Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                  to


COMMISSION FILE NUMBER 001-32363

ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

58-2332639(I.R.S. Employer
Identification No.)135 North Church Street
Spartanburg, South Carolina(Address of principal executive offices)

29306(Zip Code)


Registrant's
telephone number, including area code:864-342-5600

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

Title of Each Class

Name of Each Exchange on which RegisteredCommon Stock, par value $.01 per share

New York Stock Exchange


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

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 ý    No o

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. o

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


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

As of June 30, 2008, the aggregate market value of voting stock (based upon the last reported sales price on the New York Stock Exchange) held by
nonaffiliates of the registrant was $260,056,914.

At
February 27, 2009, there were 61,643,538 shares of the registrant's Common Stock, par value $.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain
information required by Part III of this report is incorporated herein by reference from the registrant's proxy statement for the registrant's Annual Meeting of
Stockholders to be held on May 21, 2009.



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Table of Contents

ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.  Form 10-K  For the year ended December 31, 2008



PART IItem 1.

Business

4Item 1A.

Risk Factors

18Item 1B.

Unresolved Staff Comments

29Item 2.

Properties

29Item 3.

Legal Proceedings

30Item 4.

Submission of Matters to a Vote of Security Holders

34PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

35Item 6.

Selected Financial Data

38Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

42Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

71Item 8.

Financial Statements and Supplementary Data

72Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

111Item 9A.

Controls and Procedures

111Item 9B.

Other Information

112PART IIIItem 10.

Directors, Executive Officers and Corporate Governance

113Item 11.

Executive Compensation

114Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

114Item 13.

Certain Relationships and Related Transactions, and Director Independence

114Item 14.

Principal Accountant Fees and Services

114PART IVItem 15.

Exhibits and Financial Statement Schedules

114SIGNATURES

118


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FORWARD-LOOKING STATEMENTS

The matters discussed in this Annual Report on Form 10-K that are forward-looking statements are based on current
management expectations that involve substantial risks and uncertainties, which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking
statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "expect," "intend," "plan," "believe," "project,"
"anticipate," "may," "will," "should," "would," "could," "estimate," "continue" and other words and terms of similar meaning in conjunction with a discussion of future operating or financial
performance. You should read statements that contain these words carefully, because they discuss our future expectations, contain projections of our future results of operations or of our financial
position or state other "forward-looking" information.

The
factors listed in "Item 1A. Risk Factors," as well as any cautionary language in this Annual Report, provide examples of risks, uncertainties and events that may cause our
actual results to differ materially from the expectations we describe in our forward-looking statements. Although we believe that our expectations are based on reasonable assumptions, actual results
may differ materially from those in the forward-looking statements as a result of various factors, including, but not limited to, those described in "Item 1A. Risk Factors."

Forward-looking
statements speak only as of the date of this Annual Report. Except as required under federal securities laws and the rules and regulations of the U.S. Securities and
Exchange Commission, we do not have any intention, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this Annual Report,
whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements
included in this Annual Report or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary
statements.

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PART I

ITEM 1.    BUSINESS.

Overview

We are the largest provider of cash advance services in the United States, as measured by the number of centers operated. As of
December 31, 2008, we operated 2,767 centers in 33 states in the United States, 20 centers in the United Kingdom and 10 centers in Canada, and had 79 limited licensees in the United Kingdom. We
do not franchise any of our centers in the United States. Cash advances are small-denomination, short-term, unsecured advances that are typically due on the customer's next payday. We
focus primarily on providing cash advance services to middle-income working individuals and do not provide pawn lending, title lending or similar services.

In
2005, we began to expand the manner in which we offered cash advance and short-term loan products and services, primarily in response to increasing legislative and
regulatory restrictions. We previously marketed, processed and serviced installment loans made by lending banks under our former agency business model, which we discontinued in 2006. During 2006, we
began offering installment loans directly to customers in Illinois and prepaid debit cards in most of our centers as an agent of an Office of Thrift Supervision ("OTS") regulated bank. In the fall of
2007, we began selling money orders and providing money transfer services as an agent of a registered money transmitter. In 2008, we began facilitating the offering of tax preparation services
provided by a third party to customers. In the fall of 2008, we began offering small loans to customers in Ohio and open-ended lines of credit to customers in Virginia. In addition, in
2008, we implemented an online application process pursuant to which customers visiting our website may apply for cash advances from us and come to one of our centers to complete their transaction, or
apply for a cash advance from a third party that will be directly deposited into their bank accounts in accordance with the laws of the state where the customer resides. In the future we intend to
expand our product and service offerings. The table below shows selected demographics of the customers we serve:

Customers (1)

U.S. Census 2000Average age (years)


40


36Median household income

$
40,984

$
41,994Percentage homeowners


48
%

66
%Percentage with high school degrees


87
%

81
%


---

Our
goal is to attract customers by offering straightforward, rapid access to short-term funding, while providing high-quality, professional customer service. We believe that
our products and services represent a competitive source of liquidity to the customer relative to other alternatives, which typically include overdraft privileges or bounced check protection, late
bill payments, checks returned for insufficient funds and short-term collateralized loans.

Our
centers, which we design to have the appearance of mainstream financial institutions, are typically located in middle-income shopping areas with high retail activity. As of
December 31, 2008, we operated 2,661 centers under the "Advance America" brand and 136 centers under the "National Cash Advance" brand.

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The
following table presents key operating data for our business:

Year Ended December 31,2006

2007

2008Number of centers open at end of period


2,853


2,832


2,797Number of customers servedall credit products (thousands)


1,494


1,524


1,419Number of cash advances originated (thousands)


11,539


11,979


11,762Aggregate principal amount of cash advances originated (thousands)

$
4,082,865

$
4,317,980

$
4,296,493Average amount of each cash advance originated

$
353

$
361

$
366Average charge to customers for providing and processing a cash advance

$
55

$
55

$
55Average duration of a cash advance (days)


16.2


16.5


16.8Average number of lines of credit outstanding during the period (thousands) (1)


20


24


10Average amount of aggregate principal on lines of credit outstanding during the period (thousands) (1)

$
8,963

$
10,377

$
6,946Average principal amount on each line of credit outstanding during the period (1)

$
448

$
429

$
672Number of installment loans originated (thousands) (2)


29


31


32Aggregate principal amount of installment loans originated (thousands) (2)

$
13,905

$
12,997

$
14,841Average principal amount of each installment loan originated (2)

$
486

$
417

$
462


---

Our Industry

The
cash advance services industry grew significantly from the early 1990s through the middle of this decade in response to a shortage of available
short-term consumer credit alternatives from traditional banking institutions. The high charges associated with having insufficient funds in one's bank account, as well as other
late/penalty fees charged by financial institutions and merchants, helped create customer demand for cash advances. A cash advance typically involves a single charge, unlike other alternatives that
often require collateral, origination and administration fees, interest payments, additional incremental charges and prepayment penalties and
charges for other services, such as credit life insurance. Other alternatives, such as bounced checks and late bill payments, may also have negative credit consequences. We believe customers use cash
advances as a simple, quick and confidential way to meet short-term cash needs between paydays while avoiding the potentially higher costs and negative credit consequences of other
alternatives. Our industry has largely stopped growing in the United States. Federal and state legislative and regulatory challenges could cause our industry to become economically unviable.

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We
believe many banks and other traditional financial institutions reduced or eliminated their provision of small-denomination, short-term consumer loans, in part due to the
costs associated with originating these loans. As a result, a significant number of companies now offer short-term consumer loans, or cash advances, to lower-income and middle-income
individuals. The providers of these types of services are fragmented and range from specialty finance offices, like our centers, to retail stores in other industries that offer short-term
consumer loans as ancillary services. Because of the relatively low cost of entry and the regulatory safe harbor that many state statutes provide for cash advances, the industry experienced
significant growth during the last decade. Some providers offer cash advances and short-term loans over the internet as well as by telephone.

Competitive Strengths

Market Leader with Economies of Scale.With 2,767 centers located in 33 states as of December 31, 2008, we are the largest provider
of cash
advance services in the United States, as measured by the number of centers operated, with approximately twice as many centers as the next largest provider of cash advance services. We believe our
size provides us with a leadership position in the industry, allows us to leverage our brand name and enables us to benefit from economies of scale and to enter favorable relationships with landlords,
strategic vendors and other suppliers. We have centralized most center support functions, including marketing and advertising, accounting and finance, treasury management, human resources, regulatory
compliance, information technology support and customer support systems.

Continued Focus on Government Affairs.We have experience with the legislative and regulatory
environment in all of the states in which we operate as well as at the federal level. We are a founding member of the Community Financial Services Association of America ("CFSA"), an industry trade
group comprised of our company and more than 100 other companies engaged in the cash advance services industry. Our internal government affairs team, together with the CFSA, seeks to encourage
favorable legislation that permits us to operate profitably within a balanced regulatory framework. In 2008, 2007 and 2006, cash advance legislation we supported was adopted in five states, 10 states
and three states, respectively. Our approach is to continue to work with policymakers and grassroots organizations to provide a predictable and favorable legislative environment for the cash advance
services industry.

Rigorous Implementation of Center-Level Controls.We believe that our management information systems, our cash management systems and
our internal
compliance systems are critical to our success. We employ a proprietary point-of-sale system used to record transactions in our centers. This information is recorded daily and
analyzed at our centers and at our headquarters. We also employ a third-party cash reconciliation software system to balance and monitor cash receipts and disbursements. The principal benefits from
our use of these two systems are our quick recognition of variances from expected operating results, our early detection of theft and fraud and our ability to monitor compliance with various federal
and state laws.

Geographical Diversification of Our Centers.With centers located in 33 states as of December 31, 2008, we believe we have
developed a
significant presence throughout the United States. We now also operate centers in Canada and the United Kingdom. This geographic diversification helps mitigate the risk and possible financial impact
of unfavorable legislative changes or the economic environment of a particular region and allows us to take advantage of competitive opportunities in those markets. For the year ended
December 31, 2008, California, Texas and Florida, which accounted for approximately 11.2%, 10.6% and 10.4%, respectively, of our total revenues, were the only states that accounted for more
than 10% of our total revenues.

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Business Strategy

Maintain Position as the Market Leader.A principal component of our strategy is being a leading provider of cash advance services in
each market
where we operate. We believe that by offering the convenience of multiple locations, as well as exceptional customer service, we will maintain a high level of customer satisfaction. In general, we
believe that new market opportunities in the United States have decreased and we have adjusted our roll-out of new centers accordingly. In the United States, we opened 202 centers in 2007
and 40 centers in 2008. We currently expect to open fewer centers during 2009. We may consider opportunities to acquire cash advance companies or businesses in select markets.

Improve Profitability of Existing Centers.As the competitive environment has shifted away from new center openings, we are now
focusing on
opportunities to improve the profitability of our existing centers, including by selectively consolidating centers. We believe we can combine certain centers that are near each other and maintain the
majority of the customers and revenues of both centers while reducing operating costs. We may also attempt to acquire new customers from competitors who are exiting certain markets where we operate
and therefore increase the average number of customers per center. By selectively consolidating centers and increasing the average number of customers served per center, we hope to reduce operating
costs and increase center gross profit.

Continue to Drive New Center Operating Performance.In our operating centers that opened in 2008 and 2007, we are striving to match the
operating
performance of our centers that have been open at least 24 months. To do this, our employees are evaluated and compensated, in part, based on their achievement of operational goals, which we
adjust each year to account for the continued improvement in our business. The three key metrics we reward are: (1) maintaining a high level of compliance with applicable laws and regulations;
(2) meeting stated growth objectives; and (3) meeting loss targets. We believe that by focusing on these specific goals and tying them to employee compensation, we can achieve operating
performance in our newer centers comparable to the operating performance at our mature centers.

Support Improvement of the Legislative and Regulatory Environment.As of December 31, 2008, 35 states and the District of Columbia
had
specific laws that permitted cash advances or related services. We remain committed to working with policymakers and grassroots organizations to facilitate the implementation of a balanced, viable and
predictable regulatory framework that protects the interests of the customers we serve while allowing us to operate profitably in every state.

Further Expand Our Product and Service Offerings.While our primary focus will continue to be on cash advance services, we are actively
exploring
complementary product and service offerings to take
advantage of our brand name and national footprint. Over the last three years, we began to offer prepaid debit cards, money transfer services, and tax preparation services as an agent for third-party
vendors. We believe these products increase customer satisfaction and enhance revenue. During 2008, we began accepting online applications through Advance America websites, where customers may either
(1) apply for cash advances from us, and come to a center to complete their transactions; or (2) apply for cash advances from a third party that will be deposited directly to their bank
account.

Our Services



In most states where we operate, we originate cash advance services under the authority of different state-governed enabling statutes
that allow for cash advances ranging from single and multiple installment closed-end terms to revolving lines of credit with open-ended terms (which we refer to as our standard
business model). We refer to these products and services collectively as cash advance services. The particular cash advance services offered in any given location may change from time to time
depending upon changes in state law and federal law. For instance, changes in Ohio laws caused

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us
to begin offering single installment cash advances under Ohio's Small Loan Act. Additionally, where permitted by applicable law, we may assume the responsibility of serving as an agent to a
regulated lender. For instance, prior to 2007, we conducted business in certain states as a marketing, processing and servicing agent for Federal Deposit Insurance Corporation ("FDIC") supervised,
state-chartered banks that made cash advances and installment loans to their customers pursuant to the authority of the laws of the states in which they were located and federal interstate banking
laws, regulations and guidelines (which we refer to as the agency business model). We refer to the banks for which we acted as an agent under the agency business model as lending banks. We currently
operate all of our centers under the standard business model.

In
Texas, where we operate as a Credit Services Organization ("CSO"), we offer a fee-based credit services package to assist customers in trying to improve their credit and
in obtaining an extension of consumer credit through a third-party lender. Under the terms of our agreement with this lender, we process customer applications and are contractually obligated for all
losses.

Under
our standard business model, we provide cash advance services as specified by the laws of the jurisdiction where we operate. In the states where we previously operated under the
agency business model, the lending banks provided cash advances and installment loans and charged fees and/or interest as specified by the laws of the states in which they were located and consistent
with the regulatory authority of the FDIC and federal banking law. Loans made by the third-party lender in Texas are governed by Texas law. Online cash advances made by a third-party lender are
governed by the laws of the state where the customer resides. The permitted size of a cash advance varies by jurisdiction and ranges from $50 to $5,000. However, our typical cash advance will range
from $50 to $1,000. The finance charges on cash advance services currently offered by us also vary by jurisdiction and range up to 22% of the amount of a cash advance.

Additional
fees that we may charge and collect include origination fees, annual participation fees, fees for returned checks, late fees and other fees as permitted by applicable law.
Presently, none of the cash advance services we offer include annual participation fees. Origination fees on cash advance services currently offered by us range from $15 to $30, but future cash
advance services may have higher or lower origination fees depending on applicable state law. Fees for returned checks or electronic debits that are denied for non-sufficient funds ("NSF") vary by
state and range up to $30 and late fees vary by state and range up to $50. For the years ended December 31, 2008 and 2007, total NSF fees collected were approximately $3.3 million and
$3.5 million, respectively, and total late fees collected were approximately $373,000 and $313,000, respectively. In Texas, the third-party lender charges an NSF fee and a late fee on its loans
in accordance with Texas law.

A
customer may obtain a cash advance in one of three ways: (1) by visiting one of our centers in-person and completing an application; (2) by visiting our
website, beginning the application process online, then visiting one of our centers in person to complete the application and receive funding; or (3) by visiting our website, completing an
application online and receiving a cash advance from a third-party lender that is directly deposited in the customer's bank account. Each new customer must provide us with certain personal information
such as his or her name, address, phone number, employment information or source of income, and references. This information is entered into our information system and that of the applicable lender.
The customer's identification, proof of income and/or employment and proof of bank account are verified. In order for a new customer to be approved for a cash advance, we must be able to verify his or
her identification and he or she is required to have a bank account and a regular source of income, such as a job.

Except
for cash advances completed by third-party lenders, we determine whether to approve a cash advance to our customers in every jurisdiction. The third-party lenders decide whether
to approve the loan or cash advance and establish all of the underwriting criteria and terms, conditions and features of the customer agreement. We require proof of identification, bank account and
income

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source,
as described above, and primarily consider the customer's income in determining the amount of a cash advance. We do not perform credit checks through consumer reporting agencies.

