##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________



FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001

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 0-20774

ACE CASH EXPRESS, INC.
(Exact name of registrant as specified in its charter)

|                                                                                      |  |                                             
|------------------------------------------------------------------------------------- |  | --------------------------------------------
|Texas
(State or other jurisdiction of incorporation or organization)                  |  | 75-2142963
(IRS Employer Identification No.)
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|1231 Greenway Drive, Suite 600
Irving, Texas
(Address of principal executive offices) |  | 75038
(Zip Code)                            

(Registrants telephone number, including area code) (972) 550-5000

Securities registered pursuant to Section 12(b) of the Act:

|                    |  |                      
|------------------- |  | ---------------------
|                    |  | Name of each exchange
|Title of each class |  | on which registered  
|                    |  |                      

None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [  ]

As of September 17, 2001, 10,047,720 shares of Common Stock were outstanding.
As of such date the aggregate market value of voting stock (based upon the last
reported sales price in The Nasdaq Stock Market) held by nonaffiliates of the
registrant was approximately $65,005,588.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III is incorporated by reference from the
registrants definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.





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TABLE OF CONTENTS



|                                                |                                                                                               |  |  |  |  |  |  | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                         
|                                                | ITEM 1. BUSINESS                                                                             
|                                                | ITEM 2. PROPERTIES                                                                           
|                                                | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                        
|                                                | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                                | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III                                       
|PART IV                                        
|                                                | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.                   
|SIGNATURES                                     
|Change-in-Control Executive Severance Agreement
|Amendment No. 2 to Master Loan Agency Agreement
|Change-in-Control Executive Severance Agreement
|Subsidiaries of the Company                    



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##### Table of Contents






PART I




ITEM 1. BUSINESS

General

Ace Cash Express, Inc. (ACE or the Company) is a significant provider of
retail financial services in the United States. The Company is also the
largest owner, operator, and franchisor of check-cashing stores in the United
States. As of August 31, 2001, the Company had a total network of 1,166 stores
in 35 states and the District of Columbia, consisting of 994 company-owned
stores and 172 franchised stores. The Companys growth strategy is to
integrate acquisitions, new store openings, and franchising in new and existing
markets and to develop new products for introduction into the existing store
base. The Companys general objective is to provide a full range of retail
financial services and transaction processing in its markets. Additionally, it
is the Companys objective to develop and maintain the largest network of
stores in each of the markets where the Company operates.

ACE stores offer check-cashing services and other retail financial services at
competitive rates in clean, convenient settings. Services include cashing
payroll checks, government checks, and insurance drafts; selling money orders;
providing money transfer services using the MoneyGram network; and offering
small, short-term consumer loans by Goleta National Bank. Many company-owned
stores also offer bill-payment services, lottery and lotto tickets, and other
retail financial and transaction processing services.

Industry Overview

The primary industry in which ACE operates is check-cashing. Industry sources
indicate that there are approximately 8,000 check-cashing stores nationally.
Though there is limited public information available, the Company believes that
there are four other check-cashing companies operating or franchising over 100
stores, five companies that operate or franchise between 50 and 100 locations,
with the remaining companies operating less than 50 stores.

The Company believes that it and other check-cashing companies have grown by
offering services that banks do not provide and by operating at locations and
during hours that are more convenient than those traditionally offered by
banks. Unlike many banks, check-cashing stores are willing to assume the risk
that checks they cash will bounce. For instance, it is not unusual for a
bank to refuse to cash a check for a customer who does not maintain a deposit
account with the bank and to require its depositors to maintain sufficient
funds in an account to cover a check to be cashed or wait several days for the
check to clear. As a result, the Company believes check-cashing stores provide
an attractive alternative to customers without bank accounts or with relatively
small account balances. Although these customers might save money by
depositing their checks in a bank and waiting for them to clear, many prefer
paying a fee to take advantage of the convenience and availability of immediate
cash offered by check-cashing stores.

The core business of check-cashing stores is generally cashing checks for a
fee. These fees are intended to provide the check casher with a profit after
covering operating expenses, including any interest expense incurred by the
check casher on the funds advanced to customers between the time checks are
cashed and the time the checks clear through the banking system. The risk a
check-cashing store assumes upon cashing a check is that the check will be
uncollected because of insufficient funds, stop payment orders, or fraud. In
order to minimize this risk and the losses associated with uncollected checks,
many check-cashing stores cash only payroll or government entitlement checks,
charge higher fees, or have stricter approval procedures for cashing personal
checks. ACE does not promote the cashing of personal checks in its stores.
For the fiscal year ended June 30, 2001, less than 1% of the checks cashed by
the Company were one-party personal checks.

In addition to check-cashing services, most check-cashing stores offer
customers a range of other services, including access to small consumer loans,
bill payments, money orders, and wire transfers of cash. Some check-cashing
stores also offer lottery and lotto tickets, public transportation passes,
copying and fax transmission services, and postage stamps.

The Company believes that the deregulation of the banking and savings and loan
industry has increased the role played by check-cashing stores in providing
basic financial transaction services to low-income and middle-income customers.
At the same time, the Company believes that competition, regulatory scrutiny
and complexity are contributing to consolidation of the industry. The Companys
strategy is to position itself to benefit from industry consolidation and the
competitive advantages available to large operators and franchisors of retail
financial services.

Growth Strategy

ACEs growth strategy consists principally of combining acquisitions and new
store openings with the objective of having the largest number of retail
financial services locations in each of its markets and developing new products
for introduction into the existing store base. ACE defines its target markets
as cities of 100,000 or more. The Company has expanded from 452 company-owned
stores in 13 states as of June 30, 1995, to a network of
1,163 company-owned and franchised stores in 35 states as of June 30, 2001. In
fiscal 2001, the Company opened 49 newly-constructed stores, acquired 133
stores, franchised 29 stores, and closed 109 company-owned stores. The Company
currently anticipates that it will construct and open 50 stores, primarily in
existing markets, during the fiscal year ending June 30, 2002.

2



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##### Table of Contents



The following table illustrates the development of company-owned stores since
June 30, 1995 by showing the number of stores open in each market area at the
end of each of the indicated periods:

|                                                                             |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|---------------------------------------------------------------------------- |  | -------------------- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- |  |  |  | --- |  |  |  | --- | 
|                                                                             |  | Company-owned stores
|                                                                             |  |                     
|                                                                             |  | June 30,            
|                                                                             |  |                     
|Market Area                                                                  |  | 2001                 |     | 2000 |  | 1999 |     | 1998 |  | 1997 |     | 1996 |  | 1995
|                                                                             |  |                      |     |      |  |      |     |      |  |      |     |      |  |     
|Texas:                                                                       |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Dallas/Fort Worth/East Texas                                                 |  |                      | 120 |      |  |      | 129 |      |  |      | 122 |      |  |      | 117 |  |  |  | 114 |  |  |  | 112 |  |  |  | 103 | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Houston/Corpus Christi                                                       |  |                      | 128 |      |  |      | 112 |      |  |      | 83  |      |  |      | 76  |  |  |  | 74  |  |  |  | 72  |  |  |  | 60  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|San Antonio/Austin/El Paso                                                   |  |                      | 78  |      |  |      | 68  |      |  |      | 59  |      |  |      | 51  |  |  |  | 42  |  |  |  | 28  |  |  |  | 24  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Florida:                                                                     |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Jacksonville/Orlando/Palm Beach/Tampa                                        |  |                      | 91  |      |  |      | 90  |      |  |      | 73  |      |  |      | 60  |  |  |  | 46  |  |  |  | 38  |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|California:                                                                  |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Los Angeles/Van Nuys/San Bernadino/
Sacramento/San Francisco/Fresno/
Oakland |  |                      | 90  |      |  |      | 30  |      |  |      | 16  |      |  |      | 9   |  |  |  |    |  |  |  |    |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Maryland/Washington, D.C./Virginia:                                          |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Baltimore/Washington, D.C./
Northern VA/Norfolk/Virginia Beach               |  |                      | 85  |      |  |      | 93  |      |  |      | 81  |      |  |      | 77  |  |  |  | 72  |  |  |  | 74  |  |  |  | 71  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Arizona:                                                                     |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Phoenix/Tucson                                                               |  |                      | 75  |      |  |      | 73  |      |  |      | 69  |      |  |      | 59  |  |  |  | 58  |  |  |  | 46  |  |  |  | 37  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Colorado:                                                                    |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Denver/Colorado Springs/Pueblo                                               |  |                      | 53  |      |  |      | 52  |      |  |      | 51  |      |  |      | 45  |  |  |  | 44  |  |  |  | 41  |  |  |  | 39  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Georgia:                                                                     |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Atlanta/Albany/Augusta/Macon/Savannah                                        |  |                      | 50  |      |  |      | 54  |      |  |      | 52  |      |  |      | 50  |  |  |  | 47  |  |  |  | 47  |  |  |  | 49  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|North & South Carolina:                                                      |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Charlotte/Charleston/Columbia/
Greenville/Spartanburg/Orangeburg             |  |                      | 29  |      |  |      | 34  |      |  |      | 29  |      |  |      | 17  |  |  |  | 16  |  |  |  | 16  |  |  |  | 15  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Indiana:                                                                     |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Indianapolis                                                                 |  |                      | 25  |      |  |      | 25  |      |  |      | 23  |      |  |      | 14  |  |  |  | 9   |  |  |  | 4   |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Louisiana:                                                                   |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|New Orleans/Baton Rouge/Shreveport                                           |  |                      | 25  |      |  |      | 25  |      |  |      | 25  |      |  |      | 25  |  |  |  | 25  |  |  |  | 19  |  |  |  | 19  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Oklahoma:                                                                    |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Oklahoma City                                                                |  |                      | 23  |      |  |      | 12  |      |  |      | 14  |      |  |      | 13  |  |  |  | 13  |  |  |  | 12  |  |  |  | 12  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Tennessee:                                                                   |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Memphis/Nashville                                                            |  |                      | 19  |      |  |      | 26  |      |  |      | 22  |      |  |      | 18  |  |  |  | 15  |  |  |  | 5   |  |  |  | 2   | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Ohio:                                                                        |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cleveland                                                                    |  |                      | 18  |      |  |      | 11  |      |  |      | 10  |      |  |      | 10  |  |  |  | 10  |  |  |  | 8   |  |  |  | 7   | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Nevada:                                                                      |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Las Vegas                                                                    |  |                      | 14  |      |  |      | 14  |      |  |      | 11  |      |  |      | 4   |  |  |  |    |  |  |  |    |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Washington:                                                                  |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Seattle/Tacoma/Everette                                                      |  |                      | 13  |      |  |      | 14  |      |  |      | 12  |      |  |      | 10  |  |  |  | 8   |  |  |  | 6   |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Missouri:                                                                    |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|St. Louis                                                                    |  |                      | 11  |      |  |      | 11  |      |  |      | 10  |      |  |      | 6   |  |  |  | 6   |  |  |  | 3   |  |  |  | 3   | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|New Mexico:                                                                  |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Albuquerque                                                                  |  |                      | 10  |      |  |      | 8   |      |  |      | 8   |      |  |      | 7   |  |  |  | 7   |  |  |  | 7   |  |  |  | 7   | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Pennsylvania:                                                                |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Pittsburgh                                                                   |  |                      | 9   |      |  |      | 3   |      |  |      |    |      |  |      |    |  |  |  |    |  |  |  |    |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Arkansas:                                                                    |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Little Rock                                                                  |  |                      | 8   |      |  |      | 8   |      |  |      | 7   |      |  |      | 7   |  |  |  | 6   |  |  |  | 6   |  |  |  | 4   | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Oregon:                                                                      |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Portland                                                                     |  |                      | 7   |      |  |      | 9   |      |  |      | 8   |      |  |      | 5   |  |  |  | 5   |  |  |  |    |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Kansas:                                                                      |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Wichita                                                                      |  |                      | 4   |      |  |      | 4   |      |  |      | 3   |      |  |      | 2   |  |  |  |    |  |  |  |    |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Alabama:                                                                     |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Birmingham/Homewood                                                          |  |                      | 3   |      |  |      | 3   |      |  |      | 4   |      |  |      | 1   |  |  |  |    |  |  |  |    |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Utah:                                                                        |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Salt Lake City/Layton/Ogden                                                  |  |                      |    |      |  |      | 5   |      |  |      | 3   |      |  |      |    |  |  |  |    |  |  |  |    |  |  |  |    | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Kentucky:                                                                    |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Paducah /Murray                                                              |  |                      |    |      |  |      | 2   |      |  |      | 3   |      |  |      |    |  |  |  |    |  |  |  |    |  |  |  |    | 
|                                                                             |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|Total                                                                        |  |                      | 988 |      |  |      | 915 |      |  |      | 798 |      |  |      | 683 |  |  |  | 617 |  |  |  | 544 |  |  |  | 452 | 
|                                                                             |  |                      |     |      |  |      |     |      |  |      |     |      |  |      |     |  |  |  |     |  |  |  |     |  |  |  |     | 

3



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##### Table of Contents



Acquisitions.During fiscal 2001, the Company acquired 133 stores in five
separate transactions. The Company believes its experience with acquisitions
permits it to successfully integrate additional acquisitions. Of the 988 ACE
company-owned stores currently in operation, 415, or 42%, have been acquired
stores. The Company does not have any current plan or expectation as to the
number of stores that it may acquire during the fiscal year ending June 30,
2002. The Company intends to continue searching for strategic opportunities in
both existing and new markets.

Franchise Operations

With the acquisition of Check Express, Inc. and its wholly-owned franchising
subsidiaries in February 1996, the Company became one of the largest
franchisors of check-cashing stores in the United States. ACE franchises are
marketed through an employee sales force, supplemented by advertising in
newspapers, trade journals, and other media. As of June 30, 2001, there were
175 company-franchised stores open and operating in 29 states, as follows:

|                  |  |                  |     | 
|----------------- |  | ---------------- | --- | 
|                  |  | Number of stores
|                  |  |                 
|Texas             |  |                  | 55  | 
|                 
|                 
|                 
|                 
|Ohio              |  |                  | 14  | 
|                 
|                 
|                 
|                 
|Florida           |  |                  | 13  | 
|                 
|                 
|                 
|                 
|California        |  |                  | 12  | 
|                 
|                 
|                 
|                 
|Louisiana         |  |                  | 12  | 
|                 
|                 
|                 
|                 
|Oklahoma          |  |                  | 9   | 
|                 
|                 
|                 
|                 
|South Carolina    |  |                  | 8   | 
|                 
|                 
|                 
|                 
|Georgia           |  |                  | 7   | 
|                 
|                 
|                 
|                 
|North Carolina    |  |                  | 7   | 
|                 
|                 
|                 
|                 
|Tennessee         |  |                  | 7   | 
|                 
|                 
|                 
|                 
|Oregon            |  |                  | 4   | 
|                 
|                 
|                 
|                 
|Colorado          |  |                  | 3   | 
|                 
|                 
|                 
|                 
|Missouri          |  |                  | 3   | 
|                 
|                 
|                 
|                 
|Arizona           |  |                  | 2   | 
|                 
|                 
|                 
|                 
|Connecticut       |  |                  | 2   | 
|                 
|                 
|                 
|                 
|Indiana           |  |                  | 2   | 
|                 
|                 
|                 
|                 
|Kentucky          |  |                  | 2   | 
|                 
|                 
|                 
|                 
|Minnesota         |  |                  | 2   | 
|                 
|                 
|                 
|                 
|Other states (11) |  |                  | 11  | 
|                  |  |                  |     | 
|Total             |  |                  | 175 | 
|                  |  |                  |     | 

The Company intends to continue its expansion through the sale of new
franchises and the opening of additional units under existing franchise
agreements. The Company is actively marketing several types of ACE franchises
depending on the style of business being conducted. These include a standard
store franchise, a store-within-a-store (or kiosk) franchise, a small market
franchise for market areas under 15,000 in population, and a conversion
franchise that permits an existing check-cashing business to convert to an ACE
franchisee. The Company opened 29 franchised stores, acquired two former
franchised stores and closed nine franchised stores during fiscal 2001. The
majority of franchised stores operate under the ACE name, by license from the
Company.

Customers and Services

Management believes the Companys core customer group is composed primarily of
individuals whose average age is 29 and who rent their house or apartment and
hold a wide variety of jobs in the service sector or are clerical workers,
craftsmen, and laborers. These customers tend to change jobs and residences
more often than average, have annual family incomes of approximately $30,000,
often pay their bills with money orders, and prefer the availability of
immediate cash provided by cashing checks at the Companys stores.

4



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##### Table of Contents



The following table reflects the major categories of services that ACE
currently offers and the revenues (in thousands) from these services for the
indicated fiscal years:

|                        |  |                     |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        | 
|----------------------- |  | ------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------ | 
|                        |  | Year Ended June 30,
|                        |  |                    
|Revenue Category        |  | 2001                |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                        |  |                     |         |      |  |      |         |      |  |     
|Check cashing fees      |  | $                   | 105,479 |      |  | $    | 89,641  |      |  | $    | 78,839  |  |  | $ | 68,987  |  |  | $ | 62,835 | 
|                       
|                       
|                       
|                       
|Loan fees and interest  |  |                     | 54,771  |      |  |      | 17,872  |      |  |      | 14,257  |  |  |   | 10,137  |  |  |   | 5,703  | 
|                       
|                       
|                       
|                       
|Bill payment services   |  |                     | 10,376  |      |  |      | 9,447   |      |  |      | 8,394   |  |  |   | 4,146   |  |  |   | 2,197  | 
|                       
|                       
|                       
|                       
|Money transfer services |  |                     | 10,270  |      |  |      | 8,944   |      |  |      | 7,951   |  |  |   | 6,082   |  |  |   | 5,749  | 
|                       
|                       
|                       
|                       
|Money order fees        |  |                     | 7,245   |      |  |      | 7,032   |      |  |      | 5,332   |  |  |   | 2,879   |  |  |   | 2,757  | 
|                       
|                       
|                       
|                       
|Franchise revenues      |  |                     | 2,257   |      |  |      | 2,537   |      |  |      | 2,117   |  |  |   | 1,665   |  |  |   | 1,398  | 
|                       
|                       
|                       
|                       
|Other fees              |  |                     | 6,377   |      |  |      | 5,163   |      |  |      | 5,424   |  |  |   | 6,298   |  |  |   | 6,753  | 
|                        |  |                     |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        | 
|Total revenue           |  | $                   | 196,775 |      |  | $    | 140,636 |      |  | $    | 122,314 |  |  | $ | 100,194 |  |  | $ | 87,392 | 
|                        |  |                     |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        | 

Check cashing. ACEs primary business is cashing checks for a fee. The
principal type of check the Company cashes is a payroll check. The Company
also cashes government assistance, tax refund, and insurance checks or drafts.
Subject to market conditions at different locations, the Companys
check-cashing fees for payroll checks approximate 2.2% of the face amount of
the check. The Company imposes a surcharge for cashing out-of-state checks,
handwritten checks, money orders, tax refund checks, and insurance checks or
drafts. Unlike many of its competitors, the Company displays its check-cashing
fees in full view of its customers on a menu board in each store and provides
a detailed receipt for each transaction. Although the Company has established
guidelines for approving check-cashing transactions, it has no preset limit on
the size of the checks it will cash.

If a check cashed by the Company is not paid for any reason, the Company
accounts for the amount of the check as a loss in the period in which it is
returned. ACE then transfers the check to its collection department, which
contacts the maker and payee of each returned check and, if necessary,
commences legal action. The collection department utilizes an automated
tracking system on the Companys central computer system to monitor the status
of all returned items. See Selected Financial Data  Collections Data.

Loan services.The Company is engaged in the small consumer loan business
because the Company believes that many consumers may have limited access to
other sources of consumer credit. Historically, the Company offered payday
loans, a check-based service, in all of its locations to the extent permitted
by applicable state law. Though the Company still offers payday loans at a few
of its locations, since May 2000, it has offered short-term loans made by
Goleta National Bank (Bank Loans) in almost all of its locations. Offering
the Bank Loans instead of payday loans enables the Company to offer its
customers a single or standard loan product at all or almost all of its
locations in all states and the District of Columbia.

The Bank Loans are made by Goleta National Bank, a national bank located in
California (Goleta). The Bank Loan process at a company-owned store consists
of the following: (1) A customer completes a loan application to Goleta. (2)
The customers information from the application is entered into the Companys
point-of-sale system and transmitted electronically to Goleta. (3) Applying
its credit criteria, Goleta makes a decision in California whether to approve
or deny the application for a Bank Loan. (4) If the application is approved,
the borrower completes and signs bank loan documents, which are made available
by the Company in favor of Goleta. (5) Goleta opens an FDIC-insured bank
account for the borrower at Goleta in California and places the borrowed funds
into that account. (6) Goleta activates a debit card and issues a
corresponding personal identification number (PIN), through which the
borrower has access to the funds in his or her bank account, and the Company
delivers the card and the PIN to the borrower. (7) The borrower can then
withdraw the proceeds of the Bank Loan from his or her new bank account by
using the debit card and the PIN at any company-owned store or at various other
retail or ATM locations. The Bank Loan process at a company-owned store is
typically completed in less than 20 minutes. A Bank Loan may be repaid at any
company-owned store, and the Company will deposit the payment in an account for
Goleta. A Bank Loan may also be repaid by Goletas debiting the borrowers
checking account through an Automated Clearing House (ACH) transaction, as
authorized by the borrower.

During the fiscal year ended June 30, 2001, the average principal amount of a
Bank Loan was approximately $275. As of June 30, 2001, Bank Loans were offered
in 947 of the Companys owned stores. See  Bank Loans below.

The service offered by the Company that is commonly referred to as a payday
loan consists of providing a customer cash in exchange for the customers
check (in the amount of that cash plus a service fee), with an agreement to
defer the presentment or deposit of that check until the customers next
payday, usually a period of two to four weeks. Because the payday loan service
has been authorized by statute or rule in the states in which it may be
offered, it has been subject to extensive regulation. But the scope of that
regulation by the states is not, and has not been, consistent. All of the
states establish allowable fees and other charges to consumers for these payday
loans. In addition, many of the states regulate the maximum

5



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##### Table of Contents



amount, maturity, and renewal or extension of these payday loans. As required,
ACE or its stores that have offered payday loans in a particular state are or
have been licensed under that states laws and regulations.

As of June 30, 2001, ACE was a licensed provider of payday loans only in
California and South Carolina. During that year, the average amount of cash
provided to a customer in such a transaction was approximately $212, and the
average fee received by the Company was approximately $31.84. As of June 30,
2001, this service was offered in 18 company-owned stores.

Bill-payment services.The Companys stores serve as payment locations for
customers to pay their utility, telephone, and other bills to third parties.
Upon acceptance of the customers payment, the Company remits the amount owed
to the third-party payee under an agreement with that payee and either receives
a service fee from the payee or collects a fee from the consumer.

Under a Bill-Payment Processing and Funds Transfer Services Agreement (the
MoneyLine Agreement) with Travelers Express Company, Inc. (Travelers
Express) and its affiliate MoneyLine Express, Inc. (MoneyLine), the Company
acts as an agent for MoneyLine, which has agreements with various third-party
payees for consumer services. The Companys services and obligations under the
MoneyLine Agreement are similar to those in its other bill-payment agreements
directly with the payees, though consumer payments accepted by the Company are
transmitted to MoneyLine instead of directly to the payees. The MoneyLine
Agreement permits the Company to offer its customers bill-payment services to
virtually any third-party payee.

Money transfer services.ACE is an agent for the transmission and receipt
of wire transfers through the MoneyGram network. Through this network, ACE
customers can transfer funds electronically to any of approximately 18,000
MoneyGram locations nationwide (including other ACE stores) and over 37,000
agent locations worldwide. MoneyGram Payment Systems, Inc. establishes the fees
for this service, and the Company is paid a percentage of the fees it collects
from customers as a commission and remits the balance to MoneyGram Payment
Systems, Inc.

Money orders. The Company sells money orders issued by Travelers Express
in denominations up to $1,000. These money orders are generally used by the
Companys customers for bill payments, rent payments, and other general
disbursements. The Company sold 12.8 million, 12.3 million, and 14.5 million
money orders during the 2001, 2000, and 1999 fiscal years, respectively. The
fees charged for money orders depend on local market conditions and the size of
the money order. The Company remits the face amount of each money order sold to
Travelers Express. ACEs money order revenues include that portion of the fees
retained by the Company.

Franchise revenues.The Companys franchise revenues consist of royalties and
initial and optional franchise fees. There were 175 company-franchised stores
in operation as of June 30, 2001.

Other services and products. In many company-owned stores, ACE also offers a
variety of other retail financial products and services to its customers,
including lottery and lotto ticket sales, public transportation passes, copying
and fax transmission services, postage stamps, prepaid local telephone time,
and prepaid long-distance telephone cards.

Self-service machines. ACE has developed self-service machines that can
perform certain of these services for its customers and currently has 71
machines in company-owned locations. These machines have features that allow
them to cash checks, sell prepaid long-distance telephone cards, sell money
orders, and process third-party bill payments. These machines have proprietary
software that reads checks, analyzes customer and check-issuer history, and
enables ACE to assess credit risk before cashing a check. ACE has entered into
an agreement with H&R Block that contemplates the Companys placing up to 500
of its machines at H&R Block locations, particularly during the tax season
(i.e., January through March). Implementation of this agreement, however, will
require ACE to obtain capital to acquire the hardware for those self-service
machines and the cash to constitute inventory for those machines.

Store Operations and New Store Economics

The Companys objective is to locate its company-owned stores in highly
visible, accessible locations and to operate the stores during convenient
hours. The Company attempts to locate stores on high traffic streets or
intersections, in many cases in or near destination shopping centers. The
Companys stores occupy 1,100 square feet on average and are located in strip
shopping centers, free-standing buildings, and kiosks located inside major
retail stores. The Company is focused on increasing the markets awareness of
ACE by using consistent signage and design at each store location. All but two
of the company-owned stores are leased.

Normal business hours of the company-owned stores are from 9:00 a.m. until 7:00
p.m., Monday through Thursday, 9:00 a.m. until 8:00 p.m. on Friday, and 9:00
a.m. until 6:00 p.m. on Saturday. Currently, 203 stores are also open on
Sunday,

6



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##### Table of Contents



generally from 10:00 a.m. until 5:00 p.m., and several stores are open 24
hours. The business hours of any store may be changed due to local market
conditions.

The Companys store construction and facilities planning staff reviews and
negotiates lease agreements for store locations, supervises the construction of
new stores, the remodeling of existing stores, and performs lease management
once the leases are executed. Although the size and shape of a company-owned
store may vary, and since many of the stores are built out of existing space,
the work area of each store is a modular-designed unit that can be customized
to meet the requirements of each location while giving a uniform appearance.
These modular units may be moved from one location to the next, thus reducing
the costs associated with opening new stores and relocating existing stores.

The tables below show the average annual store revenues and the average store
contribution for company-owned stores which were opened in the year indicated
and remain open as of June 30, 2001.

|                 |  |                |     |                |  |                        |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|---------------- |  | -------------- | --- | -------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                 |  |                |     |                |  | Average Store Revenues
|                 |  |                |     |                |  | Year Ended June 30,   
|                 |  | Number of      |     | (in thousands)
|                 |  | stores open at |     |               
|Year Opened:     |  | June 30, 2001  |     | 2001           |  | 2000                   |       | 1999 |  | 1998 |       | 1997
|                 |  |                |     |                |  |                        |       |      |  |      |       |     
|1992 and earlier |  |                | 162 |                |  | $                      | 245.3 |      |  | $    | 206.8 |      |  | $ | 194.3 |  |  | $ | 174.5 |  |  | $ | 163.4 | 
|                
|                
|                
|                
|1993             |  |                | 36  |                |  |                        | 248.0 |      |  |      | 204.4 |      |  |   | 189.4 |  |  |   | 160.4 |  |  |   | 143.2 | 
|                
|                
|                
|                
|1994             |  |                | 34  |                |  |                        | 241.3 |      |  |      | 181.4 |      |  |   | 170.8 |  |  |   | 149.3 |  |  |   | 133.5 | 
|                
|                
|                
|                
|1995             |  |                | 33  |                |  |                        | 211.0 |      |  |      | 168.4 |      |  |   | 159.6 |  |  |   | 128.4 |  |  |   | 113.4 | 
|                
|                
|                
|                
|1996             |  |                | 28  |                |  |                        | 236.4 |      |  |      | 188.7 |      |  |   | 168.5 |  |  |   | 143.8 |  |  |   | 109.4 | 
|                
|                
|                
|                
|1997             |  |                | 38  |                |  |                        | 202.6 |      |  |      | 156.6 |      |  |   | 141.3 |  |  |   | 105.1 |  |  |   | 34.3  | 
|                
|                
|                
|                
|1998             |  |                | 54  |                |  |                        | 186.3 |      |  |      | 130.5 |      |  |   | 98.4  |  |  |   | 28.0  |  |  |   |      | 
|                
|                
|                
|                
|1999             |  |                | 67  |                |  |                        | 163.0 |      |  |      | 92.7  |      |  |   | 31.2  |  |  |   |      |  |  |   |      | 
|                
|                
|                
|                
|2000             |  |                | 72  |                |  |                        | 120.7 |      |  |      | 26.4  |      |  |   |      |  |  |   |      |  |  |   |      | 
|                
|                
|                
|                
|2001             |  |                | 49  |                |  |                        | 33.1  |      |  |      |      |      |  |   |      |  |  |   |      |  |  |   |      | 
|                 |  |                |     |                |  |                        |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|                 |  |                | 573 |                |  |                        |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|                
|                
|                
|                
|Acquired stores  |  |                | 415 |                |  |                        |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|                 |  |                |     |                |  |                        |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|                 |  |                | 988 |                |  |                        |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|                 |  |                |     |                |  |                        |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 

|                 |  |                |     |                |  |                                |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|---------------- |  | -------------- | --- | -------------- |  | ------------------------------ | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                 |  |                |     |                |  | Average Store Contribution (1)
|                 |  |                |     |                |  | Year Ended June 30,           
|                 |  | Number of      |     | (in thousands)
|                 |  | stores open at |     |               
|Year Opened:     |  | June 30, 2001  |     | 2001           |  | 2000                           |       | 1999 |  | 1998 |       | 1997
|                 |  |                |     |                |  |                                |       |      |  |      |       |     
|1992 and earlier |  |                | 162 |                |  | $                              | 86.1  |      |  | $    | 92.5  |      |  | $ | 85.7  |   |  | $ | 71.9  |   |  | $ | 63.5  |  
|                
|                
|                
|                
|1993             |  |                | 36  |                |  |                                | 79.2  |      |  |      | 84.0  |      |  |   | 80.3  |   |  |   | 60.8  |   |  |   | 48.7  |  
|                
|                
|                
|                
|1994             |  |                | 34  |                |  |                                | 80.8  |      |  |      | 70.6  |      |  |   | 62.6  |   |  |   | 47.8  |   |  |   | 44.8  |  
|                
|                
|                
|                
|1995             |  |                | 33  |                |  |                                | 59.7  |      |  |      | 53.2  |      |  |   | 47.6  |   |  |   | 26.2  |   |  |   | 19.6  |  
|                
|                
|                
|                
|1996             |  |                | 28  |                |  |                                | 85.0  |      |  |      | 74.4  |      |  |   | 56.3  |   |  |   | 39.5  |   |  |   | 11.0  |  
|                
|                
|                
|                
|1997             |  |                | 38  |                |  |                                | 54.4  |      |  |      | 36.0  |      |  |   | 30.2  |   |  |   | 1.7   |   |  |   | (11.1 | )
|                
|                
|                
|                
|1998             |  |                | 54  |                |  |                                | 44.0  |      |  |      | 25.3  |      |  |   | (0.2  | ) |  |   | (12.5 | ) |  |   |      |  
|                
|                
|                
|                
|1999             |  |                | 67  |                |  |                                | 17.6  |      |  |      | (13.6 | )    |  |   | (15.4 | ) |  |   |      |   |  |   |      |  
|                
|                
|                
|                
|2000             |  |                | 72  |                |  |                                | (10.3 | )    |  |      | (14.6 | )    |  |   |      |   |  |   |      |   |  |   |      |  
|                
|                
|                
|                
|2001             |  |                | 49  |                |  |                                | (20.6 | )    |  |      |      |      |  |   |      |   |  |   |      |   |  |   |      |  
|                 |  |                |     |                |  |                                |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|                 |  |                | 573 |                |  |                                |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|                
|                
|                
|                
|Acquired stores  |  |                | 415 |                |  |                                |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|                 |  |                |     |                |  |                                |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|                 |  |                | 988 |                |  |                                |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|                 |  |                |     |                |  |                                |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  



---

|(1) |  | Average store contribution equals revenues less direct store
expenses and store-related depreciation and amortization. Direct
store expenses consist of store salaries and benefits, occupancy
costs (rent, maintenance, taxes and utilities), returned checks
net of collections, cash shortages, armored security costs, loan
losses, and bank charges. Direct store expenses exclude region or
corporate overhead, depreciation, and amortization expenses.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The capital cost of opening a new store varies depending on the size and type
of store. During fiscal 2001, the Company opened 49 company-owned stores at an
average capital cost of approximately $73,000 per store.

During fiscal 2001, the Company placed 71 of its self-service machines in
company-owned stores. These machines were placed in existing stores operated
by service associates both to test customer acceptance and use and to more
efficiently provide services at those stores. The Company believes that the
machines are sufficiently easy to use and reliable that it could deploy them in
locations without service associates.

7



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##### Table of Contents



There can be no assurance that the Companys stores will continue to generate
the same level of revenues or revenue growth as in the past or that any new or
acquired store will perform at a level comparable to any of the Companys
existing stores.

Advertising and Marketing

ACE markets and promotes service and product offerings by a variety of methods.
The Company believes that its most effective marketing is through in-store
programs, combining the selling efforts of store personnel with various selling
messages on point-of-purchase material. The Company emphasizes courteous
service and trains service associates to recognize and develop good
relationships with customers. All check-cashing customers are invited to join
the ACE PLUS gold card retention program, which rewards members with benefits
like free check-cashing commensurate with the volume of check-cashing done at
ACE. Also, through its branding with standardized signage and store design,
the Company attempts to foster an image that attracts customers and inspires
consumer confidence. The Company also benefits from vendor-sponsored media
advertising in some markets.

Supervision and Training

The Companys operations are organized in regions, which generally correspond
to the market areas in which ACE operates its stores. Each region has a
regional vice president (RVP), who reports to either the Executive Vice
President of Operations or Senior Vice President of Operations and is
responsible for the operations, administration, training, and supervision of
the company-owned stores in his or her region. The Company currently has 11
RVPs who supervise an average of 90 stores each. The Company currently has 66
district managers, each of whom reports to the RVP for his or her region and is
directly responsible for the general management of 6 to 30 stores within his or
her territory. These district managers are responsible for operations,
training, scheduling, marketing, and staff motivation. Each store manager
reports to a district manager, has direct responsibility over his or her
stores operations, and supervises the service associates who staff the stores.

Service associates, center managers, district managers, and RVPs must complete
formal training programs conducted by the Company. ACE has a Company-wide
training program, with higher-level training conducted at the corporate office
and new-hire training conducted in each regional office by corporate-trained
personnel. The principal purpose of this training, which covers topics ranging
from customer service to loss reduction, is to improve the Companys delivery
of products and services.

Point-of-Sale System

ACE has developed and implemented a proprietary personal computer based
point-of-sale system, which has been fully operational in all company-owned
stores since 1991. In addition to other management information and control
functions, ACEs point-of-sale system allows the Company to:



|1)  |  | capture, analyze, and update on a daily basis data relating to customers
and transactions, including the makers of cashed checks, which allows the
Company to provide service associates with on-demand access to current
information for use in approving check-cashing transactions;
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|2)  |  | utilize an automated decision methodology to guide service associates to
take appropriate actions and to better manage risk in check-cashing
transactions;                                                                                                                            
|   
|3)  |  | monitor daily revenues by product or service on a company, regional, per
store, and per employee basis;                                                                                                                                                                               
|   
|4)  |  | monitor and manage daily store exception reports, which record, for
example, any cash shortages and late store opening times;                                                                                                                                                         
|   
|5)  |  | identify cash differences between bank statements and the Companys
records (such as differences resulting from missing items and deposits);                                                                                                                                          
|   
|6)  |  | determine, on a daily basis, the amount of cash needed at each store
location, allowing centralized cash management personnel to maintain the
optimum amount of cash inventory in each store;                                                                                         
|   
|7)  |  | reduce the risk of transaction errors by, for example, automatically
calculating check-cashing and other transaction fees;                                                                                                                                                            
|   
|8)  |  | provide products and services in a standardized and efficient manner,
which the Company believes allows it to operate its stores with fewer
personnel than many of its competitors (with many of the Companys stores
being operated by only one person);                             
|   
|9)  |  | electronically transmit information and documents to third-party
providers of services or products offered at the stores; and                                                                                                                                                         
|   
|10) |  | facilitate compliance with regulatory requirements.                                                                                                                                                                                                                                   

The data captured by the point-of-sale system is transmitted daily from each
store to a centralized database maintained at ACEs headquarters and is
automatically integrated into its general ledger system.

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Security

All company-owned store employees work behind bullet-resistant Plexiglas and
steel partitions. Each company-owned stores security measures include safes,
alarm systems monitored by third parties, teller area entry control, perimeter
opening entry detection, and tracking of all employee movement in and out of
secured areas. All centers are currently using centralized security; acquired
centers are typically converted within one month of acquisition. The
centralized system includes the following security measures in addition to
those described above: identical alarm systems in all stores, remote control
over alarm systems, arming/disarming and changing user codes, and mechanically
and electronically controlled time-delay safes.

Since ACEs business requires its stores to maintain a significant supply of
cash, the Company is subject to the risk of cash shortages resulting from
employee and non-employee theft and employee errors. Although the Company has
implemented various programs to reduce these risks and provide security for its
facilities and employees, there can be no assurance that these problems will be
eliminated. During the 2001 and 2000 fiscal years, cash shortages from employee
errors and from theft were approximately $2.9 million (1.5% of revenues) and
$2.8 million (2.0% of revenues), respectively.

The Companys point-of-sale system allows management to detect cash shortages
on a daily basis. In addition to other procedures, district managers conduct
audits of each company-owned stores cash position and inventories on an
unannounced, random basis.

Daily transportation of currency and checks is provided by nationally
recognized armored carriers. ACE employees are not authorized to transport
currency or checks.

Employees

At June 30, 2001, ACE employed 2,397 persons: 1,087 store employees, 966 store
managers, 66 district managers, 11 regional vice presidents, 153 regional
support personnel, 105 corporate employees, and 9 franchise personnel.
Third-party firms hired by the Company conduct background checks of the
Companys new hires.

The Company considers its employee relations to be good. ACEs employees are
not covered by a collective bargaining agreement, and the Company has never
experienced any organized work stoppage, strike, or labor dispute. Generally,
the Companys employees are not bonded.

Competition

The Company believes that the principal competitive factors in the
check-cashing industry are location, customer service, fees, convenience, and
range of services offered. The Company faces intense competition and believes
that the check-cashing market is becoming more competitive as the industry
matures and consolidates. The Company competes with other check-cashing stores,
grocery stores, banks, savings and loans, short-term consumer lenders, other
financial services entities, and any retail businesses that cash checks, sell
money orders, provide money transfer services, or other similar financial
services. Certain competitors of the Company, other than check-cashing stores,
cash checks without charging a fee under limited circumstances. Some of the
Companys competitors that are not check-cashing companies have larger and more
established customer bases and substantially greater financial, marketing, and
other resources. The Companys stores have also recently been facing
competition from automated check-cashing machines, sometimes referred to as
CCMs (check-cashing machines) or SSMs (self-service machines). These
ATM-like devices have recently begun to be deployed in supermarkets,
convenience stores, and other public venues by large financial services
organizations. There is no assurance that the Company will be able to compete
successfully with its competitors.

