- | - | ---------
|Period             |  | Total Numberof SharesPurchased |  | Average PricePaid PerShare |       | Total Number ofShares Purchasedas Part ofPubliclyAnnouncedProgram |         | MaximumApproximate DollarValue of Shares thatMay Yet BePurchased Underthe
Program
|April 1  April 30 |  | 88,500                         |  | $                          | 13.84 |                                                                   | 575,900 |                                                                                   | $ | 2,958,605
|May 1  May 31     |  | 110,500                        |  |                            | 14.34 |                                                                   | 686,400 |                                                                                   |   | 1,374,404
|June 1  June 30   |  | 63,300                         |  |                            | 13.96 |                                                                   | 749,700 |                                                                                   |   | 490,822  
|                   |  |                                |  |                            |       |                                                                   |         |                                                                                   |   |          
|Total              |  | 262,300                        |  | $                          | 14.08 |                                                                   | 749,700 |                                                                                   | $ | 490,822  
|                   |  |                                |  |                            |       |                                                                   |         |                                                                                   |   |          

In August 2006, our board of directors increased the authorization limit of our common stock
repurchase program to $20 million and extended the program through June 30, 2007. The program would have otherwise expired on December 31, 2006, or earlier if we had repurchased common stock with an aggregate cost of $10 million. As of
June 30, 2006, we have repurchased 749,700 shares at a total cost of approximately $9.5 million.

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

Our annual meeting of stockholders was held
in Overland Park, Kansas, on June 7, 2006. At that meeting, the stockholders elected the following individuals to serve as directors for a term of one year and until their respective successors are duly elected and qualified:



|                       |  |            |  |                  
|---------------------- |  | ---------- |  | -----------------
|Director               |  | For        |  | WithheldAuthority
|Don Early              |  | 19,182,945 |  | 847,624          
|Mary Lou Andersen      |  | 19,181,901 |  | 848,668          
|Richard B. Chalker     |  | 19,644,788 |  | 385,781          
|Gerald F. Lamberti     |  | 19,593,264 |  | 437,305          
|Francis P. Lemery      |  | 19,648,669 |  | 381,900          
|Mary V. Powell         |  | 19,646,669 |  | 383,900          
|Kevin A. Richardson II |  | 19,622,094 |  | 380,900          

No other matters were submitted to a vote of the stockholders at the annual meeting.



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Item 6. Exhibits



|     |  |                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer under Rule 13-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                      
|     | 
|31.2 |  | Certification of Chief Financial Officer under Rule 13-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                      
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to Section 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to Section 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized and in the capacities indicated on August 8, 2006.



QC Holdings, Inc./s/ Darrin J. AndersenDarrin J. AndersenPresident and Chief Operating Officer/s/ Douglas E. NickersonDouglas E. NickersonChief Financial Officer(Principal Financial and Accounting Officer)




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