After
the documents presented by the customer have been reviewed for completeness and accuracy, copied for record-keeping purposes and the cash advance has been approved, the customer
enters into an agreement governing the terms of the cash advance. The customer then provides a personal check or an Automated Clearing House ("ACH") authorization, which enables electronic payment
from the customer's account, to cover the amount of the cash advance plus charges for applicable fees and/or interest and/or the balance due under the agreement, and makes an appointment to return on
a specified due date, typically his or her next payday, to repay the cash advance plus the applicable charges. However, in some states, customers are not required to provide us with a personal check
or ACH authorization, and payment cycles may vary depending upon state law and product type. At the specified due date, the customer is required to make the applicable payment, usually payment in full
of the cash advance plus fees and interest if applicable. Payment is usually made in person, in cash at the center where the cash advance was initiated or issued unless the cash advance was completed
on the internet, in which case the customer makes payment by ACH authorization.

Upon
payment in full, the customer's check is returned and/or his or her ACH authorization is deemed to be revoked. If the customer does not repay the outstanding amount in full on or
before the due date, we will seek to collect from the customer the outstanding amount and any applicable fees, including late and NSF fees due, and may deposit the customer's personal check or
initiate the electronic payment from the customer's bank account.



We may offer alternative products and services to our customers where permissible under applicable law. For instance, in Ohio we
currently offer check cashing services at state authorized rates. We may also offer the products or services of a third party that we market, process and/or service at our centers pursuant to an
agreement with the third party. For instance, we currently offer (1) pre-paid debit cards; (2) money orders, money transmission and bill payment services; and
(3) facilitation of a third party's tax preparation services. Our Advance America branded pre-paid Visa debit card is issued by an Office of Thrift Supervision ("OTS") regulated
bank. The card allows a cardholder to load cash onto the card and use the card wherever VISA debit cards are accepted. We are compensated under an agreement with the bank based on a number of factors
related to the bank's revenue from purchases and subsequent cardholder activity, such as charges for loads, ATM withdrawals, account maintenance/plan charges and point of sale purchases. In the third
and fourth quarters of 2007, we began selling money orders, providing money transfer services and bill payment services as an agent of a licensed third-party money transmitter. We are compensated by
the money transmitter based upon the number and value of money transfers, money orders and bill payments made by our centers. Finally, in 2008, we began facilitating the offering of tax preparation
services by a third-party tax preparation provider. We receive a percentage of the tax preparation provider's fees from customers related solely to the tax preparation services.

Seasonality

Our business is seasonal due to the impact of fluctuating demand for cash advances services and fluctuating collection rates throughout
the year. Demand has historically been higher in the third and fourth quarters of each year, corresponding to the back-to-school and holiday seasons, and lowest in the first
quarter of each year, corresponding to our customers' receipt of income tax refunds.

Credit Facility

We depend on borrowings under our revolving credit facility to fund our products and services and our other liquidity needs. Our
day-to-day balances under our revolving credit facility, as well as our cash balances, vary because of seasonal and day-to-day requirements resulting from making and

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collecting
cash advances. Our borrowings under our revolving credit facility will also increase as the demand for cash advances increases during our peak periods such as the back-to-school and holiday
seasons. Conversely, our borrowings typically decrease during the tax refund season when cash receipts from customers peak and customer demand for new cash advances decreases.

Collection Procedures

Repayment terms vary depending upon state law, the type of cash advance service offered, and whether the cash advance was completed
online or in one of our centers. Generally, as part of the closing process, we explain the customer's repayment obligations and establish the expectation that the customer will pay us in cash on or
before the due date in accordance with their agreement with us. The day before the due date, we generally call the customer to confirm their payment.

If
a customer does not pay the amount due, then our management has the discretion to either (1) commence past-due collection efforts, which typically may proceed for
up to 14 days in most states, or (2) deposit the customer's personal check or debit their bank account in accordance
with their ACH authorization. If management decides to commence past-due collection efforts, employees typically contact the customer by telephone or in person to obtain a payment or a
promise to pay and, in cases where we hold a check, attempt to exchange the customer's check for a cashier's check, if funds are available.

If
unable to meet his or her payment obligations, the customer may qualify for an extended payment plan ("Payment Plan"). In most states, the terms of our Payment Plan conform to the
CFSA Best Practices for extended payment plans. Certain states have specified their own terms and eligibility requirements for Payment Plans. Generally, a customer may enter into a Payment Plan for no
additional fee once every twelve months and the Payment Plan will call for scheduled payments that coincide with the customer's next four paydays. In some states, a customer may enter into a Payment
Plan more frequently. We do not engage in collection efforts while a customer is enrolled in a Payment Plan. If a customer misses a scheduled payment under a Payment Plan, we may resume our normal
collection procedures. We do not offer a Payment Plan for multiple installment loans or lines of credit. Nor does the third-party lender in Texas offer a Payment Plan for advances to its customers.
The third-party internet lender offers Payment Plans as required by state law.

If,
at the end of this past-due collection period or Payment Plan, the center has been unable to collect the amount due, the customer's check is deposited or their ACH
authorization is processed. Additional collection efforts are not required if the customer's deposited check or our ACH debit clears. If the customer's check or the ACH debit does not clear and is
returned because of non-sufficient funds in the customer's account or because of a closed account or a stop-payment order, we begin additional collection efforts. These
additional collection efforts are carried out by center employees and typically include contacting the customer by telephone or in person to obtain payment or a promise to pay and attempting to
exchange the customer's check for a cashier's check, if funds become available. We also send out a series of collection letters, which are automatically distributed from a central location based on a
set of pre-determined criteria.

In
the case of cash advances in the form of lines of credit, if a customer fails to make payment when due in accordance with the terms of their agreement with us, then management may
close the line of credit, accelerate the maturity date and take the steps outlined above or work with the customer to bring his or her payments current. If we close the line of credit and accelerate
the maturity date, we stop charging interest on the outstanding amount and begin collection efforts as described above.

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Center Operations



We operate the largest network of cash advance centers in the United States. The following table illustrates the composition of our
center network by geographic area as of the specified dates:

As of December 31,State

2006

2007

2008Alabama


140


145


144Arizona


60


56


53Arkansas (1)


30


30


California


302


286


290Colorado


67


72


68Delaware


14


15


16Florida


248


261


257Idaho


15


11


10Illinois


72


81


80Indiana


123


117


113Iowa


37


36


35Kansas


56


59


59Kentucky


43


42


44Louisiana


76


85


85Michigan


137


150


152Mississippi


53


61


61Missouri


84


90


91Montana


8


7


5Nebraska


24


24


24Nevada


11


14


14New Hampshire (2)


20


24


24New Mexico (1)


12


10


North Dakota


8


8


8Ohio


231


244


244Oklahoma


67


65


68Oregon (3)


53





Pennsylvania (3)


99





Rhode Island


15


18


21South Carolina


129


136


138South Dakota


12


12


12Tennessee


65


63


63Texas


231


256


252Utah





6


6Virginia


142


150


151Washington


110


103


102Wisconsin


52


66


67Wyoming


7


10


10Total United States


2,853


2,813


2,767Canada





7


10United Kingdom





12


20Total


2,853


2,832


2,797






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Our
domestic and international revenues and long-lived assets as of and for the three years ended December 31, 2006, 2007, and 2008 are as follows (in
thousands):

Domestic

International2006

2007

2008

2006

2007

2008Revenues

$
672,294

$
708,832

$
673,567

$


$
725

$
2,869Long-lived assets


191,214


183,136


171,525





5,815


5,991




We have a staff of internal regulatory auditors based throughout the United States whose function is to monitor compliance by our
centers with applicable federal and state laws and regulations, the CFSA Best Practices and our internal policies and procedures. The auditors conduct periodic unannounced audits of our centers. They
typically spend one to two days in each center, although the time may vary if a more extensive investigation is needed. The auditors typically review customer files, reports, held checks, cash
controls and compliance with state specific legal requirements and disclosures. Upon completion of an audit, the auditor will conduct an exit interview with the center personnel and/or the divisional
director and discuss issues found during the review. As part of the internal audit program, reports for management regarding audit results are prepared to help identify compliance issues that need to
be addressed and areas for further training.

Prior Relationships with the Lending Banks

Prior to December 31, 2006, we operated in certain states under marketing, processing and servicing agreements with the lending
banks for which we were compensated by the lending banks for marketing, processing and servicing the cash advances and installment loans the lending banks made to their customers. Approximately 1.8%
of our total revenues in the year ended December 31, 2006 were derived from our former agency business model. None of our revenues during the years ended December 31, 2008 and 2007 were
generated from the agency business model.

Competition

We believe that the principal competitive factors in the cash advance services industry are location, customer service, convenience,
speed and confidentiality. We face intense competition in an industry with low barriers to entry, and we believe that competition is increasing as our industry matures and consolidates. We also
compete with services offered by traditional financial institutions, such as overdraft protection, and with other cash advance providers, small loan providers, credit unions, short-term
consumer lenders and other financial services entities and retail businesses that offer consumer loans or other products and services that are similar to ours. Businesses offering cash advances and
short-term loans over the internet as well as by phone also compete with us.

The
cash advance services industry is highly fragmented. In March 2008, Stephens, Inc. estimated that there were approximately 23,600 outlets (including our own centers) in the
United States. Our network of 2,767 centers in the United States as of December 31, 2008 represents the largest network of such centers in the United States. We believe that our two largest
single-service cash advance company competitors, Check 'n Go and Check into Cash, have over 1,350 and 1,270 cash advance centers, respectively. Also, we believe QC Holdings, Inc. has nearly 600
locations in the United States. The remaining competitors are primarily local chains and single-unit operators.

To
a lesser extent, we compete with other companies that offer cash advance services as an ancillary financial product to complement their primary business of cashing checks, selling
money orders, providing pawn lending, title lending, money transfer services or offering similar financial services. These competitors include Dollar Financial Corp., ACE Cash Express, Inc.,
Cash America International, Inc. and Rent-A-Center, Inc.

Our
centers also have been facing increased competition from banks and credit unions that offer their account holders cash advance services as well as other products and services such as
overdraft privileges and bounced check protection, which are similar to our cash advance services.

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Because of the relatively low cost of entry and the regulatory safe harbor that many state statutes provide for cash advance services, our industry continues to
experience significant competition.

Marketing and Advertising

The
goal of our marketing strategy is to maximize revenues by attracting new customers and cross-selling all our products and services to existing customers. We utilize the results of
data analysis from our customer database to target prospects who have characteristics similar to the customers we serve.

Our
mass media advertising (primarily through television, direct mail, radio, internet and the yellow pages) increases awareness, acceptance and, ultimately, the use of our products and
services. We utilize marketing promotions at our centers with high-impact, consumer-relevant, point-of-purchase materials such as brochures, flyers and posters.
Local
marketing also includes attendance at, or sponsorship of, community events such as food drives, voter registration programs and other events.

Our
advertising expenditures fluctuate from quarter to quarter based on our perception of market opportunities and customer needs.

Information Systems

We employ a proprietary point-of-sale system that is used to record transactions in our centers. The
point-of-sale system is also used at our headquarters to develop information for management. We also employ a third-party cash reconciliation software system to reconcile bank
accounts and monitor cash receipts and disbursements.

The
point-of-sale system is designed to facilitate customer service and speed the dissemination of information for cash flow purposes. This system records and
monitors the details of every transaction, reduces the risk of transaction errors, and provides automated, integrated transactions that are designed to ensure standardization and compliance with
applicable state and federal regulations.

Transaction
data gathered by our point-of-sale system is integrated into our management information system, general ledger and cash reconciliation software. Our
point-of-sale system and cash reconciliation software systems allow us to:



We
maintain and test a disaster recovery plan for our critical networked systems, the documentation for which is hosted on a third-party vendor website. Our back-up data
tapes are housed by a third party at an off-site location. We also own back-up computer equipment and real-time data storage that is housed at an
off-site facility to provide us with access to needed systems in the event of an emergency that disables our headquarters' equipment.

Security

Security and loss prevention play a critical role in the daily operations of our centers. Each center is provided with
24-hour third-party monitoring. Physical security provided to each center includes: digital safes, wired hold-up alarm buttons and secure locking systems. Additionally, most of
our centers are equipped with 24-hour security cameras.

Because
our business requires us to maintain a significant supply of cash in each of our centers, we are subject to the risk of cash shortages resulting from employee and third-party
theft and errors. Cash shortages from employee and third-party theft and errors were approximately $2.1 million (0.31% of

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total
revenues) in 2008, $2.4 million (0.34% of total revenues) in 2007 and $2.0 million (0.29% of total revenues) in 2006.

Human Resources

Our North American operations are divided into zones, regions and divisions, which we believe allows for a more effective management
process. A zone has approximately 425 to 850 centers and includes centers in more than one state. We currently have four North American zones, each with a zone director responsible for the operations,
administration, staffing and general supervision of the centers in his or her zone. Regions include 10 to 180 centers organized into two to 13 divisions and are supervised by regional directors who
report to a zone director. Divisions include three to 21 centers and are supervised by divisional directors who report to a regional director. Determination of region and division alignment is usually
based upon geographic considerations. Our four zones in North America currently include 25 regions and 199 divisions. Our 20 centers in the United Kingdom represent a separate zone with its own zone
director.

A
typical center is staffed with a manager and an assistant manager. Managers are responsible for the daily operations of the center. As volume increases, additional personnel, called
customer service representatives, are added. Our policy is to add a customer service representative once a center has approximately 350 advances outstanding at one time. Thereafter, one additional
customer service representative is added for every 100 to 150 additional outstanding advances at a particular center.

Employees

We currently have approximately 6,700 employees, including approximately 6,200 center employees, 194 divisional directors, 22 regional
directors, two state directors, five zone directors and 232 corporate employees and support personnel.

We
consider our employee relations to be satisfactory. Our employees are not covered by a collective-bargaining agreement and we have never experienced any organized work stoppage,
strike or labor dispute.

Intellectual Property and Other Proprietary Rights

We use a number of trademarks, logos and slogans in our business. AARC, Inc., one of our subsidiaries, owns all of our
intellectual property and has entered into a trademark license agreement with each of our operating subsidiaries to use this intellectual property.
Unauthorized use of our intellectual property by third parties may damage our brand and our reputation and could result in a loss of customers. It may be possible for third parties to obtain and use
our intellectual property without our authorization. Third parties have in the past infringed or misappropriated our intellectual property or similar proprietary rights. For example, competitors of
ours have used our name and other trademarks of ours on their websites to advertise their financial services. We believe infringements and misappropriations will continue to occur in the future.

Other

Advance America, Cash Advance Centers, Inc. is a Delaware corporation that was incorporated on August 11, 1997. Our
principal executive offices are located at 135 North Church Street, Spartanburg, South Carolina 29306. Our telephone number at that location is (864) 342-5600. We maintain an
internet website athttp://www.advanceamerica.net. We make available free of charge on our website our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (the "SEC").
Information on our website is not incorporated by reference into this Annual Report. The SEC also maintains a website that contains reports, proxy and information statements, and other information
regarding us atwww.sec.gov. In addition, any materials we file with the SEC may be read and copied at the SEC's

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Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.

Government Regulation

Our
products and services are subject to extensive state, federal and foreign regulation. The regulation of our industry is intended primarily for the protection of consumers rather than
investors in our common stock and our creditors and is constantly changing as new regulations are introduced at the foreign, federal, state and local level and existing regulations are repealed,
amended and modified. This evolving regulatory landscape creates various uncertainties and risks for the operation of our business, any of which could have a material adverse effect on our business,
prospects, results of operations or financial condition. See "Item 1A. Risk Factors" and "Item 3. Legal Proceedings."