Trademarks

The Company has obtained several federal trademark registrations, including for
A-C-E Americas Cash Express®, ACE® and its logo design.

Regulation

General. The Company is subject to regulation in several jurisdictions in
which it operates, including jurisdictions that regulate check-cashing fees or
require the registration of check-cashing companies or money transmission
agents. The Company is also subject to federal and state regulation relating
to the reporting and recording of certain currency transactions and relating to
the privacy of customer information. Further, the Companys loan-related
activities are subject to federal regulation.

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State Regulations. The Company operates in 17 jurisdictions that have
licensing and/or fee regulations regarding check-cashing: Arkansas, Arizona,
California, Florida, Georgia, Indiana, Kentucky, Louisiana, Maryland, Nevada,
North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Washington, and
the District of Columbia. The Company is licensed in each of the states in
which a license is currently required for it to operate as a check-cashing
company. To the extent these states have adopted ceilings on check-cashing
fees, those ceilings are in excess or equal to the fees charged by the Company.

The adoption of check-cashing fee ceilings in additional jurisdictions could
have an adverse effect on the Companys business, and existing fee ceilings
could restrict the ability of the Company to expand its check-cashing
operations into certain states.

In some jurisdictions, check-cashing companies or money transmission agents are
required to meet minimum bonding or capital requirements and are subject to
record-keeping requirements. In addition, in those jurisdictions in which the
Company operates or has operated as a payday lender, it is or has been
licensed as such and is or has been subject to the regulations governing the
terms of payday loans. Though the Company has obtained or maintained a
small-loan or other specialized lenders license in certain states, the Company
believes that its activities related to the Bank Loans offered and made at the
Companys locations are not subject to state regulation; the Company believes
that the Bank Loans are subject primarily to federal regulation applicable to
Goleta as a lending national bank. See Legal Proceedings.

Federal Regulations. Under the Bank Secrecy Act regulations of the United
States Department of the Treasury (the Treasury Department), transactions
involving currency in an amount greater than $10,000 or the purchase of
monetary instruments for cash in amounts from $3,000 to $10,000 must be
reported. In general, every financial institution, including the Company, must
report each deposit, withdrawal, exchange of currency or other payment or
transfer, whether by, through or to the financial institution, that involves
currency in an amount greater than $10,000. In addition, multiple currency
transactions must be treated as single transactions if the financial
institution has knowledge that the transactions are by, or on behalf of, any
person and result in either cash in or cash out totaling more than $10,000
during any one business day. Management believes that the Companys
point-of-sale system and employee-training programs are essential to the
Company in complying with these statutory requirements.

The Money Laundering Suppression Act of 1994 added a section to the Bank
Secrecy Act requiring the registration of money services businesses, like the
Company, that engage in check-cashing, currency exchange, money transmission,
or the issuance or redemption of money orders, travelers checks, and similar
instruments. The purpose of the registration is to enable governmental
authorities to better enforce laws prohibiting money laundering and other
illegal activities. The registration requirement was suspended pending the
adoption of regulations implementing the statute, which finally occurred
effective in September 1999. The regulations require money services businesses
to register with the Treasury Department, by filing a form to be adopted by
the Financial Crimes Enforcement Network of the Treasury Department (FinCEN),
by December 31, 2001 and to re-register at least every two years thereafter.
The regulations also require that a money services business maintain a list of
names and addresses of, and other information about, its agents and that the
list be made available to any requesting law enforcement agency (through
FinCEN). That agent list must first be maintained by January 1, 2002 and must
be updated at least annually. The Company does not believe that compliance
with these requirements will have any material impact on its operations.

In March 2000, FinCEN adopted additional regulations, implementing the Bank
Secrecy Act, that are also addressed to money services businesses. In
pertinent part, those regulations will require money services businesses like
the Company to report suspicious transactions involving at least $2,000 to
FinCEN. The regulations generally describe three classes of reportable
suspicious transactions  one or more related transactions that the money
services business knows, suspects, or has reason to suspect (1) involve funds
derived from illegal activity or are intended to hide or disguise such funds,
(2) are designed to evade the requirements of the Bank Secrecy Act, or (3)
appear to serve no business or lawful purpose. FinCEN has indicated that it
would provide guidance in the form of examples of reportable transactions, but
(so far as the Company is aware) no such examples have yet been published.
This reporting requirement will apply only to suspicious transactions that
occur after December 31, 2001. Because of the Companys point-of-sale system
and employee-training programs, the Company does not believe that compliance
with this reporting requirement will have any material impact on its
operations.

In May 1997, FinCEN proposed for comment one other set of regulations
implementing the Bank Secrecy Act that could affect the Company. That proposed
set of regulations requires money transmitters and their agents to report
and keep records, and verify the senders of transactions in currency or
monetary instruments of at least $750, but not more than $10,000, in connection
with the transfer of funds to a person outside the United States. Because the
Company is an agent in the MoneyGram network and an agent for MoneyLine
regarding bill-payment services, the Company would be an agent of money
transmitters under this proposed set of regulations. FinCEN has indicated,
however, that further action regarding the proposed regulations regarding
transmission of funds to persons outside the United States is being deferred
indefinitely.

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The Gramm-Leach-Bliley Act and its implementing federal regulations require the
Company to generally protect the confidentiality of its customers nonpublic
personal information and to disclose to its customers its privacy policy and
practices, including those regarding sharing the customers nonpublic personal
information with third parties. That disclosure must be made to customers at
the time that the customer relationship is established and at least annually
thereafter.

Bank Loans.As a national bank, Goleta is subject to regulation, supervision,
and regular examination by various federal regulatory authorities, including
the Office of the Comptroller of the Currency (the OCC). Because of the
Companys contractual relationships with Goleta, the Companys activities
regarding the Bank Loans are also subject to regulation and examination by the
OCC and the other regulatory authorities to which Goleta is subject. To the
extent an examination involves review of the Bank Loans and related processes,
the OCC or other regulatory authority may require the Company to provide
requested information and grant access to the Companys locations, personnel,
and records regarding the Bank Loans. The OCCs examination of Goleta during
September and October 2000 involved on-site reviews of the Companys activities
at certain of its locations as well as discussions with certain personnel of
the Company. As the result of that examination, Goleta and the Company have
implemented various procedures and practices recommended by OCC. The OCC is
conducting a follow-up review at Goleta and the Company beginning in
mid-September 2001.

Following its 2000 examination of Goleta, on November 27, 2000, the OCC issued
OCC Advisory Letter 2000-10 to all national banks. In that Advisory Letter,
the OCC acknowledged that a national bank may offer small, short-term loans if
those loans are made in a safe and sound manner and in compliance with
applicable consumer-protection and fair-lending laws. The Advisory Letter
described various safety and soundness, compliance, consumer protection, and
other risks to national banks that are posed by payday and similar short-term
lending and are of concern to the OCC. The Advisory Letter also contained the
OCCs guidelines, or various recommended policies and procedures, to address
those risks and avoid abusive lending practices. Further, the OCC expressed its
view that arrangements that involve a national bank appointing a non-bank as
agent significantly increase the various risks to the national bank and,
therefore, the OCCs supervisory concerns. The OCC indicated that it would
carefully review existing and proposed short-term lending activities and agency
arrangements of that kind, including by direct examination of the national bank
and the agent or agents involved in the arrangements. The OCC also warned that
agency arrangements of that kind might not afford the agents activities the
same federal pre-emption of state and local law that a national banks lending
activities enjoy.

In light of the OCCs examination and the implementation by Goleta and the
Company of the resulting recommendations of the OCC (which are substantially
similar to those described in the Advisory Letter), the Company does not
anticipate any material adverse consequences from the current follow-up review
by the OCC. The OCCs attitude toward agency relationships involving national
banks is not generally favorable, however. The Companys ability to offer Bank
Loans at its locations could be adversely affected by any adverse determination
by the OCC, whether as a result of the follow-up review or otherwise, or by
other actions or determinations made from time to time by any of the
authorities that regulate Goleta.

Governmental action to prohibit or restrict payday loans and other short-term
loans has been advocated over the past few years by consumer-advocacy groups
and by media reports and stories. The consumer groups and media stories
typically focus on the cost to a consumer for that type of loan, which is
higher than the interest typically charged by credit-card issuers to a more
creditworthy consumer. This difference in credit cost is more significant if a
consumer does not promptly repay the payday loan or other short-term loan, but
renews (or rolls over) that loan for one or more additional short-term (e.g.,
two-week) periods. The consumer groups and media stories typically
characterize short-term lending activities as predatory or abusive toward
consumers. During the last few years, legislation has been introduced in the
United States Congress and in certain state legislatures, and regulatory
authorities have proposed or publicly addressed the possibility of proposing
regulations, that would prohibit or restrict payday loans and other short-term
loans. So far as the Company is aware, no such federal legislation or federal
regulatory proposal has made any significant progress in the legislative or
regulatory process. But legislation and regulatory action that affects
consumer lending has recently become effective in a few states and may be taken
in other states. See Legal Proceedings. The Company intends to continue,
with others in the payday loan and short-term loan industry, to oppose
legislative or regulatory action that would prohibit or restrict payday loans
or short-term loans. But if legislative or regulatory action with that effect
were taken on the federal level or in states such as Texas, in which the
Company has a significant number of stores, that action could have a material
adverse effect on the Companys loan-related activities and revenues.

Relationships with the Money Order and MoneyGram Suppliers

Money Order Agreement.In April 1998, the Company signed a money order
agreement with Travelers Express which became effective December 17, 1998.
Under this five-year agreement, the Company exclusively sells Travelers Express
money orders that bear the Companys logo. In conjunction with this agreement
and the MoneyLine Agreement (which also has a five-year term), the Company
received $3 million from Travelers Express in April 1998, received $400,000 per
year in the fiscal years ended June 30, 1999, 2000, and 2001, and is entitled
to receive an additional $400,000 per year in the next two years, for a total
of $5.0 million. See Managements Discussion and Analysis of Financial
Condition and Results of

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Operations  Liquidity and Capital Resources and Note 7 of Notes to Audited
Consolidated Financial Statements. If the money order agreement is terminated
under certain circumstances before the expiration of its five-year term, the
Company will be obligated to repay a portion of the $3 million and the annual
amounts received from Travelers Express. The money order agreement with
Travelers Express does not allow an extended deferral of remittances of money
order proceeds without a significant change in the Amended Collateral Trust
Agreement. The Companys payment and other obligations to Travelers Express
under the money order agreement are secured by a subordinated lien on the
Companys assets in accordance with the Amended Collateral Trust Agreement
described under Managements Discussion and Analysis of Financial Condition
and Results of Operations  Liquidity and Capital Resources  Credit
Facilities.

MoneyGram Services Agreement.The Company is an agent for the receipt and
transmission of wire transfers of money through the MoneyGram network. The
Companys agency relationship was previously governed by the 1996 MoneyGram
Master Agreement, as amended (the Expired MoneyGram Agreement), with
MoneyGram Payment Systems, Inc. (MPS), an affiliate of Travelers Express,
until it expired on December 31, 2000.

In June 1996, upon the extension of the Expired MoneyGram Agreement to December
31, 2000, the Company received a bonus of $2.0 million. The Company also
received incentive bonuses under the Expired MoneyGram Agreement for opening or
acquiring new MoneyGram service locations. All of the bonuses received by the
Company under the Expired MoneyGram Agreement have been deferred and included
in other liabilities in the Companys consolidated balance sheets and were
amortized to revenues over the term of the Expired MoneyGram Agreement. Though
the Expired MoneyGram Agreement expired December 31, 2000, each new incentive
bonus paid during the term of the Expired MoneyGram Agreement obligated the
Company to 60 store-months of MoneyGram service, and therefore, the
amortization period of the bonuses received by the Company under that contract
extended beyond December 31, 2000. As of December 31, 2000, $4.4 million of
deferred revenue associated with the incentive bonuses remained to be amortized
over the seven-year term of the agreement that superseded the Expired MoneyGram
Agreement.

In June 2000, the Company signed a Money Transfer Agreement with Travelers
Express and MPS that became effective on January 1, 2001 (the New MoneyGram
Agreement). During the seven-year term of the New MoneyGram Agreement, the
Company will exclusively offer and sell MoneyGram wire transfer services.
Under the New MoneyGram Agreement (as under the Expired MoneyGram Agreement),
the Company will earn commissions for each transmission and receipt of money
through the MoneyGram network effected at a company-owned location; those
commissions will equal varying percentages of the fees charged by MPS to
consumers for the MoneyGram services.

Under the New MoneyGram Agreement, the Company will also be entitled to receive
a total of approximately $12.5 million in bonuses, payable in equal monthly
installments (without interest) over the seven-year term. The amount of those
monthly installments will be subject to reduction if the Company closes or
sells a significant number of those locations at which MoneyGram services are
offered at the beginning of the New MoneyGram Agreement. In addition, the
Company will be entitled to receive certain incentive payments regarding new
MoneyGram service locations that it opens or acquires during the term of the
New MoneyGram Agreement similar to those received under the Expired MoneyGram
Agreement.

The New MoneyGram Agreement extended and strengthened the Companys
relationship with Travelers Express and its affiliates. That relationship
includes the money order agreement as well as the MoneyLine Agreement for
bill-payment services, and is therefore significant to the Companys business.
Though the Company does not anticipate any disruption of that relationship, if
such a disruption were to occur, the Companys business could be materially and
adversely affected.

Bank Loans

The Company is a party to the Master Loan Agency Agreement, as amended, and
ancillary agreements (collectively, the Goleta Agreement) with Goleta
National Bank, a national bank located in Goleta, California , under which
short-term loans made by Goleta are offered at almost all company-owned
locations. Under the Goleta Agreement, the offering of Bank Loans is also
subject to various operational requirements of Goleta set forth in its Bank
Loan Operating Manuals delivered to the Company (the Operating Manuals).

The terms of the Bank Loans are established, and subject to change from time to
time, solely by Goleta. Currently, a Bank Loan may be up to $500 and must be
repaid in 14 days. A Bank Loan may be renewed by a borrower only if at least
five percent of the outstanding principal amount is paid. A borrower may have
only one Bank Loan outstanding at a time.

Goleta determines, in accordance with its credit criteria, those applicants to
whom a Bank Loan will be made. The Companys involvement in the Bank Loan
process is limited to the electronic transmission of information and documents
in accordance with procedures established by Goleta. A Bank Loan is funded
into the borrowers account at Goleta. Access to those funds is through a
debit card and personal identification number issued by Goleta in the Bank Loan
process. That debit card (with identification number) may be used at various
ATM machines or retail stores or at company-owned locations.

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A Bank Loan may be repaid at an ACE company-owned location or deducted from the
borrowers bank account through an ACH transaction, for transmission to Goleta
and credit to the borrowers bank account. Goleta has appointed the Company as
servicing agent for any necessary collection activity regarding past-due Bank
Loans, subject to Goletas reasonable direction. Goleta has sole authority to
modify the terms, or extend the payment, of any Bank Loans.

Under the Goleta Agreement, the Company must purchase from Goleta a
participation interest in all Bank Loans made on a previous day or previous
days. That participation entitles the Company to substantially all of the
interest received by Goleta from the borrowers, and subjects the Company to
substantially all of the risk of nonpayment by the borrowers. The Company must
pay Goleta a participation fee for Goletas originating the Bank Loans.

The Company is responsible under the Goleta Agreement for up to substantially
all of any third-party claims, including regulatory claims, regarding the Bank
Loans other than claims resulting solely from Goletas misconduct. See Legal
Proceedings.

The Company has agreed in the Goleta Agreement not to offer at its
company-owned locations any short-term loan that is substantially similar to
the Bank Loans, except that the Company may offer its payday loan service or
other short-term loans where Bank Loans cannot be offered (because of
contractual, legal, or regulatory limitations) and may offer short-term loans
by other lenders at a limited number of its company-owned locations. Goleta
has agreed in the Goleta Agreement not to offer or make Bank Loans or any
substantially similar short-term loan anywhere in the United States except at
an office of Goleta or as required by law. The parties exclusivity
obligations will be effective so long as applications for a minimum number of
Bank Loans are submitted to Goleta from ACE locations during the 12-month
period beginning April 14 of each year.

The term of the Goleta Agreement will expire on April 13, 2006, at the
earliest. That term will be extended annually if applications for a certain
number of Bank Loans are submitted to Goleta from ACE locations during the
12-month period beginning April 14 of each year. As of June 30, 2001, the
number of Bank Loan applications submitted to Goleta meets the minimum required
to extend the exclusivity.

Either party may terminate the Goleta Agreement because of (1) the other
partys insolvency, (2) the other partys failure to make any required payment
or to perform any other material obligation that is not cured after notice, (3)
any action by a regulatory authority that requires Goleta to cease making Bank
Loans or imposes restrictions that would materially and adversely affect
Goletas ability to make Bank Loans, or (4) Goletas termination of the
Companys authority to offer Bank Loans at
a significant number of company-owned stores because the Companys operations
at those particular locations do not comply with the Operating Manuals. In
addition, Goleta may terminate (a) the Goleta Agreement if it reasonably
determines that the Company is not in compliance with the Operating Manuals and
the noncompliance is not cured after notice of noncompliance from Goleta, and
(b) the Companys authority to offer Bank Loans at one or more particular
locations if the Companys operations at those locations do not comply with the
Operating Manuals and the noncompliance at those locations is not cured after
notice of noncompliance from Goleta. The Company may also terminate the
Goleta Agreement upon its determination that any change by Goleta in the terms
of the Bank Loans or its credit criteria has adversely affected or would
adversely affect the market for Bank Loans.

Because the Companys economic interest in the Bank Loans results from the
purchase of participations, the Company is dependent on Goletas originating
the Bank Loans. If any change in the terms of, or the credit criteria for, the
Bank Loans were to result in losses that the Company deems unacceptable, the
Companys sole legal recourse would be to exercise its right to terminate the
Goleta Agreement.

The Goleta Agreement permits the Company to offer Bank Loans at many more of
its locations than it could offer its payday loan service. If the Goleta
Agreement were terminated or the Companys ability to offer Bank Loans at a
significant number of its locations were otherwise restricted, then (even
though the Company might again be able to offer a payday loan service at many
of its locations) the Companys loan-related revenues could be materially and
adversely affected.

Investment in ePacific

In March and April 2000, the Company invested a total of $1 million in ePacific
Incorporated (ePacific), a private company in the business of providing
customized debit-card payment systems and electronic funds transfer processing
services, which has been recorded under the cost method and is included in
other assets. ePacific, formerly a controlled subsidiary of Goleta, provides
the debit-card system and processing services to Goleta to enable it to make
the Bank Loans described above in  Bank Loans.

The Companys investment in ePacific was made at the same times, and on the
same terms, as the investment by two venture capital investors. The Company
purchased approximately 14% of the shares of ePacifics Series A Convertible
Preferred

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Stock purchased by the group of investors. The terms of those shares are
typical of preferred stock issued and purchased in venture capital investments,
and include the right to periodic dividends from ePacific, the right to a
preferential distribution upon liquidation of ePacific, voting rights with
ePacific common stock, and the right to convert the preferred stock into
ePacific common stock. Under a stockholders agreement with ePacific and its
other stockholders, the Company agreed to certain restrictions on transfer of
its ePacific stock, received certain securities registration rights regarding
resale of its ePacific stock, and received the right to designate one person to
serve as a director of ePacific. The Company designated Jay B. Shipowitz, its
President and Chief Operating Officer, to serve as a director of ePacific.

The investment in ePacific was motivated by the Companys belief that the
market for financial-services products delivered through debit-ATM cards will
continue to expand; a reason for that expansion is the technology that now
permits value to be placed or loaded on a debit-ATM card for a consumer in a
retail environment. The Company also believes that ePacific has developed
unique debit-card processing applications for internet users that may allow it
to compete effectively with some of the larger debit-card processors.

Arrangements Regarding Secured Notes

In December 1996, the Company consummated a private placement of $20 million of
its 9.03% Senior Secured Notes (Notes) and issued the Notes to Principal Life
Insurance Company (formerly known as Principal Mutual Life Insurance Company)
(Principal) under the terms of a Note Purchase Agreement dated as of November
15, 1996 (the Note Purchase Agreement). The net proceeds of the issuance of
the Notes were used to pay in full the then outstanding $18.5 million principal
amount of the Companys term-loan indebtedness (incurred for acquisitions and
capital expenditures), plus corresponding interest and fees, and for general
corporate purposes of the Company.

Interest on the unpaid principal amount of the Notes, accruing at 9.03% per
annum, is payable semiannually on May 15 and November 15 of each year,
commencing May 15, 1997. The principal amount of the Notes is payable in five
equal installments of $4 million on November 15 of each year, commencing
November 15, 1999. All principal and accrued interest is payable at the
scheduled maturity of the Notes on November 15, 2003.

The Company may prepay the Notes, at any time or from time to time, in the
principal amount of at least $1 million, plus accrued interest on the principal
amount being prepaid, plus an amount approximately equal to the discounted
present value of the return that the holders of the prepaid Notes would have
received if the prepayment were not made. Any prepayment will ratably reduce
the amount of each scheduled principal payment on the Notes due thereafter.

The Note Purchase Agreement contains certain restrictive covenants affecting
the business and affairs of the Company and its subsidiaries. Those covenants
address, among other things, the maintenance of specified financial ratios, the
incurrence and payment of other indebtedness, the disposition of assets or of
the ownership of any subsidiary of the Company, the grant or existence of other
liens on the assets of the Company and its subsidiaries, and transactions
between the Company or its subsidiaries and any of their affiliates.

The Note Purchase Agreement also specifies events of default that could result
in the acceleration of the maturity of the Notes. Those events include (a) any
failure by the Company to pay any amount due under the Notes, (b) any failure
by the Company to comply with various covenants set forth in the Note Purchase
Agreement and ancillary documents, (c) any misrepresentation or breach of
warranty by the Company, (d) any failure by the Company or any of its
subsidiaries to pay, or perform its obligations under, any indebtedness for
borrowed money or under capital leases in excess of $1 million, (e) various
events of bankruptcy or insolvency of the Company or any of its subsidiaries,
and (f) any final judgment of any court in excess of $1 million against the
Company or any of its subsidiaries remaining in effect 30 days after the entry
thereof.

The Companys obligations under the Notes, the Note Purchase Agreement, and all
ancillary documents entered into with Principal are secured by liens on all of
the assets of the Company. Concurrent with the Note Purchase Agreement, the
Company entered into a Collateral Trust Agreement dated as of November 15, 1996
(the Original Collateral Trust Agreement), with Wilmington Trust Company, as
trustee (the Collateral Trustee), Principal, and the Companys other secured
lender at the time. The Original Collateral Trust Agreement created a
collateral trust to secure the Companys obligations to both of its then
existing secured lenders and, under conditions set forth therein, future
secured lenders to the Company. The collateral trust continues to exist,
though the Original Collateral Trust Agreement has been amended and superseded
in connection with the establishment and renewals of the Companys credit
facilities with a syndicate of bank lenders, as described below under
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources  Credit Facilities.

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Credit Facilities

On November 9, 2000, the Company entered into an Amended and Restated Credit
Agreement with a syndicate of banks (the Lenders) represented by Wells Fargo
Bank Texas, National Association (Wells Fargo Bank), as lead agent (the
Credit Agreement). The Credit Agreement provided for the renewal and
increase of the Companys revolving credit facility, and the restructuring,
increase, and amendment of the Companys term-loan credit facility, under the
preceding credit agreement with a syndicate of bank lenders. The credit
facilities under the Credit Agreement consist of a revolving line-of-credit
facility of $155 million and a reducing revolving facility of a maximum $65
million (subject to periodic reduction). The revolving line-of-credit facility
is used for working capital and general corporate purposes of the Company, and
the reducing revolving facility is used for store construction and relocation
and other capital expenditures of the Company, including acquisitions, and
refinancing other indebtedness of the Company. Also, upon certain conditions,
in addition to the revolving line-of-credit facility, the Company has
available, from Wells Fargo Bank and certain of the other lenders, an
additional 25-day revolving advance facility of up to $25 million and, from
Wells Fargo Bank, a standby letter-of-credit facility of up to $1.5 million.
The terms of the Credit Agreement and ancillary documents are described in more
detail at Managements Discussion and Analysis of Financial Condition and
Results of Operations  Liquidity and Capital Resources  Credit Facilities.




ITEM 2. PROPERTIES

All but two of the Companys stores are leased, generally under leases
providing for an initial term of three years and optional renewal terms of from
three to six years. The Company acquired, as part of the Check Express
acquisition in February 1996, and still owns the land and building at which two
of the Companys stores are located, one in Indianapolis, Indiana and the other
in Tampa, Florida. The Companys headquarters offices in Irving, Texas, a
suburb of Dallas, occupy approximately 56,000 square feet under an 84-month
lease, the term of which expires in 2008.




ITEM 3. LEGAL PROCEEDINGS

A number of lawsuits and state regulatory proceedings have been filed or
initiated, particularly since July 1, 2001, against the Company regarding its
loan-related activities. Those activities consist of (1) offering Bank Loans,
which are short-term loans made by Goleta National Bank (Goleta), at almost
all of the Companys locations, and (2) offering a check-based service commonly
known as a payday loan at certain (and currently only relatively few) of its
locations. Before May 2000, the Company offered payday loans at its locations
in jurisdictions that it believed legally permitted that service. See Business
 Customers and Services  Loan Services and   Bank Loans. The lawsuits
and state regulatory proceedings pending as of September 21, 2001, are
described below.

The Company has been informed that additional lawsuits may be filed against the
Company, Goleta, and/or certain directors and officers of the Company in
various other jurisdictions in the United States as nationwide or statewide
class actions. A key issue in the existing, and any future, lawsuits and state
regulatory proceedings that concern the Bank Loans is, or is expected to be,
whether Goleta or the Company is properly regarded as the lender. The Company
and Goleta maintain that, as provided by the legal documentation and marketing
materials for the Bank Loans, Goleta is the lender and that, because Goleta is
a national bank located in California, the Bank Loans, including the interest
that may legally be charged, should be governed by federal and California law.
The plaintiffs in those lawsuits and the regulatory authorities in those state
regulatory proceedings, however, generally maintain that the Company should be
regarded as the lender, because of its agent services in connection with the
Bank Loans and its purchase of participation interests in the Bank Loans, and
that the Bank Loans, including the interest that may legally be charged, should
be governed by the laws of the respective states in which the borrowers reside.
If the Company were held to be the lender, then the interest charged for the
Bank Loans would violate most of the applicable states usury laws, which
impose maximum rates of interest or finance charges that a lender may charge.
The consequences to the Company of such a holding in any lawsuit or regulatory
proceeding would depend on the applicable states usury and consumer-protection
laws and on the basis for a finding of violation of those laws. But those
consequences could include the Companys obligation to refund interest
collected on the illegal Bank Loans, to refund the principal amount of the
illegal Bank Loans, to pay treble or other multiple damages, to pay monetary
penalties specified by statute, and to cease offering the Bank Loans (at least
as theretofore offered). The Company is committed to defend these lawsuits
through trial and, if necessary, appeal.

The Company expects that the defense of the lawsuits and state regulatory
proceedings described below, even if successful, will require substantial time
and attention of certain of its senior officers and other management personnel
that would otherwise be spent on other aspects of its business and will require
the expenditure of significant amounts for legal fees and other
litigation-related costs. See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital
Resources  Litigation Expenses. In addition, the Company would be adversely
affected if it were unable to successfully defend against the claims made in
these lawsuits and state regulatory proceedings. The effects on the Company of
an adverse determination would vary depending on the particular adverse
determination and the particular lawsuit or regulatory proceeding in which it
occurred. In general, however, the Company believes that the effects of an
adverse determination regarding its payday-loan service would be less severe
than the effects of an adverse determination

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regarding its current and widespread offering of Bank Loans. If the Company
were held to be the lender of the Bank Loans, then the Company would likely (1)
become obligated to pay amounts as damages and other relief that could
significantly impair the Companys financial condition and financial resources,
and its business as a whole (and not merely its loan-related business), and (2)
be ordered to cease the offering of Bank Loans by Goleta or to significantly
modify the terms on which Bank Loans are offered. If the Company were required
only to cease offering the Bank Loans or to significantly modify the terms on
which the Bank Loans are offered, then its loan-related revenues could be
materially impaired (even if the Company were able again to offer a payday-loan
service at many of its locations).

Pending Lawsuits  Payday Loans

Eva J. Rowings v. Ace Cash Express, Inc.: This lawsuit regarding the Companys
former payday loan activities in Indiana was filed against the Company in the
United States District Court for the Southern District of Indiana on December
17, 1999. The plaintiff, for herself and others similarly situated, alleged in
the original complaint and first amended complaint that the Companys
disclosures to recipients of payday loans in Indiana did not comply with the
disclosure requirements of the federal Truth in Lending Act (TILA),
Regulation Z of the Federal Reserve Board (Regulation Z), and the Indiana
Uniform Consumer Credit Code (the Indiana UCCC). On January 27, 2000, the
plaintiff filed a second amended complaint alleging that the Companys
payday-loan finance charges exceeded those permitted by the Indiana UCCC and by
Indiana Code 35-45-7-2 (Indianas loansharking statute) and that those loans
are therefore void. Regarding the disclosure-violation claims under the
federal TILA, Regulation Z, and the Indiana UCCC, the plaintiff seeks to
represent a class of the Companys payday-loan customers since December 17,
1998. Regarding the excess-finance-charge claims, the plaintiff seeks to
represent a class of the Companys payday-loan customers since December 17,
1997 who were assessed finance charges at an annual interest rate greater than
72%.

The plaintiff seeks to recover, for herself and members of the respective
putative classes, monetary damages for the disclosure-violation claims as
specified by the federal TILA, Regulation Z, and the Indiana UCCC, unspecified
damages for the excess-finance-charge claims, the plaintiffs attorneys fees
and expenses, court costs, and other appropriate relief. If the court were to
certify this lawsuit as a class action and if the Company were found to have
violated the disclosure requirements of the federal TILA, Regulation Z, and the
Indiana UCCC, the Companys maximum liability under each such statute would be
the sum of (1) any actual damages sustained by the class as a result of the
violation, (2) the lesser of $500,000 or 1% of the Companys net worth, and (3)
reasonable attorneys fees and court costs. If the court were to certify this
lawsuit as a class action and if the Companys finance charges were found to
have violated Indiana Code 35-45-7-2, the payday loans to the class could be
declared void. If the court were to certify this lawsuit as a class action and
if the Companys finance charges were found to have violated the Indiana UCCCs
limitations on finance charges, the Company could be required to refund to the
class all finance charges paid in excess of the maximum finance charges
permitted under the Indiana UCCC and to pay a penalty (to be determined by the
court) in a maximum amount equal to the greater of either all of the finance
charges received or up to ten times the amount of all excess finance charges
received.

Through mid-March 2000, the plaintiff had filed motions for class
certification, and the Company had filed motions to dismiss the plaintiffs
disclosure-violation claims and to request that the court decline jurisdiction
over the plaintiffs excess-finance-charge claims. Because of its request, the
Company did not formally respond to the excess-finance-charge claims. Had it
done so, a significant part of the Companys defense would have been that the
Indiana UCCC permitted a minimum loan finance charge, with which the
Companys finance charges complied, and that such minimum loan finance charge
was an exception to the interest rate limitations in the Indiana UCCC and to
the Indiana loansharking statute. This defense was common to numerous other
payday-lending lawsuits pending in federal courts in Indiana at that time.
On October 12, 2000, the court stayed this lawsuit (as well as other
payday-lending lawsuits) and certified questions to the Indiana Supreme Court
regarding the proper interpretation of the interest-rate-limitation provisions
of the Indiana UCCC and the Indiana loansharking statute.

On August 16, 2001, the Indiana Supreme Court held that lenders subject to
Indiana law may not collect the minimum loan finance charge permitted under the
Indiana UCCC if the minimum loan finance charge exceeds the finance charge the
lender could receive if it contracted for interest at the maximum rate
permitted under the Indiana UCCC or the Indiana loansharking statute. The
Company does not agree with the Indiana Supreme Courts decision and is
evaluating appropriate legal (including regulatory and legislative) responses
to it. Nevertheless, the Company expects that if the decision is not withdrawn
or modified, the Company will now be unable to defend the plaintiffs
excess-finance-charge claims based on the Companys interpretation of the
Indiana UCCC. (The plaintiffs disclosure-violation claims and the Companys
defenses to those claims should not be affected by the Indiana Supreme Courts
decision.)

The Company believes that it has other defenses to the plaintiffs
excess-finance-charge claims. But if the court were to certify this lawsuit as
a class action and the Companys other defenses against such claims are
unsuccessful, the court could declare the Companys payday loans to be void.
The consequences of such a declaration in the Companys circumstances

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are not clear. The Company currently believes, however, that the court could
order the Company to refund all finance charges received from members of the
putative class, to whom payday loans were made in Indiana from December 15,
1997 until April 2000, when the Company ceased to offer payday loans in
Indiana. If the court were to so order, the Companys refund obligations would
be approximately $1 million. In addition, the Company could be required to pay
the plaintiffs attorneys fees and expenses and court costs, and perhaps even
a penalty (as described above). Because the Company is offering only Bank
Loans at the Companys locations in Indiana, any such order by the federal
court would not require the Company to cease any of its current loan-related
business.

On September 12, 2001, the federal court reopened this lawsuit. Since the
suspension of activity in this lawsuit in October 2000, the court denied all of
the parties pending motions, without prejudice to their making the same
motions within 30 days after the reopening of this lawsuit. The Company
expects that the same motions will now be made and that the parties will
conduct discovery, which had only begun at the time of the suspension. To
recover for a class of plaintiffs in this lawsuit, the plaintiff still must
convince the federal court to certify the class and must prove the material
allegations in favor of the class. The Company intends to vigorously oppose
this lawsuit to the extent of its available legal defenses. The court has also
ordered that the parties to all of the payday-lending lawsuits before it,
including this lawsuit, participate in settlement conferences with a federal
magistrate. The settlement conference for this lawsuit is scheduled for
October 29, 2001.

Wendy Betts, John Cardegna and Gary M. Kane v. Ace Cash Express, Inc. et al.:
This lawsuit regarding the Companys former deferred-deposit (payday loan)
activities in Florida was filed in a Florida state Circuit Court in Orange
County, Florida, against the Company, its wholly owned subsidiary Check
Express, Inc., and certain unnamed persons described in the complaint. In this
lawsuit the plaintiffs, for themselves and others similarly situated since
January 27, 1996, alleged that the Companys deferred-deposit activities in
Florida violated certain Florida lending practices and usury statutes, the
Florida Consumer Finance Act, the Florida Deceptive and Unfair Trade Practices
Act, and the Florida Civil Remedies for Criminal Practices Act and constituted
fraud. The plaintiffs sought an injunction against any such further alleged
illegal activities as well as actual and punitive damages of various kinds,
including forfeiture of the total amount of the deferred-deposit transactions
with the purported class of customers in Florida, an amount equal to twice the
fees and charges received by the Company from those transactions, an amount
equal to three times the damages suffered by the purported class, the
plaintiffs attorneys fees, and court costs.

In February 2001, the Attorney General of the State of Florida filed a motion
to intervene as a plaintiff in this lawsuit, but the court denied that motion.
On May 29, 2001, the court dismissed the plaintiffs complaint with prejudice.
The plaintiffs have filed a notice of appeal, but no appellate briefs have yet
been filed.

Shirley Porter and Joyce Davis v. Ace Cash Express, Inc: This lawsuit regarding
the Companys former payday loan activities in Louisiana was filed in the
United States District Court for the Eastern District of Louisiana and was
served on the Company on March 30, 2000. This lawsuit was filed against the
Company and persons who have owned, organized, developed, controlled and
promoted and profited from the alleged illegal activities of the Company
described in the complaint. The plaintiffs, for themselves and others
similarly situated, alleged that the Companys lending and collection
activities regarding payday loans in Louisiana violated the Louisiana Small
Loan Act, resulted in unconscionable (and therefore unenforceable) contracts,
involved the charging and collection of fees that were excessive under the
Louisiana Consumer Credit Law, involved charging and collecting usurious
interest under Louisiana law, and violated the federal Racketeer Influenced and
Corrupt Organizations (RICO) Act. The class that the plaintiffs sought to
represent consisted of recipients of payday loans from the Company in Louisiana
since February 25, 1999, regarding the Louisiana state-law claims, and since
February 25, 1996, regarding the federal RICO Act claim. The plaintiffs sought
an injunction against any such further alleged illegal activities as well as
damages of various kinds, including an amount equal to all fees and charges
received by the Company from the payday loans made to the purported class of
customers in Louisiana, an amount equal to three times the damages suffered by
the purported class, the plaintiffs attorneys fees, and court costs.

On October 27, 2000, the court dismissed the plaintiffs complaint with
prejudice. The plaintiffs filed a notice of appeal with the federal Court of
Appeals for the Fifth Circuit on May 2, 2001, and the parties have filed
appellate briefs. The court has scheduled oral arguments for the week of
November 5, 2001.

Eugene R. Clement v. Ace Cash Express, Inc. and Neil Gillespie v. Ace Cash
Express, Inc.: This lawsuit regarding the Companys former deferred-deposit
(payday loan) activities in Florida is pending in a Florida state Circuit
Court in Hillsborough County, Florida. It is the result of the consolidation
on August 8, 2000, of two separate lawsuits filed against the Company in the
court. Each of those lawsuits purported to be a class action and alleged that
the Companys deferred-deposit activities violated the federal TILA, the
Florida usury laws, and the Florida Deceptive and Unfair Trade Practices Act.
The plaintiffs sought an injunction against any further alleged illegal
activities as well as actual and punitive damages of various kinds, including
damages under the federal TILA, an amount equal to twice the fees and charges
received by the Company from its deferred-deposit transactions with the
purported class of customers in Florida, the plaintiffs attorneys fees, and
court costs.

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The Attorney General of the State of Florida has also intervened as a plaintiff
in this lawsuit. That intervention, which the court permitted on March 28,
2001, occurred during an investigation by the Florida Attorney Generals office
of the deferred-deposit activities of the Company and the three other largest
payday lenders in Florida. The intervenor complaint filed on April 11, 2001
named as defendants, in addition to the Company, the Companys Chairman of the
Board, Raymond C. Hemmig; the Companys Chief Executive Officer, Donald H.
Neustadt; and a current employee and a former employee of the Company. The
intervenor complaint alleged violations by the Company and the other named
defendants of the Florida RICO Act in addition to violations of the Florida
usury laws and the Florida Deceptive and Unfair Trade Practices Act. The
intervenor complaint sought all remedies available under the Florida RICO Act,
including the civil forfeiture of all money and other property of the Company
used in, derived from, or realized through the Companys deferred-deposit
activities in Florida, the revocation of each license or permit of the Company
granted by any Florida state agency, and an injunction against future
violations of usury laws or the Florida RICO Act. The intervenor complaint
also sought, because of alleged violations of other Florida laws, the payment
to Florida consumers of actual damages caused by the Companys illegal
activities, the payment to the State of Florida of certain civil penalties, the
divestiture of any interests of the Company in Florida real property, and the
payment of attorneys fees and costs.