Federal Regulation

Various anti-cash advance legislation has been proposed or introduced in the U.S. Congress. Congressional members continue to receive
pressure from consumer advocates and other industry opposition groups to adopt such legislation. Most recently, on February 26, 2009, U.S. Senator Richard Durbin introduced a bill in Congress
to establish a federal cap of 36% on the effective annual percentage rate ("APR") on all consumer loan transactions. Likewise, U.S. Representative Luis Gutierrez introduced a bill on the same day that
would, among other things, place a 15 cent per dollar borrowed ($.15/$1.00) cap on fees for cash advances, ban rollovers (payment of a fee to extend the term of a cash advance or other
short-term financing), and require us to offer an extended payment plan that severely restricts our cash advance product. In addition to these bills, the Obama Administration agenda states that U.S.
President Barack Obama and Vice President Joseph Biden seek to extend a 36% APR limit to all consumer credit transactions. Any federal legislative or regulatory action that severely restricts or
prohibits cash advance and similar services, like the Gutierrez bill, if enacted, could have a material adverse impact on our business, prospects, results of operations and financial condition. Any
federal law that would impose a national 36% APR limit on our services, like that proposed in the Durbin bill, if enacted, would likely eliminate our ability to continue our current operations.

Our
products and services are subject to a variety of federal laws and regulations, such as the Truth-in-Lending Act ("TILA"), the Equal Credit Opportunity Act
("ECOA"), the Fair Credit Reporting Act ("FCRA"), the Fair Debt Collection Practices Act ("FDCPA"), the Gramm-Leach-Bliley Act ("GLBA"), the Bank Secrecy Act, the Money Laundering Act, and the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the "PATRIOT Act") and the regulations promulgated for each. Among other things, these laws
require disclosure of the principal terms of each transaction to every customer, prohibit misleading advertising, protect against discriminatory lending practices and proscribe unfair credit
practices. TILA and Regulation Z, adopted under TILA, require disclosure of, among other things, the pertinent elements of consumer credit transactions, including the dollar amount of the
finance charge and the charge expressed in terms of an annual percentage rate ("APR").

Our
marketing efforts and the representations we make about our advances also are subject to federal and state unfair and deceptive practices statutes. The Federal Trade Commission
("FTC") enforces the Federal Trade Commission Act and the state attorneys general and private plaintiffs enforce the analogous state statutes.

State Regulation

Our business is regulated under a variety of enabling state statutes, including cash advance, deferred presentment, check-cashing,
money transmission, small loan and credit services organization state laws, all of which are subject to change and which may impose significant costs or limitations on the way we conduct or expand our
business. As of December 31, 2008, 38 states and the District of Columbia had specific laws that permitted cash advances or similar forms of short-term consumer

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loans.
As of December 31, 2008, we operated in 33 of these 38 states. We do not currently conduct business in the remaining five states or in the District of Columbia and will stop conducting
business in New Hampshire in early 2009, because we do not believe it is economically attractive to operate in these jurisdictions due to specific legislative restrictions, such as interest rate
ceilings, an unattractive population density or unattractive location characteristics. However, we may open centers in any of these states or the District of Columbia if we believe doing so may become
economically attractive because of a change in any of these variables. The remaining 12 states do not have laws specifically authorizing cash advances or short-term consumer finance
business. Despite the lack of specific laws, other laws may permit us to offer products and services in these states.

The
scope of state regulation, including the fees and terms of our products and services, varies from state to state. Most states with laws that specifically regulate our products and
services establish allowable fees and/or interest and other charges to consumers. In addition, many states regulate the maximum amount, maturity and renewal or extension of cash advances or loans. The
terms of our products and services vary from state to state in order to comply with the laws and regulations of the states in which we operate.

The
states with laws that specifically regulate our products and services typically limit the principal amount of a cash advance or loan and set maximum fees and interest rates that
customers may be charged. Some states also limit a customer's ability to renew a cash advance and require various disclosures to consumers. State statutes often specify minimum and maximum maturity
dates for cash advances and, in some cases, specify mandatory cooling-off periods between transactions. Our collection activities regarding past due amounts are subject to consumer
protection laws and state regulations relating to debt collection practices. In addition, some states restrict the advertising content of our marketing materials.

During
the last few years, legislation has been adopted in some states that prohibits or severely restricts our products and services. For example, legislation became effective in 2007
in both Oregon and New Mexico that limited fees and interest on cash advances and other consumer loan products. As a result, we determined that it was not economically viable to continue operating in
Oregon or New Mexico and closed all of our centers in Oregon and New Mexico in 2007 and 2008, respectively. Many similarly
restrictive bills recently have been introduced. In 2008, bills that would severely restrict or effectively prohibit our products and services if adopted as law were introduced in 21 states. In
addition, two states, Arizona and Mississippi, have sunset provisions in their current cash advance laws that require renewal by these state legislatures at periodic intervals. In 2008, in Ohio and
New Hampshire, legislation passed that effectively prohibits cash advances in those states. As a result, we decided to close all of our centers in New Hampshire in early 2009. In Ohio, we now offer a
small loan product to customers; however, this small loan product will not be as profitable to us as the former cash advance product. In 2008, legislation was passed in Virginia that restricts the
amount of fees that can be charged on cash advances. As a result, we now offer a new cash advance product and an open-ended line of credit product to customers in Virginia. However, on
February 25, 2009, the Virginia legislature passed a bill that would restrict us from offering both the cash advance product and the open-ended line of credit product at the same
center. If the bill is signed by the Virginia governor and becomes law, we will be prohibited from offering the open-ended line of credit product to customers in Virginia. This will cause
us to offer only our new cash advance product, which may not be as profitable to us as the cash advance product we offered prior to January 1, 2009. Laws prohibiting our products and services
or making them unprofitable could be passed in any other state at any time or existing enabling laws could expire or be amended.

Statutes
authorizing our products and services typically provide the state agencies that regulate banks and financial institutions with significant regulatory powers to administer and
enforce the law. In most states, we are required to apply for a license, file periodic written reports regarding business operations and undergo comprehensive state examinations to ensure that we
comply with applicable laws. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements
in different ways or issue

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new
administrative rules, even if not contained in state statutes, that impact the way we conduct business and may force us to terminate or modify our operations in particular states. Regulators may
also impose rules that are generally adverse to our industry.

In
some cases, we rely on the interpretations of the staff of state regulatory bodies with respect to the laws and regulations of their respective jurisdictions. These staff
interpretations generally are not binding legal authority and may be subject to challenge in administrative or judicial proceedings. Additionally, as the staff of state regulatory bodies change, it is
possible that the interpretations of applicable laws and regulations also may change and negatively affect our business.

Additionally,
state attorneys general and banking regulators are scrutinizing our products and services and taking actions that could require us to modify, suspend or cease operations in
their respective states. For example, in March 2008, the Arkansas Attorney General demanded that our Arkansas subsidiary immediately cease offering deferred presentment transactions. As a result, we
closed all of our centers in Arkansas in October 2008. Similarly, as a result of an adverse ruling in July 2007 in a case brought by the Pennsylvania Department of Banking, we closed all of our
centers in Pennsylvania. See "Item 3. Legal Proceedings." Other actions could be taken against our industry in the future by
other state attorneys general and banking regulators requiring us to suspend or cease operations in such jurisdictions and have a negative effect on our financial condition and prospects.

State-specific
legislative or regulatory action can reduce our revenues and/or margins in a state, cause us to temporarily operate at a loss in a state, or even cause us to cease or
suspend our operations in a state. From time to time, we may also choose to operate in a state even if legislation or regulations cause us to operate at a loss in that state.

Local Regulation

In addition to state and federal laws and regulations, our business is subject to various local rules and regulations such as local
zoning regulations. These local rules and regulations are subject to change and vary widely from state to state and city to city.

Foreign Regulation

In the United Kingdom, consumer lending is governed by the Consumer Credit Act of 1974, which was amended by the Consumer Credit Act of
2006, and related rules and regulations. Our subsidiaries in the United Kingdom must maintain licenses from the Office of Fair Trading, which is responsible for regulating consumer credit and
competition, for policy and for consumer protection. The United Kingdom also has rules regarding the presentation, form and content of loan agreements, including statutory warnings and the layout of
financial information. In Canada, the Canadian Parliament amended the federal usury law to transfer jurisdiction and the development of laws and regulation of our industry to the respective provinces.
To date, four provinces have proposed substantive regulation of our industry. In general, the proposed regulations require lenders to be licensed, set maximum fees and regulate collection practices.
However, the proposed regulations may undergo significant additional revisions.

Environmental, Health and Safety Matters

We are subject to general provisions of federal laws and regulations to ensure a safe and healthful work environment for employees. In
addition, we comply with those state laws that require a written health and safety program or other mandated safety requirements. To reduce the possibility of physical injury or property damage
resulting from robberies, our Loss
Prevention department has established operational procedures, conducts periodic safety training and awareness programs for employees, hires security guards as needed and regularly monitors the
marketplace for new technology or methods of improving workplace safety.

Other
than standard cleaning products, we do not use chemicals or other agents governed by federal, state or local environmental laws in conducting business operations. Based upon these
measures, we believe that our centers are in substantial compliance with all applicable environmental, health and safety requirements.

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ITEM 1A.    RISK FACTORS.

Risks Related to Our Business and Industry



Our business is subject to numerous foreign, federal, state and local laws and regulations, which are subject to change and which may
impose significant costs, limitations or prohibitions on the way we conduct or expand our business. These regulations govern or affect, among other things, interest rates and other fees, check cashing
fees, lending practices, recording and reporting of certain financial transactions, privacy of personal consumer information and collection practices. As we develop new product and service offerings,
we may become subject to additional federal, state and local regulations. State and local governments may also seek to impose new licensing requirements or interpret or enforce existing requirements
in new ways. In addition, changes in current laws and future laws or regulations may restrict or eliminate our ability to continue our current methods of operation or expand our operations, such laws
are regularly proposed, introduced or adopted at the state and federal level. Changes in laws or regulations, or our failure to comply with applicable laws and regulations, may have a material adverse
effect on our business, prospects, results of operations and financial condition.



Various anti-cash advance legislation has been proposed or introduced in the U.S. Congress. Congressional members continue to receive
pressure from consumer advocates and other industry opposition groups to adopt such legislation. Most recently, on February 26, 2009, U.S. Senator Richard Durbin introduced a bill in Congress to
establish a federal cap of 36% on the effective annual percentage rate ("APR") on all consumer loan transactions. Likewise, U.S. Representative Luis Gutierrez introduced a bill on the same day that
would, among other things, place a 15 cent per dollar borrowed ($.15/$1.00) cap on fees for cash advances, ban rollovers (payment of a fee to extend the term of a cash advance or other
short-term financing), and require us to offer an extended payment plan that severely restricts our cash advance product. Also, the Obama Administration agenda states that U.S. President Barack Obama
and Vice President Joseph Biden seek to extend a 36% APR limit to all consumer credit transactions. Any federal legislative or regulatory action that severely restricts or prohibits cash advance and
similar services, like the Guterrez bill, if enacted, could have a material adverse impact on our business, prospects, results of operations and financial condition. Any federal law that would impose
a national 36% APR limit on our services, like that proposed in the Durbin bill, if enacted, would likely eliminate our ability to continue our current operations.



Although states provide the primary regulatory framework under which we offer advances, certain federal laws also impact our business.
See "Item 1. BusinessFederal Regulation." We must comply with the federal Truth-in-Lending Act and Regulation Z adopted under that Act. Additionally,
we are subject to the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act. We are also subject to the Bank Secrecy Act,
the Money Laundering Act, and the PATRIOT Act. Any failure to comply with any of these federal laws and regulations could have a material adverse effect on our business, prospects, results of
operations and financial condition.

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Our
marketing efforts and the representations we make about our products and services also are subject to federal and state unfair and deceptive practices statutes. The FTC enforces the
Federal Trade Commission Act and the state attorneys general and private plaintiffs enforce the analogous state statutes. If we are found to have violated any of these statutes, that violation could
have a material adverse effect on our business, results of operations and financial condition.



Our business is regulated under a variety of enabling state statutes, including cash advance, deferred presentment, check cashing,
money transmission, small loan and credit services organization laws, all of which are subject to change and which may impose significant costs, limitations or prohibitions on the way we conduct or
expand our business. As of December 31, 2008, 38 states and the District of Columbia had specific laws that permitted cash advances or a similar form of short-term consumer loans.
As of December 31, 2008, we operated in 33 of these 38 states. Currently, we do not conduct business in the five remaining states or in the District of Columbia, and will stop conducting
business in New Hampshire in early 2009, because we do not believe it is economically attractive to operate in these jurisdictions due to specific legislative restrictions, such as interest rate
ceilings, an unattractive population density or unattractive location characteristics. However, we may open centers in any of these states or the District of Columbia if we
believe doing so may become economically attractive because of a change in any of these variables. The remaining 12 states do not have laws specifically authorizing the cash advance or
short-term consumer finance business, however other laws may permit us to offer products and services in these states.

During
the last few years, legislation has been introduced or adopted in some states that prohibits or severely restricts our products and services. In 2008, bills that would severely
restrict or effectively prohibit cash advances if adopted as law were introduced in 21 states. Such new or modified legislation could have a material adverse impact on our results of operations. For
example, in response to new legislation in Virginia, we have developed an open-ended line of credit product and made changes to our cash advance product. On February 25, 2009, the
Virginia legislature passed a bill that would restrict us from offering both the cash advance product and the open-ended line of credit product at the same center. If the bill is signed by
the Virginia governor and becomes law, we will be prohibited from offering the open-ended line of credit product to customers in Virginia, which may lower our revenues and profits in that
state. As a result of legislation in New Hampshire that became effective in January 2009, we concluded that operating in that state was no longer economically viable and intend to close all of our New
Hampshire centers in 2009. In addition, Arizona and Mississippi have sunset provisions in their cash advance laws that require renewal of the laws by these state legislatures at periodic intervals and
will expire in 2010 in Arizona and 2012 in Mississippi, respectively, if no further action is taken.

Laws
prohibiting cash advances and similar products and services or making them less profitable, or even unprofitable, could be passed in any other state at any time or existing enabling
laws could expire or be amended, any of which would have a material adverse effect on our business, prospects, results of operations and financial condition. For instance, in November 2008, a new Ohio
law became effective that capped interest rates on cash advances and limited the number of advances a customer may take in any one year. In response to this legislation, we now offer a small loan
product that is not as profitable as our former cash advance product, which could have a material adverse effect on our business, prospects, results of operations and financial condition.

Statutes
authorizing cash advance and similar products and services typically provide the state agencies that regulate banks and financial institutions with significant regulatory powers
to administer and enforce the law. In most states, we are required to apply for a license, file periodic written reports regarding business operations and undergo comprehensive state examinations to
ensure that we comply

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with
applicable laws. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in
different ways or issue new administrative rules, even if not contained in state statutes, that affect the way we do business and may force us to terminate or modify our operations in particular
states. They may also impose rules that are generally adverse to our industry. Any new licensing requirements or rules, or new interpretations of existing licensing requirements or rules, or failure
to follow licensing requirements or rules could have a material adverse effect on our business, prospects, results of operations and financial condition.

In
some cases, we rely on the interpretations of the staff of state regulatory bodies with respect to the laws and regulations of their respective jurisdictions. These staff
interpretations generally are not binding legal authority and may be subject to challenge in administrative or judicial proceedings. Additionally, as the staff of state regulatory bodies change, it is
possible that their interpretations of applicable laws and regulations also may change to the detriment of our business. As a result, our reliance on staff interpretations could have a material
adverse effect on our business, results of operations and financial condition.

Additionally,
state attorneys general and banking regulators are scrutinizing cash advances and other alternative financial products and services and taking actions that require us to
modify, suspend or cease operations in their respective states. For example, as a result of an adverse ruling in July 2007 in a case brought by the Pennsylvania Department of Banking, we suspended our
operations and subsequently closed all of our centers in Pennsylvania. See "Item 8. Financial Statements and Supplementary DataNote 12. Commitments and Contingencies." The
closures in Pennsylvania have had an adverse effect on our results of operations and financial condition. Also, in March 2008, the Attorney General of Arkansas distributed letters to 60 companies
operating under the Check Cashers Act. The letter demanded that we cease and desist offering deferred presentment transactions within the State of Arkansas. As a result, we agreed to close all of our
centers in Arkansas in October 2008 and the Arkansas Attorney General agreed not to bring suit against us. Similar or additional actions could have a material adverse effect on our business,
prospects, results of operations and financial condition.



In addition to state and federal laws and regulations, our business can be subject to various local rules and regulations such as local
zoning regulations. Any actions taken in the future by local zoning boards or other local governing bodies to require special use permits for, or impose other restrictions on providers of cash advance
and similar services could have a material adverse effect on our business, results of operations and financial condition.

From
time to time, we may also choose to operate in a location even if applicable legislation or regulations cause us to lose money on our operations in that location. For example, we
currently operate at a loss in Canada. Any similar actions or events could have a material adverse effect on our business, prospects, results of operations and financial condition.



In the United Kingdom, consumer lending is governed by the Consumer Credit Act of 1974, which was amended by the Consumer Credit Act of
2006, and related rules and regulations. Our subsidiaries in the United Kingdom must maintain licenses from the Office of Fair Trading, which is responsible for regulating consumer credit and
competition, for policy-making, and for consumer protection. The United Kingdom also has strict rules regarding the presentation, form and content of loan agreements,

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including
statutory warnings and the layout of financial information. Our non-compliance with these rules could render a loan agreement unenforceable. Our inability to obtain and maintain
the required licenses or to comply with the applicable rules or regulations in the United Kingdom could limit our expansion opportunities and/or could result in a material adverse effect on our
business, results of operations and financial condition.

In
Canada, the Canadian Parliament amended the federal usury law to transfer jurisdiction and the development of laws and regulation of our industry to the respective provinces. To date,
four provinces have proposed substantive regulation of our industry. In general, the proposed regulations require lenders to be licensed, set maximum fees and regulate collection practices. However,
the proposed regulations may undergo significant additional revisions. Our expansion in Canada may be limited due to this uncertain regulatory landscape. We are currently operating at a loss in Canada
in anticipation of expanding operations after regulations are adopted. Further, our inability to comply with new regulations may have a material adverse effect on our business, prospects, results of
operations and financial condition.



We cannot assure you that we will be able to maintain or further expand our market presence in our current markets or successfully
enter new markets through the opening of new centers or acquisitions. Moreover, the start-up costs and the losses from initial operations attributable to each newly opened center place
demands upon our liquidity and cash flow, and we cannot assure you that we will be able to satisfy these demands.



Our primary business activity is offering cash advance services. If we are unable to maintain our cash advance services business and/or
diversify our operations, our revenues and earnings could decline. Our current lack of product and business diversification could inhibit our opportunities for growth, reduce our revenues and profits
and make us more susceptible to earnings fluctuations than many of our competitors who are more diversified and provide other services such as pawn lending, title lending or other similar services.
External factors, such as changes in laws and regulations, new entrants and enhanced competition, could also make it more difficult for us to operate as profitably as a more diversified company could
operate. Any internal or external change in our industry could result in a decline in our revenues and earnings, which could have a material adverse effect on our business, prospects, results of
operations and financial condition.



In 2007, we began selling money orders and providing money transfer services. We also began offering prepaid debit cards in 2007 as an
agent of an OTS-regulated bank. In 2008, we began facilitating the offering of tax preparation services provided by a third party and cash advances from a third-party lender to customers
on our website. In addition in 2008, we began offering open-ended lines of credit to customers in Virginia and small loans to customers in Ohio. We also intend to introduce additional
products and services in the future. In order to offer new products, we need to comply with additional regulatory and licensing requirements. Each of these changes, alternative methods of conducting
business and new products and services are subject to risk and uncertainty and require significant investment in time and capital, including additional marketing expenses, legal costs and other
incremental start-up costs. Due to our lack of experience in offering alternative products and services, we cannot assure you that we will be able to successfully introduce any new
products or

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services
or do so in a timely manner. Furthermore, we cannot predict the demand for new products or services, nor do we know if we will be able to offer these new products or services in an efficient
manner or on a profitable basis. Our failure to do so, or low customer demand for any of these new services or products, could have a material adverse effect on our business, prospects, results of
operations and financial condition.



Our business is subject to lawsuits and regulatory proceedings that could generate adverse publicity and cause us to incur substantial
expenditures. See "Item 3. Legal Proceedings." Adverse rulings in some of these lawsuits or regulatory proceedings could significantly impair our business and/or force us to cease doing
business in one or more states.

We
are likely to be subject to further litigation and proceedings in the future. The consequences of an adverse ruling in any current or future litigation or proceeding could cause us to
have to refund fees and/or interest collected, refund the principal amount of advances, pay treble or other multiple damages, pay monetary penalties and/or modify or terminate our operations in
particular states. We may also be subject to adverse publicity. Defense of any lawsuits or proceedings, even if successful, requires substantial time and attention of our senior officers and other
management personnel that would otherwise be spent on other aspects of our business and requires the expenditure of significant amounts for legal fees and other related costs. Settlement of lawsuits
may also result in significant payments and modifications to our operations. Any of these events could have a material adverse effect on our business, prospects, results of operations and financial
condition.



The current global economic crisis may adversely affect our business in several ways. For example, the rise in unemployment levels will
likely reduce the number of customers who qualify for our products and services, which in turn may reduce our revenues. Similarly, reduced consumer confidence and spending may decrease the demand for
our products. Also, we are unable to predict how the widespread loss of jobs, housing foreclosures and general economic uncertainty may affect our loss experience. Our methodology for establishing our
provision for doubtful accounts is based in large part on our historic loss experience. If customer behavior changes as a result of current economic conditions, our provision may be inadequate.
Additionally, because we rely on our credit facility to fund customer advances, conditions in the credit markets could cause our access to liquidity to be restrained or even eliminated as a result of
a default by our lenders, a failure by us to comply with covenants under our credit agreement or our inability to renew, extend or modify our existing credit facility. If we are unable to maintain
access to external sources of liquidity, our ability to finance our current operations or future dividends would be impaired. Lastly, given the unprecedented nature of the current economic crisis, our
business may be adversely affected in ways that we are unable to anticipate.



We operated centers in 35 states during the year ended December 31, 2008, and our five largest states (measured by total
revenues) accounted for approximately 48% of our total revenues. While we believe we have a diverse geographic presence, for the near term we expect that significant revenues will continue to be
generated by certain states, largely due to the currently prevailing economic, demographic, regulatory, competitive and other conditions in those states. For example, during 2008, California, Texas
and Florida each accounted for more than 10% of our total revenues. Changes to prevailing economic, demographic, regulatory or any other conditions in the markets in which we operate could lead to a
reduction in demand for our products and services, a decline in our revenues

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or
an increase in our provision for doubtful accounts that could result in a deterioration of our financial condition. A regulatory change similar to recent changes in Ohio and New Hampshire, for
example, or an action by a state regulator similar to those in Pennsylvania and Arkansas, in any one of our larger states may have a material adverse affect on our business, prospects, results of
operation or financial condition.



The industry in which we operate has low barriers to entry and is highly fragmented and very competitive. We believe that the market
may become even more competitive as the industry matures and/or consolidates. We compete with services provided by traditional financial institutions, such as overdraft protection, and with other cash
advance providers, small loan providers, credit unions, short-term consumer lenders, other financial service entities and other retail businesses that offer consumer loans or other
products and services that are similar to ours. We also compete with companies offering cash advances and short-term loans over the internet as well as by phone. Some of these competitors
have larger local or regional customer bases, more locations and substantially greater financial, marketing and other resources than we have. As a result of this increasing competition, we could lose
market share or we may need to reduce our interest and fees, possibly resulting in a decline in our revenues and earnings.



We have an existing revolving credit facility that allows us to borrow up to $270.0 million, assuming we are in compliance with
a number of covenants and conditions, including, but not limited to, a senior leverage limitation which is 2 times trailing twelve month EBITDA as defined in the credit agreement and, as of
December 31, 2008 was approximately $210.0 million. Because we typically use substantially all of our available cash generated from our operations to repay borrowings on our revolving
credit facility on a current basis, we have limited cash balances and we expect that a substantial portion of our liquidity needs, including any amounts to pay future quarterly cash dividends on our
common stock, will be funded primarily from borrowings under our revolving credit facility. While we had approximately $79.1 million of unused borrowings under this facility as of
December 31, 2008, the senior leverage covenant restricted our additional availability, to $13.9 million. Due to the seasonal nature of our business, our borrowings are historically the
lowest during the first calendar quarter and increase during the remainder of the year. If our existing sources of liquidity are insufficient to satisfy our financial needs, we may need to raise
additional debt or equity in the future. If we are unable to do so, our ability to pay future dividends or finance our current operations or potential growth will likely be impaired.



Consumer advocacy groups and certain media reports advocate for governmental and regulatory action to prohibit or severely restrict our
products and services. The consumer groups and media reports typically focus on the cost to a consumer and typically characterize our products and services as predatory or abusive toward consumers. If
this negative characterization of advances becomes widely accepted by consumers, demand for our products and services could significantly decrease, which could materially adversely affect our
business, results of operations and financial condition. Negative perception of our products and services could also result in increased regulatory scrutiny and litigation, encourage restrictive local
zoning rules, make it more difficult to obtain government approvals necessary to open new centers and cause industry trade groups, such as the CFSA, to promote policies

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that
cause our business to be less profitable. These trends could materially adversely affect our business, prospects, results of operations and financial condition.



For the years ended December 31, 2008 and 2007, we deposited or presented an Automated Clearing House ("ACH") authorization for
approximately 5.9% and 6.2%, respectively, of all the customer checks we received and approximately 75% and 76%, respectively, of these deposited customer checks were returned unpaid because of
non-sufficient funds in the customers' bank accounts or because of closed accounts or stop-payment orders. Total charge-offs, net of recoveries, for the years ended
December 31, 2008 and 2007 were approximately $138.3 million and $131.9 million, respectively. If the number of customer checks that we deposit increases or the percentage of the
customers' returned checks that we charge-off increases, our provision for doubtful accounts will increase and our net income will decrease. We have not had a sufficient volume of ACH
authorizations to determine whether we will have a significantly different recovery experience than for deposited checks.



We maintain an allowance for doubtful accounts for estimated losses. We also maintain an accrual for third-party lender losses for
loans and certain related fees that are not paid by the customers for all loans that are processed by us for the third-party lender in Texas. To estimate the appropriate allowance for doubtful
accounts and accrual for third-party lender losses, we consider total amounts outstanding, historical charge-offs, our current collection patterns and the current economic trends in the
markets we serve.

During
2008, in selected states, we began accepting ACH authorizations in lieu of personal checks from customers. We expect this practice to expand to other states in the near future.
Currently, we have a limited history collecting cash advances backed by ACH authorizations and cannot anticipate the extent to which customers may revoke such authorization. To the extent the
collection patterns of loans backed by ACH authorizations vary from collection patterns of loans backed by personal checks, our estimate of the allowance for doubtful accounts may be inadequate and
our future profitability may be effected.

At
December 31, 2008, the total of our allowance for doubtful accounts and accrual for third-party lender losses decreased to $63.4 million from $65.9 million at
December 31, 2007. This amount, however, is an estimate. If our actual losses are greater than our allowance for doubtful accounts and accrual for third-party lender losses, our provision for
doubtful accounts would increase. This could result in a
decline in our future earnings, which could have a material adverse effect on our business, prospects, results of operations and financial condition.



A significant portion of our total assets at December 31, 2008 is comprised of goodwill. Under generally accepted accounting
principles, goodwill is subject to periodic review and testing to determine if it is impaired. These tests require projections of future cash flows. Unfavorable trends in our industry and unfavorable
events or disruptions to our operations can affect these projections and estimates. Significant impairment charges, although not affecting cash flow, could have a material impact on our operating
results and financial position.

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In July 2007, we expanded the number of states where we allow customers who could not timely repay their advances to qualify for
extended payment plans to include every state where we offer advances. We previously offered extended payment plans in only certain states as required under applicable state law. The ability of a
customer to defer payment will likely increase the average duration of a cash advance, which may in turn affect our revenues, loss experience and provision for doubtful accounts.



We have devoted significant management time and financial resources to expanding our operations outside of the United States. Our
international operations have increased the
complexity of our organization and the administrative, operating and legal cost of operating our business. Penetrating new markets will likely require additional marketing expenses and incremental
start-up costs. We may decide to reduce fees, or even temporarily operate centers at a loss, in order to build brand recognition and establish a foothold in these new markets. For example,
in Canada, we have opened ten centers that are currently not profitable in anticipation of more favorable provincial legislation. Additionally, as a foreign business we are subject to local
regulations, tariffs and labor controls to which other domestic businesses are not subject. Our financial results also may be negatively affected by tax rates in the United Kingdom and Canada or as a
result of withholding requirements and tax treaties with those countries. Moreover, if political, regulatory or economic conditions deteriorate in the United Kingdom and Canada, our ability to expand
and maintain our international operations could be impaired or the costs of doing so could increase, either of which could further erode our business, prospects, results of operations and financial
condition.



We may incur substantial additional debt in the future. As of December 31, 2008, our total debt was approximately
$195.0 million, $1.1 million in letters of credit had been issued pursuant to our credit facility and our stockholders' equity was approximately $171.3 million. The total
availability under our current credit facility is $270.0 million, which we may borrow at any time, subject to compliance with certain covenants and conditions Due to the seasonal nature of our
business, our total debt is historically the lowest during the first calendar quarter and then increases during the remainder of the year. If we incur substantial additional debt, it could have
important consequences to our business. For example, it could:



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The
terms of our debt limits our ability to incur additional debt but do not prohibit us from incurring additional debt. When debt levels increase, the related risks that we now face
will also increase.

If
we fail to generate sufficient cash flow from future operations to meet our debt service obligations, we may need to seek refinancing of all or a portion of our indebtedness or obtain
additional financing in order to meet our obligations with respect to our indebtedness. We cannot assure you that we will be able to refinance any of our indebtedness or obtain additional financing on
satisfactory terms or at all.



We depend on borrowings under our revolving credit facility to fund our products and services, capital expenditures to build new
centers and other needs. If our current or potential credit banks decide not to lend money to companies in our industry, we could face higher borrowing costs, limitations on our ability to maintain or
expand our business as well as possible cash
shortages, any of which could have a material adverse effect on our business, prospects, results of operations and financial condition. Certain banks have notified us and other companies in the cash
advance and check-cashing industries that they will no longer maintain bank accounts for these companies due to reputational risks and increased compliance costs of servicing money services businesses
and other cash intensive industries. If one of our larger depository banks request that we close our bank accounts or put other restrictions on how we use their services, we could face higher costs of
managing our cash and limitations on our ability to maintain or expand our business, both of which could have a material adverse effect on our business, prospects, results of operations and financial
condition.

We
use an electronic check conversion process to electronically present most of our past due checks to the customers' bank accounts. This process uses either the Automated Clearing House
("ACH") or the VISA Point-of-Sale ("VISA POS") network. We depend on our banks to settle our ACH transactions and on VISA and certain participating financial institutions to operate the VISA POS
system. If our banks decide to no longer process our ACH transactions due to increased credit risk or other reasons or if a financial institution were to exit the VISA POS payment network or if VISA
stopped supporting this network, our ability to collect on past due accounts could be adversely affected and our cost of collections could increase.



Our business is seasonal due to the impact of fluctuating demand for our products and services and fluctuating collection rates
throughout the year. Demand has historically been highest in the third and fourth quarters of each year, corresponding to the back-to-school and holiday seasons, and lowest in
the first quarter of each year, corresponding to our customers' receipt of income tax refunds. Typically, our provision for doubtful accounts and allowance for doubtful accounts are lowest as a
percentage of revenues in the first quarter of each year, corresponding to our customers' receipt of income tax refunds, and increase as a percentage of revenues for the remainder of each year. This
seasonality requires us to manage our cash flows over the course of the year. If our revenues or collections were to fall substantially below what we would normally expect during certain periods, our
ability to service our debt, pay dividends on our common stock, and meet our other liquidity requirements may be adversely affected, which could have a material adverse effect on our business,
prospects, results of operations and financial condition.

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In addition, our quarterly results have fluctuated in the past and are likely to continue to fluctuate in the future because of the seasonal nature of our
business. Therefore, our quarterly revenues and results of operations are difficult to forecast, which in turn could cause our quarterly results to not meet the expectations of securities analysts or
investors. Our failure to meet expectations could cause a material drop in the market price of our common stock.