On July 7, 2001, the court dismissed the plaintiffs existing complaints
without prejudice. The court found that the Companys deferred-deposit
transactions were authorized under Florida law. On August 2, 2001, plaintiffs
Clement and Gillespie filed an amended consolidated complaint that restated
their previous claims or allegations against the Company under the Florida
usury laws and the Florida Deceptive and Unfair Trade Practices Act. The
Company has filed a motion to dismiss that complaint, and that motion is
pending before the court. On August 29, 2001, the Attorney General of the
State of Florida filed an amended complaint that restated its previous
allegations against the Company and the other named defendants under the
Florida usury laws, the Florida Deceptive and Unfair Trade Practices Act, and
the Florida RICO Act and that also named as additional defendants certain
former franchisees of the Company in Florida, one of whose locations has been
acquired by the Company. The Company intends to file a motion to dismiss that
complaint.

Mayella Veasey et al. v. Ace Cash Express, Inc.: This lawsuit regarding the
Companys former deferred-presentment (payday loan) activities in Arkansas
was filed in the Arkansas state Circuit Court of Pulaski County, Arkansas, in
December 2000 and was served on the Company on March 22, 2001. The plaintiff,
for herself and others similarly situated, alleges that the Companys
deferred-presentment transactions in Arkansas from June 15, 1999 to May 1, 2000
violated the usury laws of Arkansas. The plaintiff is represented by the same
counsel that represented the plaintiffs in the previous lawsuit against the
Company in Arkansas regarding deferred-presentment transactions. That previous
lawsuit, which was settled by the Company in October 2000, related to the
Companys deferred-presentment transactions in Arkansas through June 15, 1999,
when a statute that expressly authorized such transactions, the Check Cashers
Act, became effective in Arkansas. The Company believes that this new lawsuit
was prompted by the decision of the Arkansas Supreme Court in March 2001 to the
effect that a portion of the Check Cashers Act was unconstitutional insofar as
it may purport to construe or define the usury provisions of the Arkansas
Constitution. That decision did not, however, address the legality of any
deferred-presentment transaction effected under the Check Cashers Act. Because
the Company has offered only short-term loans made by Goleta National Bank at
the Companys locations in Arkansas since May 1, 2000, the Company has not
entered into any deferred-presentment transactions in Arkansas since that date.
The complaint seeks damages in an amount equal to twice the amount paid by
customers of deferred-presentment transactions in Arkansas during the specified
101/2-month period as well as the plaintiffs reasonable attorneys fees and
costs. The Company has determined that, if the court were to certify this
lawsuit as a class action and if all of the plaintiffs allegations on behalf
of the class were proven at trial, the damages requested from the Company
(apart from attorneys fees and costs) would be less than $1 million.
Nevertheless, there has been no court hearing regarding class certification,
and the Company denies all of the plaintiffs allegations. The Company
believes that the deferred-presentment transactions complied with the Check
Cashers Act, including the limitations on fees described in the Check Cashers
Act, and that the fees received by the Company did not constitute usurious
interest that would violate the Arkansas Constitution.

Pending Lawsuits  Bank Loans

Jennafer Long v. Ace Cash Express, Inc.: This lawsuit regarding Bank Loans
offered and made at the Companys locations in Florida was filed in a Florida
state Circuit Court in Clay County, Florida, and was served on the Company on
November 8, 2000. The plaintiff, for herself and others similarly situated,
alleges that the Bank Loans offered at the Companys locations in Florida are
being made by the Company rather than by Goleta and, therefore, that those Bank
Loans violate Florida usury laws and the offering of those Bank Loans involves
misrepresentations and deceptive practices in violation of Florida law. The
plaintiff seeks an unspecified amount of damages, including an amount equal to
all interest charged on the Bank Loans made in Florida, the plaintiffs
attorneys fees, and court costs.

The Company believes that the Bank Loans are being made by Goleta, a national
bank located in California, and are therefore governed by federal and
California law, and are not subject to Florida usury laws. The Companys
attempt to remove this

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case to federal court has been unsuccessful. The Company has filed a motion to
require that Goleta be joined as an indispensable party. On August 30, 2001,
Goleta filed a motion to intervene as a defendant in this lawsuit.

State of Colorado, ex rel. Ken Salazar, Attorney General for the State of
Colorado, and Laura E. Udis, Administrator, Uniform Consumer Credit Code v. Ace
Cash Express, Inc.: This lawsuit regarding Bank Loans offered and made at the
Companys locations in Colorado was filed on behalf of the State of Colorado
against the Company in a Colorado state District Court in the City and County
of Denver, Colorado, on July 13, 2001. The complaint alleges that the Bank
Loans offered and made by Goleta at the Companys locations in Colorado are
deferred deposit loans subject to the Colorado Deferred Deposit Loan Act (the
DDLA), which is part of the Colorado Uniform Consumer Credit Code (the
Colorado UCCC); that the second and third renewals of the Bank Loans violate
the DDLA (which purports to permit only one renewal of deferred deposit loans
at the interest rates permitted by the DDLA); and that the Company is required
to maintain a license as a supervised lender in Colorado because of its
activities in connection with the Bank Loans. The Company voluntarily
relinquished its license as a supervised lender in Colorado in December 2000.

In its complaint, the State of Colorado seeks various remedies under the
Colorado UCCC and other Colorado law, including the refund to borrowers of all
finance charges or interest received on all Bank Loans made in Colorado while
the Company was unlicensed; the refund to borrowers of all finance charges or
interest received on all second and third renewals of the Bank Loans since July
1, 2000, the effective date of the DDLA; and a penalty (to be determined by the
court) equal to the greater of either all of the finance charges or interest
received or up to ten times the amount of all excess finance charges or
interest received. The complaint also seeks an injunction prohibiting the
Company from continuing to engage in activities regarding the Bank Loans in
Colorado without a supervised lender license.

On July 31, 2001, the State of Colorado filed a motion for a preliminary
injunction to require the Company to cease all activities regarding the Bank
Loans in Colorado immediately, subject to an expedited hearing on the legality
of those activities. On August 10, 2001, the Company removed this lawsuit to
the United States District Court for the District of Colorado on the grounds
that the alleged limits on interest charges on second and third renewals
imposed by the DDLA are completely preempted by federal law and the States
claims accordingly involve questions of federal law. On September 4, 2001, the
State of Colorado filed a motion to remand this lawsuit back to the Colorado
state court. A hearing in the federal court regarding that motion is scheduled
for November 19, 2001.

The Company plans to make various arguments for its positions under both
federal and Colorado law. Those arguments will include that the Bank Loans are
not deferred deposit loans under the DDLA; that the Company cannot be required
to obtain a supervised lender license in light of federal laws applicable to
Goleta and its agents; that the State is not entitled to the remedies it is
seeking for the alleged licensing violations; and that the limits regarding
loan renewals imposed by the DDLA are preempted by federal law. Though the
Company does not admit that it is required to obtain a supervised lender
license under the Colorado UCCC, it has submitted applications for re-licensure
and has begun discussions with the State regarding resolution of the States
licensing claims.

Vonnie T. Hudson v. Ace Cash Express, Inc. et al.: This lawsuit regarding the
Bank Loans offered and made at the Companys locations in Indiana was filed on
September 11, 2001 in the United States District Court for the Southern
District of Indiana. This lawsuit was filed against the Company; Goleta; the
Companys Chairman of the Board, Raymond C. Hemmig; the Companys Chief
Executive Officer, Donald H. Neustadt; the Companys President and Chief
Operating Officer, Jay B. Shipowitz; and a former employee of the Company. The
plaintiff alleges that all of the defendants loan-related activities violate
the Indiana UCCC and the Indiana loansharking statute, because the interest
charged for the Bank Loans exceeds the finance charges permitted by those
statutes; that the Companys and Goletas loan-related activities violate the
federal TILA, Regulation Z, and the Indiana UCCC, because the disclosures to
borrowers of Bank Loans do not comply with the disclosure requirements of those
laws; and that the loan-related activities of all of the defendants other than
the Company violate the federal RICO Act. In the complaint the plaintiff
purports to represent a class of all persons to whom a Bank Loan has been made
at any location of the Company in Indiana (1) since September 11, 1999,
regarding the excess-charge claims, (2) since September 11, 2000, regarding the
disclosure-violation claims, and (3) since September 11, 1997, regarding the
federal RICO Act claims. The plaintiff seeks relief of various kinds,
including (a) for the members of the class of plaintiffs who were allegedly
charged excessive interest, an order declaring the Bank Loans to them void,
the refund of all finance charges or interest paid by them in excess of the
maximum finance charges permitted under the Indiana UCCC, and a penalty (to be
determined by the court) in a maximum amount equal to the greater of either all
of the finance charges or interest received from them or up to ten times the
amount of all excess finance charges or interest received from them; (b) for
the members of the class of plaintiffs who allegedly did not receive proper
disclosures under the federal TILA, Regulation Z, and the Indiana UCCC,
statutory damages of $500,000 each for violations of those statutes; (c) for
the members of the class of plaintiffs allegedly damaged because of violations
of the RICO Act, an amount equal to three times those damages; and (d) the
plaintiffs attorneys fees and court costs. The plaintiffs counsel are the
same as the plaintiffs counsel in the Eva J. Rowings lawsuit described above.

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The Company and the other defendants intend to file an answer denying all of
the plaintiffs material allegations in the complaint, which are based on the
contention that the Bank Loans should be regarded as made by the Company rather
than Goleta.

Pending Lawsuits  Payday Loans and Bank Loans

Gina Johnson and Katherine Larsen v. Ace Cash Express, Inc. et al.: This
lawsuit regarding both the Companys former payday loan activities and the
Bank Loans offered and made at all of the Companys locations was filed on
August 3, 2001 in the United States District Court for the District of
Maryland. On September 12, 2001, the plaintiffs filed an amended complaint
against the Company; Goleta; the Companys Chairman of the Board, Raymond C.
Hemmig; the Companys Chief Executive Officer, Donald H. Neustadt; the
Companys President and Chief Operating Officer, Jay B. Shipowitz; and unnamed
franchisees of the Company. In the amended complaint, the plaintiffs purport
to represent a class of all consumers in the United States with whom the
Company has entered into any payday-loan transaction or to whom a Bank Loan has
been made at any location of the Company since August 3, 1997, as well as
various overlapping sub-classes of persons who have engaged in those kinds of
transactions with the Company or at the Companys locations and are alleged to
be victims of particular types of illegal activities under the laws of various
states in the United States during the time periods within the various
applicable statutes of limitations. The plaintiffs allege that the defendants
loan-related activities violate the federal RICO Act, the federal TILA, the
federal Electronic Funds Transfer Act, the federal Fair Debt Collection
Practices Act, and the laws and regulations of various states regarding usury,
deceptive trade practices, and other consumer protections. The plaintiffs seek
relief of various kinds, including a permanent injunction against any further
alleged illegal activities; the return (as restitution) to the class and
sub-classes of plaintiffs of all amounts paid to the defendants; an order that
all obligations of the class and sub-classes of plaintiffs to the defendants
are void; statutory damages of $500,000 each for violations of the federal
TILA, the federal Electronic Funds Transfer Act, and the federal Fair Debt
Collection Practices Act; damages equal to three times the amount of all fees
and interest paid by the class and sub-classes of plaintiffs since August 3,
1997; an order dissolving the Company and permanently enjoining all defendants
from conducting any future financial services business; exemplary damages of
at least $250 million; and compensatory and punitive damages to plaintiff
Johnson of at least $100,000.

The Company and the other defendants intend to file an answer denying, or a
dispositive motion opposing, all of the plaintiffs material allegations in the
amended complaint. Many of the plaintiffs allegations regarding the Bank
Loans are based on the contention that those Bank Loans should be regarded as
made by the Company rather than Goleta.

Rufus Patricia Brown v. Ace Cash Express, Inc. et al.: This lawsuit regarding
both the Companys former payday loan activities and the Bank Loans offered
and made at the Companys locations in Maryland was filed on August 20, 2001 in
the Circuit Court for Baltimore City, Maryland. On September 7, 2000, the
Company removed this lawsuit to the United States District Court for the
District of Maryland on the grounds that federal jurisdiction exists because of
the parties diversity of citizenship and that a federal question (whether the
plaintiffs usury claims are preempted by federal banking law) exists. On
September 12, 2001, the plaintiff filed an amended complaint against the
Company and unnamed franchisees of the Company. In the complaint, the
plaintiff purports to represent a class of all consumers with whom the Company
has entered into any payday-loan transaction or to whom a Bank Loan has been
made at any location of the Company in Maryland since April 1, 2000. The
plaintiff alleges that the defendants loan-related activities violate the
Maryland usury laws, the Maryland Consumer Loan Law, the Maryland Unsecured
Closed End Credit Regulation Act, and the Maryland Consumer Protection Act and
are unconscionable under Maryland law. The plaintiff seeks relief of various
kinds, including a permanent injunction against any further alleged illegal
activities, an order that all obligations of the class of plaintiffs to the
defendants are void, the return (as restitution) to the class of plaintiffs of
all amounts paid to the defendants, an order dissolving the Company and
prohibiting all defendants from conducting any further financial services
business, the disgorgement and return of all profits from the loan-related
activities, the plaintiffs attorneys fees and expenses, and court costs.

The Company intends to file an answer denying, or a dispositive motion
opposing, all of the plaintiffs material allegations in the amended complaint,
which are based on the contention that the Bank Loans should be regarded as
made by the Company rather than Goleta.

Beverly Purdie v. Ace Cash Express, Inc. et al.: This lawsuit regarding both
the Companys former payday loan activities and the Bank Loans offered and
made at the Companys locations was filed on September 6, 2001 in the United
States District Court for the Northern District of Texas. This lawsuit was
filed against the Company; the Companys Chairman of the Board, Raymond C.
Hemmig; the Companys Chief Executive Officer, Donald H. Neustadt; the
Companys President and Chief Operating Officer, Jay B. Shipowitz; and a former
employee of the Company. In the complaint, the plaintiff purports to represent
a class of all consumers in the United States with whom the Company has entered
into any payday-loan transaction or to whom a Bank Loan has been made at any
location of the Company since September 6, 1997, as well as sub-classes of
persons who have engaged in those kinds of transactions with the Company or at
the Companys locations and are alleged to be victims of usury or of unfair or
deceptive lending practices under the laws of various states in the United
States

20



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##### Table of Contents



during the time periods within the various applicable statutes of limitations.
The plaintiffs allege that the defendants loan-related activities violate the
federal RICO Act and that the Companys loan-related activities violate the
federal TILA, the federal Electronic Funds Transfer Act, the federal Fair Debt
Collection Practices Act, and the laws and regulations of various states
regarding usury, deceptive trade practices (including the Texas Deceptive Trade
Practices Act), and other consumer protections. The plaintiff seeks relief of
various kinds, including a permanent injunction against any further alleged
illegal activities; the return (as restitution) to the class and sub-classes of
plaintiffs of all amounts paid to the defendants; an order that all obligations
of the class and sub-classes of plaintiffs to the defendants are void;
statutory damages of $500,000 each for violation of the federal TILA, the
federal Electronic Funds Transfer Act, and the federal Fair Debt Collection
Practices Act; damages equal to three times the amount of all fees and
interests paid by the class and sub-classes of plaintiffs since September 6,
1997; punitive damages of at least $250 million; the plaintiffs attorneys
fees; and court costs. The plaintiffs complaint is substantially similar to
the one filed in the Gina Johnson and Katherine Larsen lawsuit described above.

The Company and the other defendants intend to file an answer denying, or a
dispositive motion opposing, all of the plaintiffs material allegations in the
complaint, which are based on the contention that the Bank Loans should be
regarded as made by the Company rather than Goleta.

General: Because each of these lawsuits purports to be a class action, the
amount of damages for which the Company might be responsible is necessarily
uncertain. Regarding each lawsuit, that amount would depend upon proof of the
allegations, on the number of persons who constitute the class of plaintiffs
(if permitted by the court) or the number or the amount of the loan-related
transactions during an applicable time period, and (for certain of the claims)
on proof of actual damages sustained by the plaintiffs. The Company intends to
vigorously defend these lawsuits.

State Regulatory Proceedings

Notice from Ohio Department of Commerce: On July 16, 2001, the Ohio Department
of Commerce delivered a Notice of Intent to Issue Cease and Desist Order and
Notice of Opportunity for Hearing to the Company. This Notice states that the
Ohio Superintendent of the Division of Financial Institutions has found,
following an investigation of certain of the Companys activities in Ohio, that
the Company, not Goleta, is the lender or the maker of the Bank Loans made in
Ohio; that those Bank Loans violate the Ohio Small Loan Act and are void; that
all finance charges and interest received from those Bank Loans, as well as the
outstanding principal of all such existing Bank Loans, should be forfeited; and
that the Company should be ordered to cease violating the Ohio Small Loan Act.

The Company disagrees with all of the material allegations in the Notice. The
Company believes that Goleta, and not it, is the lender or maker of the Bank
Loans and that the interest that may be charged for the Bank Loans is subject
only to federal and California law, and not to the Ohio Small Loan Act. The
Company has requested a hearing with the Ohio Department of Commerce in
accordance with the Notice. That hearing is scheduled for October 30, 2001.

Order to Show Cause from Maryland Commissioner of Financial Regulation: On
July 5, 2001, the Maryland Commissioner of Financial Regulation issued an Order
to Show Cause to the Company. The Order alleges, upon an investigation of
certain of the Companys activities, that the Companys activities as agent for
Goleta regarding the Bank Loans made in Maryland violate the Maryland Credit
Services Businesses Act, because the Company is not licensed as a credit
services business in Maryland. The Order directs the Company to show cause
why a final order should not be entered requiring the Company to cease its
loan-related activities in Maryland without obtaining a license as a credit
services business and to pay a civil penalty of up to $1,000 for the first
violation and up to $5,000 for each subsequent violation. The Order also
states that the Commissioner continues to investigate the secured Bank Loans
made by Goleta at the Companys locations in Maryland after June 1, 2001, when
the Maryland Credit Services Businesses Act was amended to prohibit credit
services businesses from facilitating unsecured closed end loans to consumers
at interest rates in excess of the rates permitted by Maryland law.

The Company disagrees with all of the material allegations in the Order and
believes that, as a matter of federal and Maryland law, it is not required to
be licensed as a credit services business in Maryland. On July 30, 2001, the
Company requested a hearing before the Commissioner in accordance with the
Order. That hearing has been scheduled for December 5 and 6, 2001.

Other Incidental Proceedings

The Company is also involved from time to time in various legal proceedings
incidental to the conduct of its business. Management believes that none of
these legal proceedings will result in any material impact on the Companys
financial condition and results of operations.

21



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##### Table of Contents






ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of fiscal 2001.




PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Companys Common Stock is quoted on The Nasdaq Stock Market (NASDAQ)
under the symbol AACE. At September 17, 2001, there were approximately 106
holders of record of the Common Stock and there were approximately 1,540
beneficial holders of the Common Stock held in nominee or street name.

The following table sets forth the high and low sale prices of the Common Stock
as reported by NASDAQ for the past two fiscal years:

|                                 |  |      |          |     |  |  |        | 
|-------------------------------- |  | ---- | -------- | --- |  |  | ------ | 
|                                 |  | High |          | Low
|                                 |  |      |          |    
|Fiscal 2000                      |  |      |          |     |  |  |        | 
|                                
|                                
|                                
|                                
|Quarter ended September 30, 1999 |  |      | 15-3/8   |     |  |  | 12-7/8 | 
|                                
|                                
|                                
|                                
|Quarter ended December 31, 1999  |  |      | 19-1/2   |     |  |  | 14     | 
|                                
|                                
|                                
|                                
|Quarter ended March 31, 2000     |  |      | 20       |     |  |  | 15-3/4 | 
|                                
|                                
|                                
|                                
|Quarter ended June 30, 2000      |  |      | 17-3/8   |     |  |  | 11-1/2 | 
|                                
|                                
|                                
|                                
|Fiscal 2001                      |  |      |          |     |  |  |        | 
|                                
|                                
|                                
|                                
|Quarter ended September 30, 2000 |  |      | 12-5/16  |     |  |  | 8-3/4  | 
|                                
|                                
|                                
|                                
|Quarter ended December 31, 2000  |  |      | 15-1/4   |     |  |  | 10-1/8 | 
|                                
|                                
|                                
|                                
|Quarter ended March 31, 2001     |  |      | 13-7/8   |     |  |  | 10-1/8 | 
|                                
|                                
|                                
|                                
|Quarter ended June 30, 2001      |  |      | 12-11/16 |     |  |  | 7-1/4  | 

On September 17, 2001, the last reported sale price of the Common Stock on
NASDAQ was $9.03 per share.

The Company has never paid dividends on the Common Stock and has no plans to
pay dividends in the foreseeable future. In addition, the Companys ability to
pay cash dividends is currently limited under the Credit Agreement (see
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources  Credit Facilities).

22



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##### Table of Contents






ITEM 6. SELECTED FINANCIAL DATA

|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |     |     |     |  
|---------------------------------------------------------------------------- | ------------------------------------- | ----------------- | ---------- | ---- | ------------------- | ---- | ------- | --- | ----------------------------------------------- | --- | ------- | ---- | ---- | --- | ------- | --- | --- | --- | ------- | --- | --- | --- | -
|                                                                             |                                       |                   |            |      | Year Ended June 30,
|                                                                             |                                       |                   |            |      |                    
|                                                                             |                                       |                   |            |      | 2001                |      | 2000    |     | 1999                                            |     | 1998    |      | 1997
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |     
|                                                                             |                                       |                   |            |      |                     |      |         |     | (in thousands, except per share and store data)
|Statement of Operations Data:                                                |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Revenues                                                                     |                                       | $                 | 196,775    |      |                     | $    | 140,636 |     |                                                 | $   | 122,314 |      |      | $   | 100,194 |     |     | $   | 87,392  |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Store expenses                                                               |                                       |                   | 145,015    |      |                     |      | 94,668  |     |                                                 |     | 80,943  |      |      |     | 67,103  |     |     |     | 59,376  |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Region expenses                                                              |                                       |                   | 14,127     |      |                     |      | 11,119  |     |                                                 |     | 9,369   |      |      |     | 8,353   |     |     |     | 7,477   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Headquarters expenses                                                        |                                       |                   | 10,328     |      |                     |      | 8,247   |     |                                                 |     | 7,673   |      |      |     | 7,198   |     |     |     | 6,106   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Franchise expenses                                                           |                                       |                   | 1,017      |      |                     |      | 1,063   |     |                                                 |     | 1,288   |      |      |     | 965     |     |     |     | 1,046   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Other depreciation and amortization                                          |                                       |                   | 5,087      |      |                     |      | 3,798   |     |                                                 |     | 4,236   |      |      |     | 3,502   |     |     |     | 3,024   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Interest expense, net                                                        |                                       |                   | 12,016     |      |                     |      | 6,123   |     |                                                 |     | 4,476   |      |      |     | 2,437   |     |     |     | 2,271   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Other expenses                                                               |                                       |                   | 8,168      |      |                     |      | 955     |     |                                                 |     | 689     |      |      |     | 49      |     |     |     | 213     |    
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|Income before income taxes                                                   |                                       |                   | 1,017      |      |                     |      | 14,663  |     |                                                 |     | 13,640  |      |      |     | 10,587  |     |     |     | 7,879   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Income taxes                                                                 |                                       |                   | 406        |      |                     |      | 5,797   |     |                                                 |     | 5,390   |      |      |     | 4,185   |     |     |     | 3,113   |    
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|Net income before cumulative effect of
accounting change (1)                 |                                       | $                 | 611        |      |                     | $    | 8,866   |     |                                                 | $   | 8,250   |      |      | $   | 6,402   |     |     | $   | 4,766   |    
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|Diluted earnings per share before cumulative effect of
accounting change (1) |                                       | $                 | .06        |      |                     | $    | .86     |     |                                                 | $   | .80     |      |      | $   | .63     |     |     | $   | .48     |    
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|Weighted average number of shares (2)                                        |                                       |                   | 10,158     |      |                     |      | 10,361  |     |                                                 |     | 10,283  |      |      |     | 10,215  |     |     |     | 9,845   |    
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|Balance Sheet Data:                                                          |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cash and cash equivalents                                                    |                                       | $                 | 129,186    |      |                     | $    | 105,577 |     |                                                 | $   | 59,414  |      |      | $   | 60,168  |     |     | $   | 55,494  |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Total assets                                                                 |                                       |                   | 276,197    |      |                     |      | 221,423 |     |                                                 |     | 145,233 |      |      |     | 134,635 |     |     |     | 124,350 |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Reducing revolving advances                                                  |                                       |                   | 53,000     |      |                     |      | 18,500  |     |                                                 |     | 10,500  |      |      |     | 7,073   |     |     |     | 8,209   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Money order principal payable                                                |                                       |                   | 16,928     |      |                     |      | 10,487  |     |                                                 |     | 5,340   |      |      |     | 47,486  |     |     |     | 41,281  |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Revolving advances                                                           |                                       |                   | 109,800    |      |                     |      | 95,000  |     |                                                 |     | 40,100  |      |      |     | 1,932   |     |     |     | 7,166   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Senior secured notes payable                                                 |                                       |                   | 12,000     |      |                     |      | 16,000  |     |                                                 |     | 20,226  |      |      |     | 20,226  |     |     |     | 20,231  |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Shareholders equity                                                         |                                       |                   | 54,726     |      |                     |      | 55,159  |     |                                                 |     | 48,274  |      |      |     | 38,951  |     |     |     | 31,056  |    
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|Supplemental Statistical Data:                                               |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Company-owned stores in operation:                                           |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                       | Beginning of year |            |      | 915                 |      |         |     | 798                                             |     |         |      | 683  |     |         |     | 617 |     |         |     | 544 |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                       |                   | Acquired   |      |                     | 133  |         |     |                                                 | 36  |         |      |      | 35  |         |     |     | 15  |         |     |     | 46  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                       |                   | Opened     |      |                     | 49   |         |     |                                                 | 99  |         |      |      | 99  |         |     |     | 62  |         |     |     | 45  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             |                                       |                   | Closed (3) |      |                     | (109 | )       |     |                                                 | (18 | )       |      |      | (19 | )       |     |     | (11 | )       |     |     | (18 | )
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|                                                                             |                                       | End of year       |            |      | 988                 |      |         |     | 915                                             |     |         |      | 798  |     |         |     | 683 |     |         |     | 617 |    
|                                                                             |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|Percentage increase in comparable store revenues from
prior year:            |                                       |                   |            |      |                     |      |         |     |                                                 |     |         |      |      |     |         |     |     |     |         |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Exclusive of tax-related revenues (4) |                   |            | 25.5 | %                   |      |         | 7.1 | %                                               |     |         | 10.6 | %    |     |         | 8.0 | %   |     |         | 5.5 | %  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Total revenues (5)                    |                   |            | 23.3 | %                   |      |         | 6.9 | %                                               |     |         | 10.8 | %    |     |         | 6.9 | %   |     |         | 6.3 | %  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Capital expenditures (in thousands)                                          |                                       | $                 | 12,655     |      |                     | $    | 12,255  |     |                                                 | $   | 10,089  |      |      | $   | 5,742   |     |     | $   | 4,868   |    
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cost of net assets acquired (in thousands)                                   |                                       | $                 | 35,841     |      |                     | $    | 11,359  |     |                                                 | $   | 8,378   |      |      | $   | 4,708   |     |     | $   | 10,766  |    
|                                                                             |                                       |                   |           



---

|(1) |  | Before a cumulative effect of accounting change recorded in the three
months ended September 30, 1999, of $0.6 million, net of a $0.4 million
tax benefit, relating to the adoption of Statement of Position 98-5,
Reporting on the Costs of Start-up Activities.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes common shares and dilutive shares.                                                                                                                                                                                                                        
|   
|   
|   
|   
|(3) |  | Includes the 85 stores closed in the fourth quarter of fiscal 2001
resulting from a plan established and executed by management during the
third quarter of fiscal 2001.                                                                                           
|   
|   
|   
|   
|(4) |  | Change in revenues computed excluding electronic tax filing and tax
refund check-cashing for the years compared.                                                                                                                                                   
|   
|   
|   
|   
|(5) |  | Calculated based on the changes in revenues of all stores open for the
years compared.                                                                                                                                                                             

23



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##### Table of Contents



SELECTED FINANCIAL DATA (continued)

|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |   |   | 
|------------------------------------------------------------------------------------ | ------------------------- | ---------------------------------------------- | ------- | ------------------- | ------ | ---- | ------- | ---- | - | ---- | ------- | ---- | - | - | ------ | - | - | - | ------ | - | - | 
|                                                                                     |                           |                                                |         | Year Ended June 30,
|                                                                                     |                           |                                                |         |                    
|                                                                                     |                           |                                                |         | 2001                |        | 2000 |         | 1999 |   | 1998 |         | 1997
|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |     
|Operating Data (Check Cashing and Money Orders):                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Face amount of checks cashed
(in millions)                                           |                           | $                                              | 4,498   |                     |        | $    | 3,839   |      |   | $    | 3,373   |      |   | $ | 2,898  |   |   | $ | 2,621  |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Face amount of money orders sold
(in millions)                                       |                           | $                                              | 1,709   |                     |        | $    | 1,585   |      |   | $    | 1,905   |      |   | $ | 1,858  |   |   | $ | 1,812  |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Face amount of money orders sold as a
percentage of the face amount of checks
cashed |                           |                                                | 38.0    | %                   |        |      | 41.3    | %    |   |      | 56.5    | %    |   |   | 64.1   | % |   |   | 69.1   | %
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Face amount of average check                                                         |                           | $                                              | 358     |                     |        | $    | 339     |      |   | $    | 320     |      |   | $ | 305    |   |   | $ | 291    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Average fee per check                                                                |                           | $                                              | 8.38    |                     |        | $    | 7.92    |      |   | $    | 7.47    |      |   | $ | 7.26   |   |   | $ | 6.97   |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Fees as a percentage of average check                                                |                           |                                                | 2.34    | %                   |        |      | 2.33    | %    |   |      | 2.33    | %    |   |   | 2.38   | % |   |   | 2.40   | %
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Number of checks cashed (in thousands)                                               |                           |                                                | 12,580  |                     |        |      | 11,317  |      |   |      | 10,556  |      |   |   | 9,496  |   |   |   | 9,020  |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Number of money orders sold
(in thousands)                                           |                           |                                                | 12,787  |                     |        |      | 12,339  |      |   |      | 14,495  |      |   |   | 14,146 |   |   |   | 13,608 |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Collections Data:                                                                    |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Face amount of returned checks (in
thousands)                                        |                           | $                                              | 26,536  |                     |        | $    | 16,548  |      |   | $    | 12,442  |      |   | $ | 10,193 |   |   | $ | 10,399 |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Collections (in thousands)                                                           |                           |                                                | 17,717  |                     |        |      | 10,788  |      |   |      | 7,423   |      |   |   | 6,301  |   |   |   | 6,554  |  
|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|Net write-offs (in thousands)                                                        |                           | $                                              | 8,819   |                     |        | $    | 5,760   |      |   | $    | 5,019   |      |   | $ | 3,892  |   |   | $ | 3,845  |  
|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|Collections as a percentage of
returned checks                                       |                           |                                                | 66.8    | %                   |        |      | 65.2    | %    |   |      | 59.7    | %    |   |   | 61.8   | % |   |   | 63.0   | %
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Net write-offs as a percentage of revenues                                           |                           |                                                | 4.5     | %                   |        |      | 4.1     | %    |   |      | 4.1     | %    |   |   | 3.9    | % |   |   | 4.4    | %
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Net write-offs as a percentage of
the face amount of checks cashed                   |                           |                                                | .20     | %                   |        |      | .15     | %    |   |      | .15     | %    |   |   | .13    | % |   |   | .15    | %
|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|Operating Data (Small Consumer Loans):                                               |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Volume (in thousands)                                                                |                           | $                                              | 396,783 |                     |        | $    | 137,015 |      |   | $    | 105,765 |      |   | $ | 69,182 |   |   | $ | 39,336 |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Average advance                                                                      |                           | $                                              | 269     |                     |        | $    | 240     |      |   | $    | 200     |      |   | $ | 177    |   |   | $ | 147    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Average finance charge                                                               |                           | $                                              | 42.30   |                     |        | $    | 34.51   |      |   | $    | 30.30   |      |   | $ | 27.51  |   |   | $ | 25.03  |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Number of loan transactions (in thousands)                                           |                           |                                                | 1,477   |                     |        |      | 557     |      |   |      | 460     |      |   |   | 338    |   |   |   | 229    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Balance Sheet Data (in thousands):                                                   |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Gross loans receivable                                                               |                           | $                                              | 27,768  |                     |        | $    | 18,695  |      |   | $    | 5,543   |      |   | $ | 4,733  |   |   | $ | 4,181  |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |                           | Less: Allowance for losses on loans receivable |         |                     | 13,382 |      |         |      |  |      |         |      |  |   |        |   |  |   |        |   |  | 
|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|Loans receivable, net of allowance                                                   |                           | $                                              | 14,386  |                     |        | $    | 18,695  |      |   | $    | 5,543   |      |   | $ | 4,733  |   |   | $ | 4,181  |  
|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|Allowance for losses on loans receivable:                                            |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Beginning of period       |                                                | $       |                    |        |      | $       |     |   |      | $       |     |   |   | $      |  |   |   | $      |  |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Provision for loan losses |                                                |         | 26,429              |        |      |         |     |   |      |         |     |   |   |        |  |   |   |        |  |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Net charge-offs           |                                                |         | (13,047             | )      |      |         |     |   |      |         |     |   |   |        |  |   |   |        |  |  
|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|                                                                                     | End of period             |                                                | $       | 13,382              |        |      | $       |     |   |      | $       |     |   |   | $      |  |   |   | $      |  |  
|                                                                                     |                           |                                                |         |                     |        |      |         |      |   |      |         |      |   |   |        |   |   |   |        |  
|Allowance as a percent of gross loans receivable                                     |                           |                                                | 48.2    | %                   |        |      |        |      |   |      |        |      |   |   |       |   |   |   |       |  

24



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##### Table of Contents






ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

|                                                         |  |                     |         |                         |  |      |         |      |  |      |         |      |  |  |       |   |  |  |       |   |  |  |       |  
|-------------------------------------------------------- |  | ------------------- | ------- | ----------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|Revenue Analysis                                         |  | Year Ended June 30,
|                                                         |  |                    
|                                                         |  | (in thousands)      |         | (percentage of revenue)
|                                                         |  | 2001                |         | 2000                    |  | 1999 |         | 2001 |  | 2000 |         | 1999
|                                                         |  |                     |         |                         |  |      |         |      |  |      |         |     
|Check cashing fees                                       |  | $                   | 105,479 |                         |  | $    | 89,641  |      |  | $    | 78,839  |      |  |  | 53.6  | % |  |  | 63.8  | % |  |  | 64.5  | %
|                                                        
|                                                        
|                                                        
|                                                        
|Loan fees and interest                                   |  |                     | 54,771  |                         |  |      | 17,872  |      |  |      | 14,257  |      |  |  | 27.8  |   |  |  | 12.7  |   |  |  | 11.7  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Bill-payment services                                    |  |                     | 10,376  |                         |  |      | 9,447   |      |  |      | 8,394   |      |  |  | 5.3   |   |  |  | 6.7   |   |  |  | 6.8   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Money transfer services                                  |  |                     | 10,270  |                         |  |      | 8,944   |      |  |      | 7,951   |      |  |  | 5.2   |   |  |  | 6.4   |   |  |  | 6.5   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Money order fees                                         |  |                     | 7,245   |                         |  |      | 7,032   |      |  |      | 5,332   |      |  |  | 3.7   |   |  |  | 5.0   |   |  |  | 4.4   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Franchise revenues                                       |  |                     | 2,257   |                         |  |      | 2,537   |      |  |      | 2,117   |      |  |  | 1.2   |   |  |  | 1.8   |   |  |  | 1.7   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Other fees                                               |  |                     | 6,377   |                         |  |      | 5,163   |      |  |      | 5,424   |      |  |  | 3.2   |   |  |  | 3.6   |   |  |  | 4.4   |  
|                                                         |  |                     |         |                         |  |      |         |      |  |      |         |      |  |  |       |   |  |  |       |   |  |  |       |  
|Total revenue                                            |  | $                   | 196,775 |                         |  | $    | 140,636 |      |  | $    | 122,314 |      |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | %
|                                                         |  |                     |         |                         |  |      |         |      |  |      |         |      |  |  |       |   |  |  |       |   |  |  |       |  
|Average revenue per store
(excluding franchise revenues) |  | $                   | 195.9   |                         |  | $    | 161.1   |      |  | $    | 162.3   |      |  |  |       |   |  |  |       |   |  |  |       |  

Fiscal 2001 Compared to Fiscal 2000.Revenues increased $56.1 million, or 40%,
from $140.6 million in the year ended June 30, 2000, to $196.8 million in the
year ended June 30, 2001. This revenue growth resulted from a $28.7 million, or
23.3%, increase in comparable company-owned store revenues (713 stores) and a
$27.4 million increase from stores which were opened or acquired after June 30,
1999, and were therefore not open for both of the full periods compared.
Average revenue per store increased by $34,800 primarily because of the
offering of the Goleta National Bank (Goleta) loan product in almost all of
the company-owned stores in fiscal 2001. The number of company-owned stores
increased by 73, or 8%, from 915 stores open at June 30, 2000, to 988 stores
open at June 30, 2001. The increase in loan fees and interest accounted for 66%
of the total revenue increase; total check-cashing fees accounted for 28% of
the total revenue increase; the increase in money transfer services revenues
accounted for 2% of the total revenue increase; and the increase in
bill-payment services revenues accounted for 2% of the total revenue increase.

Loan fees and interest for the year ended June 30, 2001, primarily reflect the
Companys participation interests in Goleta loans, but for most of the year
ended June 30, 2000, reflect the Companys so-called payday loans to
customers. Loan fees and interest increased $36.9 million, or 206%, to $54.8
million in fiscal 2001 as compared to $17.9 million in fiscal 2000 due to the
increase in the number of stores offering loan products, which in turn is
principally due to the offering of the Goleta loan product in 947 stores as of
June 30, 2001. The Companys payday loan product was offered in 355 stores
during the first nine months of the last fiscal year, and the transition to the
Goleta product began in the fourth quarter of fiscal 2000. Check cashing fees,
including tax check fees, increased $15.8 million, or 18%, from $89.6 million
in fiscal 2000 to $105.5 million in fiscal 2001. This increase resulted from an
11% increase in the total number of checks cashed and a 6% increase in the
average fee per check due to the increase in the average size check. In
addition, $1.0 million of the increase in fees was attributable to 50 of the
Companys self-service machines located in tax preparers offices during the
calendar 2001 tax season. Money transfer services revenues increased $1.3
million, or 15%, principally as a result of acquired stores and related revenue
guarantees and bonuses. Bill-payment services increased $0.9 million, or 10%,
principally as a result of new bill-payment contracts and growth in payment
revenue from existing bill-payment contracts.

During fiscal 2001, the Company opened 29 franchised stores, acquired two
former franchised stores and closed nine franchised stores. Franchise revenues
consist of royalties, and initial and optional franchise fees. Franchise
revenues decreased $0.3 million, or 11%, from fiscal 2000 to fiscal 2001 due to
the reduced number of franchised store openings.

Fiscal 2000 Compared to Fiscal 1999.Revenues increased $18.3 million, or 15%,
from $122.3 million in the year ended June 30, 1999, to $140.6 million in the
year ended June 30, 2000. This revenue growth resulted from a $7.5 million, or
6.9%, increase in comparable company-owned store revenues (651 stores) and a
$10.8 million increase from stores which were opened or acquired after June
30, 1998, and were therefore not open for both of the full periods compared.
Average revenue per store declined by $1,200 because of the significant number
of stores open for two years or less; revenues from new stores must typically
be built up over the first few years of operation. The number of company-owned
stores increased by 117, or 15%, from 798 stores open at June 30, 1999, to 915
stores open at June 30, 2000. The increase in total check-cashing fees
accounted for 59% of the total revenue increase; the increase in loan fees and
interest accounted for 20% of the total revenue increase; and the increase in
money order fees accounted for 9% of the total revenue increase.

25



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##### Table of Contents



Check cashing fees, including tax check fees, increased $10.8 million, or 14%,
from $78.8 million in fiscal 1999 to $89.6 million in fiscal 2000. This
increase resulted from a 7% increase in the total number of checks cashed and a
6% increase in the average fee per check due to the increase in the average
size check. Loan fees and interest increased $3.6 million, or 25%, to $17.9
million in fiscal 2000 as compared to $14.3 million in fiscal 1999. This
increase resulted from the introduction of the Goleta loan product in the last
quarter of fiscal 2000 and the Companys offering of a loan product at stores
in 19 more states than in fiscal 1999. Money order fees increased $1.7
million, or 32%, as a result of increased money order pricing, enabled by the
Companys credit agreement with a syndicate of bank lenders and the money order
agreement with Travelers Express (which were effective for only approximately
half of fiscal 1999). Bill-payment services revenues increased $1.0 million,
or 13%, principally as a result of new bill-payment contracts and growth in
payment revenue from existing bill-payment contracts. Money transfer services
revenues increased $1.0 million, or 13%, principally as a result of acquired
stores and related revenue guarantees and bonuses.

During fiscal 2000, the Company sold six franchised stores, opened 56
franchised stores, acquired seven former franchised stores and closed six
franchise stores. Franchise revenues consist of royalties, initial and
optional franchise fees. Franchise revenues increased $0.4 million, or 20%,
from fiscal 1999 to fiscal 2000, due to the increase in the number of
franchised stores.

|                           |  |                     |         |                         |  |      |        |      |  |      |        |      |  |  |      |   |  |  |      |   |  |  |      |  
|-------------------------- |  | ------------------- | ------- | ----------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|Store Expense Analysis     |  | Year Ended June 30,
|                           |  |                    
|                           |  | (in thousands)      |         | (percentage of revenue)
|                           |  | 2001                |         | 2000                    |  | 1999 |        | 2001 |  | 2000 |        | 1999
|                           |  |                     |         |                         |  |      |        |      |  |      |        |     
|Salaries and benefits      |  | $                   | 51,969  |                         |  | $    | 38,639 |      |  | $    | 32,435 |      |  |  | 26.4 | % |  |  | 27.4 | % |  |  | 26.5 | %
|                          
|                          
|                          
|                          
|Occupancy                  |  |                     | 26,439  |                         |  |      | 21,507 |      |  |      | 18,381 |      |  |  | 13.4 |   |  |  | 15.3 |   |  |  | 15.0 |  
|                          
|                          
|                          
|                          
|Armored and security       |  |                     | 7,442   |                         |  |      | 5,608  |      |  |      | 5,144  |      |  |  | 3.8  |   |  |  | 4.0  |   |  |  | 4.2  |  
|                          
|                          
|                          
|                          
|Returns and cash shorts    |  |                     | 12,553  |                         |  |      | 9,037  |      |  |      | 8,870  |      |  |  | 6.4  |   |  |  | 6.4  |   |  |  | 7.3  |  
|                          
|                          
|                          
|                          
|Loan losses and provisions |  |                     | 24,825  |                         |  |      | 4,177  |      |  |      | 2,786  |      |  |  | 12.6 |   |  |  | 3.0  |   |  |  | 2.3  |  
|                          
|                          
|                          
|                          
|Depreciation               |  |                     | 6,697   |                         |  |      | 5,429  |      |  |      | 4,728  |      |  |  | 3.4  |   |  |  | 3.9  |   |  |  | 3.9  |  
|                          
|                          
|                          
|                          
|Other expenses             |  |                     | 15,090  |                         |  |      | 10,271 |      |  |      | 8,599  |      |  |  | 7.7  |   |  |  | 7.3  |   |  |  | 7.0  |  
|                           |  |                     |         |                         |  |      |        |      |  |      |        |      |  |  |      |   |  |  |      |   |  |  |      |  
|Total store expense        |  | $                   | 145,015 |                         |  | $    | 94,668 |      |  | $    | 80,943 |      |  |  | 73.7 | % |  |  | 67.3 | % |  |  | 66.2 | %
|                           |  |                     |         |                         |  |      |        |      |  |      |        |      |  |  |      |   |  |  |      |   |  |  |      |  
|Average per store expense  |  | $                   | 146.1   |                         |  | $    | 110.5  |      |  | $    | 109.3  |      |  |  |      |   |  |  |      |   |  |  |      |  

Fiscal 2001 Compared to Fiscal 2000.Store expenses increased $50.3 million, or
53%, in fiscal 2001 over fiscal 2000, primarily as a result of the increased
number of stores in operation during the period and the increased loan loss
provision for the Goleta loan product. Average store expense increased by
approximately $35,600 per store in fiscal 2001 as compared to fiscal 2000.
Store expenses increased as a percentage of revenues from 67.3% in fiscal 2000
to 73.7% in fiscal 2001, principally as a result of the increase in the loan
loss provision. Salaries and benefits expenses, occupancy costs, and armored
and security expenses combined increased $20.1 million, or 31%, primarily as a
result of the increased number of stores in operation. Returned checks, net of
collections, and cash shortages increased $3.5 million, or 39%, in fiscal 2001
as compared to fiscal 2000, due also to the increased number of stores in
operation. Returned checks, net of collections, and cash shortages as a
percentage of revenues remained the same for fiscal 2001 as for fiscal 2000.

Loan losses and loss provisions increased $20.6 million in fiscal 2001 over
fiscal 2000. In fiscal 2001, the Company established an allowance for loan
losses to cover the losses anticipated from its participations in Goleta loans,
rather than charging off actual losses as incurred, as the Company did in
fiscal 2000 regarding its payday loans. Loan write-offs are charged to this
allowance, which is reviewed for adequacy, and may be adjusted, on a quarterly
basis. During the third quarter of fiscal 2001, an additional loan loss
provision of $8.5 million was established regarding participations in Goleta
loans. Depreciation expense increased $1.3 million, or 23%, in fiscal 2001 over
fiscal 2000 due to the increased number of stores in operation. Other store
expenses increased $4.8 million, or 47%, as a result of the increased number of
stores in operation and an increase in advertising and other expenses related
to the Goleta loan product.

Fiscal 2000 Compared to Fiscal 1999.Store expenses increased $13.7 million,
or 17%, in fiscal 2000 over fiscal 1999, primarily as a result of the increased
number of stores open during the period. Average store expense increased by
approximately $1,200 per store in fiscal 2000 as compared to fiscal 1999. Store
expenses increased as a percentage of revenues from 66.2% in fiscal 1999 to
67.3% in fiscal 2000, principally as a result of a slight decrease in average
revenue per store. Salaries and benefits expenses, occupancy costs, and armored
and security expenses combined increased $9.8 million, or 18%, primarily as a
result of the increased number of stores in operation. Returned checks, net of
collections, and cash shortages increased $0.2 million, or 2%, in fiscal 2000
as compared to fiscal 1999, due also to the increased number of stores in
operation. Returned checks, net of collections, and cash shortages decreased as
a percentage of revenues from 7.3% in fiscal 1999 to 6.4% in fiscal 2000. Loan
losses increased $1.4 million in fiscal 2000 over fiscal 1999, due primarily to
the

26



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##### Table of Contents



increased loan volume resulting from the broader availability of the Goleta
loan product. Loan losses increased as a percentage of loan fees and interest
revenue from 20% in fiscal 1999 to 23% in fiscal 2000. Depreciation expense
increased $0.7 million, or 15%, due to the increased number of stores in
operation during fiscal 2000 as compared to fiscal 1999. Other store expenses
increased $1.7 million, or 19%, as a result of the increased number of stores
in operation and the expensing of new store start-up costs which were
previously capitalized.

|                                    |  |                     |        |                         |  |      |        |      |  |      |       |      |  |  |     |   |  |  |     |   |  |  |     |  
|----------------------------------- |  | ------------------- | ------ | ----------------------- |  | ---- | ------ | ---- |  | ---- | ----- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|Other Expense Analysis              |  | Year Ended June 30,
|                                    |  |                    
|                                    |  | (in thousands)      |        | (percentage of revenue)
|                                    |  | 2001                |        | 2000                    |  | 1999 |        | 2001 |  | 2000 |       | 1999
|                                    |  |                     |        |                         |  |      |        |      |  |      |       |     
|Region expenses                     |  | $                   | 14,127 |                         |  | $    | 11,119 |      |  | $    | 9,369 |      |  |  | 7.2 | % |  |  | 7.9 | % |  |  | 7.7 | %
|                                   
|                                   
|                                   
|                                   
|Headquarters expenses               |  |                     | 10,328 |                         |  |      | 8,247  |      |  |      | 7,673 |      |  |  | 5.2 |   |  |  | 5.9 |   |  |  | 6.3 |  
|                                   
|                                   
|                                   
|                                   
|Franchise expenses                  |  |                     | 1,017  |                         |  |      | 1,063  |      |  |      | 1,288 |      |  |  | 0.5 |   |  |  | 0.8 |   |  |  | 1.1 |  
|                                   
|                                   
|                                   
|                                   
|Other depreciation and amortization |  |                     | 5,087  |                         |  |      | 3,798  |      |  |      | 4,236 |      |  |  | 2.6 |   |  |  | 2.7 |   |  |  | 3.5 |  
|                                   
|                                   
|                                   
|                                   
|Interest expense, net               |  |                     | 12,016 |                         |  |      | 6,123  |      |  |      | 4,476 |      |  |  | 6.1 |   |  |  | 4.4 |   |  |  | 3.7 |  
|                                   
|                                   
|                                   
|                                   
|Other expenses                      |  |                     | 8,168  |                         |  |      | 955    |      |  |      | 689   |      |  |  | 4.2 |   |  |  | 0.7 |   |  |  | 0.1 |  

Region Expenses

Fiscal 2001 Compared to Fiscal 2000.Region expenses increased $3.0 million,
or 27%, in fiscal 2001 over fiscal 2000. The increase is primarily a result of
the increase in personnel (i.e., collections and customer support) to support
the Companys offering of the Goleta loan product. Region expenses as a
percentage of revenues decreased from 7.9% for fiscal 2000 to 7.2% for fiscal
2001.

Fiscal 2000 Compared to Fiscal 1999.Region expenses increased $1.8 million,
or 19%, in fiscal 2000 over fiscal 1999. The increase is primarily due to
increased field salaries and benefits, advertising and marketing materials for
the Goleta loan product, and additional personnel for collections related to
the Goleta loan product. Region expenses as a percentage of revenues increased
slightly from 7.7% for fiscal 1999 to 7.9% for fiscal 2000.

Headquarters Expenses

Fiscal 2001 Compared to Fiscal 2000.Headquarters expenses increased $2.1
million, or 25%, in fiscal 2001 over fiscal 2000. The increase is principally
the result of additional personnel and the corresponding salaries and benefits.
Headquarters expenses as a percentage of revenue decreased from 5.9% in fiscal
2000 to 5.2% in fiscal 2001.

Fiscal 2000 Compared to Fiscal 1999.Headquarters expenses increased $0.6
million, or 8%, in fiscal 2000 over fiscal 1999. The increase is the result of
additional salaries and benefits expenses, primarily related to merit increases
and additional personnel. Headquarters expenses as a percentage of revenue
decreased from 6.3% in fiscal 1999 to 5.9% in fiscal 2000.

Franchise Expenses

Fiscal 2001 Compared to Fiscal 2000.Franchise expenses relate to the
salaries, benefits, and other franchisee support costs for the sales and
support personnel in the ACE Franchise Group. Franchise expenses for fiscal
2001 remained substantially the same as those for fiscal 2000. Franchise
expenses as a percentage of revenue decreased to 0.5% for fiscal 2001 from 0.8%
for fiscal 2000.

Fiscal 2000 Compared to Fiscal 1999.Franchise expenses relate to the
salaries, benefits, and other franchisee support costs for the sales and
support personnel in the ACE Franchise Group. Franchise expenses decreased
$0.2 million from fiscal 1999 to fiscal 2000, primarily due to a reduction in
legal expenses during fiscal 2000 related to the Companys franchise program.
Franchise expenses as a percentage of revenue decreased to 0.8% for fiscal 2000
from 1.1% for fiscal 1999.

Other Depreciation and Amortization

Fiscal 2001 Compared to Fiscal 2000.Other depreciation and amortization
increased $1.3 million, or 34%, for fiscal 2001 as compared to fiscal 2000.
This increase is a result of the additional amortization of intangibles (i.e.,
goodwill and non-competition agreements) resulting from the 133 stores acquired
during fiscal 2001 and the 33 stores acquired during the last half of fiscal
2000, along with the depreciation expense resulting from the 49 stores opened
in fiscal 2001 and the 67 stores opened in the last half of fiscal 2000.

Fiscal 2000 Compared to Fiscal 1999.Other depreciation and amortization
decreased $0.4 million, or 10%, for fiscal 2000 as compared to fiscal 1999.
This decrease was attributable to the change in accounting principle adopted in
the first quarter

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of fiscal 2000 requiring start-up costs to be fully expensed instead of
capitalized, partially offset by amortization of intangibles (i.e., goodwill
and non-competition agreements) resulting from the 36 stores acquired during
fiscal 2000 and the 16 stores acquired during the last half of fiscal 1999,
along with the depreciation expense resulting from the 99 stores opened in
fiscal 2000 and the 52 stores opened in the last half of fiscal 1999.

Interest Expense, Net

Fiscal 2001 Compared to Fiscal 2000.Interest expense, net of interest
income, increased $5.9 million, or 96%, in fiscal 2001 as compared to fiscal
2000. This increase was principally the result of increased borrowings to
finance store openings and acquisitions and to purchase participation interests
in the Goleta loans.

Fiscal 2000 Compared to Fiscal 1999.Interest expense, net of interest income,
increased $1.6 million, or 37%, in fiscal 2000 as compared to fiscal 1999.
This increase was principally the result of increased borrowings to finance
store openings and acquisitions.

Income Taxes

Fiscal 2001 Compared to Fiscal 2000.A total of $0.4 million was provided for
income taxes for fiscal 2001 as compared to $5.8 million (excluding a $402,000
tax benefit resulting from a cumulative effect of accounting change) in fiscal
2000. The provisions for income taxes were calculated based on the statutory
federal income tax rate of 34%, plus a provision for state income taxes and
non-deductible goodwill resulting from acquisitions. The effective income tax
rate was 39.9% for fiscal year 2001 and 39.5% for fiscal year 2000.

Fiscal 2000 Compared to Fiscal 1999.A total of $5.8 million (excluding a
$402,000 tax benefit resulting from a cumulative effect of accounting change)
was provided for income taxes for fiscal 2000 as compared to $5.4 million in
fiscal 1999. The provisions for income taxes were calculated based on the
statutory federal income tax rate of 34%, plus a provision for state income
taxes and non-deductible goodwill resulting from acquisitions. The effective
income tax rate was 39.5% for fiscal years 2000 and 1999.

Cumulative Effect of Accounting Change

Effective July 1, 1999, the Company adopted the new accounting standard, AICPA
Statement of Position 98-5, Reporting on the Costs of Start-up Activities,
resulting in a cumulative effect on net income of $0.6 million net of an income
tax benefit of $0.4 million.

Restructuring Charge

In the third quarter of fiscal 2001, the Company recorded a restructuring
charge of $8.7 million for the costs associated with closing 85 unprofitable or
underperforming stores. For a description of this charge, see Note 5 to the
Audited Consolidated Financial Statements.

Balance Sheet Variations

Cash and cash equivalents, the money order principal payable, and the revolving
advances vary because of seasonal and day-to-day requirements resulting
primarily from maintaining cash for cashing checks and making small consumer
loans, receipts of cash from the sale of money orders, loan volume, and
remittances on money orders sold.

Accounts receivable, net, decreased $2.4 million from June 30, 2000 primarily
because of a reduction in receivables from MoneyGram Payment Systems, Inc. for
commissions and bonuses related to the opening or acquisition of company-owned
stores.

Though gross loans receivable increased $9.1 million from June 30, 2000, loans
receivable, net, decreased $4.3 million as a result of the increase in the loan
loss provision for the Companys participations in Goleta loans.

Other current assets increased by $7.2 million from June 30, 2000 primarily due
to the deferred tax asset resulting from the loan loss provision recorded in
the third quarter of fiscal 2001.

Property and equipment, net increased $2.3 million, and goodwill, net increased
$28.0 million from June 30, 2000, as a result of the 49 stores opened and the
133 stores acquired during fiscal 2001, offset by the related depreciation and
amortization and the 109 stores closed.

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The Company paid the second annual $4.0 million installment of principal of its
senior secured notes payable in November 2000.

Liquidity and Capital Resources

Cash Flows from Operating Activities

During fiscal 2001, 2000, and 1999, the Company had net cash provided by
operating activities of $20.4 million, $6.7 million, and $17.1 million,
respectively. The increase from fiscal 2000 of $6.4 million is due primarily
to the cash generated from the Goleta loan product.

During fiscal 2001, 2000, and 1999, the Company recognized $3.1 million, $3.5
million, and $2.2 million in deferred revenue, respectively.The Expired
MoneyGram Agreement (which expired December 31, 2000) provided, and the New
MoneyGram Agreement currently provides, incentive bonuses for opening new
locations at which MoneyGram services are offered as well as certain other
performance incentives. The bonus of $2 million received in June 1996 under the
Expired MoneyGram Agreement and additional incentive bonuses under both of
those agreements are recognized as revenue over the terms of those two
agreements. Additionally, in fiscal 1999 the Company began recognizing
deferred revenue related to incentives received from Travelers Express. (See
Business  Relationships with the Money Order and MoneyGram Suppliers.)

Cash Flows from Investing Activities

During fiscal 2001, 2000, and 1999, the Company used $12.7 million, $12.3
million, and $10.1 million, respectively, for purchases of property and
equipment related principally to new store openings and remodeling existing
stores. Capital expenditures related to acquisitions, amounted to $35.8
million, $11.4 million, and $8.4 million for the fiscal years ended June 30,
2001, 2000, and 1999, respectively.

The Companys total capital expenditures, excluding acquisitions, are currently
anticipated to be approximately $11 million during its fiscal year ending June
30, 2002, in connection with the opening of 50 new stores, the relocation or
remodeling of certain existing stores, and computer system or
telecommunication system upgrades. The actual amount of capital expenditures
will depend in part on the number of new stores opened, the number of stores
acquired, and the number of existing stores that are relocated or remodeled.
The Company believes that its existing resources, anticipated cash flows from
operations, and credit facilities will be sufficient to finance its planned
expansion and operations during fiscal 2002. Although management anticipates
that the Company will continue to expand, there can be no assurance that the
Companys expansion plans will not be adversely affected by competition, market
conditions, or changes in laws or government regulations affecting
check-cashing and related businesses of the types conducted by the Company.

Cash Flows from Financing Activities

During fiscal 2001, 2000, and 1999, the Company had net cash provided by
financing activities of $51.8 million, $64.1 million, and $0.6 million,
respectively. During the year ended June 30, 2001, the Company borrowed, net
$14.8 million of Revolving Advances, borrowed $34.5 million of reducing
revolving advances, borrowed, net $6.4 million from the money order supplier,
repaid, net $4.0 million of long-term notes payable, received $0.6 million from
the exercise of stock options, repaid, net $0.3 million of acquisition notes
payable and purchased $0.3 million of treasury stock.

Money Order Agreement and MoneyLine Agreement

In April 1998, the Company signed a money order agreement with Travelers
Express, which became effective December 17, 1998. In conjunction with this
agreement and the MoneyLine Agreement, the Company received $3 million from
Travelers Express in April 1998, received $400,000 in each of April 1999, April
2000, and April 2001, and is entitled to receive an additional $400,000 per
year for the next two years. The $4.2 million payment was deferred and
included in other liabilities in the consolidated balance sheets. The amounts
received are being amortized on a straight-line basis over the five-year term
of the agreements beginning January 1999 based on the $5 million total.

Credit Facilities

The Company has two primary credit facilities available under the Credit
Agreement with the Lenders, which was entered into on November 9, 2000. The
Companys revolving line-of-credit facility of $155 million is available until
November 8, 2001. Borrowings under this revolving line-of-credit facility may
be used for working capital and general corporate purposes. The Companys
other primary credit facility is a reducing revolving facility that allows the
Company to borrow (and repay and reborrow) amounts until November 9, 2003. The
maximum amount of credit available to the Company under this reducing revolving
facility is $65 million, but is subject to reduction on October 1, 2001, and
each quarter thereafter, by

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$4.375 million. This reducing revolving facility replaced the term-loan
facility under the Companys preceding credit agreement (which permitted
borrowing only on a one-time, non-revolving basis). Borrowings under this
reducing revolving facility may be used for store construction and relocation
and other capital expenditures, including acquisitions, and refinancing other
indebtedness of the Company. The Company had borrowed $109.8 million under its
revolving line-of-credit facility and $53.0 million under its reducing
revolving facility as of June 30, 2001.

In addition to the two primary credit facilities, the Company also has
available under the Credit Agreement, upon certain conditions, an additional
25-day revolving advance facility of up to $25 million from Wells Fargo Bank
and certain of the other Lenders and a standby letter-of-credit facility of up
to $1.5 million from Wells Fargo Bank. These additional facilities expire on
November 8, 2001.

The Companys borrowings under the revolving line-of-credit facility bear
interest at a variable annual rate equal to, at the Companys discretion,
either the prime rate publicly announced by Wells Fargo Bank from time to time
or the London InterBank Offered Rate LIBOR plus 0.75%. The Companys
borrowings under the reducing revolving facility bear interest at a variable
annual rate equal to, at the Companys discretion, either the prime rate
publicly announced by Wells Fargo Bank from time to time plus 0.25% or LIBOR
plus 2.375% (but subject to adjustment quarterly, beginning March 31, 2001,
within a range of 2.125% to 2.625% above LIBOR, depending on the Companys
debt-to-cash flow ratio). Interest is generally payable monthly, except on
LIBOR-rate borrowings; interest on LIBOR-rate borrowings is payable every 30,
60, or 90 days, depending on the period selected by the Company. The Company
must also pay a commitment fee for each of the credit facilities. The
commitment fee for the revolving line-of-credit facility is equal to 0.25% per
annum of the average daily unused portion of that facility; and the commitment
fee for the reducing revolving facility is equal to 0.375% per annum of the
average daily unused portion of that facility through March 31, 2001, but
thereafter varies within a range of 0.3% to 0.5% per annum of the average daily
unused portion of that facility, depending on the Companys debt-to-cash flow
ratio after March 31, 2001.

All unpaid principal and accrued interest under the revolving line-of-credit
facility will be due on November 8, 2001, unless renewed. All unpaid principal
and accrued interest under the reducing revolving facility will be due on
November 9, 2003, unless renewed. The Credit Agreement also requires the
Companys prepayment to the Lenders of certain amounts due under the reducing
revolving facility upon (a) the sale of assets from which the Company has
received net proceeds of at least $5 million during a fiscal year, and (b) the
Companys issuance of equity securities.

The short-term availability of the credit facilities under the Credit Agreement
permitted the Company to obtain a lower interest rate and other terms more
favorable than longer-term facilities, and the Company expects those facilities
to be renewed at the expiration of their currently effective period. There can
be no assurance, however, that the anticipated renewal will be effected. If
such renewal is not effected, the Company will have to obtain financing from
other sources, and that financing might be on terms less favorable to the
Company than those set forth in the Credit Agreement. The Company believes
that other sources of financing would be available to it if necessary; however,
if the Company were unable to obtain financing from one or more other sources,
the Companys liquidity and operations would be materially and adversely
affected.

The Credit Agreement may be terminated before the stated expiration or maturity
dates of the credit facilities  requiring all unpaid principal and accrued
interest to be paid to the Lenders  upon any Event of Default as defined in
the Credit Agreement. The Events of Default include: (a) nonpayment of
amounts due to the Lenders under the Credit Agreement, (b) failure to observe
or perform covenants set forth in the Credit Agreement (including the
restrictive covenants described below) that are not cured, (c) a change in
control of the Company, and (d) an event or circumstance that has a material
adverse effect on the Companys business, operations, financial condition, or
prospects. Upon an Event of Default, the Lenders may also exercise other
remedies provided for in the Credit Agreement, including foreclosure of the
liens on the Companys assets (as described below).

The Company is subject to various restrictive covenants stated in the Credit
Agreement. These covenants, which are typical of those found in loan
agreements of that kind, include restrictions on the incurrence of indebtedness
from other sources, restrictions on advances to or investments in other persons
or entities, restrictions on significant acquisitions, restrictions on the
payment of dividends to shareholders or the repurchase of shares, and the
requirement that various financial ratios be maintained. The Company has
received the consent of the Lenders to implement the stock repurchase program
described below under  Stock Repurchase Program.

The Companys payment and performance of its obligations under the Credit
Agreement and ancillary documents are secured by liens on all its assets. The
collateral arrangements are subject to the Amended and Restated Collateral
Trust Agreement dated as of July 31, 1998 (the Amended Collateral Trust
Agreement) that was signed with the Companys first credit agreement with a
syndicate of bank lenders that preceded the Credit Agreement. The Amended
Collateral Trust Agreement amended and superseded the Original Collateral Trust
Agreement. See Business  Arrangement Regarding Secured Notes.

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The Amended Collateral Trust Agreement created a collateral trust, with
Wilmington Trust Company as trustee, to secure the Companys obligations under
the Credit Agreement and to the Companys two other secured lenders, Principal
and Travelers Express. The Amended Collateral Trust Agreement includes
agreements regarding the priority of distributions to the secured lenders upon
foreclosure and liquidation of the collateral subject thereto and certain other
intercreditor arrangements.

To reduce its risk of greater interest expense because of interest-rate
fluctuations, the Company has entered into interest-rate swap agreements, which
effectively converted a portion of its floating-rate interest obligations to
fixed-rate interest obligations, as described in Notes 1 and 7 to the Audited
Consolidated Financial Statements.

The Company anticipates the renewal in November 2001 of its existing credit
facilities with the Lenders as well as the payment of the next annual $4
million installment of principal of its senior secured notes in late-November
2001. But the Company is also exploring other potential means of obtaining
additional debt capital to be used for general corporate purposes, including
(in part) to deploy additional self-service machines. The Company may pursue,
among other arrangements, a private placement of approximately $60 to $80
million of new senior secured notes of the Company. The Company cannot,
however, predict when, or from what source, it may obtain additional debt
capital, if any. Assuming its current credit facilities with the Lenders are
renewed, the Companys sources of capital are expected to be sufficient to
operate its business and pursue its growth strategy.

Stock Repurchase Program

The Companys Board of Directors has authorized the repurchase from time to
time of up to approximately $5 million of the Companys Common Stock in the
open market or in negotiated transactions. This stock repurchase program will
remain in effect unless discontinued by the Board of Directors. During the
fiscal year ended June 30, 2001, the Company repurchased 30,000 shares at an
average price of $10.19 per share, and during the fiscal year ended June 30,
2000, the Company repurchased 181,400 shares at an average price of $13.25 per
share.

Litigation Expenses

As indicated in Legal Proceedings above, the Company is increasingly being
required to defend itself and, in some matters, its directors, officers, and
others in various lawsuits and state regulatory proceedings regarding its
current and past loan-related activities. The Company has incurred, and
expects to continue to incur, significant legal expenses in conducting that
defense, regardless of the Companys success in defending or otherwise
resolving the various proceedings. The Company is, in accordance with its
Bylaws, paying the expenses of defense for its directors, officers, employees,
and other employees named as additional defendants in these lawsuits. The
Company also is, in accordance with the Goleta Agreement, paying substantially
all of the expenses of Goleta as a party in these proceedings. Because of the
various factors involved in litigation and regulatory proceedings, it is
impossible to predict an amount or a range of amounts that the Company may have
to expend to conduct that defense. But the Company currently estimates that
its legal expenses in defending, for itself and others, the various lawsuits
and state regulatory proceedings will be approximately $1.2 million during the
fiscal year ending June 30, 2002.

Recently Issued Accounting Pronouncements

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information,
beginning with its fiscal year ended June 30, 1999. This standard requires the
Company to report financial and descriptive information about its reportable
operating segments. The Company considers its franchise operations to be a
reportable operating segment and has included appropriate disclosures in its
notes to the financial statements for the years ended June 30, 2001, 2000, and
1999.

As required, effective July 1, 1999, the Company adopted the accounting
standard, AICPA Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities, which requires that the previously capitalized start-up costs to
be recognized as a cumulative effect of change in accounting principle and
expensed fully in the period of adoption. This resulted in a cumulative effect
on net income of $0.6 million net of an income tax benefit of $0.4 million for
the fiscal year ended June 30, 2000.

As required, the Company adopted Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities, (SFAS
133) effective July 1, 2000. This standard requires the Company to record the
fair value of its interest-rate swaps as an asset or liability in the
consolidated balance sheets. The effective portion of the gains or losses from
the changes in the fair value of the interest-rate swaps are reported as a
component of accumulated other comprehensive income (loss) in the Companys
consolidated statements of shareholders equity until earnings are affected by
the variability of cash flows of the hedged transaction. The adoption of SFAS
133 resulted in a $648,000 credit to accumulated other comprehensive income
(loss) for the cumulative effect of accounting change representing the
transition adjustment.

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In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101), which was effective during fiscal 2001. SAB 101 provides
additional guidance on revenue recognition as well as criteria for when revenue
is generally realized and earned. There was no impact on the Companys revenue
recognition policies as a result of SAB 101.

In June 2001, the Financial Accounting Standards Board issued SFAS Nos. 141 and
142 (SFAS 141 and SFAS 142), Business Combinations and Goodwill and
Other Intangible Assets, respectively. SFAS 141 supersedes APB 16 and
eliminates pooling-of-interests accounting prospectively. It also provides
guidance on purchase accounting related to the recognition of intangible assets
and financial statement disclosures. SFAS 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach. Under SFAS
142, goodwill will be tested annually and whenever events or circumstances
occur indicating that goodwill might be impaired. SFAS 141 and SFAS 142 are
effective for all business combinations completed after June 30, 2001. Upon
adoption of SFAS 142, amortization of goodwill will cease. Companies are
required to adopt SFAS 142 for fiscal years beginning after December 15, 2001,
but early adoption is permitted under certain circumstances. It is anticipated
that the adoption of SFAS 141 will not have a material impact on the Companys
results of operations and financial position. The Company will adopt SFAS 142
effective July 1, 2001, and the expected impact of the adoption of SFAS 142 on
the fiscal 2002 results of operations is the discontinuation of recording
approximately $2.7 million of amortization expense associated with goodwill.

Operating Trends

Seasonality

The Companys business is seasonal to the extent of the impact of cashing tax
refund checks. The impact of these services is in the third and fourth quarters
of the Companys fiscal year.

Impact of Inflation

Management believes that the Companys results of operations are not dependent
upon the levels of inflation.

Forward-Looking Statements

This Report contains, and from time to time the Company or certain of its
representatives may make, forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
identified by the use of words such as anticipate, expect, estimate,
believe, intend, and terms with similar meanings. Although the Company
believes that the current views and expectations reflected in these
forward-looking statements are reasonable, those views and expectations, and
the related statements, are inherently subject to risks, uncertainties, and
other factors, many of which are not under the Companys control and may not
even be predictable. Those risks, uncertainties, and other factors could cause
the actual results to differ materially from these in the forward-looking
statements. Those risks, uncertainties, and factors include, but are not
limited to, many of the matters described in this Report: the Companys
relationships with Travelers Express and its affiliates, with Goleta, and with
the Lenders; governmental regulation of check-cashing, short-term consumer
lending, and related financial services businesses; the results of legal
proceedings regarding the Companys loan-related activities; theft and employee
errors; the availability of suitable locations, acquisition opportunities,
adequate financing, and experienced management employees to implement the
Companys growth strategy; the fragmentation of the check-cashing industry and
competition from various other sources, such as banks, savings and loans,
short-term consumer lenders, and other similar financial services entities, as
well as retail businesses that offer products and services offered by the
Company; the terms and performance of third-party products and services offered
at the Company locations; and customer demand and response to products and
services offered by the Company. The Company expressly disclaims any
obligations to release publicly any updates or revisions to these
forward-looking statements to reflect any change in its views or expectations.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to financial market risks, particularly including
changes in interest rates that might affect the costs of its financing under
the Credit Agreement. To mitigate the risks of changes in interest rates, the
Company utilizes derivative financial instruments. The Company does not use
derivative financial instruments for speculative or trading purposes. To reduce
its risk of greater interest expense because of interest-rate fluctuations, the
Company has entered into interest-rate swap agreements, which effectively
converted a portion of its floating-rate interest obligations to fixed-rate
interest obligations, as described in Notes 1 and 7 to the Audited Consolidated
Financial Statements.

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The fair value of the Companys existing interest-rate swap is ($2.2) million
as of June 30, 2001. Based on the average outstanding indebtedness in the
previous quarter, a 10% change in interest rates would have changed the
Companys interest expense by approximately $842,000 (pre-tax) for the year
ended June 30, 2001 without consideration of the Companys interest-rate swap.
The associated underlying debt has exceeded the notional amount for each swap
throughout the existence of the swap and it is anticipated that it will
continue to do so. The remaining swap is based on the same index as, and
repriced on a consistent basis with, its respective underlying debt.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Part IV, Item 14(a) 1 for information required for this item.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.




PART III

The information called for in Part III of this Form 10-K is incorporated
by reference from the Companys definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than
October 28, 2001 (120 days after the Companys fiscal year).




PART IV




ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

The following documents are filed as part of this report:

|                                                                                                  |  |  |    | 
|------------------------------------------------------------------------------------------------- |  |  | -- | 
|1. Financial Statements.                                                                          |  |  |    | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Report of independent public accountants                                                          |  |  | 40 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Consolidated balance sheets as of June 30, 2001 and 2000                                          |  |  | 41 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Consolidated statements of earnings for the years ended June 30, 2001, 2000, and 1999             |  |  | 42 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Consolidated statements of shareholders equity for the years ended June 30, 2001, 2000, and 1999 |  |  | 43 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Consolidated statements of cash flows for the years ended June 30, 2001, 2000, and 1999           |  |  | 44 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Notes to consolidated financial statements                                                        |  |  | 45 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|2. Financial Statement Schedules.                                                                 |  |  |    | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Report of independent public accountants                                                          |  |  | 67 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Schedule II  Valuation and Qualifying Accounts                                                   |  |  | 68 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|3. Exhibits.                                                                                      |  |  |    | 

|               |  |                                                                                                                                                                                                                                            
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibits                                                                                                                                                                                                                                   
|3.1            |  | Restated Articles of Incorporation of the Company, as amended through
January 31, 1998. (Included as Exhibit 3.6 to the Companys Form 10-Q
as of December 31, 1997 (Commission File Number 0-20774) and
incorporated herein by reference.)
|              
|              
|              
|              
|3.2            |  | Amended and Restated Bylaws of the Company, as amended through January
31, 1998. (Included as Exhibit 3.7 to the Companys Form 10-Q as of
December 31, 1997 (Commission File Number 0-20774) and incorporated
herein by reference.)       