Because our business requires us to maintain a significant supply of cash in each of our centers, we are subject to the risk of cash
shortages resulting from employee and third-party theft and errors. Although we have implemented various programs to reduce these risks, maintain insurance coverage for theft and provide security for
our employees and facilities, we cannot assure you that employee and third- party theft and errors will not occur. Cash shortages from employee and third-party theft and errors were approximately
$2.1 million (0.31% of total revenues) in 2008, $2.4 million (0.34% of total revenues) in 2007 and $2.0 million (0.29% of total revenues) in 2006. The extent of these cash
shortages could increase as we expand the nature and scope of our products and services. Theft and errors could lead to cash shortages and could adversely affect our business, prospects, results of
operations and financial condition. It is also possible that crimes such as armed
robberies may be committed at our centers. We could experience liability or adverse publicity arising from such crimes. For example, we may be liable if an employee, customer or bystander suffers
bodily injury, emotional distress or death. Any such event may have a material adverse effect on our business, prospects, results of operations and financial condition.



We rely upon our information systems to manage and operate our centers and business. Each center is part of an information network that
is designed to permit us to maintain adequate cash inventory, reconcile cash balances on a daily basis and report revenues and expenses to our headquarters. Our back-up systems and
security measures could fail to prevent a disruption in our information systems. Any disruption in our information systems could adversely affect our business, prospects, results of operations and
financial condition.



Our headquarters building is located in Spartanburg, South Carolina. Our information systems and administrative and management
processes are primarily provided to our zone and regional management and to our centers from this centralized location, and they could be disrupted if a catastrophic event, such as a tornado, power
outage or act of terror, destroyed or severely damaged our headquarters. Any of these catastrophic events could have a material adverse effect on our business, prospects, results of operations and
financial condition.

In
addition, our ability to maintain or further expand our business depends on a number of factors, some of which are beyond our control, including:



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We
cannot assure you that our systems, procedures, controls and existing personnel will be adequate to support new or replacement products and services. Our new international operations
increase the complexity of our organization, our administrative costs and the regulatory risks we face and, therefore, could destabilize our business, prospects, results of operations and financial
condition. Our results of operations depend substantially on the ability of our officers and key employees to manage changing business conditions and unpredictable regulations and to implement and
improve our technical, administrative, financial control and reporting systems. In addition, we cannot assure you that we will be able to implement our business strategy profitably in geographic areas
or product lines we do not currently serve.



As of December 31, 2008, the annual turnover among our center managers was approximately 38% and among our other center
employees was approximately 94%. Approximately 47% of the turnover has traditionally occurred in the first six months following the hire date of our center managers and employees. This turnover
increases our cost of operations and makes it more difficult to operate our centers. If we are unable to retain our employees in the future, our business, prospects, results of operations and
financial condition could be adversely affected.

Risks Related to Our Common Stock



Shares of our common stock are currently listed on the NYSE. As of March 2, 2009, the closing price of our common stock price
was $0.95 per share, and our market capitalization was approximately $58.6 million. As of December 31, 2008, our total stockholders' equity was approximately $171.3 million. We
would fall below the NYSE's quantitative listing standards if (1) our average market capitalization fell below $75.0 million over any consecutive 30-trading-day
period and, at the same time, total stockholders' equity fell below $75.0 million; (2) our average market capitalization fell below $25 million over any consecutive 30-trading-day
period; or (3) the average closing price of common stock fell below $1.00 per share for
any consecutive 30-trading-day period. While we are currently in compliance with the NYSE's continuing listing requirements, we cannot assure you that we will remain in
compliance in light of the current economic crisis, which has been driving down the price of stocks generally, and financial stocks in particular. If we do not meet the NYSE's continuing listing
standards, we will be notified by the NYSE and we will be required to take corrective action to meet the continuing listing standards; otherwise our common stock will be delisted from the NYSE.

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If
our common stock is delisted, or if it becomes apparent to us that we will be unable to meet the NYSE's continuing listing standards in the near future, we may seek to have our common
stock listed or quoted on another national securities exchange or quotation system. However, we may be unable to list or quote our common stock on another national securities exchange or quotation
system. Even if our common stock is listed or quoted on such other exchange or system, a delisting by the NYSE could hurt our investors by reducing the liquidity and market price of our common stock.
Additionally, a delisting could negatively affect us by reducing the number of investors willing to hold or acquire our common stock, which could negatively affect our ability to access public capital
markets. A delisting would also reduce the value of our equity compensation plans, which could negatively impact our ability to retain key employees.



We are not required to pay any dividends. Any determination to pay dividends, and the amounts of any dividends, is at the sole
discretion of our Board of Directors and will depend on a number of factors, including: our receipt of dividends from our subsidiaries, our net income, results of operations and cash flows and our
other cash needs; our financial position and capital requirements; general business conditions and the outlook for our company; general stock market conditions, including our stock price and our
perception of the value of a regular dividend to our stockholders, in addition to any legal, tax, regulatory and other factors our Board of Directors deems relevant. Also, our revolving credit
facility restricts our ability to pay dividends depending on the absence of any default or event of default, our net income, the ratio of our consolidated senior funded debt to our consolidated
EBITDA, our consolidated fixed charge coverage ratio and the maintenance of our net worth covenant (which terms and ratios are determined under our revolving credit facility). Our Board of Directors
may at any time modify or revoke our dividend policy.



Federal and state laws and regulations applicable to providers of cash advance services or other financial products or services that we
may introduce in the future may now or in the future restrict direct or indirect ownership or control of providers of such products or services by disqualified persons (such as convicted felons). Our
certificate of incorporation provides that we may redeem shares of your common stock to the extent deemed necessary or advisable, in the sole judgment of our Board of Directors, to prevent the loss
of, or to secure the reinstatement or renewal of, any license or permit from any governmental agency that is conditioned upon some or all of the holders of our common stock possessing prescribed
qualifications or not possessing prescribed disqualifications. The redemption price will be the average closing sale price per share of our common stock during the
20-trading-day period ending on the second business day preceding the redemption date fixed by our Board of Directors. At the discretion of our Board of Directors, the
redemption price may be paid in cash, debt or equity securities or a combination of cash and debt or equity securities.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.    PROPERTIES.

Our average center size is approximately 1,500 square feet. We try to locate our centers in highly visible, accessible locations. Our
centers, which we design to have the appearance of a mainstream financial institution, are typically located in middle-income shopping areas with high retail activity. Other tenants in these shopping
areas typically include grocery stores, discount retailers and national quick service restaurants. All of our centers are leased, with typical lease terms of three years with an

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option
to renew at the end of the lease term. Our leases usually require that we pay all maintenance costs, insurance costs and property taxes.

See
"Item 1. BusinessCenter OperationsCenters" for a listing of the number of centers we operated in various jurisdictions as of December 31,
2008.

We
own our corporate headquarters in Spartanburg, South Carolina. Our headquarters building, which is approximately 75,000 square feet, and related land are subject to a mortgage payable
to a lender, the principal amount of which was approximately $5.0 million at December 31, 2008. The mortgage is payable in 180 monthly installments of approximately $66,400,
including principal and interest, and bears interest at a fixed rate of 7.30% over its term. The mortgage matures on June 10, 2017. The carrying amount of our corporate headquarters (land, land
improvements and building) was approximately $4.9 million and $4.7 million at December 31, 2007 and 2008, respectively.

We
believe that our facilities, equipment, furniture and fixtures and aircraft are in good condition and well maintained, and that our offices are sufficient to meet our present needs.

ITEM 3.    LEGAL PROCEEDINGS.

We are involved in a number of active lawsuits, including lawsuits arising out of actions taken by state regulatory authorities, and
are involved in various other legal proceedings with state and federal regulators. Unless otherwise disclosed, we are vigorously defending against these actions. The amount of losses and/or the
probability of an unfavorable outcome, if any, cannot be reasonably estimated for these legal proceedings unless otherwise stated below.



On February 27, 2007, Brenda McGinnis filed a putative class action in the Circuit Court of Clark County, Arkansas alleging
violations of the Arkansas usury law, the Arkansas Deceptive Trade Practices Act and a 2001 class action settlement agreement entered into by our prior subsidiary in Arkansas. The complaint alleges
that our current subsidiary made usurious loans under the Arkansas Check Cashers Act and seeks compensatory damages in amount equal to twice the interest paid on the deferred presentment transactions
made from 2001 to present, (which would total $21.4 million for deferred presentment transactions made during that time or approximately $87 million in damages for all transactions
originated, processed or serviced during that time), as well as declaration that the contracts are void, enforcement of the 2001 class action settlement agreement, attorneys' fees and costs. The trial
court has denied our motion to compel arbitration and the class was
certified in April 2008. We appealed both decisions. The appellate court denied our appeal as to the motion to compel arbitration, but the class certification appeal remains pending. The
plaintiff has filed a motion for summary judgment, which we have opposed. We expect a ruling on this motion sometime in the latter half of 2009.



On October 13, 2008, Gary Neil Magee and Charlotte Johnson filed a putative class action in the Circuit Court of Clark County,
Arkansas alleging that our current Arkansas subsidiary violated the Arkansas usury law and the Arkansas Deceptive Trade Practices Act. The complaint alleges that the fees charged by our subsidiary to
cash checks were instead interest on consumer loans and usurious under Arkansas law. The parties seek compensatory damages in an amount equal to twice the combined interest plus unrelated check
cashing fees on the loans from April 2008 to October 2008, and a declaration that the transactions are void, plus attorneys' fees and costs. We have filed separate motions to dismiss and to compel
arbitration.

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On July 18, 2008, Kerri Stone, filed a putative class action complaint in the Supreme Court of California against us and our
California subsidiary alleging violations of the California Deferred Deposit Transaction Law, the California Unfair Competition Law and the California Consumer Legal Remedies Act. The case has been
removed to the U.S. District Court for the Southern District of California. The putative class action complaint seeks trebling of compensatory damages, disgorgement of profits, attorney's fees,
punitive damages, and an order enjoining enforcement of class action waiver clauses in cash advance contracts. We have filed a motion to dismiss the Plaintiff's complaint.



We and our Florida subsidiary, McKenzie Check Advance of Florida, LLC ("McKenzie"), are defendants in a putative class action
lawsuit commenced by former customers, Wendy Betts and Donna Reuter on January 11, 2001, and a third named class representative, Tiffany Kelly, in the Circuit Court of Palm Beach County,
Florida. This putative class action alleges that McKenzie, by and through the actions of certain officers, directors and employees, engaged in unfair and deceptive trade practices and violated
Florida's criminal usury statute, the Florida Consumer Finance Act and the Florida Racketeer Influenced and Corrupt Organizations Act. The suit seeks unspecified damages, and the named defendants
could be required to refund fees and/or interest collected, refund the principal amount of cash advances, pay multiple damages and pay other monetary penalties. Ms. Reuter's claim has been held
to be subject to binding arbitration, which we expect to proceed in parallel with this case. However, the trial court has denied the defendants' motion to compel arbitration of Ms. Kelly's
claims, the substituted named plaintiff, and the resulting appeal has been dismissed by the Florida court of appeals. We will seek review of the arbitration issue by the Florida Supreme Court. All
proceedings at the trial court level remain effectively stayed pending exhaustion of the of our appellate rights.



A second Florida lawsuit was filed on August 24, 2004 in the Circuit Court of Palm Beach County by former customers Gerald Betts
and Ms. Reuter against us, our subsidiary, Advance America, Cash Advance Centers of Florida, Inc., and certain officers and directors. The allegations, relief sought and our defenses in
this lawsuit are nearly identical to those alleged in the firstBetts and Reuterlawsuit described above. The proceedings at the trial court level are
stayed pending the outcome of our appeal of the trial court's denial of certain defendants' motion to dismiss for lack of personal jurisdiction.



On August 6, 2004, Tahisha King and James E. Strong, who were customers of BankWest, the lending bank for which we previously
marketed, processed and serviced cash advances in Georgia, filed a putative class action lawsuit in the State Court of Cobb County, Georgia against us, William M. Webster IV, our Chairman, and other
unnamed officers, directors, owners and "stakeholders," alleging various causes of action including that the Georgia subsidiary made illegal cash advance loans in Georgia in violation of Georgia's
usury law, the Georgia Industrial Loan
Act and Georgia's Racketeer Influenced and Corrupt Organizations Act. The complaint alleges that BankWest was not the "true lender" and that we were the "de facto" lender. The complaint seeks
compensatory damages, attorneys' fees, punitive damages and the trebling of any compensatory damages.

On
February 9, 2009, the parties signed a settlement agreement for the purpose of resolving all claims in connection with the class action. If the court approves the settlement
agreement, we will pay a minimum of approximately $2.0 million from which (1) a settlement pool will be established to cover payment of claims, individually varying from $30 to $90, and
(2) payment of all costs and fees, including attorney's fees, related to the litigation and settlement administration of the class action will

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be
made. If claims made plus costs exceed approximately $2.0 million, we will be required to pay additional funds into the settlement pool up to an aggregate cap of approximately
$3.7 million. All named defendants will be released from all claims in connection with originating, marketing or servicing loans in Georgia.



Our Georgia subsidiary is involved in another case in Georgia that, although not a class action lawsuit, contains essentially the same
allegations as theKing and Strongcase described above. On March 10, 2003, Angela Glasscock, a customer of BankWest, filed an adversary
proceeding in the U.S. Bankruptcy Court for the Southern District of Georgia alleging that our Georgia subsidiary was making cash advances in Georgia in violation of the Georgia Industrial Loan Act.
BankWest intervened into the case and subsequently both our subsidiary and BankWest filed a motion for summary judgment, which was granted in September 2005. In April 2007, on appeal, the United
States District Court overturned the U.S. Bankruptcy Court's grant of summary judgment. The parties have agreed to settle this case for an immaterial amount if the Kingsettlement discussed above
receives court approval and the settlement will become effective upon final court approval of the Kingsettlement.



On March 10, 2008, Trishia Hooper and Josephine Vaughn filed a putative class action lawsuit in the United States District Court
for the Western District of Missouri against our subsidiary Advance America, Cash Advance Centers of Missouri, Inc. The action alleges that the
arbitration clause and class action waiver in our subsidiary's loan agreement is unconscionable, that our subsidiary's practices violate the Missouri statutes governing unfair and deceptive trade
practices, interest rates, loan renewals, debt reduction, and consideration of borrower's ability to repay. The lawsuit seeks certification as a class action, unspecified monetary damages, and a
declaratory judgment that the arbitration clause and class action waiver is unconscionable, and injunctive relief. We moved to compel arbitration, which motion was denied by the trial court. We are
appealing the denial of that motion.



On July 27, 2004, John Kucan, Welsie Torrence and Terry Coates, each of whom was a customer of Republic Bank & Trust
Company ("Republic"), the lending bank for whom we previously marketed, processed and serviced cash advances in North Carolina, filed a putative class action lawsuit in the General Court of Justice
for the Superior Court Division for New Hanover County, North Carolina against us and Mr. William M. Webster IV, Chairman of our Board of Directors and prior Chief Executive Officer, alleging,
among other things, that the relationship between our North Carolina subsidiary and Republic was a "rent a charter" relationship and therefore Republic was not the "true lender" on the cash advances
it offered. The lawsuit also claims that the cash advances were made, administered and collected in violation of numerous North Carolina consumer protection laws. The lawsuit seeks an injunction
barring the subsidiary from continuing to do business in North Carolina, the return of the principal amount of the cash advances made to the plaintiff class since August 2001, the return of any
interest or fees associated with those advances, treble damages, attorneys' fees and other unspecified costs. Litigation regarding our arbitration rights is proceeding before the trial court and we
expect a decision on the issue of arbitration in the third quarter of 2009.



On February 1, 2005, the Commissioner of Banks of North Carolina initiated a contested case against our North Carolina
subsidiary for alleged violations of the North Carolina Consumer Finance Act. In December 2005, the Commissioner of Banks ordered that our North Carolina subsidiary immediately cease and desist
operating. In accordance with the Commissioner of Banks' order, our

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North
Carolina subsidiary ceased all business operations on December 22, 2005. We have moved to continue the stay of the case pending outcome of Kucanlitigation, which motion is still pending.



On September 27, 2006, the Pennsylvania Department of Banking filed a lawsuit in the Commonwealth Court of Pennsylvania alleging
that our Delaware subsidiary was providing lines of credit to borrowers in Pennsylvania without a license required under Pennsylvania's financial licensing law and charging interest and fees in excess
of the amounts permitted by Pennsylvania's usury law. In July 2007, the court determined that certain aspects of our Choice Line of Credit required us to be licensed under Pennsylvania's Consumer
Discount Company Act ("CDCA") and enjoined us from continuing our lending activities in Pennsylvania for so long as the CDCA violations continued and from collecting monthly participation fees. We
appealed to the Pennsylvania Supreme Court and in May 2008, the Pennsylvania Supreme Court upheld the lower court's ruling. The Pennsylvania Department of Banking amended its complaint to add
the Pennsylvania Attorney General as a plaintiff and us as a defendant. The amended complaint also seeks to perfect a claim for alleged violations of the state's usury law by seeking unspecified
damages, including disgorgement of profits earned in Pennsylvania, treble actual damages, and restitution, which could total approximately $135 million, plus civil penalties of $1,000 for each
violation of the Pennsylvania Consumer Protection Law and of an additional $2,000 for violations against customers over the age of 60, and attorneys fees and costs. We have filed a motion to dismiss
the amended complaint and will continue to vigorously defend against the lawsuit.



On August 1, 2007, Sharlene Johnson, Helena Love and Bonny Bleacher filed a putative class action lawsuit in the United States
District Court, Eastern District of Pennsylvania against us and two of our subsidiaries alleging that we provided lines of credit to borrowers in Pennsylvania without a license required under
Pennsylvania law and with interest and fees in excess of the amounts permitted by Pennsylvania law. The complaint seeks, among other things, a declaratory judgment that the monthly participation fee
charged to customers with a line of credit is illegal, an injunction prohibiting the collection of the monthly participation fee and the payment by us of damages equal to three times the monthly
participation fees paid by, customers since June 2006, which could total approximately $135 million in damages plus attorneys' fees and costs. In January 2008, the trial court entered an order
compelling the purported class representatives to arbitrate their claims on an individual basis, unless determined otherwise by the arbiter. Both parties appealed this order and, in July 2008, the
Court of Appeals ordered the parties to engage in mediation. All parties are currently engaged in court-ordered mediation, and the appeals in the matter are stayed, pending the outcome of that
mediation.



On January 18, 2007, Raymond King and Sandra Coates, who were customers of BankWest, the lending bank for which we previously
marketed, processed and serviced cash advances in Pennsylvania, filed a putative class action lawsuit in the United States District Court, Eastern District of Pennsylvania alleging various causes of
action, including that our Pennsylvania subsidiary made illegal loans in Pennsylvania in violation of Pennsylvania's usury law, the Pennsylvania Consumer Discount Company Act, the Pennsylvania Unfair
Trade Practices and Consumer Protection Law, the Pennsylvania Fair Credit Extension Uniformity Act and the Pennsylvania Credit Services Act. The complaint alleges that BankWest was not the "true
lender" and that our Pennsylvania subsidiary was the "lender in fact." The complaint seeks compensatory damages, attorneys' fees, punitive damages and the trebling of any

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compensatory
damages. In January 2008, the trial court entered an order compelling the purported class representatives to arbitrate their claims on an individual basis, unless determined otherwise by
the arbiter. The parties engaged in court-ordered mediation, which was not successful, and the appeals on the issue of compelled arbitration are proceeding.



Eight separate putative class actions have been filed in South Carolina against our subsidiary, Advance America, Cash Advance Centers
of South Carolina, Inc., and several other unaffiliated defendants. John and Rebecca Morgan filed a complaint on August 27, 2007 in the Horry County Court of Common Pleas; Margaret Horne
filed a complaint on September 6, 2007 in the Spartanburg County Court of Common Pleas; Tawan Smalls filed a complaint on September 10, 2007 in the Charleston County Court of Commons
Pleas; Chadric and Lisa Wiley filed a complaint on September 27, 2007 in the Richland County Court of Common Pleas; Mildred Weaver filed a complaint on September 27, 2007 in the
Darlington County Court of Common Pleas; Lisa Johnson and Gilbert Herbert filed a complaint on October 2, 2007 in the Georgetown County Court of Common Pleas; Kimberly Kinney filed a complaint
on October 12, 2007 in the Marion County Court of Common Pleas and Carl G. Ferrell filed a complaint on October 30, 2008. The allegations and relief sought are similar in each case.
Plaintiffs allege that our South Carolina subsidiary violated the South Carolina Deferred Presentment Services Act and the Consumer Protection Code by failing to perform a credit check and evaluate a
customer's ability to repay the advance. Each complaint seeks an injunction to prohibit us from continuing operations, the return of fees and interest, actual damages, punitive damages and attorneys'
fees and costs. Each lawsuit was removed to United States District Court for the District of South Carolina, which subsequently remanded all of the class actions to state court. We appealed these
rulings and the appellate court remanded all cases to state court. We will join ongoing litigation in the
South Carolina state court system pursuant to an order of the Supreme Court consolidating all cases brought against the industry.



On September 12, 2007, Francisco Gonzalez filed a collective action lawsuit against our Texas subsidiary, Advance America, Cash
Advance Centers of Texas, Inc., in the United States District Court for the Southern District of Texas alleging violations of the Fair Labor Standards Act and Texas PayDay Act. The complaint
alleges the Company's subsidiary in Texas failed to pay overtime wages to its employees. The complaint seeks compensatory and liquidated damages, attorneys' fees, interest and costs. A class of
employees limited to the Houston, Texas area has been certified to conduct this litigation. We sought an appeal of the class certification issue, which was denied, leading to the conditional
certification of a class. The parties will now litigate the matter on the merits.



We are also involved in other litigation and administrative proceedings that are incidental to its business, including, without
limitation, individual consumer claims, contractual disputes, employee claims for workers' compensation, wrongful termination, harassment, discrimination, payment of wages due and customer claims
relating to collection practices and violations of state and/or federal consumer protection laws.

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

None.

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Table of Contents

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "AEA." Our common stock was initially offered
to the public on December 15, 2004 at a price of $15.00. The following table sets forth the quarterly high and low sales prices of our common stock as reported by NYSE as well as the quarterly
cash dividend declared per share for 2007 and 2008:

Sales PricesCash
DividendHigh

Low2007:Quarter ended March 31, 2007

$
16.16

$
12.92

$
0.125Quarter ended June 30, 2007


18.30


14.67


0.125Quarter ended September 30, 2007


19.05


10.06


0.125Quarter ended December 31, 2007


10.89


7.96


0.1252008:Quarter ended March 31, 2008

$
10.31


5.70

$
0.125Quarter ended June 30, 2008


9.58


4.91


0.125Quarter ended September 30, 2008


6.20


2.44


0.125Quarter ended December 31, 2008


3.04


1.11


0.0625


At
February 27, 2009, there were approximately 101 holders of record of our common stock, and there were approximately 4,700 beneficial holders of the common stock held in nominee
or street name.

We
are not required to pay any dividends. Any determination to pay dividends, and the amounts of any dividends, will be at the sole discretion of our Board of Directors and will depend
on a number of factors, including: our subsidiaries' payment of dividends to us; our net income, results of operations and cash flows and our other cash needs; our financial position and capital
requirements; general business conditions and the outlook for our company; general stock market conditions, including our
stock price and our perception of the value of a regular quarterly dividend to our stockholders; in addition to any legal, tax, regulatory and any other factors our Board of Directors deems relevant.
In addition, our revolving credit facility restricts our ability to pay dividends depending on the absence of any default or event of default, our net income, the ratio of our consolidated senior
funded debt to our consolidated EBITDA, our consolidated fixed charge coverage ratio, and the maintenance of our net worth covenant (which terms and ratios are determined under our revolving credit
facility). Our Board of Directors may at any time modify or revoke our dividend policy.

On
February 19, 2009, our Board of Directors declared a quarterly cash dividend of $0.0625 per common share, payable on March 6, 2009, to stockholders of record on
February 24, 2009.

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Table of Contents

PERFORMANCE GRAPH

The following graph compares the change in the cumulative value of $100 invested for the period beginning on December 16, 2004,
the first day of trading following our IPO, and ending on December 31, 2008, in: (1) our Common Stock; (2) the Standard & Poor's 500 Index; (3) the NASDAQ Other
Financial Index; and (4) the NYSE Financial Sector Index. The values of each investment are based upon the share price appreciation and reinvestment of dividends, on an annual basis.

LOGO

Advance America,
Cash Advance Centers,
Inc. (AEA)

Standard & Poors 500
Index (S&P 500)

NASDAQ Other
Financial Index (IXFN)

NYSE Financial Sector
Index (NYK.ID)12/16/04

$
100.00

$
100.00

$
100.00

$
100.0012/31/04

$
111.71

$
100.72

$
103.18

$
102.3012/30/05

$
62.16

$
103.75

$
115.50

$
109.1712/29/06

$
75.60

$
117.88

$
135.64

$
130.4012/31/07

$
54.51

$
122.04

$
136.29

$
113.3112/31/08

$
11.37

$
75.07

$
73.00

$
52.54


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Table of Contents

The
following table sets forth information about our stock repurchases for the three months ended December 31, 2008:

Period (1)

Total
Number of
Shares
Purchased (2)

Average
Price Paid
per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under the
Plans or Programs (3)October 1 to October 31


3,031

$
1.88





November 1 to November 30











December 1 to December 31


2,119


1.55





Total


5,150

$
1.74








---

See
"Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," for information about our equity compensation plans.

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Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA.

The following tables set forth our summary consolidated financial information and other financial and statistical data for the periods
ended and as of the dates indicated. The financial information for the years ended December 31, 2008, 2007, and 2006, and as of December 31, 2008 and 2007, has been derived from our
audited financial statements included elsewhere in this report. The financial information for the years ended December 31, 2005 and 2004, and as of December 31, 2006, 2005 and 2004 has
been derived from our audited financial statements not included in this report. Certain amounts below in 2005, 2006 and 2007 include the consolidation of a variable interest entitysee
"Item 8. Financial Statements and Supplementary DataNote 16. Transactions with Variable Interest Entities." The historical selected financial information may not be
indicative of our future performance and should be read in conjunction with the information contained in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes in "Item 8. Financial Statements and Supplementary Data."

Year ended December 31,Consolidated Financial Information

2004

2005

2006

2007

2008(Dollars in thousands, except per share data
and other financial data)Statement of Operations Data:Revenues:Fees and interest charged to customers

$
430,859

$
529,953

$
659,876

$
709,557

$
676,436Marketing, processing and servicing fees


139,329


100,113


12,418





Total revenues


570,188


630,066


672,294


709,557


676,436Center expenses:Salaries and related payroll costs


160,047


171,092


185,938


199,416


196,951Provision for doubtful accounts


89,236


115,060


120,855


140,245


135,857Occupancy costs


67,305


80,540


87,276


96,847


100,315Center depreciation expense


13,719


14,902


16,233


17,200


16,698Advertising expense


26,082


24,137


20,375


26,770


20,304Other center expenses


47,087


52,712


54,986


59,340


48,652Total center expenses


403,476


458,443


485,663


539,818


518,777Center gross profit


166,712


171,623


186,631


169,739


157,659Corporate and other expenses (income):General and administrative expenses


44,102


51,758


53,363


59,410


70,518Corporate depreciation expense


3,942


4,483


3,661


3,162


3,033Interest expense


17,165


4,331


7,129


11,059


11,188Interest income


(161
)

(351
)

(538
)

(317
)

(128
)Loss on disposal of property and equipment


814


715


960


3,189


551Loss on impairment of assets


1,288


2,918





314


486Transaction related expense


2,466











Income before income taxes


97,096


107,769


122,056


92,922


72,011Income tax expense (1)


14,041


43,776


48,858


37,831


33,540Income before income of consolidated variable interest entity


83,055


63,993


73,198


55,091


38,471Income of consolidated variable interest entity





(1,003
)

(3,047
)

(706
)

Net income

$
83,055

$
62,990

$
70,151

$
54,385

$
38,471


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Table of Contents



Year ended December 31,Consolidated Financial Information (Continued)

2004

2005

2006

2007

2008(Dollars in thousands, except per share data
and other financial data)Per Share Data:Net income per common share:Basic

$
1.20

$
0.76

$
0.87

$
0.70

$
0.60Diluted

$
1.20

$
0.76

$
0.87

$
0.70

$
0.60Cash dividends paid per common share

$
1.15

$
0.38

$
0.44

$
0.50

$
0.44Weighted average number of shares outstanding:Basic


69,126


83,124


80,889


77,923


64,233Effect of dilutive options and unvested restricted stock








28


12


Diluted


69,126


83,124


80,917


77,935


64,233Pro Forma Data (unaudited) (1):Historical income before taxes

$
97,096Pro forma income tax expense (2)


39,247Net income adjusted for pro forma income tax expense

$
57,849Pro forma net income per common sharebasic

$
0.84Pro forma net income per common sharediluted

$
0.84Weighted average pro forma number of shares outstanding:Basic


69,126Effect of dilutive options


Diluted


69,126Balance Sheet Data (at end of period):Cash and cash equivalents

$
18,224

$
27,259

$
67,245

$
28,251

$
16,017Advances and fees receivable, net


155,009


193,468


237,725


221,480


220,115Goodwill


122,324


122,586


122,627


127,286


126,661Total assets


397,539


436,388


525,092


471,698


447,010Total debt


46,637


44,621


111,050


147,980


194,952Total stockholders' equity


296,290


303,025


299,897


250,291


171,259Cash Flow Data:Cash flows provided by operating activities

$
163,910

$
189,382

$
186,125

$
184,496

$
186,227Cash flows used in investing activities


(97,055
)

(139,880
)

(156,216
)

(113,216
)

(125,674
)Cash flows (used in) provided by financing activities


(59,115
)

(40,467
)

10,077


(110,310
)

(72,164
)


---

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Table of Contents



Year ended December 31,Consolidated Financial Information (Continued)

2004

2005

2006

2007

2008Other Financial and Statistical Data:Number of centers open at end of period


2,408


2,604


2,853


2,832


2,797Number of customers servedall credit products (thousands)


1,412


1,534


1,494


1,524


1,419Number of cash advances originated (thousands)


11,586


11,620


11,539


11,979


11,762Aggregate principal amount of cash advances originated (thousands)

$
3,804,096

$
3,943,815

$
4,082,865

$
4,317,980

$
4,296,493Average amount of each cash advance originated

$
328

$
339

$
353

$
361

$
366Average charge to customers for providing and processing a cash advance

$
52

$
55

$
55

$
55

$
55Average duration of a cash advance (days)


15.4


15.8


16.2


16.5


16.8Average number of lines of credit outstanding during the period (thousands) (3)








20


24


10Average amount of aggregate principal on lines of credit outstanding during the period (thousands) (3)







$
8,963

$
10,377

$
6,946Average principal amount on each line of credit outstanding during the period (3)







$
448

$
429

$
672Number of installment loans originated (thousands) (4)





68


29


31


32Aggregate principal amount of installment loans originated (thousands) (4)




$
34,541

$
13,905

$
12,997

$
14,841Average principal amount of each installment loan originated (4)




$
508

$
486

$
417

$
462


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

The following discussion of our financial condition and results of operations should be read in conjunction
with our consolidated financial statements and the related notes in "Item 8. Financial Statements and Supplementary Data." This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those anticipated by these forward- looking statements. Please see "Item 1A. Risk Factors" and "Forward-Looking Statements"
for discussions of the uncertainties, risks and assumptions associated with these statements.

Overview

Headquartered in Spartanburg, South Carolina, we are the largest provider of cash advance services in the United States as measured by
the number of centers operated. Our centers provide short-term, unsecured cash advances that are typically due on the customers' next payday. As of December 31, 2008, we operated
2,767 centers in 33 states in the United States, 20 centers in the United Kingdom and 10 centers in Canada.



In most states where we operate, we originate cash advance services under the authority of different state-governed enabling statutes
that allow for cash advances ranging from single and multiple installment closed-end terms to revolving lines of credit with open-ended terms. We refer to these products and
services collectively as cash advance services. The particular cash advance services offered in any given location may change from time to time depending upon changes in state law and federal law. For
instance, changes in Ohio laws caused us to begin offering single installment cash advances under Ohio's Small Loan Act. Additionally, where permitted by applicable law, we may assume the
responsibility of serving as an agent to a regulated lender. For instance, prior to 2007, we conducted business in certain states as a marketing, processing and servicing agent for Federal Deposit
Insurance Corporation ("FDIC")-supervised, state-chartered banks that made cash advances and installment loans to their customers pursuant to the authority of the laws of the states in which they were
located and federal interstate banking laws, regulations and guidelines (which we refer to as the agency business model). We refer to the banks for which we acted as an agent under the agency business
model as lending banks. We currently operate all of our centers under the standard business model.