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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|3.3   |  | Certificate of Amendment to the Companys Bylaws dated January 3, 2000.
(Included as Exhibit 3.3 to the Companys Form 10-Q as of December 31,
1999 (Commission File Number 0-20774) and incorporated herein by
reference.)                                                                                                                                                                                                                                                                                                   
|     
|     
|     
|     
|4.1   |  | Form of Certificate representing shares of Registrants Common Stock.
(Included as Exhibit 4.1 to the Companys Registration Statement on
Form S-1 (Reg. No. 33-53286) (the Registration Statement) and
incorporated herein by reference.)                                                                                                                                                                                                                                                                                  
|     
|     
|     
|     
|10.1  |  | Ace Cash Express, Inc. 1987 Stock Option Plan, as amended (including
form of Incentive Stock Option Agreement). (Included as Exhibit 10.1 to
the Registration Statement and incorporated herein by reference.)#                                                                                                                                                                                                                                                                                                               
|     
|     
|     
|     
|10.2  |  | 1992 Master Agreement dated October 14, 1992 (the Money Order
Agreement) between the Company and American Express Travel Related
Services Company, Inc. (the Money Order Supplier). (Confidential
treatment for a portion of this document has been granted by the
Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934) (Included as Exhibit 10.4 to the
Registration Statement and incorporated herein by reference.)                                                    
|     
|     
|     
|     
|10.3  |  | Agreement Regarding Stock Pledges dated as of November 20, 1992,
between the Company and the shareholders pledging shares of Common
Stock to secure the performance of the Companys obligations under the
Money Order Agreement. (Included as Exhibit 10.7 to the Registration
Statement and incorporated herein by reference.)                                                                                                                                                                                              
|     
|     
|     
|     
|10.4  |  | Lease Agreement dated October 1, 1987, between the Company and Greenway
Tower Joint Venture, as amended by First Amendment to Lease Agreement
dated April 29, 1988, Second Amendment to Lease Agreement dated August
24, 1988, Third Amendment to Lease Agreement dated December 29, 1988
and Fourth Amendment to Lease Agreement dated January 29, 1991.
(Included as Exhibit 10.8 to the Registration Statement and
incorporated herein by reference.)                                                                      
|     
|     
|     
|     
|10.5  |  | First Amendment to the Money Order Agreement dated December 1,1992,
between the Company and the Money Order Supplier. (Included as Exhibit
10.9 to the Registration Statement and incorporated herein by
reference.)                                                                                                                                                                                                                                                                                                          
|     
|     
|     
|     
|10.6  |  | Agreement for Purchase and Sale of Stock Assets dated January 2, 1992,
between T.J. Martin (Martin) and R.C. Hemmig (Hemmig). (Included as
Exhibit 10.10 to the Registration Statement and incorporated herein by
reference.)                                                                                                                                                                                                                                                                                             
|     
|     
|     
|     
|10.7  |  | Option to Repurchase, dated January 2, 1992, in favor of Hemmig.
(Included as Exhibit 10.12 to the Registration Statement and
incorporated herein by reference.)                                                                                                                                                                                                                                                                                                                                                              
|     
|     
|     
|     
|10.8  |  | Irrevocable Proxy of Martin dated January 2, 1992 in favor of Hemmig.
(Included as Exhibit 10.13 to the Registration Statement and
incorporated by reference herein.)                                                                                                                                                                                                                                                                                                                                                         
|     
|     
|     
|     
|10.9  |  | Letter Agreement between First Data Corporation and the Company dated
December 6, 1993, amending the First Amendment to the Money Order
Agreement. (Included as Exhibit 10.9 to the Companys Form 10-K as of
June 30, 1994 (Commission File Number 0-20774) and incorporated herein
by reference.)                                                                                                                                                                                                                           
|     
|     
|     
|     
|10.10 |  | Fifth Amendment to Lease Agreement dated June 13, 1994, between the
Company and Greenway Tower Joint Venture. (Included as Exhibit 10.10 to
the Companys Form 10-K as of June 30, 1994 (Commission File Number
0-20774) and incorporated herein by reference.)                                                                                                                                                                                                                                                               
|     
|     
|     
|     
|10.11 |  | Asset Purchase Agreement dated November 22, 1993, among the Company,
sole proprietor, limited partnership, and general partnerships that
conduct business under the name Mr. Money Check Cashers (the
Sellers), general partners of the partnership sellers (the General
Partners), and an individual agent for the Sellers and the General
Partners (the Agent). (Included as Exhibit 2.1 in the Companys Form
8-K filed on December 7, 1993 (Commission File Number 0-20774) and
incorporated herein by reference.)
|     
|     
|     
|     
|10.12 |  | Food Stamp Sub-Contract Agreement dated November 22, 1993, between the
Company and the Agent. (Included as Exhibit 2.2 to the Companys Form
8-K filed on December 7,1993 (Commission File Number 0-20774) and
incorporated herein by reference.)                                                                                                                                                                                                                                                                             
|     
|     
|     
|     
|10.13 |  | Ace Cash Express, Inc. 401(k) Profit Sharing Plan, adopted July 1,
1994. (Included as Exhibit 10.13 to the Companys Form 10-K as of June
30, 1994 (Commission File Number 0-20774) and incorporated herein by
reference.)#                                                                                                                                                                                                                                                                                                   

34



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                          
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.14 |  | Ace Cash Express, Inc. Deferred Compensation Plan, adopted July 1,
1994. (Included as Exhibit 10.14 to the Companys Form 10-K as of June
30, 1994 (Commission File Number 0-20774) and incorporated herein by
reference.)#                                                                                                              
|     
|     
|     
|     
|10.15 |  | Asset Purchase Agreement dated June 27, 1995, among the Company and
Quick Cash, Inc., Q.C. & G. Financial, Inc., David Christenholz and
Gloria Guerra-Leyva. (Included as Exhibit 2.1 to the Companys Form 8-K
filed on July 11, 1995 (Commission File Number 0-20774) and
incorporated herein by reference.)                           
|     
|     
|     
|     
|10.16 |  | Escrow Agreement dated June 27, 1995, among the Company, Quick Cash,
Inc., Q.C. & G. Financial, Inc., David Christenholz, Gloria
Guerra-Leyva, and Bank One, Arizona, NA, as escrow agent. (Included as
Exhibit 2.2 to the Companys Form 8-K filed July 11, 1995 (Commission
File Number 0-20774) and incorporated herein by reference.)
|     
|     
|     
|     
|10.17 |  | Promissory Note dated June 27, 1995, of the Registrant in favor of the
Money Order Supplier. (Included as Exhibit 2.3 to Form 8-K filed July
11, 1995 and incorporated herein by reference.)                                                                                                                                             
|     
|     
|     
|     
|10.18 |  | Second Amendment to the Money Order Agreement dated September 8, 1995,
between the Company and the Money Order Supplier. (Included as Exhibit
10.18 to the Companys Form 10-K as of June 30, 1995 (Commission File
Number 0-20774) and incorporated herein by reference.)                                                               
|     
|     
|     
|     
|10.19 |  | Ace Cash Express, Inc. Non-Employee Directors Stock Option Plan dated
March 27, 1995. (Included as Exhibit 10.19 to the Companys Form 10-K
as June 30, 1995 (Commission File Number 0-20774) and incorporated
herein by reference.)                                                                                                     
|     
|     
|     
|     
|10.20 |  | Letter Agreement dated July 13, 1995, between First Data Corporation
and the Company amending the Money Order Agreement. (Included as
Exhibit 10.20 to the Companys Form 10-K as of June 30, 1995
(Commission File Number 0-20774) and incorporated herein by reference.)                                                               
|     
|     
|     
|     
|10.21 |  | Letter Agreement dated February 1, 1996, between the Company and the
Money Order Supplier amending the Money Order Agreement. (Included as
Exhibit 10.21 to the Companys Form 10-Q as of December 31, 1995
(Commission File Number 0-20774) and incorporated herein by reference.)                                                      
|     
|     
|     
|     
|10.22 |  | 1996 MoneyGram Master Agreement dated February 1, 1996, between the
Company and the Money Order Supplier (the MoneyGram Agreement).
(Included as Exhibit 10.22 to the Companys Form 10-Q as of December
31, 1995 (Commission File Number 0-20774) and incorporated herein by
reference.)                                              
|     
|     
|     
|     
|10.23 |  | Agreement and Plan of Merger dated October 13, 1995, among the Company,
Check Express, Inc., and Ace Acquisition Corporation. (Included as
Exhibit 2.1 to the Companys Form 8-K filed on February 16,1996
(Commission File Number 0-20774) and incorporated herein by reference.)                                                       
|     
|     
|     
|     
|10.24 |  | Amendment (to Agreement and Plan of Merger) dated December 20, 1995,
among the Company, Check Express, Inc., and Ace Acquisition
Corporation. (Included as Exhibit 2.2 to the Companys Form 8-K filed
on February 16, 1996 (Commission File Number 0-20774) and incorporated
herein by reference.)                                      
|     
|     
|     
|     
|10.25 |  | Sixth Amendment to Lease Agreement dated February 1, 1996, between the
Company and Greenway Tower Joint Venture. (Included as Exhibit 10.25 to
the Companys Form 10-Q as of March 31, 1996 (Commission File Number
0-20774) and incorporated herein by reference.)                                                                      
|     
|     
|     
|     
|10.26 |  | 1996-A Amendment to the MoneyGram Agreement dated March 21, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.26 to the Companys Form 10-K as of June 30, 1996 (Commission File
Number 0-20774) and incorporated herein by reference.)                                                                    
|     
|     
|     
|     
|10.27 |  | 1996-B Amendment to the MoneyGram Agreement dated June 27, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.27 to the Companys Form 10-K as of June 30, 1996 (Commission file
Number 0-20774) and incorporated herein by reference.)                                                                     
|     
|     
|     
|     
|10.28 |  | Note Purchase Agreement dated November 15, 1996, between the Company
and Principal Life Insurance Company. (Included as Exhibit 10.28 to the
Companys Form 10-Q as of December 31, 1996 (Commission File Number
0-20774) and incorporated herein by reference.)                                                                         

35



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.29 |  | Form of 9.03% Senior Secured Notes due November 15, 2003. (Included as
Exhibit 10.29 to the Companys Form 10-Q as of December 31, 1996
(Commission File Number 0-20774) and incorporated herein by reference.)                                                                                                                                                                                                                                                                     
|     
|     
|     
|     
|10.30 |  | Collateral Trust Agreement dated November 15, 1996, among the Company
and the Money Order Supplier, Principal Life Insurance Company, and
Wilmington Trust Company. (Included as Exhibit 10.30 to the Companys
Form 10-Q as of December 31, 1996 (Commission File Number 0-20774) and
incorporated herein by reference.)                                                                                                                                                           
|     
|     
|     
|     
|10.31 |  | Assignment of Deposit Accounts and Security Agreement dated November
15, 1996, between the Company and Wilmington Trust Company. (Included
as Exhibit 10.31 to the Companys Form 10-Q as of December 31, 1996
(Commission File Number 0-20774) and incorporated herein by reference.)                                                                                                                                                                                              
|     
|     
|     
|     
|10.32 |  | Third Amendment to the Money Order Agreement dated November 15, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.32 to the Companys Form 10-Q as of December 31, 1996 (Commission
File Number 0-20774) and incorporated herein by reference.)                                                                                                                                                                                                       
|     
|     
|     
|     
|10.33 |  | Amendment No.1 to the Ace Cash Express 401K Profit Sharing Plan
effective January 1, 1998. (Included as Exhibit 10.33 to the Companys
Form 10-Q as of March 31, 1998 (Commission File Number 0-20774) and
incorporated herein by reference.)#                                                                                                                                                                                                                                      
|     
|     
|     
|     
|10.34 |  | Amendment No. 1 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.34 to the Companys Form 10-K as
of June 30, 1998 (Commission File No. 0-20774) and incorporated herein
by reference.) #                                                                                                                                                                                                                                                
|     
|     
|     
|     
|10.35 |  | Amendment No. 2 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.35 to the Companys Form 10-K as
of June 30, 1998 (Commission File No. 0-20774) and incorporated herein
by reference.) #                                                                                                                                                                                                                                                
|     
|     
|     
|     
|10.36 |  | Ace Cash Express, Inc. 1997 Stock Option Plan. (Included as Exhibit A
to the Companys Proxy Statement for the 1997 Annual Meeting of
Shareholders (Commission File No. 0-20774) and incorporated herein by
reference.)#                                                                                                                                                                                                                                                            
|     
|     
|     
|     
|10.37 |  | Amendment No. 1 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.37 to the Companys Form 10-K as of June 30,
1998 (Commission File No. 0-20774) and incorporated herein by
reference.) #                                                                                                                                                                                                                                                                  
|     
|     
|     
|     
|10.38 |  | Form of Change-in-Control Executive Severance Agreement between the
Company and each of its three executive officers. (Included as Exhibit
10.38 to the Companys Form 10-K as of June 30, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.) #                                                                                                                                                                                                              
|     
|     
|     
|     
|10.39 |  | Money Order Agreement dated as of April 16, 1998, but effective as of
December 16, 1998, between the Company and Travelers Express Company,
Inc. (Confidential treatment for a portion of this document has been
granted by the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934). (Included as Exhibit
10.39 to the Companys Form 10-K as of June 30, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.)
|     
|     
|     
|     
|10.40 |  | Credit Agreement dated as of July 31, 1998, but effective as of
December 16, 1998, among the Company, Wells Fargo Bank (Texas),
National Association, as agent (the Credit Agent), and the lenders
named therein, with Exhibits A and B thereto and Schedules 2.01(a) and
2.01(b) thereto. (Included as Exhibit 10.40 to the Companys Form 10-K
as of June 30, 1998 (Commission File No. 0-20774) and incorporated
herein by reference.)                                         
|     
|     
|     
|     
|10.41 |  | Amended and Restated Collateral Trust Agreement dated as of July 31,
1998, but effective as of December 16, 1998, among the Company, the
Credit Agent, Travelers Express Company, Inc., Principal Life Insurance
Company (formerly known as Principal Mutual Life Insurance Company),
and Wilmington Trust Company. (Included as Exhibit 10.41 to the
Companys Form 10-K as of June 30, 1998 (Commission File No. 0-20774)
and incorporated herein by reference.)                  
|     
|     
|     
|     
|10.42 |  | Amended and Restated Assignment of Deposit Accounts and Security
Agreement dated as of July 31, 1998, but effective as of December 16,
1998, between the Company and Wilmington Trust Company. (Included as
Exhibit 10.42 to the Companys Form 10-K as of June 30, 1998
(Commission File No. 0-20774) and incorporated herein by reference.)                                                                                                                                       

36



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.43 |  | First Amendment to Credit Agreement dated as of December 16, 1998,
among the Company, the Credit Agent, and the lenders named therein,
with Schedules 2.01(a) and 2.01(b) thereto. (Included as Exhibit 10.43
to the Companys Form 8-K filed on December 23, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.)                                                                                                                                                                                                                                                                    
|     
|     
|     
|     
|10.44 |  | Amendment No. 3 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.44 to the Companys Form 10-Q as
of December 31, 1998 (Commission File No. 0-20774) and incorporated
herein by reference.)#                                                                                                                                                                                                                                                                                                                                                                    
|     
|     
|     
|     
|10.45 |  | Amendment No. 2 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.45 to the Companys Form 10-Q as of December
31, 1999 (Commission File Number 0-20774) and incorporated herein by
reference.)#                                                                                                                                                                                                                                                                                                                                                                                   
|     
|     
|     
|     
|10.46 |  | Second Amendment to Credit Agreement dated as of December 15, 1999,
among the Company, the Credit Agent , and the lenders named therein,
with Schedules 2.01(a) and 2.01(b) thereto. (Included as Exhibit 10.46
to the Companys Form 10-Q as of December 31, 1999 (Commission File
Number 0-20774) and incorporated herein by reference.)                                                                                                                                                                                                                                                                 
|     
|     
|     
|     
|10.47 |  | Master Loan Agency Agreement dated as of August 11, 1999, between the
Company and Goleta National Bank. (Confidential treatment for a portion
of this document has been granted by the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.)                                                                                                                                                                                                                                                                                                               
|     
|     
|     
|     
|10.48 |  | Money Transfer Agreement dated as of June 30, 2000, among the Company,
Travelers Express Company, Inc., and MoneyGram Payment Systems, Inc.
(Confidential treatment for a portion of this document has been granted
by the Securities and Exchange Commission pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934.)                                                                                                                                                                                                                                                                           
|     
|     
|     
|     
|10.49 |  | Change-in-Control Executive Severance Agreement dated as of August 17,
2000, between the Company and Debra A. Bradford.#                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     
|     
|     
|     
|10.50 |  | Amendment No. 3 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.50 to the Companys Form 10-Q as of December
31, 2000 (Commission File No. 0-20774) and incorporated herein by
reference.)#                                                                                                                                                                                                                                                                                                                                                                                      
|     
|     
|     
|     
|10.51 |  | Amended and Restated Credit Agreement dated November 9, 2000, among the
Company, Wells Fargo Bank Texas, National Association, as agent for the
lenders named therein, and the lenders named therein with the Schedules
(other than the Companys disclosure schedules) and the Exhibits
thereto. (Included as Exhibit 10.1 to the Companys Form 8-K dated
November 9, 2000 (Commission File No. 0-20774) and incorporated herein
by reference.)                                                                                                                                                          
|     
|     
|     
|     
|10.52 |  | Asset Purchase Agreement dated November 10, 2000, among the Company,
Check Cashiers of Arizona, Inc., Check Cashiers of California, Inc.,
Corpus Christi Check Cashiers, Inc., U.S. Money Order Company, Inc.,
Valley Check Cashiers, Inc., Morris Silverman, and Jeffrey D.
Silverman. (Included as Exhibit 2.1 to the Companys Form 8-K dated
November 10, 2000 (Commission File No. 0-20774) and incorporated herein
by reference.)                                                                                                                                                                    
|     
|     
|     
|     
|10.53 |  | Escrow Agreement dated November 10, 2000, among the Company, Check
Cashiers of Arizona, Inc., Check Cashiers of California, Inc., Corpus
Christi Check Cashiers, Inc. U.S. Money Order Company, Inc., Valley
Check Cashiers, Inc., and Chicago Title Insurance Company, as Escrow
Agent. (Included as Exhibit 2.2 to the Companys Form 8-K dated
November 10, 2000 (Commission File No. 0-20774) and incorporated herein
by reference.)                                                                                                                                                                   
|     
|     
|     
|     
|10.54 |  | Form of Amendment to Change-in-Control Executive Severance Agreement
between the Company and each of its four senior executive officers
(Donald H. Neustadt, Jay B. Shipowitz, Raymond E. McCarty, and Debra A.
Bradford) dated as of January 3, 2001. (Included as Exhibit 10.51 to
the Companys Form 10-Q as of March 31, 2001 (Commission File No.
0-20774) and incorporated herein by reference.)#                                                                                                                                                                                                    
|     
|     
|     
|     
|10.55 |  | Amendment Number 1 to Master Loan Agency Agreement, with the
corresponding Amendment Number 1 to Master Loan Participation Agreement
and Amendment Number 1 to Schedule of Interest and Fees, dated of March
29, 2001, between the Company and Goleta National Bank. (Confidential
treatment for a portion of this document has been submitted to the
Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.) (Included as Exhibit 10.52 to the
Companys Form 10-Q as of March 31, 2001 (Commission File No. 0-20774)
and incorporated herein by reference.)
|     
|     
|     
|     
|10.56 |  | Change-in-Control Executive Severance Agreement dated as of May 15,
2001, between the Company and Barry M. Barron.*#                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

37



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.57 |  | Amendment Number 2 to Master Loan Agency Agreement, with the
corresponding Amendment Number 2 to Master Loan Participation
Agreement, dated of June 30, 2001, between the Company and Goleta
National Bank. (Application for confidential treatment for a portion of
this document has been submitted to the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.)*
|     
|     
|     
|     
|10.58 |  | Change-in-Control Executive Severance Agreement dated as of July 16,
2001, between the Company and Joe W. Conner.*#                                                                                                                                                                                                                                                                                                
|     
|     
|     
|     
|21    |  | Subsidiaries of the Company.*                                                                                                                                                                                                                                                                                                                                                                                      



---

|* |  | Filed herewith                                         
|- |  | -------------------------------------------------------
| 
| 
| 
| 
|# |  | Management contract or compensatory plan or arrangement

(b)  Reports on Form 8-K

None.

38



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##### Table of Contents






SIGNATURES

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

| |     |                            
| | --- | ---------------------------
| |     | ACE CASH EXPRESS, INC.     
|
|
|
|
| | By: | /s/ JOE W. CONNER          
|
|
|
|
| |     | Joe W. Conner              
|
|
|
|
| |     | Senior Vice President      
|
|
|
|
| |     | and Chief Financial Officer
|
|
|
|
| |     | Date: September 28, 2001   

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

|                                             |  |                                                                                                                        |  | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | 
|Signature                                    |  | Title                                                                                                                  |  | 
|                                             |  |                                                                                                                        |  | 
|/s/ RAYMOND C. HEMMIG

Raymond C. Hemmig     |  | Chairman of the Board, Director                                                                                        |  | 
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|/s/ DONALD H. NEUSTADT

Donald H. Neustadt   |  | Chief Executive Officer,
Director (Principal Executive Officer)                                                        |  | 
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|/s/ JAY B. SHIPOWITZ

Jay B. Shipowitz       |  | President and Chief Operating Officer
Director                                                                         |  | 
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|/s/ JOE W. CONNER

Joe W. Conner             |  | Senior Vice President and Chief Financial Officer
Treasurer and Secretary (Principal Financial and
Accounting Officer) |  | 
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|/s/ MICHAEL S. RAWLINGS

Michael S. Rawlings |  | Director                                                                                                               |  | 
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|/s/ MARSHALL B. PAYNE

Marshall B. Payne     |  | Director                                                                                                               |  | 
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|/s/ EDWARD W. ROSE III

Edward W. Rose III   |  | Director                                                                                                               |  | 
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|/s/ CHARLES DANIEL YOST
Charles Daniel Yost  |  | Director                                                                                                               |  | 

39



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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Ace Cash Express, Inc.:

We have audited the accompanying consolidated balance sheets of Ace Cash
Express, Inc., a Texas corporation, and subsidiaries as of June 30, 2001 and
2000, and the related consolidated statements of earnings, shareholders equity
and cash flows for each of the three years in the period ended June 30, 2001.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ace Cash Express,
Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2001, in conformity with accounting principles generally accepted in
the United States.

As explained in Note 1 to the consolidated financial statements, effective July
1, 1999, the Company changed its method of accounting for costs of start-up
activities, and effective July 1, 2000, the Company changed its method of
accounting for derivative instruments and hedging activities.

ARTHUR ANDERSEN LLP

Dallas, Texas,August 13, 2001

40



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##### Table of Contents



ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------- | ------- | -------- | ------- | ---- | ------- | ------ | ------- | 
|                                           |                                                                                                                                                                    |                                                                      |         | June 30,
|                                           |                                                                                                                                                                    |                                                                      |         |         
|                                           |                                                                                                                                                                    |                                                                      |         | 2001     |         | 2000
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |     
|ASSETS                                     |                                                                                                                                                                    |                                                                      |         |          |         |      |         |       
|                                          
|                                          
|                                          
|                                          
|Current Assets                             |                                                                                                                                                                    |                                                                      |         |          |         |      |         |       
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Cash and cash equivalents                                            |         | $        | 129,186 |      |         | $      | 105,577 | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Accounts receivable, net                                             |         |          | 3,558   |      |         |        | 5,985   | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Loans receivable, net                                                |         |          | 14,386  |      |         |        | 18,695  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Prepaid expenses and other current assets                            |         |          | 9,675   |      |         |        | 2,069   | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Inventories                                                          |         |          | 987     |      |         |        | 1,418   | 
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Total Current Assets                       |                                                                                                                                                                    |                                                                      | 157,792 |          |         |      | 133,744 |       
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Noncurrent Assets                          |                                                                                                                                                                    |                                                                      |         |          |         |      |         |       
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Property and equipment, net                                          |         |          | 39,168  |      |         |        | 36,915  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Covenants not to compete, net                                        |         |          | 2,012   |      |         |        | 1,429   | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Goodwill, net                                                        |         |          | 73,892  |      |         |        | 45,929  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Other assets                                                         |         |          | 3,333   |      |         |        | 3,406   | 
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Total Assets                               |                                                                                                                                                                    | $                                                                    | 276,197 |          |         | $    | 221,423 |       
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                                                                                    |                                                                      |         |          |         |      |         |       
|                                          
|                                          
|                                          
|                                          
|Current Liabilities                        |                                                                                                                                                                    |                                                                      |         |          |         |      |         |       
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Revolving advances                                                   |         | $        | 109,800 |      |         | $      | 95,000  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Accounts payable, accrued liabilities, and other current
liabilities |         |          | 23,303  |      |         |        | 21,422  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Money order principal payable                                        |         |          | 16,928  |      |         |        | 10,487  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Senior secured notes payable                                         |         |          | 4,000   |      |         |        | 4,000   | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Reducing revolving advances                                          |         |          | 1,125   |      |         |        | 3,469   | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Notes payable                                                        |         |          | 477     |      |         |        | 898     | 
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Total Current Liabilities                  |                                                                                                                                                                    |                                                                      | 155,633 |          |         |      | 135,276 |       
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Noncurrent Liabilities                     |                                                                                                                                                                    |                                                                      |         |          |         |      |         |       
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Senior secured notes payable                                         |         |          | 8,000   |      |         |        | 12,000  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Reducing revolving advances                                          |         |          | 51,875  |      |         |        | 15,031  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Notes payable                                                        |         |          | 601     |      |         |        | 438     | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                                    | Other liabilities                                                    |         |          | 5,362   |      |         |        | 3,519   | 
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Total Liabilities                          |                                                                                                                                                                    |                                                                      | 221,471 |          |         |      | 166,264 |       
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Commitments and Contingencies              |                                                                                                                                                                    |                                                                      |         |          |         |      |         |       
|                                          
|                                          
|                                          
|                                          
|Shareholders Equity                       |                                                                                                                                                                    |                                                                      |         |          |         |      |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Preferred stock, $1 par value, 1,000,000 shares authorized, none
issued and outstanding                                                                            |                                                                      |         |         |         |      |         |       |        
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock, $.01 par value, 20,000,000 shares authorized,
10,258,520 and 10,165,963 shares issued, and 10,047,120 and
9,984,563 shares outstanding, respectively |                                                                      |         | 100      |         |      |         | 100    |        
|                                          
|                                          
|                                          
|                                          
|                                           | Additional paid-in capital                                                                                                                                         |                                                                      |         | 23,288   |         |      |         | 22,715 |        
|                                          
|                                          
|                                          
|                                          
|                                           | Retained earnings                                                                                                                                                  |                                                                      |         | 35,356   |         |      |         | 34,745 |        
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated other comprehensive income (loss)                                                                                                                      |                                                                      |         | (1,311   | )       |      |         |       |        
|                                          
|                                          
|                                          
|                                          
|                                           | Treasury stock, at cost, 211,400 and 181,400 shares, respectively                                                                                                  |                                                                      |         | (2,707   | )       |      |         | (2,401 | )      
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Total Shareholders Equity                 |                                                                                                                                                                    |                                                                      | 54,726  |          |         |      | 55,159  |       
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 
|Total Liabilities and Shareholders Equity |                                                                                                                                                                    | $                                                                    | 276,197 |          |         | $    | 221,423 |       
|                                           |                                                                                                                                                                    |                                                                      |         |          |         |      |         |        |         | 

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

41



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##### Table of Contents



ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share amounts)

|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |       |        |        |        | 
|------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------ | -------------------- | ------ | ------------------- | ------- | ------ | ------ | ------ | ------- | ----- | ------ | ------ | ------ | 
|                                                                          |                                                                  |                                                                                  |                                |                      |        | Year Ended June 30,
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                    
|                                                                          |                                                                  |                                                                                  |                                |                      |        | 2001                |         | 2000   |        | 1999  
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |       
|Revenues                                                                  |                                                                  | $                                                                                | 196,775                        |                      |        | $                   | 140,636 |        |        | $      | 122,314 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Store expenses:                                                           |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                  |                                                                                  | Salaries and benefits          |                      |        | 51,969              |         |        |        | 38,639 |         |       |        | 32,435 |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                  |                                                                                  | Occupancy                      |                      |        | 26,439              |         |        |        | 21,507 |         |       |        | 18,381 |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                  |                                                                                  | Loan losses and loss provision |                      |        | 24,825              |         |        |        | 4,177  |         |       |        | 2,786  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                  |                                                                                  | Depreciation                   |                      |        | 6,697               |         |        |        | 5,429  |         |       |        | 4,728  |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                  |                                                                                  | Other                          |                      |        | 35,085              |         |        |        | 24,916 |         |       |        | 22,613 |       
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|                                                                          |                                                                  |                                                                                  |                                | Total store expenses |        |                     | 145,015 |        |        |        | 94,668  |       |        |        | 80,943 | 
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|Store gross margin                                                        |                                                                  |                                                                                  | 51,760                         |                      |        |                     | 45,968  |        |        |        | 41,371  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Region expenses                                                           |                                                                  |                                                                                  | 14,127                         |                      |        |                     | 11,119  |        |        |        | 9,369   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Headquarters expenses                                                     |                                                                  |                                                                                  | 10,328                         |                      |        |                     | 8,247   |        |        |        | 7,673   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Franchise expenses                                                        |                                                                  |                                                                                  | 1,017                          |                      |        |                     | 1,063   |        |        |        | 1,288   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Other depreciation and amortization                                       |                                                                  |                                                                                  | 5,087                          |                      |        |                     | 3,798   |        |        |        | 4,236   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest expense, net                                                     |                                                                  |                                                                                  | 12,016                         |                      |        |                     | 6,123   |        |        |        | 4,476   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Other expenses                                                            |                                                                  |                                                                                  | 8,168                          |                      |        |                     | 955     |        |        |        | 689     |      
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|Income before income taxes and cumulative
effect of accounting change     |                                                                  |                                                                                  | 1,017                          |                      |        |                     | 14,663  |        |        |        | 13,640  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Income taxes                                                              |                                                                  |                                                                                  | 406                            |                      |        |                     | 5,797   |        |        |        | 5,390   |      
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|Income before cumulative effect of
accounting change (See Note 1)         |                                                                  |                                                                                  | 611                            |                      |        |                     | 8,866   |        |        |        | 8,250   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cumulative effect of accounting change, net
of income tax benefit of $402 |                                                                  |                                                                                  |                               |                      |        |                     | (603    | )      |        |        |        |      
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|Net income                                                                |                                                                  | $                                                                                | 611                            |                      |        | $                   | 8,263   |        |        | $      | 8,250   |      
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|Basic earnings per share                                                  |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Before cumulative effect of accounting change                    |                                                                                  | $                              | .06                  |        |                     | $       | .88    |        |        | $       | .83   |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cumulative effect of accounting change                           |                                                                                  |                                |                     |        |                     |         | (.06   | )      |        |         |      |       
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|                                                                          | Basic earnings per share                                         |                                                                                  | $                              | .06                  |        |                     | $       | .82    |        |        | $       | .83   |       
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|                                                                          | Weighted average number of common
shares outstanding  basic EPS |                                                                                  |                                | 10,012               |        |                     |         | 10,067 |        |        |         | 9,989 |       
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|Diluted earnings per share                                                |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                  | Before cumulative effect of accounting change                                    |                                | $                    | .06    |                     |         | $      | .86    |        |         | $     | .80    |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                  | Cumulative effect of accounting change                                           |                                |                      |       |                     |         |        | (.06   | )      |         |       |       |       
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|                                                                          |                                                                  | Diluted earnings per share                                                       |                                | $                    | .06    |                     |         | $      | .80    |        |         | $     | .80    |       
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      
|                                                                          |                                                                  | Weighted average number of common
and dilutive shares outstanding   diluted EPS |                                |                      | 10,158 |                     |         |        | 10,361 |        |         |       | 10,283 |       
|                                                                          |                                                                  |                                                                                  |                                |                      |        |                     |         |        |        |        |         |      

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

42



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##### Table of Contents



ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(in thousands, except shares)

|                                                    |  |              |            |            |  |         |     |          |  |              |        |             |  |                |        |        |  |   |         |   |  |  |         |               |  |   |         |   |  |   |        |  
|--------------------------------------------------- |  | ------------ | ---------- | ---------- |  | ------- | --- | -------- |  | ------------ | ------ | ----------- |  | -------------- | ------ | ------ |  | - | ------- | - |  |  | ------- | ------------- |  | - | ------- | - |  | - | ------ | -
|                                                    |  | Common Stock |            |            |  |         |     |          |  |              |        | Accumulated |  | Treasury Stock |        |        |  |  
|                                                    |  |              |            | Additional |  |         |     |          |  | Other        |        |             |  | Total         
|                                                    |  |              |            |            |  |         |     |          |  | Paid-In      |        | Retained    |  | Comprehensive  |        |        |  |   |         |   |  |  |         | Shareholders'
|                                                    |  | Shares       |            | Amount     |  | Capital |     | Earnings |  | Income(Loss) |        | Shares      |  | Amount         |        | Equity
|                                                    |  |              |            |            |  |         |     |          |  |              |        |             |  |                |        |       
|Balance as of
June 30, 1998                         |  |              | 9,882,161  |            |  | $       | 99  |          |  | $            | 20,620 |             |  | $              | 18,232 |        |  | $ |        |   |  |  |        |               |  | $ |        |   |  | $ | 38,951 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Stock options
Exercised                             |  |              | 173,367    |            |  |         | 2   |          |  |              | 1,071  |             |  |                |       |        |  |   |        |   |  |  |        |               |  |   |        |   |  |   | 1,073  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net income                                          |  |              |           |            |  |         |    |          |  |              |       |             |  |                | 8,250  |        |  |   |        |   |  |  |        |               |  |   |        |   |  |   | 8,250  |  
|                                                    |  |              |            |            |  |         |     |          |  |              |        |             |  |                |        |        |  |   |         |   |  |  |         |               |  |   |         |   |  |   |        |  
|Balance as of
June 30, 1999                         |  |              | 10,055,528 |            |  |         | 101 |          |  |              | 21,691 |             |  |                | 26,482 |        |  |   |        |   |  |  |        |               |  |   |        |   |  |   | 48,274 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Stock options
Exercised                             |  |              | 110,435    |            |  |         | 1   |          |  |              | 1,024  |             |  |                |       |        |  |   |        |   |  |  |        |               |  |   |        |   |  |   | 1,025  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Repurchased
shares, at cost                         |  |              | (181,400   | )          |  |         | (2  | )        |  |              |       |             |  |                |       |        |  |   |        |   |  |  | 181,400 |               |  |   | (2,401  | ) |  |   | (2,403 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Net income                                          |  |              |           |            |  |         |    |          |  |              |       |             |  |                | 8,263  |        |  |   |        |   |  |  |        |               |  |   |        |   |  |   | 8,263  |  
|                                                    |  |              |            |            |  |         |     |          |  |              |        |             |  |                |        |        |  |   |         |   |  |  |         |               |  |   |         |   |  |   |        |  
|Balance as of
June 30, 2000                         |  |              | 9,984,563  |            |  |         | 100 |          |  |              | 22,715 |             |  |                | 34,745 |        |  |   |        |   |  |  | 181,400 |               |  |   | (2,401  | ) |  |   | 55,159 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Cumulative effect of
accounting change
(See Note 1) |  |              |           |            |  |         |    |          |  |              |       |             |  |                |       |        |  |   | 648     |   |  |  |        |               |  |   |        |   |  |   | 648    |  
|                                                   
|                                                   
|                                                   
|                                                   
|Stock options
exercised                             |  |              | 92,557     |            |  |         |    |          |  |              | 573    |             |  |                |       |        |  |   |        |   |  |  |        |               |  |   |        |   |  |   | 573    |  
|                                                   
|                                                   
|                                                   
|                                                   
|Repurchased
shares, at cost                         |  |              | (30,000    | )          |  |         |    |          |  |              |       |             |  |                |       |        |  |   |        |   |  |  | 30,000  |               |  |   | (306    | ) |  |   | (306   | )
|                                                   
|                                                   
|                                                   
|                                                   
|Change in fair value
of interest-rate swaps         |  |              |           |            |  |         |    |          |  |              |       |             |  |                |       |        |  |   | (1,959  | ) |  |  |        |               |  |   |        |   |  |   | (1,959 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Net income                                          |  |              |           |            |  |         |    |          |  |              |       |             |  |                | 611    |        |  |   |        |   |  |  |        |               |  |   |        |   |  |   | 611    |  
|                                                    |  |              |            |            |  |         |     |          |  |              |        |             |  |                |        |        |  |   |         |   |  |  |         |               |  |   |         |   |  |   |        |  
|Balance as of
June 30, 2001                         |  |              | 10,047,120 |            |  | $       | 100 |          |  | $            | 23,288 |             |  | $              | 35,356 |        |  |   | ($1,311 | ) |  |  | 211,400 |               |  |   | ($2,707 | ) |  | $ | 54,726 |  
|                                                    |  |              |            |            |  |         |     |          |  |              |        |             |  |                |        |        |  |   |         |   |  |  |         |               |  |   |         |   |  |   |        |  

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

43



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##### Table of Contents



ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

|                                                     |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |         |        |     |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------- | ------------------- | ------- | ------- | ------- | ------ | ------- | ------- | ------ | --- | ------- | -
|                                                     |                                                                                   |                                                             |                                           |                                           |         | Year Ended June 30,
|                                                     |                                                                                   |                                                             |                                           |                                           |         |                    
|                                                     |                                                                                   |                                                             |                                           |                                           |         | 2001                |         | 2000    |         | 1999  
|                                                     |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |       
|Cash flows from operating activities:                |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Net income                                           |                                                                                   | $                                                           | 611                                       |                                           |         | $                   | 8,263   |         |         | $      | 8,250   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                             |                                           |                                           |         |                     |         |         |         |        |         |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation and amortization                                                     |                                                             |                                           | 11,784                                    |         |                     |         | 9,227   |         |        |         | 8,970   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Loan loss provision                                                               |                                                             |                                           | 24,825                                    |         |                     |         |        |         |        |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Restructuring charge                                                              |                                                             |                                           | 6,630                                     |         |                     |         |        |         |        |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cumulative effect of accounting change                                            |                                                             |                                           |                                          |         |                     |         | 1,005   |         |        |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Deferred tax benefit                                                              |                                                             |                                           | (7,104                                    | )       |                     |         | 322     |         |        |         | 218     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Deferred revenue                                                                  |                                                             |                                           | (3,077                                    | )       |                     |         | (3,485  | )       |        |         | (2,202  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Changes in assets and liabilities:                   |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Accounts receivable, net                                    |                                           |                                           | 2,110   |                     |         |         | (1,761  | )      |         |         | (105   | )  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Loans receivable, net                                       |                                           |                                           | (20,516 | )                   |         |         | (13,152 | )      |         |         | (805   | )  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Prepaid expenses and other current assets                   |                                           |                                           | (7,606  | )                   |         |         | (824    | )      |         |         | (804   | )  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Inventories                                                 |                                           |                                           | 431     |                     |         |         | 93      |        |         |         | 938    |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Other assets                                                |                                           |                                           | (816    | )                   |         |         | (321    | )      |         |         | (1,297 | )  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Accounts payable, accrued liabilities and other liabilities |                                           |                                           | 13,083  |                     |         |         | 7,315   |        |         |         | 3,926  |    
|                                                     |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|                                                     |                                                                                   |                                                             |                                           | Net cash provided by operating activities |         |                     | 20,355  |         |         |        | 6,682   |         |        |     | 17,089  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from investing activities:                |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases of property and equipment, net                                          |                                                             |                                           | (12,655                                   | )       |                     |         | (12,255 | )       |        |         | (10,089 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cost of net assets acquired                                                       |                                                             |                                           | (35,841                                   | )       |                     |         | (11,359 | )       |        |         | (8,378  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in ePacific                                                            |                                                             |                                           |                                          |         |                     |         | (1,000  | )       |        |         |        |       
|                                                     |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|                                                     |                                                                                   |                                                             |                                           | Net cash used by investing activities     |         |                     | (48,496 | )       |         |        | (24,614 | )       |        |     | (18,467 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from financing activities:                |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net increase (decrease) in money order principal payable                          |                                                             |                                           | 6,441                                     |         |                     |         | 5,147   |         |        |         | (3,978  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net borrowings from revolving advances                                            |                                                             |                                           | 14,800                                    |         |                     |         | 54,900  |         |        |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net borrowings from reducing revolving advances                                   |                                                             |                                           | 34,500                                    |         |                     |         | 8,000   |         |        |         | 10,500  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net borrowings (repayments) of notes payable                                      |                                                             |                                           | (258                                      | )       |                     |         | 1,006   |         |        |         | 102     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payment of term advances from previous money order supplier                       |                                                             |                                           |                                          |         |                     |         |        |         |        |         | (7,073  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments of senior secured notes payable                                          |                                                             |                                           | (4,000                                    | )       |                     |         | (4,000  | )       |        |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from stock options exercised                                             |                                                             |                                           | 573                                       |         |                     |         | 1,025   |         |        |         | 1,073   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of treasury stock                                                        |                                                             |                                           | (306                                      | )       |                     |         | (1,983  | )       |        |         |        |       
|                                                     |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|                                                     |                                                                                   |                                                             | Net cash provided by financing activities |                                           |         | 51,750              |         |         |         | 64,095 |         |         |        | 624 |        
|                                                     |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                             | 23,609                                    |                                           |         |                     | 46,163  |         |         |        | (754    | )      
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of year         |                                                                                   |                                                             | 105,577                                   |                                           |         |                     | 59,414  |         |         |        | 60,168  |        
|                                                     |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|Cash and cash equivalents, end of year               |                                                                                   | $                                                           | 129,186                                   |                                           |         | $                   | 105,577 |         |         | $      | 59,414  |        
|                                                     |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|Supplemental disclosures of cash flows information:  |                                                                                   |                                                             |                                           |                                           |         |                     |         |         |         |        |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Interest paid                                                                     |                                                             | $                                         | 11,710                                    |         |                     | $       | 7,373   |         |        | $       | 5,202   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Income taxes paid                                                                 |                                                             | $                                         | 5,739                                     |         |                     | $       | 5,420   |         |        | $       | 4,395   |       

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

44



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##### Table of Contents



ACE CASH EXPRESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations

Ace Cash Express, Inc. (the Company) was incorporated under the laws of the
state of Texas in March 1982. The Company operates in one line of business
with two segments (company-owned and franchised operations) and provides
retail financial services, such as check-cashing, small consumer loans made by
Goleta National Bank, bill-payments, money orders, wire transfers, and other
transactional services to customers for a fee. On June 30, 2001, the Company
owned and operated 988 stores and had 175 franchised stores, with a total
network of 1,163 stores in 35 states and the District of Columbia.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Use of Estimates

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

Revenue Recognition

Check cashing fees, bill-payment fees, money transfer services fees and money
order fees, and all other transaction fees are recognized when the transaction
is completed. Loan fees and interest are recognized ratably over the term of
the loan. Revenue guarantees are recognized based on contractual terms. Any
bonus or incentive payments are amortized over the term of the respective
contract. The Company acts in an agency capacity on many of its products, and
therefore records the gross revenue less the cost remitted as revenue. See
Franchise Accountingbelow in this Note 1 for a description of revenue
recognition relative to franchises.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101), which was adopted during fiscal 2001. SAB 101 provides additional
guidance on revenue recognition as well as criteria for when revenue is
generally realized and earned. There was no impact on the Companys revenue
recognition policies as a result of SAB 101.