In
Texas, where we operate as a Credit Services Organization ("CSO"), we offer a fee-based credit services package to assist customers in trying to improve their credit and
in obtaining an extension of consumer credit through a third-party lender. Under the terms of our agreement with this lender, we process customer applications and are contractually obligated for all
losses.

Under
our standard business model, we provide cash advances services as specified by the laws of the jurisdiction where we operate. In the states where we previously operated under the
agency business model, the lending banks provided cash advances and installment loans and charged fees and/or interest as specified by the laws of the states in which they were located and consistent
with the regulatory authority of the FDIC and federal banking law. Loans made by the third-party lender in Texas are governed by Texas law. Online cash advances made by a third-party lender are
governed by the laws of the state where the customer resides. The permitted size of a cash advance varies by jurisdiction and ranges from $50 to $5,000. However, our typical cash advance will range
from $50 to
$1,000. The finance charges on cash advance services currently offered by us also vary by jurisdiction and range up to 22% of the amount of a cash advance.

Additional
fees that we may charge and collect include origination fees, annual participation fees, fees for returned checks, late fees and other fees as permitted by applicable law.
Presently, none of the cash advance services we offer include annual participation fees. Origination fees on cash advance

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Table of Contents

services
currently offered by us range from $15 to $30, but future cash advance services may have higher or lower origination fees depending on applicable state law. Fees for returned checks or
electronic debits that are declined for non-sufficient funds ("NSF") vary by state and range up to $30, and late fees vary by state and range up to $50. For the years ended December 31, 2008
and 2007, total NSF fees collected were approximately $3.3 million and $3.5 million, respectively, and total late fees collected were approximately $373,000 and $313,000, respectively.
In Texas, the third-party lender charges an NSF fee and a late fee on its loans in accordance with Texas law.

A
customer may obtain a cash advance in one of three ways: (1) by visiting one of our centers in-person and completing an application; (2) by visiting our
website, beginning the application process online, then visiting one of our centers in person to complete the application and receive funding; or (3) by visiting our website, completing an
application online and receiving a cash advance from a third-party lender that is directly deposited in the customer's bank account. Each new customer must provide us with certain personal information
such as his or her name, address, phone number, employment information or source of income, and references. This information is entered into our information system and that of the applicable lender.
The customer's identification, proof of income and/or employment and proof of bank account are verified. In order for a new customer to be approved for a cash advance, we must be able to verify his or
her identification and he or she is required to have a bank account and a regular source of income, such as a job.

Except
for cash advances completed by third-party lenders, we determine whether to approve a cash advance to our customers in every jurisdiction. The third-party lenders decide whether
to approve the loan or cash advance and establish all of the underwriting criteria and terms, conditions and features of the customer agreement. We require proof of identification, bank account and
income source, as described above, and we primarily consider the customer's income in determining the amount of the cash advance. We do not perform credit checks through consumer reporting agencies.

After
the documents presented by the customer have been reviewed for completeness and accuracy, copied for record-keeping purposes and the advance has been approved, the customer enters
into an agreement governing the terms of the advance. The customer then provides a personal check or an Automated Clearing House ("ACH") authorization, which enables electronic payment from the
customer's account, to cover the amount of the cash advance plus charges for applicable fees and/or interest and/or the balance due under the agreement, and makes an appointment to return on a
specified due date, typically his or her next payday, to repay the advance plus the applicable charges. However, in some states, customers are not required to provide us with a personal check or ACH
authorization, and payment cycles may vary depending upon state law and product type. At the specified due date, the customer is required to make the applicable payment, usually payment in full of the
cash advance plus fees and interest if applicable. Payment is usually made in person, in cash at the center where the cash advance was initiated or issued unless the cash advance was completed on the
internet, in which case the customer makes payment by ACH authorization.

Upon
payment in full, the customer's check is returned and/or his or her ACH authorization is deemed to be revoked. If the customer does not repay the outstanding advance or loan in full
on or before the due date, we will seek to collect from the customer the amount of the advance or loan and any applicable fees, including late and NSF fees due, and may deposit the customer's personal
check or initiate the electronic payment from the customer's bank account.



We may offer alternative products and services to our customers where permissible under applicable law. For instance, in Ohio we
currently offer check cashing services at state authorized rates. We may also offer the products or services of a third party that we market, process and/or service at our centers pursuant to an
agreement with the third party. For instance, we currently offer (1) pre-paid

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debit
cards; (2) money orders, money transmission and bill payment services; and (3) facilitation of a third party's tax preparation services. Our Advance America branded
pre-paid Visa debit card is issued by a federally chartered bank and regulated by the OTS. The card allows a cardholder to load cash onto the card and use the card wherever VISA debit
cards are accepted. We are compensated under an agreement with the bank based on a number of factors related to the bank's revenue from purchases and subsequent cardholder activity, such as charges
for loads, ATM withdrawals, account maintenance/plan charges and purchases. In the third and fourth quarters of 2007, we began selling money orders, providing money transfer services and bill payment
services as an agent of a licensed third-party money transmitter. We are compensated by the money transmitter based upon the number and value of money transfers, money orders and bill payments made by
our centers. Finally, in 2008, we began facilitating the offering of tax preparation services by a third-party tax preparation provider. We receive a percentage of the tax preparation provider's fees
from customers related solely to tax preparation services.

Our
industry has been significantly affected by increasing regulatory challenges. Legislation that negatively impacts cash advances and similar services, whether through preclusions,
interest rate ceilings, fee reductions, mandatory extensions of term length, limits on the amount or term of our products and services or limits on consumers' use of our products and services could
materially and adversely affect our business. We are very active in monitoring and evaluating regulatory initiatives in
all of the states and are closely involved with the efforts of the Community Financial Services Association of America ("CFSA").

Although
there are numerous differences under the various enabling regulations, the application and approval process, underwriting criteria, delivery method, repayment and collection
practices, customer and market characteristics and underlying economics of our principal products and services generally are substantially similar in most jurisdictions.



In order for a new customer to be approved for a cash advance, he or she is required to have a bank account and a regular source of
income, such as a job.



We
determine whether to approve a cash advance to our customers (except in Texas, where the third-party lender makes this determination). We require proof of identification, bank account
and income source, as described above, and we primarily consider the customer's income in determining the amount of the cash advance.

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Repayment
terms vary depending upon state law, the type of cash advance services offered, and whether the cash advance was completed online or in one of our centers. Generally, as part
of the closing process, we explain the customer's repayment obligations and establish the expectation that the customer will pay us in cash on or before the due date in accordance with their agreement
with us. The day before the due date, we generally call the customer to confirm their payment.

If
a customer does not pay the amount due, then our management has the discretion to either (1) commence past-due collection efforts, which typically may proceed for
up to 14 days in most states, or (2) deposit the customer's personal check or debit their bank account in accordance with their ACH authorization. If management decides to commence
past-due collection efforts, employees typically contact the customer by telephone or in person to obtain a payment or a promise to pay and, in cases where we hold a check, attempt to
exchange the customer's check for a cashier's check, if funds are available.

If
unable to meet his or her payment obligations, the customer may qualify for an extended payment plan ("Payment Plan"). In most states, the terms of our Payment Plan conform to the
CFSA Best Practices for extended payment plans. Certain states have specified their own terms and eligibility requirements for Payment Plans. Generally, a customer may enter into a Payment Plan for no
additional fee once every twelve months and the Payment Plan will call for scheduled payments that coincide with the customer's next four paydays. In some states, a customer may enter into a Payment
Plan more frequently. We do not engage in collection efforts while a customer is enrolled in a Payment
Plan. If a customer misses a scheduled payment under a Payment Plan, we may resume our normal collection procedures. We do not offer a Payment Plan for multiple installment loans or lines of credit.
Nor does the third-party lender in Texas offer a Payment Plan for advances to its customers. The third-party internet lender offers Payment Plans as required by state law.

If,
at the end of this past-due collection period or Payment Plan, the center has been unable to collect the amount due, the customer's check is deposited or their ACH
authorization is processed. Additional collection efforts are not required if the customer's deposited check or our ACH debit clears. If the customer's check or the ACH debit does not clear and is
returned because of non-sufficient funds in the customer's account or because of a closed account or a stop-payment order, we begin additional collection efforts. These
additional collection efforts are carried out by center employees and typically include contacting the customer by telephone or in person to obtain payment or a promise to pay and attempting to
exchange the customer's check for a cashier's check, if funds become available. We also send out a series of collection letters, which are automatically distributed from a central location based on a
set of pre-determined criteria.

In
the case of cash advances in the form of lines of credit, if a customer fails to make payment when due in accordance with the terms of their agreement with us, then management may
close the line of credit, accelerate the maturity date and take the steps outlined above or work with the customer to bring his or her payments current. If we close the line of credit and accelerate
the maturity date, we stop charging interest on the outstanding amount and begin collection efforts as described above.

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The following table presents key operating data for our business:

Year Ended December 31,2006

2007

2008Number of centers open at end of period


2,853


2,832


2,797Number of customers servedall credit products (thousands)


1,494


1,524


1,419Number of cash advances originated (thousands)


11,539


11,979


11,762Aggregate principal amount of cash advances originated (thousands)

$
4,082,865

$
4,317,980

$
4,296,493Average amount of each cash advance originated

$
353

$
361

$
366Average charge to customers for providing and processing a cash advance

$
55

$
55

$
55Average duration of a cash advance (days)


16.2


16.5


16.8Average number of lines of credit outstanding during the period (thousands) (1)


20


24


10Average amount of aggregate principal on lines of credit outstanding during the period (thousands) (1)

$
8,963

$
10,377

$
6,946Average principal amount on each line of credit outstanding during the period (1)

$
448

$
429

$
672Number of installment loans originated (thousands) (2)


29


31


32Aggregate principal amount of installment loans originated (thousands) (2)

$
13,905

$
12,997

$
14,841Average principal amount of each installment loan originated (2)

$
486

$
417

$
462


---

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We have historically derived our revenues from: (1) fees and/or interest paid to us directly by our customers under the standard
business model and (2) marketing, processing and servicing fees paid to us by the lending banks under the former agency business model. Our total revenues for the years ended
December 31, 2006, 2007 and 2008 consisted of (dollars in millions):

2006

2007

2008Dollars

%

Dollars

%

Dollars

%Fees and interest charged to customers

$
659.9


98.2

$
709.6


100.0

$
676.4


100.0Marketing, processing and servicing fees


12.4


1.8











Total revenues

$
672.3


100.0

$
709.6


100.0

$
676.4


100.0


Our
expenses relate primarily to the operation of our centers. These expenses include salaries and related payroll costs, occupancy expense related to our leased centers, center
depreciation expense, advertising expense and other center expenses that consist principally of costs related to center closings, communications, delivery, supplies, travel, bank charges, various
compliance and collection costs and costs associated with theft.



In 2005, the FDIC issued revised guidance to lending institutions that offered cash advances, including the lending banks for which we
then acted as a marketing, processing and servicing agent. In response, we modified our marketing, processing and servicing agreements with the lending banks in Arkansas, North Carolina and
Pennsylvania and started operating in Texas and
Michigan under existing state-based legislation. In early 2006, the FDIC instructed the lending banks, including those for which we still acted as a marketing, processing and servicing agent in
Pennsylvania and Arkansas, to discontinue offering advances and installment loans. In response, the lending banks stopped originating cash advances and installment loans and we abandoned our agency
business model. In June 2006, we began operating in Pennsylvania and Arkansas pursuant to existing state-based legislation under the standard business model. As a result, we now operate under the
standard business model in all of our centers.

Conversion of Operations in Michigan.In 2005, we terminated our agreement with the lending bank for Michigan and began offering
check-cashing and
deferred-presentment services directly to customers in Michigan. After Michigan adopted a new affirmative deferred presentment services law in June 2006, we began offering cash advances.



During the last few years, legislation that prohibits or severely restricts our products and services has been introduced or adopted in
a number of states and at the federal level, and we expect that trend to continue in other states for the foreseeable future. Also, legislation was adopted in New Hampshire that effectively prohibits
us from offering cash advances to consumers in that state. As a result, in February, 2009, we decided to close all of our centers in New Hampshire. On February 25, 2009, the Virginia legislature
passed a bill that would restrict us from offering both the cash advance product and the open-ended line of credit product at the same center. If the bill is signed by the Virginia governor and
becomes law, we will be prohibited from offering the open-ended line of credit product to customers in Virginia, which may lower our revenues and profits in that state. Further, legislation permitting
cash advances in Arizona and Mississippi is scheduled to expire in 2010 and 2012, respectively. This legislation may not be renewed or could be modified in a manner that effects our operations
negatively. At any point in time, we are refining our cash advance services and developing

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new
products and services or operations to address recent or anticipated legislative and regulatory changes. Some of these legislative and regulatory changes may result in our discontinuing operations
in a state, while other changes may result in less significant short-term or long-term changes, interruptions in revenues and lower operating margins. Until and unless we are
able to develop legal and financially-viable alternative products and services, we generally cannot estimate in advance the actual effect of operational changes we make in response to legislative and
regulatory changes.



In June 2008, the Governor of Ohio signed a bill into law that capped interest rates on cash advance loans and limits the number of
advances a customer may take in any one year. This law became effective on November 24, 2008.

As
a result of this legislation, the Company began offering small loans pursuant to the Ohio Small Loan Act and check-cashing services. The small loan product is not as profitable as the
former cash advance product and, therefore, the Company may need to close its centers in Ohio.

If
it is not economically viable to continue our operations in Ohio and we decide to close our Ohio centers, our estimated range of closing costs, including severance, center
tear-down costs, lease termination costs and the write-down of fixed assets would be approximately $7.5 million to $17.4 million. The collectability of advances
and fees receivable in Ohio would most likely be impaired. As of December 31, 2008, the net receivable balance in Ohio was approximately $18.6 million. The Company has not quantified the
amount of goodwill impairment, if any, that would result from the cessation of operations in Ohio.



Closing of Operations in North Carolina.At the end of 2005, the North Carolina Commissioner of Banks issued an order directing us to
cease operation
of our centers in the state. As a result, we ceased all of our business activities and closed our centers in North Carolina.

The
following is a summary of financial information for our operations in North Carolina for the years ended December 31, 2006, 2007 and 2008 (in thousands):

2006

2007

2008Total revenues

$
(35
)
$


$
Total center expenses


985


111


12Center gross profit (loss)

$
(1,020
)
$
(111
)
$
(12
)


Closing of Operations in Pennsylvania.As a result of the lending bank for Pennsylvania ceasing to originate advances and loans, we
began offering
the Advance America Choice-Line of Credit ("Choice-Line") in Pennsylvania in 2006. The Choice-Line product allowed customers access to up to $500 in credit for a
monthly participation fee plus interest on outstanding loan balances. On July 31, 2007, we announced that an unfavorable ruling was issued by the Commonwealth Court of Pennsylvania directing
our subsidiary operating in Pennsylvania to immediately suspend its operations. See "Item 3. Legal Proceedings." During the third and fourth quarters of 2007, we closed all of our remaining
centers in Pennsylvania. The severance, lease termination and write-off of the undepreciated costs of fixed assets and other closing costs in these centers totaled approximately
$2.2 million. Additionally, we recorded a charge of approximately $6.3 million for the write down of receivables. The cessation of our Pennsylvania operations did not result in any
impairment of goodwill.

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The
following is a summary of financial information for our operations in Pennsylvania for the years ended December 31, 2006, 2007 and 2008 (in thousands):

2006

2007

2008Total revenues

$
29,541

$
25,760

$
Total center expenses


19,512


25,028


19Center gross profit (loss)

$
10,029

$
732

$
(19
)


Closing of Operations in Oregon.Legislation in Oregon became effective in 2007 that limits fees and interest on all consumer loans. As
a result of
this legislation, we determined that it was no longer economically viable to continue to operate in Oregon and we closed all of our remaining Oregon centers in the fourth quarter of 2007. During the
third and fourth quarters of 2007, we recorded closing costs for severance, lease termination and write-off of the undepreciated costs of fixed assets and other closing costs in these
centers which totaled approximately $1.4 million. Additionally, we recorded a charge of approximately $0.5 million for the write-down of receivables. The cessation of our Oregon
operations did not result in any impairment of goodwill.