The components of revenue are as follows:

|                        |  |                     |         |      |  |      |         |  |  |   |         | 
|----------------------- |  | ------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                        |  | Year Ended June 30,
|                        |  |                    
|                        |  | 2001                |         | 2000 |  | 1999
|                        |  |                     |         |      |  |     
|                        |  | (in thousands)      |         |      |  |     
|Check cashing fees      |  | $                   | 105,479 |      |  | $    | 89,641  |  |  | $ | 78,839  | 
|                       
|                       
|                       
|                       
|Loan fees and interest  |  |                     | 54,771  |      |  |      | 17,872  |  |  |   | 14,257  | 
|                       
|                       
|                       
|                       
|Bill payment services   |  |                     | 10,376  |      |  |      | 9,447   |  |  |   | 8,394   | 
|                       
|                       
|                       
|                       
|Money transfer services |  |                     | 10,270  |      |  |      | 8,944   |  |  |   | 7,951   | 
|                       
|                       
|                       
|                       
|Money order fees        |  |                     | 7,245   |      |  |      | 7,032   |  |  |   | 5,332   | 
|                       
|                       
|                       
|                       
|Franchise revenues      |  |                     | 2,257   |      |  |      | 2,537   |  |  |   | 2,117   | 
|                       
|                       
|                       
|                       
|Other fees              |  |                     | 6,377   |      |  |      | 5,163   |  |  |   | 5,424   | 
|                        |  |                     |         |      |  |      |         |  |  |   |         | 
|Total revenue           |  | $                   | 196,775 |      |  | $    | 140,636 |  |  | $ | 122,314 | 
|                        |  |                     |         |      |  |      |         |  |  |   |         | 

Cash and Cash Equivalents

The Company considers all highly liquid investment securities purchased with an
original maturity of three months or less from the date of purchase to be cash
equivalents.

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##### Table of Contents



Accounts Receivable, Net

Accounts receivable, net, on the consolidated balance sheets as of June 30,
2001 and 2000 were $3.6 million and $6.0 million, respectively, and include the
MoneyGram receivable and other miscellaneous receivables, net of an allowance
for doubtful accounts of $0.1 million as of June 30, 2001 and 2000.

Loans Receivable, Net

The Company is a party to a Master Loan Agency Agreement and ancillary
agreements (the Goleta Agreement) with Goleta National Bank (Goleta), a
national bank located in Goleta, California. Under the Goleta Agreement, which
was first entered into in August 1999, the parties have developed and
implemented an arrangement under which short-term loans made by Goleta (Bank
Loan) are offered at company-owned locations. Currently, a Bank Loan may be
up to $500 and must be repaid or renewed in 14 days. Under the Goleta
Agreement, the Company purchases from Goleta a participation representing a
material and significant portion of each Bank Loan made on a previous day.
Goleta determines the interest rate (and other terms) of the Bank Loans.
Currently, a fee of $17 per $100 of Bank Loan is charged for each 14-day
period. As of June 30, 2001 and 2000, the gross receivable for the Companys
participation interests in Bank Loans was $27.6 million and $17.9 million,
respectively.

Through the payday loan product (Payday Loan), the Company provides the
customer cash in exchange for that customers check (in the amount of that cash
plus a service fee) with an agreement that the Company defer the presentment or
deposit of that check until the customers next payday, usually a period of two
to four weeks. As of June 30, 2001 and 2000, the gross receivable for Payday
Loans was approximately $0.2 million and $0.8 million, respectively.

Loans receivable, net, on the consolidated balance sheets as of June 30, 2001
and 2000 were $14.4 million and $18.7 million, respectively. Loans receivable,
net includes receivables for the Companys Payday Loans and the Companys
participation interest in the Bank Loans. In fiscal 2000, the Company
accounted for the full amount of loans not paid on the due date as a loan loss
in that period. In the first quarter of fiscal 2001, the Company established a
loan loss provision for its participation interests in the Bank Loans based on
the Companys prior experience with its Payday Loans. The losses resulting
from borrowers nonpayment of Bank Loans occurred at a different rate than that
originally anticipated and as a result, in the third quarter of fiscal 2001, an
additional loan loss provision of $8.5 million was established regarding the
Companys participation interests in Bank Loans.

The loan loss reserve of $13.4 million as of June 30, 2001 represents 48.2% of
the gross loans receivable as of that date. Loan losses for the fiscal years
ended June 30, 2001 and 2000 were $13.0 million and $4.2 million, respectively.
The Companys policy for determining the loan loss reserve requirement is
based on historical experience plus other factors deemed relevant based on
managements review and analysis of the payment and collection history
regarding the current loans. The Company charges off all loans which are 180
days or more contractually delinquent.

Inventories

Inventories consist of unsold lottery tickets, postage stamps and other
inventory. Lottery tickets and postage stamps are stated at purchase price and
accounted for using the specific identification method. Other inventories are
stated at cost and utilize the first-in, first-out method. No provision for
obsolescence is considered necessary.

|                          |  |                |     |      |  |   |       | 
|------------------------- |  | -------------- | --- | ---- |  | - | ----- | 
|                          |  | June 30,      
|                          |  |               
|                          |  | 2001           |     | 2000
|                          |  |                |     |     
|                          |  | (in thousands)
|Lottery tickets inventory |  | $              | 382 |      |  | $ | 1,061 | 
|                         
|                         
|                         
|                         
|Postage stamp inventory   |  |                | 298 |      |  |   | 201   | 
|                         
|                         
|                         
|                         
|Other inventory           |  |                | 307 |      |  |   | 156   | 
|                          |  |                |     |      |  |   |       | 
|                          |  | $              | 987 |      |  | $ | 1,418 | 
|                          |  |                |     |      |  |   |       | 

Property and Equipment

Depreciation of property and equipment is based on the lesser of the estimated
useful lives of the respective assets or the lease terms. The useful lives of
property and equipment by class are as follows: store equipment, furniture and
fixtures, four to ten years; leasehold improvements, the lesser of ten years or
the term of the lease; signs, eight years; and other property and equipment,
five to ten years. Depreciation is calculated on a straight-line basis.

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Intangible Assets

Goodwill is amortized on the straight-line method over 30 years. Covenants not
to compete are amortized over the applicable period of the contract, generally
ranging from two to five years.

As required, the Company adopted a new accounting standard, American Institute
of Certified Public Accountants (AICPA) Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-Up Activities, effective July 1, 1999. This
standard requires that previously capitalized start-up costs be recognized as a
cumulative effect of change in accounting principle and expensed fully in the
period of adoption. Start-up costs, net of tax, of $0.6 million were expensed
in the first quarter ended September 30, 1999. On a pro forma basis, the
Companys net income would have been $8.9 million ($0.88 per share) and $8.0
million ($0.80 per share) for the years ended June 30, 2000, and 1999,
respectively, if this accounting change had been retroactively applied.

Long-Lived Assets

In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-lived Assets to Be Disposed Of (SFAS 121), the Company
evaluates any possible impairment of all long-lived assets using estimates of
undiscounted future cash flows.

Deferred Borrowing Costs

Deferred borrowing costs are amortized over the term of their respective
financing arrangement. Amortization expense related to deferred borrowing
costs for the years ended June 30, 2001, 2000, and 1999 was $0.9 million, $0.4
million and $0.2 million, respectively. The deferred borrowing cost balances
for the years ended June 30, 2001 and 2000 were $1.4 million and $1.2 million,
net of accumulated amortization of $1.5 million and $0.8 million, respectively.
Deferred borrowing costs are reflected in other current and other non-current
assets in the accompanying consolidated balance sheets.

Store Expenses

The direct costs incurred in operating the stores have been classified as store
expenses and are deducted from total revenues to determine contribution
attributable to the stores. Store expenses include salary and benefit expense
of store employees, rent and other occupancy costs, depreciation of store
property, bank charges, armored and security costs, loan losses, net returned
checks, cash shortages, and other costs incurred by the stores.

Derivative Instruments and Hedging Activities

The Companys objective in managing its exposure to fluctuations in interest
rates is to decrease the volatility of earnings and cash flows associated with
changes in the applicable rates. To achieve this objective, the Company enters
into interest-rate swap agreements whose values change in the opposite
direction of the anticipated cash flows. As required, on July 1, 2000, the
Company adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133). The interest-rate swaps are derivative
instruments related to forecasted transactions and are considered to hedge
future cash flows. The effective portion of any gains or losses are included in
accumulated other comprehensive income (loss) until earnings are affected by
the variability of cash flows. Any ineffective portion is recognized currently
into earnings. The cash flows of the interest-rate swaps are expected to be
highly effective in achieving offsetting cash flows attributable to
fluctuations in the cash flows of the hedged risk. If it becomes probable that
a forecasted transaction will no longer occur, the interest-rate swap will
continue to be carried on the balance sheet at fair value, and gains or losses
that were deferred in accumulated other comprehensive income (loss) will be
recognized immediately into earnings. If the interest-rate swaps are
terminated prior to their expiration dates, any cumulative gains and losses
will be deferred and recognized into earnings over the remaining life of the
underlying exposure. If the hedged liabilities are to be sold or extinguished,
the Company will recognize the gain or loss on the designated financial
instruments currently into earnings.

The Company uses the cumulative approach to assess effectiveness of the cash
flow hedges. The measurement of hedge ineffectiveness is based on the
cumulative dollar offset method. Under this method, the Company compares the
changes in the floating rate component of the cash flow hedge to the floating
rate cash flows of the hedged item. Changes in the fair value of the effective
cash flow hedges are recorded in accumulated other comprehensive income (loss).
The effective portion that has been deferred in accumulated other
comprehensive income (loss) will be reclassified to earnings when the hedged
items impact earnings.

47



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##### Table of Contents



The adoption of SFAS 133 resulted in a $648,000 credit to accumulated other
comprehensive income (loss) for the cumulative effect of accounting change
representing the transition adjustment. The associated underlying hedged
liability has exceeded the notional amount for each interest-rate swap
throughout the existence of the interest-rate swap and it is anticipated that
it will continue to do so. The interest-rate swaps were and are based on the
same index as their respective underlying debt. The interest-rate swaps were
highly effective in achieving offsetting cash flows attributable to the
fluctuations in the cash flows of the hedged risk, and no amount has been
required to be reclassified from accumulated other comprehensive income (loss)
into earnings for hedge ineffectiveness or due to excluding a portion of the
value from measuring effectiveness during the year ended June 30, 2001. The
interest-rate swaps resulted in a reduction of interest expense of $168,000 for
the year ended June 30, 2001. However, the fair value of the interest-rate
swaps has decreased by $1,959,000 during the year ended June 30, 2001, which
has been recorded to accumulated other comprehensive income (loss). The
estimated net amount of existing loss expected to be reclassified into earnings
during the next fiscal year is $1.1 million.

As indicated in Credit Facilitiesin Note 7,the Company expects the Credit
Agreement will be renewed. If the revolving line-of-credit facility is not
renewed or replaced with a facility with similar economic characteristics, the
remaining deferred loss in accumulated other comprehensive income (loss) will
be recognized immediately into earnings.

Other accumulated other comprehensive income (loss) balances related to the
interest-rate swaps are as follows:

|                           |       |                 |  |      |     |      |                      |               |             |   |               |        |        |   |   |        |  
|-------------------------- | ----- | --------------- |  | ---- | --- | ---- | -------------------- | ------------- | ----------- | - | ------------- | ------ | ------ | - | - | ------ | -
|                           |       |                 |  |      |     |      | Accumulated          |              
|                           |       |                 |  |      |     |      | Other Comprehensive  |               | Change in  
|                           |       |                 |  |      |     |      | Income (Loss) as of: |               | Accumulated
|                           |       |                 |  |      |     |      |                      |               | Other      
|                           |       |                 |  |      |     |      | July 1,              |               | June 30,    |   | Comprehensive
|Loan Facility              |       | Notional Amount |  | 2000 |     | 2001 |                      | Income (Loss)
|                           |       |                 |  |      |     |      |                      |              
|                           |       |                 |  |      |     |      | (in thousands)       |               |             |  
|Revolving advance          |       | $33 million     |  | $    | 452 |      |                      | $             |            |   |               | $      | (452   | )
|                          
|                          
|                          
|                          
|Revolving advance          |       | $10 million     |  |      | 92  |      |                      |               |            |   |               |        | (92    | )
|                          
|                          
|                          
|                          
|                           |       | $85 million     |  |      |     |      |                      |               |             |   |               |        |        |  
|                          
|                          
|                          
|                          
|Revolving advance          |       | (average)       |  |      | (35 | )    |                      |               | (1,311      | ) |               |        | (1,276 | )
|                          
|                          
|                          
|                          
|                           |       | $9.4 million    |  |      |     |      |                      |               |             |   |               |        |        |  
|                          
|                          
|                          
|                          
|Reducing revolving advance |       | (average)       |  |      | 139 |      |                      |               |            |   |               |        | (139   | )
|                           |       |                 |  |      |     |      |                      |               |             |   |               |        |        |   |   |       
|                           | Total |                 |  |      |     |      | $                    | 648           |             |   | $             | (1,311 | )      |   | $ | (1,959 | )
|                           |       |                 |  |      |     |      |                      |               |             |   |               |        |        |   |   |       

The accumulated other comprehensive income (loss) balance as of June 30, 2001,
is net of a tax benefit of $892,000.

Franchise Accounting

The Company includes franchise fees in revenues. Franchise fees generally
include initial fees (initial fees) and future optional, exclusive store fees
(optional fees) as well as continuing franchise fees (royalty fees).

Initial fees are recognized when the Company has provided substantially all of
its initial services in accordance with the franchise agreements. Generally,
this occurs when the related sites have been approved or identified and the
franchisee has completed the training required by the Company. Optional fees
for providing exclusive arrangements until the franchisee opens the store are
recognized either when the option expires or when the commitments pursuant to
the option are completed. Royalty fees are recognized as revenues as they are
earned under the franchise agreements. The following table presents the
components of franchise fees recognized in revenues for the years ended June
30, 2001, 2000, and 1999:

|                          |                         |   |          |       |      |   |                |       |  |   |       |       | 
|------------------------- | ----------------------- | - | -------- | ----- | ---- | - | -------------- | ----- |  | - | ----- | ----- | 
|                          |                         |   | June 30,
|                          |                         |   |         
|                          |                         |   | 2001     |       | 2000 |   | 1999          
|                          |                         |   |          |       |      |   |               
|                          |                         |   |          |       |      |   | (in thousands)
|Initial and optional fees |                         | $ | 581      |       |      | $ | 1,090          |       |  | $ | 1,047 |      
|                         
|                         
|                         
|                         
|Royalty fees              |                         |   | 1,669    |       |      |   | 1,284          |       |  |   | 851   |      
|                         
|                         
|                         
|                         
|Other                     |                         |   | 7        |       |      |   | 163            |       |  |   | 219   |      
|                          |                         |   |          |       |      |   |                |       |  |   |       |      
|                          | Total franchise revenue |   | $        | 2,257 |      |   | $              | 2,537 |  |   | $     | 2,117 | 
|                          |                         |   |          |       |      |   |                |       |  |   |       |      

Cash payments received under franchise agreements prior to the completion of
the earnings process are deferred until the initial and optional fees are
recognized in accordance with the preceding paragraph. As of June 30, 2001 and
2000, approximately $170,000 and $418,000, respectively, of deferred franchise
fees are recorded in other current and other non-current liabilities in the
accompanying consolidated balance sheets.

48



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##### Table of Contents



Income Taxes

The Company has implemented the provisions of SFAS No. 109, Accounting for
Income Taxes"(SFAS 109). SFAS 109 utilizes an asset and liability approach,
and deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.

In accordance with the provisions of SFAS 109, a valuation allowance should be
recognized if it is more likely than not that some portion or all of a deferred
tax asset will not be realized. The Company recorded no valuation allowance as
of June 30, 2001 or 2000.

Returned Checks

The Company charges operations for potential losses on returned checks in the
period such checks are returned, since ultimate collection of these items is
uncertain. Recoveries on returned checks are credited in the period when the
recovery is received.

Software Development Costs

In accordance with AICPA SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, the Company expenses costs
incurred in the preliminary project stages, and, thereafter, capitalizes costs
incurred in the developing or obtaining of internal use software, including
external direct costs of materials and services, as well as payroll and
payroll-related costs. For the years ended June 30, 2001 and 2000, the Company
capitalized the following:

|                                           |                                                 |   |                     |     |      |   |     |     | 
|------------------------------------------ | ----------------------------------------------- | - | ------------------- | --- | ---- | - | --- | --- | 
|                                           |                                                 |   | Year Ended June 30,
|                                           |                                                 |   |                    
|                                           |                                                 |   | 2001                |     | 2000
|                                           |                                                 |   |                     |     |     
|                                           |                                                 |   | (in millions)      
|Externally purchased software and
hardware |                                                 | $ | 1.2                 |     |      | $ | 1.0 |    
|                                          
|                                          
|                                          
|                                          
|Labor                                      |                                                 |   | 0.6                 |     |      |   | 1.4 |    
|                                           |                                                 |   |                     |     |      |   |     |    
|                                           | Total capitalized internally
developed software |   | $                   | 1.8 |      |   | $   | 2.4 | 
|                                           |                                                 |   |                     |     |      |   |     |    

Earnings Per Share

Earnings per share have been computed based on the weighted average number of
common and dilutive shares outstanding for the respective periods. Dilutive
shares include employee and non-employee director stock options.

Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share are
computed by dividing net income by the weighted average number of common shares
outstanding, after adjusting for the dilutive effect of stock options. The
following table presents the reconciliation of the numerator and denominator
used in the calculation of basic and diluted earnings per share, as required by
SFAS No. 128, Earnings Per Share.

|                                                                                |  |                     |        |      |  |      |        |  |  |   |        | 
|------------------------------------------------------------------------------- |  | ------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                                |  | Year Ended June 30,
|                                                                                |  |                    
|                                                                                |  | 2001                |        | 2000 |  | 1999
|                                                                                |  |                     |        |      |  |     
|                                                                                |  | (in thousands)     
|Income before cumulative effect of accounting
change (numerator)                |  | $                   | 611    |      |  | $    | 8,866  |  |  | $ | 8,250  | 
|                                                                                |  |                     |        |      |  |      |        |  |  |   |        | 
|Reconciliation of denominator:                                                  |  |                     |        |      |  |      |        |  |  |   |        | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Weighted average number of common shares
outstanding  basic EPS                |  |                     | 10,012 |      |  |      | 10,067 |  |  |   | 9,989  | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Effect of dilutive stock options                                                |  |                     | 146    |      |  |      | 294    |  |  |   | 294    | 
|                                                                                |  |                     |        |      |  |      |        |  |  |   |        | 
|Weighted average number of common and
dilutive shares outstanding  diluted EPS |  |                     | 10,158 |      |  |      | 10,361 |  |  |   | 10,283 | 
|                                                                                |  |                     |        |      |  |      |        |  |  |   |        | 

For fiscal years ending June 30, 2001, 2000, and 1999, options to purchase
862,560, 198,000, and 73,750 shares of common stock, respectively, were not
included in the computation of diluted earnings per share because the exercise
prices of those options were greater than the average market price of the
common shares; and therefore, the effect would be anti-dilutive.

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Fair Value of Financial Instruments

The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced sale or liquidation. The amounts reported in the
consolidated balance sheets for trade receivables, trade payables, notes
receivable, revolving advances, money order payable, and notes payable all
approximate fair value. The carrying value and fair value of the interest-rate
swap is ($2.2) million and is calculated using the forward market rates
available as of June 30, 2001.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current
year presentation

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2. OPERATING SEGMENTS

In June 1997, Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information, was
issued effective for fiscal years ending after December 15, 1998. The
Companys reportable segments are strategic business units that differentiate
between company-owned and franchised stores. Company-owned store revenue is
generated from store transaction processing and franchised store revenue is
generated from the franchise fees charged for opening the store and on-going
royalty fees. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.

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Segment information for the years ended June 30, 2001, 2000, and 1999 was as
follows:

|                                  |                                          |                                                                |         |                                             |        |            |       |        |       |       |   |         |         |   |         |         |        | 
|--------------------------------- | ---------------------------------------- | -------------------------------------------------------------- | ------- | ------------------------------------------- | ------ | ---------- | ----- | ------ | ----- | ----- | - | ------- | ------- | - | ------- | ------- | ------ | 
|                                  |                                          |                                                                |         | Company-owned                               |        | Franchised |       | Other  |       | Total
|                                  |                                          |                                                                |         |                                             |        |            |       |        |       |      
|                                  |                                          |                                                                |         | (in thousands, except for number of stores)
|Year ended June 30, 2001:
Revenue |                                          | $                                                              | 194,518 |                                             |        | $          | 2,257 |        |       | $     |  |         |         | $ | 196,775 |        
|                                 
|                                 
|                                 
|                                 
|                                  | Gross margin                             |                                                                |         | 49,503                                      |        |            |       | 2,257  |       |       |   |        |         |   |         | 51,760  |       
|                                 
|                                 
|                                 
|                                 
|                                  | Region, headquarters, franchise expenses |                                                                |         | (24,455                                     | )      |            |       | (1,017 | )     |       |   |        |         |   |         | (25,472 | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Other depreciation and amortization      |                                                                |         |                                            |        |            |       |       |       |       |   | (5,087  | )       |   |         | (5,087  | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Interest expense, net                    |                                                                |         |                                            |        |            |       |       |       |       |   | (12,016 | )       |   |         | (12,016 | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Restructuring charge                     |                                                                |         | (7,710                                      | )      |            |       |        |       |       |   |        |         |   |         | (7,710  | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Other expenses                           |                                                                |         |                                            |        |            |       |       |       |       |   | (458    | )       |   |         | (458    | )     
|                                  |                                          |                                                                |         |                                             |        |            |       |        |       |       |   |         |         |   |         |        
|                                  | Income before taxes                      |                                                                | $       | 17,338                                      |        |            | $     | 1,240  |       |       | $ | (17,561 | )       |   | $       | 1,017   |       
|                                  |                                          |                                                                |         |                                             |        |            |       |        |       |       |   |         |         |   |         |        
|                                  | Total assets                             |                                                                | $       | 273,196                                     |        |            | $     | 3,001  |       |       | $ |        |         |   | $       | 276,197 |       
|                                 
|                                 
|                                 
|                                 
|                                  | Number of stores                         |                                                                |         | 988                                         |        |            |       | 175    |       |       |   |        |         |   |         | 1,163   |       
|                                 
|                                 
|                                 
|                                 
|Year ended June 30, 2000:
Revenue |                                          | $                                                              | 138,099 |                                             |        | $          | 2,537 |        |       | $     |  |         |         | $ | 140,636 |        
|                                 
|                                 
|                                 
|                                 
|                                  | Gross margin                             |                                                                |         | 43,431                                      |        |            |       | 2,537  |       |       |   |        |         |   |         | 45,968  |       
|                                 
|                                 
|                                 
|                                 
|                                  | Region, headquarters, franchise expenses |                                                                |         | (19,366                                     | )      |            |       | (1,063 | )     |       |   |        |         |   |         | (20,429 | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Other depreciation and amortization      |                                                                |         |                                            |        |            |       |       |       |       |   | (3,798  | )       |   |         | (3,798  | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Interest expense, net                    |                                                                |         |                                            |        |            |       |       |       |       |   | (6,123  | )       |   |         | (6,123  | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Other expenses                           |                                                                |         |                                            |        |            |       |       |       |       |   | (955    | )       |   |         | (955    | )     
|                                  |                                          |                                                                |         |                                             |        |            |       |        |       |       |   |         |         |   |         |        
|                                  |                                          | Income before taxes and cumulative
effect of accounting change |         | $                                           | 24,065 |            |       | $      | 1,474 |       |   | $       | (10,876 | ) |         | $       | 14,663 | 
|                                  |                                          |                                                                |         |                                             |        |            |       |        |       |       |   |         |         |   |         |        
|                                  | Total assets                             |                                                                | $       | 217,456                                     |        |            | $     | 3,967  |       |       | $ |        |         |   | $       | 221,423 |       
|                                 
|                                 
|                                 
|                                 
|                                  | Number of stores                         |                                                                |         | 915                                         |        |            |       | 157    |       |       |   |        |         |   |         | 1,072   |       
|                                 
|                                 
|                                 
|                                 
|Year ended June 30, 1999:
Revenue |                                          | $                                                              | 120,197 |                                             |        | $          | 2,117 |        |       | $     |  |         |         | $ | 122,314 |        
|                                 
|                                 
|                                 
|                                 
|                                  | Gross margin                             |                                                                |         | 39,254                                      |        |            |       | 2,117  |       |       |   |        |         |   |         | 41,371  |       
|                                 
|                                 
|                                 
|                                 
|                                  | Region, headquarters, franchise expenses |                                                                |         | (17,042                                     | )      |            |       | (1,288 | )     |       |   |        |         |   |         | (18,330 | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Other depreciation and amortization      |                                                                |         |                                            |        |            |       |       |       |       |   | (4,236  | )       |   |         | (4,236  | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Interest expense, net                    |                                                                |         |                                            |        |            |       |       |       |       |   | (4,476  | )       |   |         | (4,476  | )     
|                                 
|                                 
|                                 
|                                 
|                                  | Other expenses                           |                                                                |         |                                            |        |            |       |       |       |       |   | (689    | )       |   |         | (689    | )     
|                                  |                                          |                                                                |         |                                             |        |            |       |        |       |       |   |         |         |   |         |        
|                                  | Income before taxes                      |                                                                | $       | 22,212                                      |        |            | $     | 829    |       |       | $ | (9,401  | )       |   | $       | 13,640  |       
|                                  |                                          |                                                                |         |                                             |        |            |       |        |       |       |   |         |         |   |         |        
|                                  | Total assets                             |                                                                | $       | 142,451                                     |        |            | $     | 2,782  |       |       | $ |        |         |   | $       | 145,233 |       
|                                 
|                                 
|                                 
|                                 
|                                  | Number of stores                         |                                                                |         | 798                                         |        |            |       | 120    |       |       |   |        |         |   |         | 918     |       

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3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

|                                 |                                          |                                                  |          |  |      |   |                |   |  |   |         |   | 
|-------------------------------- | ---------------------------------------- | ------------------------------------------------ | -------- |  | ---- | - | -------------- | - |  | - | ------- | - | 
|                                 |                                          |                                                  | June 30,
|                                 |                                          |                                                  |         
|                                 |                                          |                                                  | 2001     |  | 2000
|                                 |                                          |                                                  |          |  |     
|                                 |                                          |                                                  |          |  |      |   | (in thousands)
|Property and equipment, at cost: |                                          |                                                  |          |  |      |   |                |   |  |   |        
|                                
|                                
|                                
|                                
|                                 | Store equipment, furniture, and fixtures |                                                  |          |  |      | $ | 38,490         |   |  | $ | 31,824  |  
|                                
|                                
|                                
|                                
|                                 | Leasehold improvements                   |                                                  |          |  |      |   | 23,878         |   |  |   | 22,958  |  
|                                
|                                
|                                
|                                
|                                 | Signs                                    |                                                  |          |  |      |   | 6,609          |   |  |   | 5,734   |  
|                                
|                                
|                                
|                                
|                                 | Other property and equipment             |                                                  |          |  |      |   | 596            |   |  |   | 376     |  
|                                 |                                          |                                                  |          |  |      |   |                |   |  |   |         |   | 
|                                 |                                          |                                                  |          |  |      |   | 69,573         |   |  |   | 60,892  |  
|                                
|                                
|                                
|                                
|                                 |                                          | Less  accumulated depreciation and amortization |          |  |      |   | (30,405        | ) |  |   | (23,977 | )
|                                 |                                          |                                                  |          |  |      |   |                |   |  |   |         |   | 
|                                 |                                          |                                                  |          |  |      | $ | 39,168         |   |  | $ | 36,915  |  
|                                 |                                          |                                                  |          |  |      |   |                |   |  |   |         |   | 

Depreciation expense was $7.9 million, $6.4 million, and $5.6 million in fiscal
2001, 2000, and 1999, respectively.

4. COVENANTS NOT TO COMPETE AND GOODWILL

Covenants not to compete and goodwill acquired are as follows:

|                                  |  |                |        |      |  |   |        |  
|--------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                  |  | June 30,      
|                                  |  |               
|                                  |  | 2001           |        | 2000
|                                  |  |                |        |     
|                                  |  | (in thousands)
|Covenants not to compete, at cost |  | $              | 7,798  |      |  | $ | 6,549  |  
|                                 
|                                 
|                                 
|                                 
|Less  accumulated amortization   |  |                | (5,786 | )    |  |   | (5,120 | )
|                                  |  |                |        |      |  |   |        |  
|                                  |  | $              | 2,012  |      |  | $ | 1,429  |  
|                                  |  |                |        |      |  |   |        |  

|                                |  |                |        |      |  |   |        |  
|------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                |  | June 30,      
|                                |  |               
|                                |  | 2001           |        | 2000
|                                |  |                |        |     
|                                |  | (in thousands)
|Goodwill
acquired at cost       |  | $              | 82,062 |      |  | $ | 51,745 |  
|                               
|                               
|                               
|                               
|Less  accumulated amortization |  |                | (8,170 | )    |  |   | (5,816 | )
|                                |  |                |        |      |  |   |        |  
|                                |  | $              | 73,892 |      |  | $ | 45,929 |  
|                                |  |                |        |      |  |   |        |  

Amortization expense was $3.0 million, $2.4 million, and $2.1 million in fiscal
2001, 2000, and 1999, respectively.

5. RESTRUCTURING CHARGE

In the third quarter of fiscal 2001, the Company recorded charges for the costs
associated with closing 85 unprofitable or underperforming stores. The
restructuring charge of $8.7 million consisted of costs associated with $7.7
million of write-offs for goodwill and covenants not to compete, fixed asset
and inventory disposals, and lease terminations related to the store closings,
and $1.0 million of impaired goodwill associated with nine underperforming
stores not closed. In accordance with the Companys policy on the application
of SFAS 121, the Company determined that the remaining carrying value of
goodwill on these nine stores was not recoverable.

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The following table reflects the components of the significant items reported
as restructuring charges for the quarter ended March 31, 2001 and the accrual
balance as of June 30, 2001:

|                                      |       |   |               |     |               |   |               |       |               |  |       |       |   |   |     |     | 
|------------------------------------- | ----- | - | ------------- | --- | ------------- | - | ------------- | ----- | ------------- |  | ----- | ----- | - | - | --- | --- | 
|                                      |       |   | Original      |     |               |   |               |       |               |  |       |       |   |   |    
|                                      |       |   | Restructuring |     |               |   |               |       |               |  |       |       |   |   |    
|                                      |       |   | Charge as of  |     | Restructuring |   | Write-offs/   |       | Accrual      
|                                      |       |   | March 31,     |     | Charge        |   | Lease         |       | Balance as of
|                                      |       |   | 2001          |     | Adjustments   |   | Settlements   |       | June 30, 2001
|                                      |       |   |               |     |               |   |               |       |              
|                                      |       |   |               |     |               |   | (in millions) |       |               |  |      
|Net book value of tangible assets     |       | $ | 2.5           |     |               | $ |              |       |               |  | ($2.5 | )     |   | $ |    |    
|                                     
|                                     
|                                     
|                                     
|Goodwill and covenants not to
compete |       |   | 2.6           |     |               |   |              |       |               |  | (2.6  | )     |   |   |    |    
|                                     
|                                     
|                                     
|                                     
|Remaining lease obligations           |       |   | 2.8           |     |               |   | (1.0          | )     |               |  | (0.8  | )     |   |   | 1.0 |    
|                                     
|                                     
|                                     
|                                     
|Other, including store clean-up       |       |   | 0.8           |     |               |   |              |       |               |  | (0.6  | )     |   |   | 0.2 |    
|                                      |       |   |               |     |               |   |               |       |               |  |       |       |   |   |     |    
|                                      | Total |   | $             | 8.7 |               |   |               | ($1.0 | )             |  |       | ($6.5 | ) |   | $   | 1.2 | 
|                                      |       |   |               |     |               |   |               |       |               |  |       |       |   |   |     |    

The decision to close these unprofitable or underperforming stores was made in
order to benefit future operations. Typically, these stores would be closed at
various times over the next two or three years depending on the circumstances
of each store and its local market. Frequently, the Companys decision to
close a store is made to coincide with the expiration of the store lease. The
Company determined, however, that closing these stores in this manner would
permit better use of its capital and other resources, which the Company
believes will improve the profitability of its overall operations. All of the
85 stores were closed as of June 30, 2001.

The original restructuring charge of $8.7 million less the $1.0 million
adjustment is recorded in other expenses in the accompanying consolidated
statement of earnings. The $1.0 million adjustment reflects a reduction in the
estimate of lease payouts which resulted from the Companys ability to
negotiate favorable lease terminations. Since some of the leases will be paid
out over their remaining terms, the Company anticipates that the estimated
completion date for the remaining liabilities will be approximately June 2005.

The following table presents the results of operations of the 85 stores closed
for the years ended June 30, 2001, 2000, and 1999.

|                         |  |                                          |        |      |  |      |        |   |  |   |        |  
|------------------------ |  | ---------------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                         |  | Year Ended June 30,                     
|                         |  |                                         
|                         |  | 2001                                     |        | 2000 |  | 1999
|                         |  |                                          |        |      |  |     
|                         |  | (in thousands, except per share amounts)
|Revenues                 |  | $                                        | 5,000  |      |  | $    | 3,781  |   |  | $ | 2,757  |  
|                        
|                        
|                        
|                        
|Loss before income taxes |  |                                          | (2,914 | )    |  |      | (2,681 | ) |  |   | (1,438 | )
|                        
|                        
|                        
|                        
|Net loss                 |  |                                          | (1,749 | )    |  |      | (1,608 | ) |  |   | (863   | )
|                        
|                        
|                        
|                        
|Basic loss per share     |  |                                          | (0.17  | )    |  |      | (0.16  | ) |  |   | (0.09  | )
|                        
|                        
|                        
|                        
|Diluted loss per share   |  |                                          | (0.17  | )    |  |      | (0.16  | ) |  |   | (0.08  | )

6. ACQUISITIONS

Acquisitions are accounted for using the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16 (APB 16), and
accordingly, the net assets and results of operations of the acquired companies
have been included in the Companys consolidated financial statements from the
date of acquisition. The purchase price of the acquisition was allocated to
assets acquired, including intangible assets and liabilities assumed, based on
the preliminary estimated fair values at the acquisition date which may be
revised at a later date in accordance with APB 16. As a condition of each
purchase, the sellers agreed not to compete with the Company for specified
periods ranging from two to five years. Covenants not to compete were valued at
contractually agreed upon amounts which management believes correspond to fair
value.

During the year ended June 30, 2001, the Company acquired the assets of 133
stores in five separate purchases from third parties for $37.0 million. During
the year ended June 30, 2000, the Company acquired the assets of 36 stores in
eight separate purchases from third parties for $11.4 million. During the year
ended June 30, 1999, the Company acquired the assets of 35 stores in ten
separate purchases from third parties for approximately $8.4 million. In
connection with these acquisitions in fiscal 2001 and fiscal 2000,
respectively, acquisition costs of $34.1 million and $10.8 million were
allocated to goodwill, $1.3 million and $0.7 were allocated to covenants not to
compete, and the remainder to property and equipment, net.

MS Management Acquisition

Most of the 133 stores acquired in fiscal 2001 were acquired in one transaction
under an asset purchase agreement dated as of November 10, 2000. The Company
acquired the assets of 107 check-cashing and retail financial services stores
in California, Texas, and Oklahoma from a group of five privately held
companies that are majority owned by Morris Silverman and Jeffrey D. Silverman
and managed by MS Management Company based in Chicago, Illinois.

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The total purchase price for the assets of all of the acquired locations was
$29.7 million in cash. Goodwill and non-compete costs were $28.6 million and
$0.25 million, respectively, of the total purchase price. Approximately $28.9
million of the total purchase price was payable to the sellers as the Company
exercised ownership and operating control of the assets at the acquired
locations, which the Company did by December 31, 2000. Approximately $0.8
million of the total price is payable to sellers in equal monthly installments
over a 36-month period (see Notes Payablein Note 7), contingent upon revenues
from food-stamp distribution contracts at certain of the acquired locations.
The total purchase price is subject to reduction if, under circumstances not
caused or controlled by the Company, either the Company ceases to receive
revenues from food-stamp distribution contracts during the 36-month period or
any of the acquired locations within third-party grocery stores cease
operations, without an acceptable replacement location, during a 36-month
period. Such a reduction would be effected by release of the escrowed funds to
the Company or by the sellers payment of the appropriate amount to the
Company.

Eleven of the acquired locations were in third-party grocery stores, operated
under the Handy Andy name, in and around San Antonio, Texas. Following the
foreclosure and sale of those grocery stores by the secured creditor of the
grocery store operator, the Company instituted litigation against that creditor
and its purchaser in January 2001 to maintain the Companys right to operate in
those locations. At a trial in April 2001, the court found that the lease
agreement under which the Company claimed the right to occupy those 11
locations, which had been assigned to the Company by the sellers, was not
enforceable under Texas law. The court therefore ordered the Company to vacate
those 11 locations, which the Company did in June 2001. Because of the courts
finding, the Company has made demand for indemnification from the sellers and
their majority shareholders under the purchase agreement. The Companys
indemnification claims include damages for the loss of those locations and the
expenses of the litigation to retain those locations. The costs incurred by
the Company regarding these locations have been included in goodwill associated
with the acquisition. The Company has been negotiating with the sellers and
their majority shareholders regarding the Companys claims. Any amounts
received by the Company as a result of those claims will be treated as a
reduction of goodwill.

The following presents the unaudited pro forma results of operations of the
Company for the years ended June 30, 2001 and 2000 as if this acquisition had
been consummated at the beginning of each of the periods presented. This pro
forma also assumes that there has been no loss of locations and no claims by
the Company. The unaudited pro forma results of operations are prepared for
comparative purposes only and do not necessarily reflect the results that would
have occurred had the acquisition occurred at the beginning of the periods
presented or the results which may occur in the future.

|                                                     |  |                               |         |      |  |   |         | 
|---------------------------------------------------- |  | ----------------------------- | ------- | ---- |  | - | ------- | 
|                                                     |  | Unaudited Pro Forma          
|                                                     |  | Results of Operations for the
|                                                     |  | Twelve Months Ended          
|                                                     |  | June 30,                     
|                                                     |  |                              
|                                                     |  | 2001                          |         | 2000
|                                                     |  |                               |         |     
|                                                     |  | (in thousands,               
|                                                     |  | except per share data)       
|                                                    
|Revenues                                             |  | $                             | 203,900 |      |  | $ | 159,307 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Income before cumulative effect
of accounting change |  |                               | 878     |      |  |   | 10,266  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Net income                                           |  |                               | 878     |      |  |   | 9,663   | 
|                                                    
|                                                    
|                                                    
|                                                    
|Basic earnings per share                             |  |                               | 0.09    |      |  |   | 0.96    | 
|                                                    
|                                                    
|                                                    
|                                                    
|Diluted earnings per share                           |  |                               | 0.09    |      |  |   | 0.93    | 

7. FINANCING ARRANGEMENTS AND GUARANTEES

Senior Secured Notes Payable

The Company has outstanding $12 million of 9.03% senior secured notes payable
(Senior Secured Notes) issued to Principal Life Insurance Company (formerly
known as Principal Mutual Life Insurance Company) (Principal) under a Note
Purchase Agreement. The original $20 million principal amount of the Senior
Secured Notes is due in five equal annual installments of $4 million each,
which began November 15, 1999. Interest payments are due semiannually,
beginning May 15, 1997. There is $135,000 and $180,000 of accrued interest on
the Senior Secured Notes as of June 30, 2001 and 2000, respectively, included
in accrued liabilities in the accompanying consolidated balance sheets. For
the years ended June 30, 2001, 2000, and 1999, there was $1.2 million, $1.6
million, and $1.8 million of interest expense, respectively, incurred on the
Senior Secured Notes which is included in interest expense.

The Senior Secured Notes are secured by a security interest in substantially
all the assets of the Company. The collateral arrangements are subject to the
Amended and Restated Collateral Trust Agreement dated as of July 31, 1998 (the
Amended

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Collateral Trust Agreement) that was signed with a credit agreement with a
syndicate of bank lenders that preceded the Credit Agreement (defined below),
and those arrangements also apply to the Credit Agreement. The Amended
Collateral Trust Agreement created a collateral trust, with Wilmington Trust
Company as trustee, to secure the Companys obligations under the Credit
Agreement and to the Companys two other secured lenders, Principal and
Travelers Express Company, Inc. The Amended Collateral Trust Agreement
includes agreements regarding the priority of distributions to the secured
lenders upon foreclosure and liquidation of the collateral subject thereto and
certain other intercreditor arrangements. The Company also executed an Amended
and Restated Assignment of Deposit Accounts and Security Agreement with
Wilmington Trust Company to grant the trustee a security interest in the same
collateral that secures the Companys obligations under the Credit Agreement.

The Note Purchase Agreement contains certain restrictive covenants affecting
the business and affairs of the Company and its subsidiaries. Those covenants
address, among other things, the maintenance of specified financial ratios, the
incurrence and payment of other indebtedness, the disposition of assets or of
the ownership of any subsidiary of the Company, the grant or existence of other
liens on the assets of the Company and its subsidiaries, and transactions
between the Company or its subsidiaries and any of their affiliates. The
Company is in compliance with these restrictive covenants.

Credit Facilities

On November 9, 2000, the Company entered into an Amended and Restated Credit
Agreement with a syndicate of banks (the Lenders) represented by Wells Fargo
Bank Texas, National Association (Wells Fargo Bank), as lead agent (the
Credit Agreement). The previous credit agreement provided for a revolving
credit facility of $130 million, to be used for working capital and general
corporate purposes and a committed term-loan facility of $35 million, to be
used to fund acquisitions and provide capital for internal expansion.
Additionally, the Company had obtained under the previous credit agreement, a
$25 million uncommitted working capital line-of-credit, for a total available
working capital facility of $155 million. . During one month of the year
ended June 30, 2000, the Company utilized the uncommitted working capital
line-of-credit. There was no outstanding balance as of June 30, 2000, and the
corresponding interest expense for fiscal 2000 was $3,800 at a weighted average
interest rate of 7.75%.

The Credit Agreement provided for the renewal and increase of the Companys
revolving credit facility, and the restructuring, increase, and amendment of
the Companys committed term-loan facility, under the preceding credit
agreement with a syndicate of bank lenders. The credit facilities under the
Credit Agreement consist of a revolving line-of-credit facility of $155 million
and a reducing revolving facility of a maximum $65 million (subject to periodic
reduction). In addition to the two primary credit facilities, the Company also
has available under the Credit Agreement, upon certain conditions, an
additional 25-day revolving advance facility of up to $25 million from Wells
Fargo Bank and certain of the other Lenders and a standby letter-of-credit
facility of up to $1.5 million from Wells Fargo Bank. These additional
facilities expire on November 8, 2001. During two months of the year ended
June 30, 2001, the Company utilized this facility. There was no outstanding
balance as of June 30, 2001, and interest expense and fees for fiscal 2001 were
$87,000 at an effective weighted average interest rate of 9.8%. The Company
incurred financing costs of $1.0 million in connection with the new facilities,
which was recorded as deferred borrowing costs.

The Companys revolving line-of-credit facility of $155 million is available
until November 8, 2001. Borrowings under this revolving line-of-credit
facility may be used for working capital and general corporate purposes. The
Companys other primary credit facility is a reducing revolving facility that
allows the Company to borrow (and repay and reborrow) amounts until November 9,
2003. The maximum amount of credit available to the Company under this
reducing revolving facility is $65 million, but is subject to reduction on
October 1, 2001, and each quarter thereafter, by $4.375 million. This reducing
revolving facility replaced the committed term-loan facility under the
Companys preceding credit agreement (which permitted borrowing only on a
one-time, non-revolving basis.) Borrowings under this reducing revolving
facility may be used for store construction and relocation and other capital
expenditures, including acquisitions, and refinancing other indebtedness of the
Company.

The Companys borrowings under the revolving line-of-credit facility bear
interest at a variable annual rate equal to, at the Companys discretion,
either the prime rate publicly announced by Wells Fargo Bank from time to time
or the London InterBank Offered Rate (LIBOR) plus 0.75%. The Companys
borrowings under the reducing revolving facility bear interest at a variable
annual rate equal to, at the Companys discretion, either the prime rate
publicly announced by Wells Fargo Bank from time to time plus 0.25% or LIBOR
plus 2.375% (but subject to adjustment quarterly, beginning March 31, 2001,
within a range of 2.125% to 2.625% above LIBOR, depending on the Companys
debt-to-cash flow ratio). Interest is generally payable monthly, except on
LIBOR-rate borrowings; interest on LIBOR-rate borrowings is payable every 30,
60, or 90 days, depending on the period selected by the Company. The LIBOR
rate effective at June 30, 2001 was 3.86%. The Company must also pay a
commitment fee for each of the credit facilities. The commitment fee for the
revolving line-of-credit facility is equal to 0.25% per annum of the average
daily unused portion of that facility; and the commitment fee for the reducing
revolving facility is equal to 0.375% per annum of the average daily unused
portion of that facility through

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March 31, 2001, but thereafter varies within a range of 0.3% to 0.5% per annum
of the average daily unused portion of that facility, depending on the
Companys debt-to-cash flow ratio after March 31, 2001.

Under the previous credit agreement, the revolving credit facility had a
one-year term and was renewable annually, and the committed-term loan facility
had a one-year term with a four-year amortization beginning after the
expiration of the one-year term. The revolving facility interest rate per annum
was based on either (at the Companys discretion) the prime rate or LIBOR plus
0.75%. The committed term-loan facility interest rate per annum was based on
either (at the Companys discretion) of the prime rate plus 0.25% or LIBOR plus
1.75%. The LIBOR rate effective at June 30, 2000 was 6.69%. The Company paid
an unused commitment fee on the revolving credit facility of 0.20% and the
committed term loan facility of 0.45%.

All unpaid principal and accrued interest will be due on November 8, 2001 and
November 9, 2003, under the revolving line-of-credit facility and the reducing
revolving facility, respectively, unless renewed.

The new revolving line-of-credit facility and the previous revolving credit
facility are presented as revolving advances (Revolving Advances) in the
accompanying consolidated financial statements for comparative purposes.
Similarly, the new reducing revolving facility and the previous committed
term-loan facility are presented as reducing revolving advances (Reducing
Revolving Advances) in the accompanying consolidated financial statements for
comparative purposes.

|                               |  |                                        |         |          |  |                        |        |      |  |                    |        |   |  |   |        |  
|------------------------------ |  | -------------------------------------- | ------- | -------- |  | ---------------------- | ------ | ---- |  | ------------------ | ------ | - |  | - | ------ | -
|                               |  | As of and for the Years Ended June 30,
|                               |  |                                       
|                               |  | 2001                                   |         | 2000     |  | 2001                   |        | 2000
|                               |  |                                        |         |          |  |                        |        |     
|                               |  |                                        |         |          |  |                        |        |      |  | Reducing Revolving
|                               |  | Revolving Advances                     |         | Advances
|                               |  |                                        |         |         
|                               |  |                                        |         |          |  | (dollars in thousands) |        |      |  |                   
|Balance                        |  | $                                      | 109,800 |          |  | $                      | 95,000 |      |  | $                  | 53,000 |   |  | $ | 18,500 |  
|                              
|                              
|                              
|                              
|Interest expense               |  | $                                      | 6,859   |          |  | $                      | 4,472  |      |  | $                  | 3,860  |   |  | $ | 940    |  
|                              
|                              
|                              
|                              
|Accrued interest expense       |  | $                                      | 29      |          |  | $                      | 8      |      |  | $                  | 580    |   |  | $ | 119    |  
|                              
|                              
|                              
|                              
|Weighted average interest rate |  |                                        | 6.60    | %        |  |                        | 6.77   | %    |  |                    | 8.48   | % |  |   | 7.53   | %
|                              
|                              
|                              
|                              
|Commitment fees                |  | $                                      | 101     |          |  | $                      | 112    |      |  | $                  | 37     |   |  | $ | 103    |  

The Company is subject to various restrictive covenants stated in the Credit
Agreement. These covenants, which are typical of those found in loan
agreements of that kind, include restrictions on the incurrence of indebtedness
from other sources, restrictions on advances to or investments in other persons
or entities, restrictions on significant acquisitions, restrictions on the
payment of dividends to shareholders or the repurchase of shares, and the
requirement that various financial ratios be maintained. The Company has
received the consent of the Lenders to implement the stock repurchase program
described in Note 11. The Company is in compliance with these restrictive
covenants.

It is the Companys expectation that the Credit Agreement will continue to be
renewed annually.

Notes Payable

Notes payable, related to acquired stores, normally bear interest at
approximately 5%, and are due six months after the related acquisition.
However, at June 30, 2001, notes payable consisted of two non-interest-bearing
notes, $720,000 dated May 24, 2000, and $856,000 dated November 10, 2000.
These notes are payable in monthly installments of $20,000 and $23,778 until
maturity on May 1, 2003 and November 1, 2003, respectively. Interest was
imputed on these notes at an interest rate of 5% and 6%, respectively. Notes
payable were approximately $1.1 million and $1.3 million, respectively, as of
June 30, 2001 and 2000. For the years ended June 30, 2001, 2000, and 1999,
there was $81,000, $42,000, and $13,000, respectively, related to the
acquisition notes payable which is included in interest expense.

The note payable of $856,000 is the escrowed portion of the total purchase
price for the 107-store acquisition (see MS Management Acquisitionin Note 6).
In light of the Companys asserted claims against the sellers and their
majority shareholders, the Company has not authorized the monthly release of
$23,778 from escrow since the monthly release in June 2001.

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Debt Maturity Schedule

Scheduled maturities of debt for the years following June 30, 2001, including
the Senior Secured Notes, Reducing Revolving Advances, and notes payable are as
follows (in thousands):

|                     |  |   |        | 
|-------------------- |  | - | ------ | 
|Year Ending June 30: |  |   |        | 
|                     |  |   |        | 
|2002                 |  | $ | 5,602  | 
|                    
|                    
|                    
|                    
|2003                 |  |   | 21,984 | 
|                    
|                    
|                    
|                    
|2004                 |  |   | 38,492 | 
|                    
|                    
|                    
|                    
|2005 and thereafter  |  |   |       | 
|                     |  |   |        | 
|                     |  | $ | 66,078 | 
|                     |  |   |        | 

Money Order Agreement

In April 1998, the Company signed a money order agreement with Travelers
Express Company, Inc. (Travelers Express), effective December 17, 1998. This
agreement replaced the previous money order agreement with the previous money
order supplier that was terminated as of December 16, 1998. Under this new
five-year agreement, the Company exclusively sells Travelers Express money
orders, which bear the Companys logo. The Company also signed a five-year
agreement with an affiliate of Travelers Express, effective in April 1998, to
offer an electronic bill-payment service to the Companys customers. In
conjunction with these two agreements, the Company received $3 million from
Travelers Express in April 1998, $0.4 million per year in the fiscal years
ended June 30, 2001, 2000, and 1999, and is entitled to receive an additional
$0.4 million per year in the next two fiscal years for a total of $5.0 million.
The $4.2 million payments received to date have been deferred and are being
amortized on a straight-line basis over the five-year term of the agreements
beginning January 1999 based on the $5 million total. If the money order
agreement is terminated under certain circumstances before the expiration of
its five-year term, the Company will be obligated to repay a portion of the $3
million and the annual amounts received from Travelers Express. The money
order agreement with Travelers Express does not allow an extended deferral of
remittances of money order proceeds. The Companys payment and other
obligations to Travelers Express under the money order agreement are secured by
a subordinated lien on the Companys assets. The deferred revenue balances as
of June 30, 2001, and 2000 are $1.8 million and $2.3 million, respectively, and
are included in other current and non-current liabilities in the accompanying
consolidated balance sheets. The revenue amortization for the years ended June
30, 2001, 2000, and 1999 were $1.0 million, $1.0 million, and $0.5 million,
respectively.

MoneyGram Guarantees and Incentive Bonuses

Expired MoneyGram Agreement.The Company is an agent for the receipt and
transmission of wire transfers of money through the MoneyGram network. The
Companys agency relationship was previously governed by the 1996 MoneyGram
Master Agreement, as amended (the Expired MoneyGram Agreement), with
MoneyGram Payment Systems, Inc. (MPS), an affiliate of Travelers Express,
until it expired on December 31, 2000.

The Expired MoneyGram Agreement provided for a revenue guarantee on acquired
stores for the conversion of wire transfer services to MoneyGram from another
supplier. The amount of the guarantee was equivalent to the annual aggregate
wire transfer revenue for the acquired stores derived from another supplier.
The New MoneyGram Agreement, defined below, also provides for revenue
guarantees. The amount of guarantee revenue, which represents the difference
between the guarantee and the Companys actual wire transfer service revenue
from the acquired stores, for the fiscal years ended June 30, 2001, 2000, and
1999 was approximately $3.3 million, $2.0 million, and $1.0 million,
respectively. Accounts receivable from MoneyGram related to these guarantees
as of June 30, 2001 and 2000 was $1.2 million and $2.0 million, respectively.

In June 1996, upon the extension of the Expired MoneyGram Agreement to December
31, 2000, the Company received a bonus of $2.0 million. The Company also
received incentive bonuses under the Expired MoneyGram Agreement for opening or
acquiring new MoneyGram service locations. All of the bonuses received by the
Company under the Expired MoneyGram Agreement were deferred and amortized to
revenues over the term of the Expired MoneyGram Agreement. Though the Expired
MoneyGram Agreement expired December 31, 2000, each new incentive bonus paid
during the term of the Expired MoneyGram Agreement obligated the Company to 60
store-months of MoneyGram service; and therefore, the amortization period of
the bonuses received by the Company under that contract extended beyond
December 31, 2000. As of December 31, 2000, $4.4 million of deferred revenue
associated with the incentive bonuses remained to be amortized over the
seven-year term of the New MoneyGram Agreement.

New MoneyGram Agreement. In June 2000, the Company signed a Money Transfer
Agreement with Travelers Express and MPS that became effective January 1, 2001
(the New MoneyGram Agreement). During the seven-year term of the New
MoneyGram Agreement, the Company will exclusively offer and sell MoneyGram wire
transfer services. Under the New MoneyGram Agreement (as under the Existing
MoneyGram Agreement) the Company earns commissions for each

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transmission and receipt of money through the MoneyGram network effected at a
Company location; those commissions will equal varying percentages of the fees
charged by MPS to consumers for the MoneyGram services.

Under the New MoneyGram Agreement, the Company is receiving a total of
approximately $12.5 million in bonuses, payable in equal monthly installments
(without interest) over the seven-year term. The amount of those monthly
installments will be subject to reduction if the Company closes or sells a
significant number of those locations at which MoneyGram services are offered
at the beginning of the New MoneyGram Agreement. In addition, the Company will
be entitled to receive certain incentive bonuses regarding new MoneyGram
service locations that it opens or acquires during the term of the New
MoneyGram Agreement similar to those received under the Expired MoneyGram
Agreement.

During the fiscal years ended June 30, 2001, 2000, and 1999, $2.7 million, $2.6
million, and $2.2 million, respectively, of revenue amortization was recorded
and included in revenues related to bonuses and incentive bonuses under the
Expired MoneyGram Agreement and the New MoneyGram Agreement. The total
deferred revenue balances related to these bonuses and incentive bonuses as of
June 30, 2001 and 2000, was $4.4 million and $3.7 million, respectively and are
included in other current and non-current liabilities in the accompanying
consolidated balance sheets.

Derivative Instruments and Hedging Activities

To reduce its risk of greater interest expense because of floating-rate
interest obligations under its credit facilities under the Credit Agreement,
the Company entered into three interest-rate swap agreements with Bank of
America and one interest-rate swap agreement with Wells Fargo Bank. Those
agreements effectively converted a portion of the Companys floating-rate
interest obligations to fixed-rate interest obligations. With respect to the
Revolving Advances, the first notional amount was $33 million for a two-year
period that began January 4, 1999, the second notional amount was $10 million
for a sixteen-month period that began September 3, 1999, and the third notional
amount was an average of $62 million from November 1, 2000 through January 31,
2001, increased to an average of $85 million from February 1, 2001 to January
1, 2003. With respect to Reducing Revolving Advances, the notional amount was
an average of $9.4 million from January 4, 1999 through January 3, 2001. The
notional amounts were determined based on the Companys minimum projected
borrowings during calendar years 1999 through 2002. The fixed rate applicable
to the notional amount of $33 million under the Revolving Advances was 5.14%
for calendar year 1999 and 5.23% for calendar year 2000. The fixed rate
applicable to the notional amount of $10 million under the Revolving Advances
was 5.25% for calendar year 1999 and 2000. The fixed rate applicable to the
average notional amount of $62 million and $85 million, respectively, under the
Revolving Advances was 6.945% for the period from November 1, 2000 through
January 31, 2001, and is 6.045% for the period from February 1, 2001 through
January 1, 2003. The fixed rate applicable to the notional amount under the
Reducing Revolving Advances was 6.23% for calendar year 1999 and 6.38% for
calendar year 2000. As of June 30, 2001, all interest-rate swap agreements had
expired, except for one with respect to the Revolving Advances with an average
notional amount of $85 million; that existing interest-rate swap had a fair
value of ($2.2) million.

8. OTHER EXPENSES

Other store expenses consisted of the following:

|                               |  |                     |        |      |  |      |        |  |  |   |        | 
|------------------------------ |  | ------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                               |  | Year Ended June 30,
|                               |  |                    
|                               |  | 2001                |        | 2000 |  | 1999
|                               |  |                     |        |      |  |     
|                               |  | (in thousands)     
|Net returns and cash shortages |  | $                   | 12,551 |      |  | $    | 9,038  |  |  | $ | 8,950  | 
|                              
|                              
|                              
|                              
|Armored and security           |  |                     | 7,442  |      |  |      | 5,607  |  |  |   | 5,144  | 
|                              
|                              
|                              
|                              
|Bank charges                   |  |                     | 3,972  |      |  |      | 3,415  |  |  |   | 2,574  | 
|                              
|                              
|                              
|                              
|Other                          |  |                     | 11,120 |      |  |      | 6,856  |  |  |   | 5,945  | 
|                               |  |                     |        |      |  |      |        |  |  |   |        | 
|                               |  | $                   | 35,085 |      |  | $    | 24,916 |  |  | $ | 22,613 | 
|                               |  |                     |        |      |  |      |        |  |  |   |        | 

Other expenses consisted of the following:

|                      |  |                     |       |                |  |      |     |   |  |   |     | 
|--------------------- |  | ------------------- | ----- | -------------- |  | ---- | --- | - |  | - | --- | 
|                      |  | Year Ended June 30,
|                      |  |                    
|                      |  | 2001                |       | 2000           |  | 1999
|                      |  |                     |       |                |  |     
|
|                      |  |                     |       | (in thousands) |  |      |    
|Restructure provision |  | $                   | 7,710 |                |  | $    |    |   |  | $ |    | 
|                     
|                     
|                     
|                     
|Legal                 |  |                     | 350   |                |  |      | 640 |   |  |   | 130 | 
|                     
|                     
|                     
|                     
|Store closing expense |  |                     | 108   |                |  |      | 330 |   |  |   | 315 | 
|                     
|                     
|                     
|                     
|Other                 |  |                     |      |                |  |      | (15 | ) |  |   | 244 | 
|                      |  |                     |       |                |  |      |     |   |  |   |     | 
|                      |  | $                   | 8,168 |                |  | $    | 955 |   |  | $ | 689 | 
|                      |  |                     |       |                |  |      |     |   |  |   |     | 

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9. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Other prepaid expenses and other current assets consisted of the following:

|                       |  |                |       |      |  |   |       | 
|---------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                       |  | June 30,      
|                       |  |               
|                       |  | 2001           |       | 2000
|                       |  |                |       |     
|                       |  | (in thousands)
|Deferred tax asset     |  | $              | 7,254 |      |  | $ | 214   | 
|                      
|                      
|                      
|                      
|Deferred finance costs |  |                | 673   |      |  |   | 381   | 
|                      
|                      
|                      
|                      
|Supplies               |  |                | 1,111 |      |  |   | 874   | 
|                      
|                      
|                      
|                      
|Other prepaid invoices |  |                | 637   |      |  |   | 600   | 
|                       |  |                |       |      |  |   |       | 
|                       |  | $              | 9,675 |      |  | $ | 2,069 | 
|                       |  |                |       |      |  |   |       | 

10. ACCOUNTS PAYABLE, ACCRUED LIABILITIES, AND OTHER LIABILITIES

Accounts payable, accrued liabilities and other current liabilities consisted
of the following:

|                              |  |                |        |      |  |   |        | 
|----------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                              |  | June 30,      
|                              |  |               
|                              |  | 2001           |        | 2000
|                              |  |                |        |     
|                              |  | (in thousands)
|Accounts payable  trade      |  | $              | 8,241  |      |  | $ | 8,761  | 
|                             
|                             
|                             
|                             
|Accrued salaries and benefits |  |                | 3,728  |      |  |   | 2,813  | 
|                             
|                             
|                             
|                             
|Deferred revenue              |  |                | 3,412  |      |  |   | 3,347  | 
|                             
|                             
|                             
|                             
|Money transfer payable        |  |                | 2,677  |      |  |   | 1,454  | 
|                             
|                             
|                             
|                             
|Restructuring accrual         |  |                | 1,209  |      |  |   |       | 
|                             
|                             
|                             
|                             
|Interest payable              |  |                | 788    |      |  |   | 322    | 
|                             
|                             
|                             
|                             
|Other                         |  |                | 3,248  |      |  |   | 4,725  | 
|                              |  |                |        |      |  |   |        | 
|                              |  | $              | 23,303 |      |  | $ | 21,422 | 
|                              |  |                |        |      |  |   |        | 

Other liabilities non-current consisted of the following:

|                                  |  |                |       |      |  |   |       | 
|--------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                  |  | June 30,      
|                                  |  |               
|                                  |  | 2001           |       | 2000
|                                  |  |                |       |     
|                                  |  | (in thousands)
|Deferred revenue
Deferred revenue |  | $              | 4,628 |      |  | $ | 3,519 | 
|                                 
|                                 
|                                 
|                                 
|Interest-rate swap                |  |                | 734   |      |  |   |      | 
|                                  |  |                |       |      |  |   |       | 
|                                  |  | $              | 5,362 |      |  | $ | 3,519 | 
|                                  |  |                |       |      |  |   |       | 

11. SHAREHOLDERS EQUITY

Preferred Stock

Under the Companys Certificate of Incorporation, the Board of Directors has
the power to authorize the issuance of one or more classes or series of
preferred stock and to fix the designations, powers, preferences and relative,
participating, optional or other rights, if any, and the qualifications,
limitations, or restrictions thereof, if any. At June 30, 2001, 2000, and
1999, one million shares of preferred stock were authorized with a par value of
$1.00, none of which were issued and outstanding.

Stock Option Plans

In accordance with SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123), the Company accounts for stock-based compensation programs using
the intrinsic value method. Under the intrinsic value method, compensation
expense is equal to the excess, if any, of the quoted market price of the stock
at the grant date over the amount the employee or non-employee director must
pay to acquire the stock. As the Company does not grant stock options at an
exercise price of less than the fair market value at the date of grant, stock
options do not represent compensation expense in the determination of net
income in the consolidated statements of earnings.

Employee Stock Option Plans.The Company sponsors the 1997 Stock Option Plan
(as amended, the Plan) for eligible employees. The original employee plan,
the 1987 Stock Option Plan, expired during fiscal 1998 (though options granted
thereunder continue to be effective in accordance with their terms), and the
Company adopted the 1997 Stock Option Plan for

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eligible employees. There are 1,828,453 shares of Common Stock reserved for
grants of options under these two plans. Options are granted at the sole
discretion of the Board of Directors, upon the recommendation of its
Compensation Committee, to selected employees of the Company. Outstanding
options are generally exercisable annually in installments over a three to
four-year period from the date of grant at an exercise price of not less than
the fair market value at the grant date. The options expire either at five or
ten years after date of grant.

Had stock option compensation expense been determined consistent with the fair
value method of measuring compensation expense under SFAS 123, the pro forma
effect for fiscal 2001, 2000, and 1999 would have been a reduction in the
Companys net income of approximately $0.3 million, $0.5 million, and $0.3
million, respectively, and a reduction in diluted earnings per share of
approximately $.03, $.05, and $.03, respectively.

In determining the pro forma stock compensation expense, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants
in fiscal 2001, 2000, and 1999, respectively: expected volatility of 49%, 46%,
and 46%; expected lives of 5.1, 4.3, and 4.6 years; risk-free interest rates of
3.3%, 6.1%, and 4.7%; and no expected dividends.

Exercise prices for employee options outstanding as of June 30, 2001, ranged
from $6.67 to $18.00 (fair market value on dates of grant). The following
table provides certain information with respect to stock options outstanding
and exercisable at June 30, 2001, under the two employees stock option plans:

|                         |  |             |  |               |           |          |  |                  |       |           |             |         |     |       |  |          |  |         |  |           |         |  |  |  |  |   |       |  |  |  |  | 
|------------------------ |  | ----------- |  | ------------- | --------- | -------- |  | ---------------- | ----- | --------- | ----------- | ------- | --- | ----- |  | -------- |  | ------- |  | --------- | ------- |  |  |  |  | - | ----- |  |  |  |  | 
|                         |  | Outstanding |  | Exercisable  
|                         |  |             |  |              
|                         |  |             |  |               |           |          |  | Weighted         |       | Weighted- |             |         |     |       |  |          |  |         |  | Weighted-
|                         |  |             |  |               |           |          |  | average          |       | average   |             |         |     | Stock |  |          |  | average |  |           |         | 
|                         |  |             |  | Stock options |           | exercise |  | remaining        |       |           |             | options |     |       |  | exercise |  |         |  |          
|Range of exercise prices |  |             |  | outstanding   |           | price    |  | contractual life |       |           | exercisable |         |     | price |  |          |  |        
|                         |  |             |  |               |           |          |  |                  |       |           |             |         |     |       |  |          |  |         |  |          
|Under $7.20              |  |             |  |               | 82,895    |          |  | $                | 6.93  |           |             |         | 0.5 |       |  |          |  |         |  |           | 82,895  |  |  |  |  | $ | 6.93  | 
|                        
|                        
|                        
|                        
|$7.21  $9.00            |  |             |  |               | 65,600    |          |  |                  | 7.61  |           |             |         | 3.9 |       |  |          |  |         |  |           | 43,100  |  |  |  |  |   | 7.37  | 
|                        
|                        
|                        
|                        
|$9.01  $10.80           |  |             |  |               | 232,605   |          |  |                  | 9.46  |           |             |         | 9.1 |       |  |          |  |         |  |           | -       |  |  |  |  |   |      | 
|                        
|                        
|                        
|                        
|$10.81  $12.60          |  |             |  |               | 265,531   |          |  |                  | 11.86 |           |             |         | 7.1 |       |  |          |  |         |  |           | 118,270 |  |  |  |  |   | 12.00 | 
|                        
|                        
|                        
|                        
|$12.61  $14.40          |  |             |  |               | 385,935   |          |  |                  | 13.47 |           |             |         | 7.9 |       |  |          |  |         |  |           | 124,260 |  |  |  |  |   | 13.46 | 
|                        
|                        
|                        
|                        
|$14.41  $16.20          |  |             |  |               | 57,625    |          |  |                  | 14.86 |           |             |         | 7.5 |       |  |          |  |         |  |           | 22,937  |  |  |  |  |   | 14.80 | 
|                        
|                        
|                        
|                        
|$16.21  $18.00          |  |             |  |               | 131,250   |          |  |                  | 17.07 |           |             |         | 8.5 |       |  |          |  |         |  |           | 32,812  |  |  |  |  |   | 17.07 | 
|                         |  |             |  |               |           |          |  |                  |       |           |             |         |     |       |  |          |  |         |  |           |         |  |  |  |  |   |       | 
|                         |  |             |  |               | 1,221,441 |          |  | $                | 12.05 |           |             |         | 7.3 |       |  |          |  |         |  |           | 424,274 |  |  |  |  | $ | 11.51 | 
|                         |  |             |  |               |           |          |  |                  |       |           |             |         |     |       |  |          |  |         |  |           |         |  |  |  |  |   |       | 

The weighted average fair value of options granted during the years ended June
30, 2001, 2000, and 1999, calculated using the Black-Scholes option pricing
model, was approximately $4.81 per share, $6.87 per share, and $6.06 per share,
respectively.

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The following table summarizes stock option activity under the two employees
stock option plans:

|                                        |  |          |           |             |  |           |           |       |  |           |          |         |  |          |       | 
|--------------------------------------- |  | -------- | --------- | ----------- |  | --------- | --------- | ----- |  | --------- | -------- | ------- |  | -------- | ----- | 
|                                        |  |          |           |             |  |           |           |       |  |           |          |         |  | Weighted
|                                        |  |          |           |             |  |           |           |       |  | Available |          | Average
|                                        |  | Reserved |           | Outstanding |  | for Grant |           | Price
|                                        |  |          |           |             |  |           |           |      
|Shares at June 30, 1998                 |  |          | 1,394,862 |             |  |           | 717,669   |       |  |           | 677,193  |         |  | $        | 7.73  | 
|                                       
|                                       
|                                       
|                                       
|Exercised                               |  |          | (173,367  | )           |  |           | (173,367  | )     |  |           |         |         |  |          | 4.54  | 
|                                       
|                                       
|                                       
|                                       
|Canceled                                |  |          | (17,206   | )           |  |           | (78,419   | )     |  |           | 61,213   |         |  |          | 11.68 | 
|                                       
|                                       
|                                       
|                                       
|Granted                                 |  |          |          |             |  |           | 331,105   |       |  |           | (331,105 | )       |  |          | 13.49 | 
|                                        |  |          |           |             |  |           |           |       |  |           |          |         |  |          |      
|Shares at June 30, 1999                 |  |          | 1,204,289 |             |  |           | 796,988   |       |  |           | 407,301  |         |  |          | 10.42 | 
|                                       
|                                       
|                                       
|                                       
|Increase in shares reserved for
options |  |          | 315,000   |             |  |           |          |       |  |           | 315,000  |         |  |          |      | 
|                                       
|                                       
|                                       
|                                       
|Exercised                               |  |          | (110,435  | )           |  |           | (110,435  | )     |  |           |         |         |  |          | 6.65  | 
|                                       
|                                       
|                                       
|                                       
|Canceled                                |  |          | (4,775    | )           |  |           | (102,729  | )     |  |           | 97,954   |         |  |          | 13.46 | 
|                                       
|                                       
|                                       
|                                       
|Granted                                 |  |          |          |             |  |           | 474,486   |       |  |           | (474,486 | )       |  |          | 15.09 | 
|                                        |  |          |           |             |  |           |           |       |  |           |          |         |  |          |      
|Shares at June 30, 2000                 |  |          | 1,404,079 |             |  |           | 1,058,310 |       |  |           | 345,769  |         |  |          | 12.60 | 
|                                       
|                                       
|                                       
|                                       
|Increase in shares reserved for
options |  |          | 500,000   |             |  |           |          |       |  |           | 500,000  |         |  |          |      | 
|                                       
|                                       
|                                       
|                                       
|Exercised                               |  |          | (73,476   | )           |  |           | (73,476   | )     |  |           |         |         |  |          | 5.88  | 
|                                       
|                                       
|                                       
|                                       
|Canceled                                |  |          | (2,150    | )           |  |           | (233,091  | )     |  |           | 230,941  |         |  |          | 12.97 | 
|                                       
|                                       
|                                       
|                                       
|Granted                                 |  |          |          |             |  |           | 469,698   |       |  |           | (469,698 | )       |  |          | 10.21 | 
|                                        |  |          |           |             |  |           |           |       |  |           |          |         |  |          |      
|Shares at June 30, 2001                 |  |          | 1,828,453 |             |  |           | 1,221,441 |       |  |           | 607,012  |         |  | $        | 12.05 | 
|                                        |  |          |           |             |  |           |           |       |  |           |          |         |  |          |      

Non-employee Director Stock Option Plan.In 1995, the Board of Directors and
the shareholders of the Company approved the adoption of a nonqualified
non-employee director stock option plan. The purpose of this plan is to permit
the Company to grant options to the Companys outside directors as part of
their compensation. The plan originally had 135,000 shares reserved for
issuance and in November 1998, an amendment was approved to increase the number
of shares to 260,000. Outstanding options are generally exercisable annually
in installments over a three to four-year period from the date of grant at an
exercise price of not less than the fair market value at the grant date. The
options expire five years after date of grant.

Had stock option compensation expense been determined consistent with the fair
value method of measuring compensation expense under SFAS 123, the pro forma
effect for fiscal 2001, 2000, and 1999 would have been a reduction in the
Companys net income of approximately $63,000, $32,000, and $25,000,
respectively, and a reduction in diluted earnings per share of approximately
$.01 for fiscal 2001 and no impact on diluted earnings per share for fiscal
2000 and fiscal 1999.

In determining the pro forma stock compensation expense, the fair value of each
non-employee director option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 2001, 2000, and 1999, respectively:
expected volatility of 49%, 46%, and 46%; expected lives of 5.0, 4.9, and 4.8
years; risk-free interest rates of 3.3%, 6.1%, and 4.7%; and no expected
dividends.

Exercise prices for non-employee director options outstanding as of June 30,
2001, ranged from $5.56 to $16.38 (fair market value on dates of grant). The
following table provides certain information with respect to stock options
outstanding and exercisable at June 30, 2001 under the non-employee director
stock option plan:

|                         |  |  |  |               |         |          |  |                  |             |           |  |  |             |     |       |  |          |  |         |  |           |  |  |  |  |   |       | 
|------------------------ |  |  |  | ------------- | ------- | -------- |  | ---------------- | ----------- | --------- |  |  | ----------- | --- | ----- |  | -------- |  | ------- |  | --------- |  |  |  |  | - | ----- | 
|                         |  |  |  | Outstanding   |         |          |  |                  | Exercisable
|                         |  |  |  |               |         |          |  |                  |            
|                         |  |  |  |               |         |          |  | Weighted         |             | Weighted- |  |  |             |     |       |  |          |  |         |  | Weighted-
|                         |  |  |  |               |         |          |  | average          |             | average   |  |  |             |     | Stock |  |          |  | average
|                         |  |  |  | Stock options |         | exercise |  | remaining        |             |           |  |  | options     |     |       |  | exercise
|Range of exercise prices |  |  |  | outstanding   |         | price    |  | contractual life |             |           |  |  | exercisable |     |       |  | price   
|                         |  |  |  |               |         |          |  |                  |             |           |  |  |             |     |       |  |         
|Under $7.20              |  |  |  |               | 38,250  |          |  | $                | 6.58        |           |  |  |             | 0.3 |       |  |          |  |         |  | 38,250    |  |  |  |  | $ | 6.58  | 
|                        
|                        
|                        
|                        
|$7.21  $9.00            |  |  |  |               | -       |          |  |                  | -           |           |  |  |             | -   |       |  |          |  |         |  | -         |  |  |  |  |   |      | 
|                        
|                        
|                        
|                        
|$9.01  $10.80           |  |  |  |               | -       |          |  |                  | -           |           |  |  |             | -   |       |  |          |  |         |  | -         |  |  |  |  |   |      | 
|                        
|                        
|                        
|                        
|$10.81  $12.60          |  |  |  |               | 63,250  |          |  |                  | 11.78       |           |  |  |             | 3.1 |       |  |          |  |         |  | 38,250    |  |  |  |  |   | 12.30 | 
|                        
|                        
|                        
|                        
|$12.61  $14.40          |  |  |  |               | 20,000  |          |  |                  | 13.25       |           |  |  |             | 2.4 |       |  |          |  |         |  | 13,332    |  |  |  |  |   | 13.25 | 
|                        
|                        
|                        
|                        
|$14.41  $16.20          |  |  |  |               | -       |          |  |                  | -           |           |  |  |             | -   |       |  |          |  |         |  | -         |  |  |  |  |   |      | 
|                        
|                        
|                        
|                        
|$16.21  $18.00          |  |  |  |               | 20,000  |          |  |                  | 16.38       |           |  |  |             | 3.4 |       |  |          |  |         |  | 6,664     |  |  |  |  |   | 16.38 | 
|                         |  |  |  |               |         |          |  |                  |             |           |  |  |             |     |       |  |          |  |         |  |           |  |  |  |  |   |       | 
|                         |  |  |  |               | 141,500 |          |  | $                | 11.23       |           |  |  |             | 2.3 |       |  |          |  |         |  | 96,496    |  |  |  |  | $ | 10.44 | 
|                         |  |  |  |               |         |          |  |                  |             |           |  |  |             |     |       |  |          |  |         |  |           |  |  |  |  |   |       | 

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The weighted average fair value of options granted during the years ended June
30, 2001, 2000, and 1999, calculated using the Black-Scholes option pricing
model, was approximately $5.27 per share, $7.90 per share, and $6.09 per share,
respectively.

The following table summarizes stock option activity under the non-employee
director stock option plan:

|                                        |  |          |         |             |  |           |         |       |  |           |         |         |  |          |       | 
|--------------------------------------- |  | -------- | ------- | ----------- |  | --------- | ------- | ----- |  | --------- | ------- | ------- |  | -------- | ----- | 
|                                        |  |          |         |             |  |           |         |       |  |           |         |         |  | Weighted
|                                        |  |          |         |             |  |           |         |       |  | Available |         | Average
|                                        |  | Reserved |         | Outstanding |  | for Grant |         | Price
|                                        |  |          |         |             |  |           |         |      
|Shares at June 30, 1998                 |  |          | 119,250 |             |  |           | 81,000  |       |  |           | 38,250  |         |  | $        | 8.04  | 
|                                       
|                                       
|                                       
|                                       
|Increase in shares reserved for
options |  |          | 125,000 |             |  |           |        |       |  |           | 125,000 |         |  |          |      | 
|                                       
|                                       
|                                       
|                                       
|Exercised                               |  |          |        |             |  |           |        |       |  |           |        |         |  |          |      | 
|                                       
|                                       
|                                       
|                                       
|Canceled                                |  |          |        |             |  |           |        |       |  |           |        |         |  |          |      | 
|                                       
|                                       
|                                       
|                                       
|Granted                                 |  |          |        |             |  |           | 20,000  |       |  |           | (20,000 | )       |  |          | 13.25 | 
|                                        |  |          |         |             |  |           |         |       |  |           |         |         |  |          |      
|Shares at June 30, 1999                 |  |          | 244,250 |             |  |           | 101,000 |       |  |           | 143,250 |         |  |          | 9.08  | 
|                                       
|                                       
|                                       
|                                       
|Exercised                               |  |          |        |             |  |           |        |       |  |           |        |         |  |          |      | 
|                                       
|                                       
|                                       
|                                       
|Canceled                                |  |          |        |             |  |           |        |       |  |           |        |         |  |          |      | 
|                                       
|                                       
|                                       
|                                       
|Granted                                 |  |          |        |             |  |           | 20,000  |       |  |           | (20,000 | )       |  |          | 16.38 | 
|                                        |  |          |         |             |  |           |         |       |  |           |         |         |  |          |      
|Shares at June 30, 2000                 |  |          | 244,250 |             |  |           | 121,000 |       |  |           | 123,250 |         |  |          | 10.28 | 
|                                       
|                                       
|                                       
|                                       
|Exercised                               |  |          | (15,750 | )           |  |           | (15,750 | )     |  |           |        |         |  |          | 4.11  | 
|                                       
|                                       
|                                       
|                                       
|Canceled                                |  |          |        |             |  |           |        |       |  |           |        |         |  |          |      | 
|                                       
|                                       
|                                       
|                                       
|Granted                                 |  |          |        |             |  |           | 36,250  |       |  |           | (36,250 | )       |  |          | 11.31 | 
|                                        |  |          |         |             |  |           |         |       |  |           |         |         |  |          |      
|Shares at June 30, 2001                 |  |          | 228,500 |             |  |           | 141,500 |       |  |           | 87,000  |         |  | $        | 11.23 | 
|                                        |  |          |         |             |  |           |         |       |  |           |         |         |  |          |      

Stock Repurchase Program

The Companys Board of Directors has authorized the repurchase from time to
time of up to approximately $5 million of the Companys Common Stock in the
open market or in negotiated transactions. This stock repurchase program will
remain in effect unless discontinued by the Board of Directors. During the
fiscal year ended June 30, 2001, the Company repurchased 30,000 shares at an
average price of $10.19 per share, and during the fiscal year ended June 30,
2000, the Company repurchased 181,400 shares at an average price of $13.25 per
share.

12. INCOME TAXES

The provision for income taxes consists of the following:

|                              |                  |   |                     |       |      |   |       |     |  |   |       |     | 
|----------------------------- | ---------------- | - | ------------------- | ----- | ---- | - | ----- | --- |  | - | ----- | --- | 
|                              |                  |   | Year Ended June 30,
|                              |                  |   |                    
|                              |                  |   | 2001                |       | 2000 |   | 1999 
|                              |                  |   |                     |       |      |   |      
|                              |                  |   | (in thousands)     
|Current -
Federal income tax  |                  | $ | 6,323               |       |      | $ | 4,212 |     |  | $ | 4,274 |    
|                             
|                             
|                             
|                             
|                              | State income tax |   |                     | 1,187 |      |   |       | 861 |  |   |       | 898 | 
|                              |                  |   |                     |       |      |   |       |     |  |   |       |    
|                              |                  |   | 7,510               |       |      |   | 5,073 |     |  |   | 5,172 |    
|                             
|                             
|                             
|                             
|Deferred -
Federal income tax |                  |   | (6,139              | )     |      |   | 289   |     |  |   | 196   |    
|                             
|                             
|                             
|                             
|                              | State income tax |   |                     | (965  | )    |   |       | 33  |  |   |       | 22  | 
|                              |                  |   |                     |       |      |   |       |     |  |   |       |    
|                              |                  |   | (7,104              | )     |      |   | 322   |     |  |   | 218   |    
|                              |                  |   |                     |       |      |   |       |     |  |   |       |    
|                              |                  | $ | 406                 |       |      | $ | 5,395 |     |  | $ | 5,390 |    
|                              |                  |   |                     |       |      |   |       |     |  |   |       |    

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The net deferred tax asset consists of the following:

|                       |  |                |        |      |  |   |        |  
|---------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                       |  | June 30,      
|                       |  |               
|                       |  | 2001           |        | 2000
|                       |  |                |        |     
|                       |  | (in thousands)
|Gross assets           |  | $              | 11,855 |      |  | $ | 3,547  |  
|                      
|                      
|                      
|                      
|Gross liabilities      |  |                | (3,665 | )    |  |   | (2,461 | )
|                       |  |                |        |      |  |   |        |  
|Net deferred tax asset |  | $              | 8,190  |      |  | $ | 1,086  |  
|                       |  |                |        |      |  |   |        |  

The components of the net deferred tax asset are $7,254,000 and $936,000
recorded in other current and other non-current assets, respectively.

The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows:

|                              |  |                |        |      |  |   |        |  
|----------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                              |  | June 30,      
|                              |  |               
|                              |  | 2001           |        | 2000
|                              |  |                |        |     
|                              |  | (in thousands)
|Loan loss provision           |  | $              | 5,419  |      |  | $ |       |  
|                             
|                             
|                             
|                             
|Accrued liabilities and other |  |                | 1,040  |      |  |   | 976    |  
|                             
|                             
|                             
|                             
|Deferred revenue              |  |                | 2,435  |      |  |   | 2,571  |  
|                             
|                             
|                             
|                             
|Depreciation and amortization |  |                | (1,596 | )    |  |   | (2,461 | )
|                             
|                             
|                             
|                             
|Interest-rate swap            |  |                | 892    |      |  |   |       |  
|                              |  |                |        |      |  |   |        |  
|                              |  | $              | 8,190  |      |  | $ | 1,086  |  
|                              |  |                |        |      |  |   |        |  

The provisions for taxes on income as reported differ from the tax provision
computed by applying the statutory federal income tax rate of 34% as follows:

|                                                                |  |                     |      |      |  |      |       |  |  |   |       |  
|--------------------------------------------------------------- |  | ------------------- | ---- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                                                |  | Year Ended June 30,
|                                                                |  |                    
|                                                                |  | 2001                |      | 2000 |  | 1999
|                                                                |  |                     |      |      |  |     
|                                                                |  | (in thousands)     
|Federal income tax provision on income at
statutory rate of 34% |  | $                   | 346  |      |  | $    | 4,644 |  |  | $ | 4,638 |  
|                                                               
|                                                               
|                                                               
|                                                               
|State taxes, net of federal benefit                             |  |                     | 63   |      |  |      | 611   |  |  |   | 702   |  
|                                                               
|                                                               
|                                                               
|                                                               
|Amortization of goodwill                                        |  |                     | 112  |      |  |      | 109   |  |  |   | 84    |  
|                                                               
|                                                               
|                                                               
|                                                               
|Other                                                           |  |                     | (115 | )    |  |      | 31    |  |  |   | (34   | )
|                                                                |  |                     |      |      |  |      |       |  |  |   |       |  
|Income tax provision                                            |  | $                   | 406  |      |  | $    | 5,395 |  |  | $ | 5,390 |  
|                                                                |  |                     |      |      |  |      |       |  |  |   |       |  

13. COMMITMENTS AND CONTINGENCIES

The Company leases its facilities and certain equipment under non-cancelable
operating leases. Most of the Companys facility leases contain options that
allow the Company to renew leases for periods that generally range from three
to nine years. At June 30, 2001, future minimum rental payments under existing
leases were as follows (in thousands):

|                     |            |   |        |        | 
|-------------------- | ---------- | - | ------ | ------ | 
|Year Ending June 30: |            |   |        |       
|                    
|                    
|                    
|                    
|                     | 2002       |   | $      | 17,049 | 
|                    
|                    
|                    
|                    
|                     | 2003       |   |        | 13,214 | 
|                    
|                    
|                    
|                    
|                     | 2004       |   |        | 8,938  | 
|                    
|                    
|                    
|                    
|                     | 2005       |   |        | 4,616  | 
|                    
|                    
|                    
|                    
|                     | 2006       |   |        | 2,284  | 
|                    
|                    
|                    
|                    
|                     | Thereafter |   |        | 2,410  | 
|                     |            |   |        |        | 
|                     |            | $ | 48,511 |       
|                     |            |   |        |        | 

Lease expense was approximately $17.9 million, $14.9 million, and $12.9 million
for the years ended June 30, 2001, 2000, and 1999, respectively.

In the year ended June 30, 2000, the Company entered into an agreement to
settle the lawsuit against the Company in Arkansas, Angie Gwatney v. Ace Cash
Express, Inc. The Company provided $640,000 in its financial statements for
the

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year ended June 30, 2000 to satisfy its settlement obligations, which was
adequate for the settlement of these obligations during the fiscal year ended
June 30, 2001.

The Company is involved in various other legal proceedings incidental to the
conduct of its business. Management believes that these legal proceedings will
not result in any material impact on the Companys financial condition and
results of operations.

14. EMPLOYEE BENEFITS PLANS

The Company has a 401(k) savings plan (the Benefit Plan) on behalf of its
employees. Employees may contribute up to 20% of their annual compensation to
the Benefit Plan, subject to statutory maximums. The Benefit Plan provides a
matching of 25% of employee contributions made to the Benefit Plan. The
Companys matching contributions were approximately $219,000, $217,000, and
$79,000 for the years ended June 30, 2001, 2000, and 1999, respectively.

15. RELATED PARTY TRANSACTIONS

In March and April 2000, the Company invested a total of $1 million in ePacific
Incorporated (ePacific), a private company in the business of providing
customized debit-card payment systems and electronic funds transfer processing
services, which has been recorded under the cost method and is included in
other assets on the consolidated balance sheets. ePacific, formerly a
controlled subsidiary of Goleta, provides the debit-card system and processing
services to Goleta to enable it to make the Bank Loans described above in Note
1, Summary of Significant Accounting Policies  Loans Receivable, Net. For the
fiscal year ended June 30, 2001 and 2000, the Company purchased 484,000 and
110,000 debit-cards for a total of $1.5 million and $0.3 million, respectively.

The Companys investment in ePacific was made at the same times, and on the
same terms, as the investment by two venture capital investors. The Company
purchased approximately 14% of the shares of ePacifics Series A Convertible
Preferred Stock purchased by the group of investors. The terms of those shares
are typical of
preferred stock issued and purchased in venture capital investments, and
include the right to periodic dividends from ePacific, the right to a
preferential distribution upon liquidation of ePacific, voting rights with
ePacific common stock, and the right to convert the preferred stock into
ePacific common stock. Under a stockholders agreement with ePacific and its
other stockholders, the Company agreed to certain restrictions on transfer of
its ePacific stock, received certain securities registration rights regarding
resale of its ePacific stock, and received the right to designate one person to
serve as a director of ePacific. The Company designated Jay B. Shipowitz, its
President and Chief Operating Officer, to serve as a director of ePacific.

16. NEW ACCOUNTING REQUIREMENTS

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
Business Combinations (SFAS 141) and SFAS No. 142 Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 supersedes APB 16 and eliminates
pooling-of-interests accounting prospectively. It also provides guidance on
purchase accounting related to the recognition of intangible assets and
financial statement disclosures. SFAS 142 changes the accounting for certain
intangibles, including goodwill, from an amortization method to an
impairment-only approach. Under the provisions of SFAS 142, intangible assets,
including goodwill, that are not subject to amortization will be tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired, using a two step impairment
assessment. The first step of the goodwill impairment test, used to identify
potential impairment, compares the fair value of a reporting unit with its
carrying amount, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired, and the second step of the impairment test is not necessary. If the
carrying amount of a reporting unit exceeds its fair value, the second step of
the goodwill impairment test shall be performed to measure the amount of
impairment loss if any.

SFAS 141 and SFAS 142 are effective for all business combinations completed
after June 30, 2001. Companies are required to adopt SFAS 142 for fiscal years
beginning after December 15, 2001, but early adoption is permitted under
certain circumstances. It is anticipated that the adoption of SFAS 141 will not
have a material impact on the Companys results of operations and financial
position. The Company plans to adopt SFAS 142 effective July 1, 2001, and the
expected impact of the adoption of SFAS 142 on the fiscal 2002 results of
operations is the discontinuation of recording approximately $2.7 million of
amortization expense associated with goodwill resulting in an after tax effect
of $1.6 million on net income. The Company has a six-month period to complete
the first step of the transitional goodwill impairment test. The amounts used
in the transitional impairment test will be measured as of July 1, 2001. If
the carrying amount of the net assets of a reporting unit (including goodwill)
exceeds the fair value of that reporting unit, the second step of the
transitional impairment test must be completed no later than June 30, 2002.
Management has not yet determined what impact, if any, the transition
impairment test will have on the Companys results of operations and financial
position.

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17. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for the fiscal years ended June 30, 2001,
2000, and 1999, are as follows:

|                                                                         |  |                    |        |            |  |                                          |        |         |  |         |        |   |  |   |        |  |  |   |         | 
|------------------------------------------------------------------------ |  | ------------------ | ------ | ---------- |  | ---------------------------------------- | ------ | ------- |  | ------- | ------ | - |  | - | ------ |  |  | - | ------- | 
|                                                                         |  | Unaudited          |        |            |  |                                         
|                                                                         |  |                   
|                                                                         |  | Three Months Ended |       
|                                                                         |  |                    |        | Year Ended
|                                                                         |  | Sept 30            |        | Dec 31     |  | Mar 31                                   |        | June 30 |  | June 30
|                                                                         |  |                    |        |            |  |                                          |        |         |  |        
|                                                                         |  |                    |        |            |  | (in thousands, except per share amounts) |        |         |  |        
|2001:                                                                    |  |                    |        |            |  |                                          |        |         |  |         |        |   |  |   |        |  |  |   |         | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Revenues                                                                 |  | $                  | 40,238 |            |  | $                                        | 45,100 |         |  | $       | 60,193 |   |  | $ | 51,244 |  |  | $ | 196,775 | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income (loss)                                                        |  |                    | 1,386  |            |  |                                          | 1,997  |         |  |         | (4,155 | ) |  |   | 1,383  |  |  |   | 611     | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Diluted earnings (loss) per
share                                        |  |                    | .14    |            |  |                                          | .20    |         |  |         | (.41   | ) |  |   | .13    |  |  |   | .06     | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|2000:                                                                    |  |                    |        |            |  |                                          |        |         |  |         |        |   |  |   |        |  |  |   |         | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Revenues                                                                 |  | $                  | 30,588 |            |  | $                                        | 32,284 |         |  | $       | 41,337 |   |  | $ | 36,427 |  |  | $ | 140,636 | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income before cumulative
effect
of accounting change                     |  |                    | 1,022  |            |  |                                          | 1,403  |         |  |         | 5,177  |   |  |   | 1,264  |  |  |   | 8,866   | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Diluted earnings per share
before cumulative effect of
accounting change |  |                    | .10    |            |  |                                          | .14    |         |  |         | .51    |   |  |   | .11    |  |  |   | .86     | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income                                                               |  |                    | 419    |            |  |                                          | 1,403  |         |  |         | 5,177  |   |  |   | 1,264  |  |  |   | 8,263   | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Diluted earnings per share                                               |  |                    | .04    |            |  |                                          | .14    |         |  |         | .51    |   |  |   | .11    |  |  |   | .80     | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|1999:                                                                    |  |                    |        |            |  |                                          |        |         |  |         |        |   |  |   |        |  |  |   |         | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Revenues                                                                 |  | $                  | 26,023 |            |  | $                                        | 28,656 |         |  | $       | 36,009 |   |  | $ | 31,626 |  |  | $ | 122,314 | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income                                                               |  |                    | 796    |            |  |                                          | 1,116  |         |  |         | 4,095  |   |  |   | 2,243  |  |  |   | 8,250   | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Diluted earnings per share                                               |  |                    | .08    |            |  |                                          | .11    |         |  |         | .40    |   |  |   | .22    |  |  |   | .80     | 

The Companys business is seasonal because of the impact of cashing tax refund
checks and two other tax-related services  electronic tax filings and
processing applications for refund anticipation loans. The impact of these
services is in the third and fourth quarter of the Companys fiscal year.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Shareholders of Ace Cash Express, Inc.:

We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated balance sheets of Ace Cash Express, Inc., a
Texas corporation, and subsidiaries as of June 30, 2001 and 2000, and the
related consolidated statements of earnings, shareholders equity and cash
flows for each of the three years in the period ended June 30, 2001, included
in this Form 10-K and have issued our report thereon dated August 13, 2001.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule referred to
below is the responsibility of the Companys management.

Schedule II  Valuation and Qualifying Accounts is presented for the purpose
of complying with the Securities and Exchange Commissions rules and is not
part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Dallas, Texas,
August 13, 2001

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ACE CASH EXPRESS, INC. AND SUBSIDIARIES (a)

Schedule II  Valuation and Qualifying Accounts

|               |                     |           |           |          |          |          |           |      |  |  |               |            |  |  |  |  |  |               |   |       |            |  |  |  |  |  |   |      | 
|-------------- | ------------------- | --------- | --------- | -------- | -------- | -------- | --------- | ---- |  |  | ------------- | ---------- |  |  |  |  |  | ------------- | - | ----- | ---------- |  |  |  |  |  | - | ---- | 
|               |                     |           |           |          |          |          | Additions |      |  |  |               |            |  |  |  |  |  |               |   |       |            |  | 
|               |                     |           |           |          |          |          |           |      |  |  |               |            |  |  |  |  |  |               |   |       |            |  | 
|               |                     |           | Balance   |          | Charged  |          |           |      |  |  |               |            |  |  |  |  |  |               |   |       |            |  |  |  | 
|               |                     |           | at        |          | to costs |          | Charged   |      |  |  |               |            |  |  |  |  |  |               |   |       |            |  | 
|               |                     |           | beginning |          | and      |          | to other  |      |  |  |               |            |  |  |  |  |  |               |   |       | Balance at
|Description    |                     | of period |           | expenses |          | accounts |           |      |  |  |               | Deductions |  |  |  |  |  | end of period
|               |                     |           |           |          |          |          |           |      |  |  |               |            |  |  |  |  |  |              
|               |                     |           |           |          |          |          |           |      |  |  | (in millions) |            |  |  |  |  |  |               |   |       |            |  | 
|June 30, 2001: |                     |           |           |          |          |          |           |      |  |  |               |            |  |  |  |  |  |               |   |       |            |  |  |  |  |  |   |     
|              
|              
|              
|              
|               | Loan loss provision |           | $         |         |          |          | $         | 24.8 |  |  | $             | 1.6(b)     |  |  |  |  |  |               | $ | (13.0 | )          |  |  |  |  |  | $ | 13.4 | 
|              
|              
|              
|              
|               | Restructure reserve |           | $         |         |          |          | $         | 8.7  |  |  | $             |           |  |  |  |  |  |               | $ | (7.5  | )(c)       |  |  |  |  |  | $ | 1.2  | 



---

|(a) |  | This schedule should be read in conjunction with the Companys audited
consolidated financial statements and related notes thereto.                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | In connection with the establishment of the loan loss provision, $1.6
million was reserved for loans re-established.                                                                                                                                                                                
|   
|   
|   
|   
|(c) |  | Includes $6.5 of costs associated with the write-offs of goodwill and covenants
not to compete, fixed asset and inventory disposals, and lease terminations
related to store closings and impairments, and $1.0 million adjustment related
to the Companys estimate of remaining lease obligations.

68



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INDEX TO EXHIBITS

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.1            |  | Restated Articles of Incorporation of the Company, as amended through
January 31, 1998. (Included as Exhibit 3.6 to the Companys Form 10-Q
as of December 31, 1997 (Commission File Number 0-20774) and
incorporated herein by reference.)                                                                                                                                                                                                                                                                                   
|              
|              
|              
|              
|3.2            |  | Amended and Restated Bylaws of the Company, as amended through January
31, 1998. (Included as Exhibit 3.7 to the Companys Form 10-Q as of
December 31, 1997 (Commission File Number 0-20774) and incorporated
herein by reference.)                                                                                                                                                                                                                                                                                          
|              
|              
|              
|              
|3.3            |  | Certificate of Amendment to the Companys Bylaws dated January 3, 2000.
(Included as Exhibit 3.3 to the Companys Form 10-Q as of December 31,
1999 (Commission File Number 0-20774) and incorporated herein by
reference.)                                                                                                                                                                                                                                                                                                   
|              
|              
|              
|              
|4.1            |  | Form of Certificate representing shares of Registrants Common Stock.
(Included as Exhibit 4.1 to the Companys Registration Statement on
Form S-1 (Reg. No. 33-53286) (the Registration Statement) and
incorporated herein by reference.)                                                                                                                                                                                                                                                                                  
|              
|              
|              
|              
|10.1           |  | Ace Cash Express, Inc. 1987 Stock Option Plan, as amended (including
form of Incentive Stock Option Agreement). (Included as Exhibit 10.1 to
the Registration Statement and incorporated herein by reference.)#                                                                                                                                                                                                                                                                                                               
|              
|              
|              
|              
|10.2           |  | 1992 Master Agreement dated October 14, 1992 (the Money Order
Agreement) between the Company and American Express Travel Related
Services Company, Inc. (the Money Order Supplier). (Confidential
treatment for a portion of this document has been granted by the
Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934) (Included as Exhibit 10.4 to the
Registration Statement and incorporated herein by reference.)                                                    
|              
|              
|              
|              
|10.3           |  | Agreement Regarding Stock Pledges dated as of November 20, 1992,
between the Company and the shareholders pledging shares of Common
Stock to secure the performance of the Companys obligations under the
Money Order Agreement. (Included as Exhibit 10.7 to the Registration
Statement and incorporated herein by reference.)                                                                                                                                                                                              
|              
|              
|              
|              
|10.4           |  | Lease Agreement dated October 1, 1987, between the Company and Greenway
Tower Joint Venture, as amended by First Amendment to Lease Agreement
dated April 29, 1988, Second Amendment to Lease Agreement dated August
24, 1988, Third Amendment to Lease Agreement dated December 29, 1988
and Fourth Amendment to Lease Agreement dated January 29, 1991.
(Included as Exhibit 10.8 to the Registration Statement and
incorporated herein by reference.)                                                                      
|              
|              
|              
|              
|10.5           |  | First Amendment to the Money Order Agreement dated December 1,1992,
between the Company and the Money Order Supplier. (Included as Exhibit
10.9 to the Registration Statement and incorporated herein by
reference.)                                                                                                                                                                                                                                                                                                          
|              
|              
|              
|              
|10.6           |  | Agreement for Purchase and Sale of Stock Assets dated January 2, 1992,
between T.J. Martin (Martin) and R.C. Hemmig (Hemmig). (Included as
Exhibit 10.10 to the Registration Statement and incorporated herein by
reference.)                                                                                                                                                                                                                                                                                             
|              
|              
|              
|              
|10.7           |  | Option to Repurchase, dated January 2, 1992, in favor of Hemmig.
(Included as Exhibit 10.12 to the Registration Statement and
incorporated herein by reference.)                                                                                                                                                                                                                                                                                                                                                              
|              
|              
|              
|              
|10.8           |  | Irrevocable Proxy of Martin dated January 2, 1992 in favor of Hemmig.
(Included as Exhibit 10.13 to the Registration Statement and
incorporated by reference herein.)                                                                                                                                                                                                                                                                                                                                                         
|              
|              
|              
|              
|10.9           |  | Letter Agreement between First Data Corporation and the Company dated
December 6, 1993, amending the First Amendment to the Money Order
Agreement. (Included as Exhibit 10.9 to the Companys Form 10-K as of
June 30, 1994 (Commission File Number 0-20774) and incorporated herein
by reference.)                                                                                                                                                                                                                           
|              
|              
|              
|              
|10.10          |  | Fifth Amendment to Lease Agreement dated June 13, 1994, between the
Company and Greenway Tower Joint Venture. (Included as Exhibit 10.10 to
the Companys Form 10-K as of June 30, 1994 (Commission File Number
0-20774) and incorporated herein by reference.)                                                                                                                                                                                                                                                               
|              
|              
|              
|              
|10.11          |  | Asset Purchase Agreement dated November 22, 1993, among the Company,
sole proprietor, limited partnership, and general partnerships that
conduct business under the name Mr. Money Check Cashers (the
Sellers), general partners of the partnership sellers (the General
Partners), and an individual agent for the Sellers and the General
Partners (the Agent). (Included as Exhibit 2.1 in the Companys Form
8-K filed on December 7, 1993 (Commission File Number 0-20774) and
incorporated herein by reference.)
|              
|              
|              
|              
|10.12          |  | Food Stamp Sub-Contract Agreement dated November 22, 1993, between the
Company and the Agent. (Included as Exhibit 2.2 to the Companys Form
8-K filed on December 7,1993 (Commission File Number 0-20774) and
incorporated herein by reference.)                                                                                                                                                                                                                                                                             
|              
|              
|              
|              
|10.13          |  | Ace Cash Express, Inc. 401(k) Profit Sharing Plan, adopted July 1,
1994. (Included as Exhibit 10.13 to the Companys Form 10-K as of June
30, 1994 (Commission File Number 0-20774) and incorporated herein by
reference.)#                                                                                                                                                                                                                                                                                                   





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|      |  |                                                                                                                                                                                                                                                                                                                                          
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.14 |  | Ace Cash Express, Inc. Deferred Compensation Plan, adopted July 1,
1994. (Included as Exhibit 10.14 to the Companys Form 10-K as of June
30, 1994 (Commission File Number 0-20774) and incorporated herein by
reference.)#                                                                                                              
|     
|     
|     
|     
|10.15 |  | Asset Purchase Agreement dated June 27, 1995, among the Company and
Quick Cash, Inc., Q.C. & G. Financial, Inc., David Christenholz and
Gloria Guerra-Leyva. (Included as Exhibit 2.1 to the Companys Form 8-K
filed on July 11, 1995 (Commission File Number 0-20774) and
incorporated herein by reference.)                           
|     
|     
|     
|     
|10.16 |  | Escrow Agreement dated June 27, 1995, among the Company, Quick Cash,
Inc., Q.C. & G. Financial, Inc., David Christenholz, Gloria
Guerra-Leyva, and Bank One, Arizona, NA, as escrow agent. (Included as
Exhibit 2.2 to the Companys Form 8-K filed July 11, 1995 (Commission
File Number 0-20774) and incorporated herein by reference.)
|     
|     
|     
|     
|10.17 |  | Promissory Note dated June 27, 1995, of the Registrant in favor of the
Money Order Supplier. (Included as Exhibit 2.3 to Form 8-K filed July
11, 1995 and incorporated herein by reference.)                                                                                                                                             
|     
|     
|     
|     
|10.18 |  | Second Amendment to the Money Order Agreement dated September 8, 1995,
between the Company and the Money Order Supplier. (Included as Exhibit
10.18 to the Companys Form 10-K as of June 30, 1995 (Commission File
Number 0-20774) and incorporated herein by reference.)                                                               
|     
|     
|     
|     
|10.19 |  | Ace Cash Express, Inc. Non-Employee Directors Stock Option Plan dated
March 27, 1995. (Included as Exhibit 10.19 to the Companys Form 10-K
as June 30, 1995 (Commission File Number 0-20774) and incorporated
herein by reference.)                                                                                                     
|     
|     
|     
|     
|10.20 |  | Letter Agreement dated July 13, 1995, between First Data Corporation
and the Company amending the Money Order Agreement. (Included as
Exhibit 10.20 to the Companys Form 10-K as of June 30, 1995
(Commission File Number 0-20774) and incorporated herein by reference.)                                                               
|     
|     
|     
|     
|10.21 |  | Letter Agreement dated February 1, 1996, between the Company and the
Money Order Supplier amending the Money Order Agreement. (Included as
Exhibit 10.21 to the Companys Form 10-Q as of December 31, 1995
(Commission File Number 0-20774) and incorporated herein by reference.)                                                      
|     
|     
|     
|     
|10.22 |  | 1996 MoneyGram Master Agreement dated February 1, 1996, between the
Company and the Money Order Supplier (the MoneyGram Agreement).
(Included as Exhibit 10.22 to the Companys Form 10-Q as of December
31, 1995 (Commission File Number 0-20774) and incorporated herein by
reference.)                                              
|     
|     
|     
|     
|10.23 |  | Agreement and Plan of Merger dated October 13, 1995, among the Company,
Check Express, Inc., and Ace Acquisition Corporation. (Included as
Exhibit 2.1 to the Companys Form 8-K filed on February 16,1996
(Commission File Number 0-20774) and incorporated herein by reference.)                                                       
|     
|     
|     
|     
|10.24 |  | Amendment (to Agreement and Plan of Merger) dated December 20, 1995,
among the Company, Check Express, Inc., and Ace Acquisition
Corporation. (Included as Exhibit 2.2 to the Companys Form 8-K filed
on February 16, 1996 (Commission File Number 0-20774) and incorporated
herein by reference.)                                      
|     
|     
|     
|     
|10.25 |  | Sixth Amendment to Lease Agreement dated February 1, 1996, between the
Company and Greenway Tower Joint Venture. (Included as Exhibit 10.25 to
the Companys Form 10-Q as of March 31, 1996 (Commission File Number
0-20774) and incorporated herein by reference.)                                                                      
|     
|     
|     
|     
|10.26 |  | 1996-A Amendment to the MoneyGram Agreement dated March 21, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.26 to the Companys Form 10-K as of June 30, 1996 (Commission File
Number 0-20774) and incorporated herein by reference.)                                                                    
|     
|     
|     
|     
|10.27 |  | 1996-B Amendment to the MoneyGram Agreement dated June 27, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.27 to the Companys Form 10-K as of June 30, 1996 (Commission file
Number 0-20774) and incorporated herein by reference.)                                                                     
|     
|     
|     
|     
|10.28 |  | Note Purchase Agreement dated November 15, 1996, between the Company
and Principal Life Insurance Company. (Included as Exhibit 10.28 to the
Companys Form 10-Q as of December 31, 1996 (Commission File Number
0-20774) and incorporated herein by reference.)                                                                         





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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.29 |  | Form of 9.03% Senior Secured Notes due November 15, 2003. (Included as
Exhibit 10.29 to the Companys Form 10-Q as of December 31, 1996
(Commission File Number 0-20774) and incorporated herein by reference.)                                                                                                                                                                                                                                                                     
|     
|     
|     
|     
|10.30 |  | Collateral Trust Agreement dated November 15, 1996, among the Company
and the Money Order Supplier, Principal Life Insurance Company, and
Wilmington Trust Company. (Included as Exhibit 10.30 to the Companys
Form 10-Q as of December 31, 1996 (Commission File Number 0-20774) and
incorporated herein by reference.)                                                                                                                                                           
|     
|     
|     
|     
|10.31 |  | Assignment of Deposit Accounts and Security Agreement dated November
15, 1996, between the Company and Wilmington Trust Company. (Included
as Exhibit 10.31 to the Companys Form 10-Q as of December 31, 1996
(Commission File Number 0-20774) and incorporated herein by reference.)                                                                                                                                                                                              
|     
|     
|     
|     
|10.32 |  | Third Amendment to the Money Order Agreement dated November 15, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit
10.32 to the Companys Form 10-Q as of December 31, 1996 (Commission
File Number 0-20774) and incorporated herein by reference.)                                                                                                                                                                                                       
|     
|     
|     
|     
|10.33 |  | Amendment No.1 to the Ace Cash Express 401K Profit Sharing Plan
effective January 1, 1998. (Included as Exhibit 10.33 to the Companys
Form 10-Q as of March 31, 1998 (Commission File Number 0-20774) and
incorporated herein by reference.)#                                                                                                                                                                                                                                      
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|10.34 |  | Amendment No. 1 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.34 to the Companys Form 10-K as
of June 30, 1998 (Commission File No. 0-20774) and incorporated herein
by reference.) #                                                                                                                                                                                                                                                
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|10.35 |  | Amendment No. 2 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.35 to the Companys Form 10-K as
of June 30, 1998 (Commission File No. 0-20774) and incorporated herein
by reference.) #                                                                                                                                                                                                                                                
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|10.36 |  | Ace Cash Express, Inc. 1997 Stock Option Plan. (Included as Exhibit A
to the Companys Proxy Statement for the 1997 Annual Meeting of
Shareholders (Commission File No. 0-20774) and incorporated herein by
reference.)#                                                                                                                                                                                                                                                            
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|10.37 |  | Amendment No. 1 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.37 to the Companys Form 10-K as of June 30,
1998 (Commission File No. 0-20774) and incorporated herein by
reference.) #                                                                                                                                                                                                                                                                  
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|10.38 |  | Form of Change-in-Control Executive Severance Agreement between the
Company and each of its three executive officers. (Included as Exhibit
10.38 to the Companys Form 10-K as of June 30, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.) #                                                                                                                                                                                                              
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|10.39 |  | Money Order Agreement dated as of April 16, 1998, but effective as of
December 16, 1998, between the Company and Travelers Express Company,
Inc. (Confidential treatment for a portion of this document has been
granted by the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934). (Included as Exhibit
10.39 to the Companys Form 10-K as of June 30, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.)
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|10.40 |  | Credit Agreement dated as of July 31, 1998, but effective as of
December 16, 1998, among the Company, Wells Fargo Bank (Texas),
National Association, as agent (the Credit Agent), and the lenders
named therein, with Exhibits A and B thereto and Schedules 2.01(a) and
2.01(b) thereto. (Included as Exhibit 10.40 to the Companys Form 10-K
as of June 30, 1998 (Commission File No. 0-20774) and incorporated
herein by reference.)                                         
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|10.41 |  | Amended and Restated Collateral Trust Agreement dated as of July 31,
1998, but effective as of December 16, 1998, among the Company, the
Credit Agent, Travelers Express Company, Inc., Principal Life Insurance
Company (formerly known as Principal Mutual Life Insurance Company),
and Wilmington Trust Company. (Included as Exhibit 10.41 to the
Companys Form 10-K as of June 30, 1998 (Commission File No. 0-20774)
and incorporated herein by reference.)                  
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|10.42 |  | Amended and Restated Assignment of Deposit Accounts and Security
Agreement dated as of July 31, 1998, but effective as of December 16,
1998, between the Company and Wilmington Trust Company. (Included as
Exhibit 10.42 to the Companys Form 10-K as of June 30, 1998
(Commission File No. 0-20774) and incorporated herein by reference.)                                                                                                                                       





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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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|10.43 |  | First Amendment to Credit Agreement dated as of December 16, 1998,
among the Company, the Credit Agent, and the lenders named therein,
with Schedules 2.01(a) and 2.01(b) thereto. (Included as Exhibit 10.43
to the Companys Form 8-K filed on December 23, 1998 (Commission File
No. 0-20774) and incorporated herein by reference.)                                                                                                                                                                                                                                                                    
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|10.44 |  | Amendment No. 3 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.44 to the Companys Form 10-Q as
of December 31, 1998 (Commission File No. 0-20774) and incorporated
herein by reference.)#                                                                                                                                                                                                                                                                                                                                                                    
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|10.45 |  | Amendment No. 2 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.45 to the Companys Form 10-Q as of December
31, 1999 (Commission File Number 0-20774) and incorporated herein by
reference.)#                                                                                                                                                                                                                                                                                                                                                                                   
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|10.46 |  | Second Amendment to Credit Agreement dated as of December 15, 1999,
among the Company, the Credit Agent , and the lenders named therein,
with Schedules 2.01(a) and 2.01(b) thereto. (Included as Exhibit 10.46
to the Companys Form 10-Q as of December 31, 1999 (Commission File
Number 0-20774) and incorporated herein by reference.)                                                                                                                                                                                                                                                                 
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|10.47 |  | Master Loan Agency Agreement dated as of August 11, 1999, between the
Company and Goleta National Bank. (Confidential treatment for a portion
of this document has been granted by the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.)                                                                                                                                                                                                                                                                                                               
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|10.48 |  | Money Transfer Agreement dated as of June 30, 2000, among the Company,
Travelers Express Company, Inc., and MoneyGram Payment Systems, Inc.
(Confidential treatment for a portion of this document has been granted
by the Securities and Exchange Commission pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934.)                                                                                                                                                                                                                                                                           
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|10.49 |  | Change-in-Control Executive Severance Agreement dated as of August 17,
2000, between the Company and Debra A. Bradford.#                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
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|10.50 |  | Amendment No. 3 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.50 to the Companys Form 10-Q as of December
31, 2000 (Commission File No. 0-20774) and incorporated herein by
reference.)#                                                                                                                                                                                                                                                                                                                                                                                      
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|10.51 |  | Amended and Restated Credit Agreement dated November 9, 2000, among the
Company, Wells Fargo Bank Texas, National Association, as agent for the
lenders named therein, and the lenders named therein with the Schedules
(other than the Companys disclosure schedules) and the Exhibits
thereto. (Included as Exhibit 10.1 to the Companys Form 8-K dated
November 9, 2000 (Commission File No. 0-20774) and incorporated herein
by reference.)                                                                                                                                                          
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|10.52 |  | Asset Purchase Agreement dated November 10, 2000, among the Company,
Check Cashiers of Arizona, Inc., Check Cashiers of California, Inc.,
Corpus Christi Check Cashiers, Inc., U.S. Money Order Company, Inc.,
Valley Check Cashiers, Inc., Morris Silverman, and Jeffrey D.
Silverman. (Included as Exhibit 2.1 to the Companys Form 8-K dated
November 10, 2000 (Commission File No. 0-20774) and incorporated herein
by reference.)                                                                                                                                                                    
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|10.53 |  | Escrow Agreement dated November 10, 2000, among the Company, Check
Cashiers of Arizona, Inc., Check Cashiers of California, Inc., Corpus
Christi Check Cashiers, Inc. U.S. Money Order Company, Inc., Valley
Check Cashiers, Inc., and Chicago Title Insurance Company, as Escrow
Agent. (Included as Exhibit 2.2 to the Companys Form 8-K dated
November 10, 2000 (Commission File No. 0-20774) and incorporated herein
by reference.)                                                                                                                                                                   
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|10.54 |  | Form of Amendment to Change-in-Control Executive Severance Agreement
between the Company and each of its four senior executive officers
(Donald H. Neustadt, Jay B. Shipowitz, Raymond E. McCarty, and Debra A.
Bradford) dated as of January 3, 2001. (Included as Exhibit 10.51 to
the Companys Form 10-Q as of March 31, 2001 (Commission File No.
0-20774) and incorporated herein by reference.)#                                                                                                                                                                                                    
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|10.55 |  | Amendment Number 1 to Master Loan Agency Agreement, with the
corresponding Amendment Number 1 to Master Loan Participation Agreement
and Amendment Number 1 to Schedule of Interest and Fees, dated of March
29, 2001, between the Company and Goleta National Bank. (Confidential
treatment for a portion of this document has been submitted to the
Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.) (Included as Exhibit 10.52 to the
Companys Form 10-Q as of March 31, 2001 (Commission File No. 0-20774)
and incorporated herein by reference.)
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|10.56 |  | Change-in-Control Executive Severance Agreement dated as of May 15,
2001, between the Company and Barry M. Barron.*#                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       





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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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|10.57 |  | Amendment Number 2 to Master Loan Agency Agreement, with the
corresponding Amendment Number 2 to Master Loan Participation
Agreement, dated of June 30, 2001, between the Company and Goleta
National Bank. (Application for confidential treatment for a portion of
this document has been submitted to the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.)*
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|10.58 |  | Change-in-Control Executive Severance Agreement dated as of July 16,
2001, between the Company and Joe W. Conner.*#                                                                                                                                                                                                                                                                                                
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|21    |  | Subsidiaries of the Company.*                                                                                                                                                                                                                                                                                                                                                                                      



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|* |  | Filed herewith                                         
|- |  | -------------------------------------------------------
| 
| 
| 
| 
|# |  | Management contract or compensatory plan or arrangement