The
following is a summary of financial information for our operations in Oregon for the years ended December 31, 2006, 2007 and 2008 (in thousands):

2006

2007

2008Total revenues

$
7,898

$
4,836

$
9Total center expenses


9,061


7,291


126Center gross profit (loss)

$
(1,163
)
$
(2,455
)
$
(117
)


Closing of Operations in New Mexico.Legislation in New Mexico became effective in 2007 that limits fees and interest on all consumer
loans and gives
borrowers a 130 day interest-free and fee-free extension. As a result of this legislation, we determined that it was not economically viable to continue operating in New
Mexico. As a result, we closed our remaining nine centers in New Mexico in August 2008. The closing costs associated with closing our operations in New Mexico were approximately $0.1 million.
The cessation of our New Mexico operations did not result in any impairment of goodwill.

The
following is a summary of financial information for our operations in New Mexico for the years ended December 31, 2006, 2007 and 2008 (in thousands):

2006

2007

2008Total revenues

$
2,341

$
1,904

$
219Total center expenses


1,989


1,876


879Center gross profit (loss)

$
352

$
28

$
(660
)


Closing of Operations in Arkansas.In March 2008, we received a letter from the Arkansas Attorney General demanding that we stop
offering deferred
presentment transactions under the Arkansas Check Cashers Act. In response, we complied with the Attorney General's demands and began offering consumer loans at interest rates below the applicable
Arkansas usury cap. On September 16, 2008, we received a notice from the State Board of Collections that the Board had determined that consumer lenders who accept account withdrawal
authorizations would be deemed by the Board to be engaged in the business of making deferred presentment transactions. During this same time, we had been in discussions with the Arkansas Attorney
General to come to a resolution regarding our operations in Arkansas, and it was agreed that if we discontinued our operations in Arkansas, the Attorney General would not bring suit against us.
Although we believe we have always

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operated
in compliance with Arkansas law, we concluded that avoiding potentially costly litigation in this circumstance is in the best interest of our shareholders. As a result, we closed all 30
centers in Arkansas on or before October 31, 2008. The costs associated with closing our Arkansas operations were approximately $1.8 million, including $1.1 million due to the
write-down of receivables. The cessation of our Arkansas operations did not result in any impairment of goodwill.

The
following is a summary of financial information for our operations in Arkansas for the years ended December 31, 2006, 2007 and 2008 (in thousands):

2006

2007

2008Total revenues

$
5,289

$
6,207

$
3,864Total center expenses


4,604


4,635


6,881Center gross profit (loss)

$
685

$
1,572

$
(3,017
)


Closing of Operations in New Hampshire.Legislation in New Hampshire became effective in 2009 that effectively prohibits the offering
of cash
advances in New Hampshire. As a result of this legislation, we determined that it is not economically viable to continue operating in New Hampshire. As a result, we will be closing all of our 24
centers in New Hampshire in 2009. The costs associated with closing our New Hampshire operations are estimated to be approximately $1.2 million, including $0.5 million due to the
write-down of receivables. Approximately $0.7 million of these expenses were recognized during 2008 and the remaining $0.5 million will be recognized in the
first quarter of 2009. We do not expect the cessation of our New Hampshire operations to result in any impairment of goodwill.

The
following is a summary of financial information for our operations in New Hampshire for the years ended December 31, 2006, 2007 and 2008 (in thousands):

2006

2007

2008Total revenues

$
7,387

$
7,959

$
8,124Total center expenses


3,281


4,067


4,710Center gross profit (loss)

$
4,106

$
3,892

$
3,414




During the year ended December 31, 2008, we acquired two centers in the United Kingdom for an aggregate purchase price,
including transaction-related costs, of approximately $0.8 million in cash and an increase in goodwill of approximately $0.7 million.

During
the year ended December 31, 2007, we completed four acquisitions in the United Kingdom consisting of a total of 12 centers and 85 limited licensees for an aggregate
purchase price, including transaction-related costs, of approximately $5.5 million in cash and an increase in goodwill of approximately $4.7 million.



We opened 302, 209 and 49 centers in the years ended December 31, 2006, 2007 and 2008, respectively. The capital cost of opening
a new center varies depending on the size and type of center, but typically averages approximately $46,000. This capital cost includes leasehold improvements, signage, fixtures, furniture, computer
equipment and a security system. In addition, the typical center that has been operating for at least 24 months under the standard business model requires average working capital of
approximately $87,000 to fund the center's advance portfolio.

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Of
the 872 centers opened in 2005, 2006 and 2007, 810 centers remain open as of December 31, 2008. Of these, 679 have reached the point where, for at least one month, the center
generated sufficient revenues to cover the center's expenses exclusive of corporate overhead (the "Breakeven Point"). The amount of time that it takes for a center to reach this Breakeven Point is
affected by a number of
factors including, but not limited to, the time of the year the center opens, the seasonal nature of the business and the regulatory environment of the state in which the center is opened. It is not
uncommon for a center that has reached the Breakeven Point to temporarily drop below that point and then again exceed the Breakeven Point. Given the relatively fixed nature of most center expenses,
the main determinant of the Breakeven Point for a given center is the number of advances outstanding.

On
average, the 679 centers reached the Breakeven Point between their tenth and thirteenth month of operations and had, on average, approximately 108 advances outstanding at that time.
Cumulative operating losses to break even for these centers averaged approximately $56,000 per center. We have experienced a general trend of an increase in the time it takes a center to reach
the Breakeven Point and, consequently, an increase in the cumulative operating losses to break even.

The
remaining 131 centers opened in 2005, 2006 and 2007 have yet to reach the Breakeven Point. These 131 centers are, on average, approximately 21 months old at
December 31, 2008. At December 31, 2008, a seasonally high point in advances outstanding, these centers had, on average, approximately 80 advances outstanding. Cumulative operating
losses to date for these centers averaged approximately $139,000 per center.



We closed 53 centers during 2006, 242 centers during 2007 (including 99 in Pennsylvania and 53 in Oregon), and 86 centers during 2008
(including 30 in Arkansas and 10 in New Mexico). The expenses related to closing centers typically include the undepreciated costs of fixtures and signage that cannot be moved and reused at another
center, moving costs, severance payments and any lease cancellation costs. We recorded expenses related to center closures of approximately $1.3 million, $6.7 million and
$2.2 million in 2006, 2007 and 2008, respectively. Additionally, during the year ended December 31, 2007, we recorded approximately $6.8 million in charges related to the
write-down of receivables in Pennsylvania and Oregon and during the year ended December 31, 2008, we recorded approximately $1.6 million in charges related to the
write-down of receivables in Arkansas and New Hampshire.



Our consolidated financial statements include the accounts of Advance America, Cash Advance Centers, Inc. and all of our wholly
owned subsidiaries. For the years ended December 31, 2006 and 2007, our consolidated financial statements also include the accounts of a variable interest entity (the subsidiary of our previous
third-party lender in Texas related to our CSO operations in that state) for which we were the primary beneficiarysee "Item 8. Financial
Statements and Supplementary DataNote 16. Transactions with Variable Interest Entities." All significant intercompany balances and transactions have been eliminated.



Our business is seasonal due to the impact of fluctuating demand for advances and fluctuating collection rates throughout the year.
Demand has historically been highest in the third and fourth quarters of each year, corresponding to the back-to-school and holiday seasons, and lowest in the first quarter of
each year, corresponding to our customers' receipt of income tax refunds. Our provision for doubtful accounts and allowance for doubtful accounts are historically lowest as a percentage of revenues in
the first quarter of each year, corresponding to customers' receipt of income tax refunds, and increase as a percentage of revenues for the remainder of each year.

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Critical Accounting Policies and Use of Estimates

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of our results of
operations and financial condition in the preparation of our financial statements in conformity with generally accepted accounting principles in the United States ("GAAP"). We evaluate these estimates
on an ongoing basis and we base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results
could vary from these estimates under different assumptions or conditions.

We
believe that the following critical accounting policies affect the more significant estimates and assumptions used in the preparation of our financial statements.



We believe the most significant estimates made in the preparation of our accompanying consolidated financial statements relate to the
determination of an allowance for doubtful accounts for estimated probable losses on advances we make directly to customers and an accrual for third-party lender losses for estimated probable losses
on loans and certain related fees for loans that we process for our current third-party lender in Texas (see "Consolidation of Variable Interest Entity" in this section). Our advances and fees
receivable, net on our balance sheet do not include the loans and interest receivable for loans processed by us for our current third-party lender in Texas or for internet-based loans, because these
loans are owned by the third-party lender.

The
allowance for doubtful accounts and accrual for third-party lender losses are primarily based upon models that analyze specific portfolio statistics and also reflect, to a lesser
extent, management's judgment regarding overall accuracy. The analytical models take into account several factors including the number of transactions customers complete and charge-off and
recovery rates. Additional factors such as changes in state laws, center closings, length of time centers have been open in a state, relative mix of new centers within a state and other relevant
factors are also evaluated to determine whether the results from the analytical models should be revised.

We
record the allowance for doubtful accounts as a reduction of advances and fees receivables, net on our balance sheet. We record the accrual for third-party lender losses as a current
liability on our balance sheet. We have charged the portion of advances and fees deemed to be uncollectible against the allowance for doubtful accounts and credited any subsequent recoveries
(including sales of debt) to the allowance for doubtful accounts.

Unpaid
advances and the related fees and/or interest are generally charged off 60 days after the date the check was returned by the customer's bank for non-sufficient
funds or other reasons, unless the customer has paid at least 15% of the total of his or her loan plus the original fee. Unpaid advances of customers who file for bankruptcy are charged off upon
receipt of the bankruptcy notice. Although management uses the best information available to make evaluations, future adjustments to the allowance for doubtful accounts and accrual for third-party
lender losses may be necessary if conditions differ substantially from our assumptions used in assessing their adequacy.

Our
business experiences cyclicality in receivable balances from both the time of year and the day of the week. Fluctuations in receivable balances result in a corresponding impact on
the allowance for doubtful accounts, accrual for third-party lender losses and provision for doubtful accounts.

Our
receivables are traditionally lower at the end of the first quarter, corresponding to tax refund season, and reach their highest level during the last week of December.

In
addition to the seasonal fluctuations, the receivable balances can fluctuate throughout a week, generally being at their highest levels on a Wednesday or Thursday and at their lowest
levels on a

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Friday.
In general, receivable balances decrease approximately 4% to 7% from a typical Thursday to a typical Friday. The year 2007 began and ended on a Monday (a relative low point in weekly
receivable balances). The year 2008 began on a Tuesday (a relative low point in weekly receivable balances) and ended on a Wednesday (a relative high point in weekly receivable balances).

To
the extent historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, our loss experience could differ significantly,
resulting in either higher or lower future provisions for doubtful accounts. As of December 31, 2008, if average default rates were 5% higher or lower, the allowance for doubtful accounts and
accrual for third-party lender losses would change by approximately $3.2 million.



As a result of our acquisition of the National Cash Advance group of affiliated companies in October 1999, we recorded approximately
$143.0 million of goodwill. During 2007 and 2008, we completed six acquisitions in the United Kingdom, resulting in additional goodwill of approximately $5.4 million. As of
December 31, 2008, the carrying value of goodwill was $126.7 million due to the amortization of goodwill prior to the adoption of SFAS 142 and the change in the exchange rate for
our United Kingdom assets. Due to the significance of goodwill and the reduction of net income that would occur if goodwill were impaired, we assess the impairment of our long-lived and
intangible assets annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review
include significant underperformance relative to historical or projected future cash flows, significant changes in the manner of use of the acquired assets or the strategy of the overall business, and
significant negative industry trends. To identify potential impairment, we compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting
unit does not exceed its carrying amount, we measure the amount of impairment loss by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. In
determining the estimated future discounted cash flows, we consider current and projected future levels of income, as well as business trends, prospects, market and economic conditions. Impairment
tests involve the use of judgments and estimates related to the fair market value of the business operations with which goodwill is associated, taking into consideration both historical operating
performance and anticipated financial position and future earnings. Any impairment would lower our net income.

We
cannot predict the occurrence of certain events that might adversely affect the carrying value of its goodwill. Should the operations of the businesses with which goodwill is
associated incur significant adverse changes in business, clients, adverse actions by regulators, unanticipated competition, loss of its revolving line of credit, and/or changes in technology or
markets, some or all of the recorded goodwill could be impaired.



Accrued liabilities in our December 31, 2007 and 2008 financial statements include accruals of approximately $0.9 million
and zero, respectively, for the self-insured portion of our health and dental insurance and approximately $4.6 million and $4.9 million, respectively, for workers'
compensation. Beginning in the fourth quarter of 2007, we are no longer self-insured for our health insurance. We recognize our obligations associated with our self-insured
benefits in the period the claim is incurred. The costs of both reported claims and claims incurred but not reported, up to specified deductible limits, are estimated based on historical data, current
enrollment, employee statistics and other information. We review estimates and periodically update our estimates and the resulting reserves and any necessary adjustments are reflected in earnings
currently. To the extent historical claims are not indicative of future claims, there are changes in enrollment or employee history, workers' compensation

53

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loss
development factors change or other assumptions used by management do not prevail, our expense and related accrued liabilities could increase or decrease.



We use certain assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax
liabilities and assets for events recognized differently in our financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions
and interpretation of tax laws and regulations. We exercise considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments
and estimates are re-evaluated on a continual basis as regulatory and business factors change.

No
assurance can be given that neither our tax returns nor the income tax reported on our Consolidated Financial Statements will be adjusted as a result of adverse rulings by the U.S.
Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service ("IRS"). We are subject
to potential adverse adjustments, including but not limited to, an increase in the statutory federal or state income tax rates, the permanent nondeductibility of amounts currently considered
deductible either now or in future periods, and the dependence on the generation of future taxable income, including capital gains, in order to ultimately realize deferred income tax assets.



In connection with our CSO operations in Texas, we entered into an agreement with an unaffiliated third-party lender in 2005. We
determined that the third-party lender was a variable interest entity ("VIE") under Financial Accounting Standards Board Interpretation No. 46 (Revised) ("FIN 46(R)") and that we were
the primary beneficiary of this VIE. As a result, we consolidated the lender for the years ended December 31, 2006 and 2007. During the fourth quarter of 2007, we terminated our CSO agreement
with this lender and entered into an agreement with another unaffiliated third-party lender with substantially similar terms and conditions as the agreement with our former lender. This new lender is
also a VIE but we have determined that we are not the primary beneficiary of this VIE. Therefore, we have not consolidated our new lender as of December 31, 2007 and 2008 and for the years
ended December 31, 2007 and 2008. See "Item 8. Financial Statements and Supplementary DataNote 16. Transactions with Variable Interest Entities" for the impact of
consolidating our former lender on our results of operations and financial condition.



In 2004, we adopted Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment ("SFAS 123(R)").
Accordingly, we measure the cost of our stock-based employee compensation at the grant date based on fair value and recognize such cost in the financial statements over each award's requisite service
period. As of December 31, 2008, the total compensation cost not yet recognized related to nonvested stock awards under our stock-based employee compensation plans is approximately
$6.3 million. The weighted average period over which this expense is expected to be recognized is approximately 4.0 years. See "Item 8. Financial Statements and Supplementary
DataNote 11. Stock-Based Compensation Plans" for a description of our restricted stock and stock option awards and the assumptions used to calculate the fair value of such awards
including the expected volatility assumed in valuing our stock option grants.

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Results of Operations



The following tables set forth our results of operations for the year ended December 31, 2007 compared to the year ended
December 31, 2008:

Year Ended December 31,2007

2008

Variance
Favorable/(Unfavorable)Dollars

% Total
Revenues

Dollars

% Total
Revenues

Dollars

%(Dollars in thousands, except center information)Total Revenues

$
709,557


100.0
%
$
676,436


100.0
%
$
(33,121
)

(4.7
)%Center Expenses:Salaries and related payroll costs


199,416


28.1
%

196,951


29.1
%

2,465


1.2
%Provision for doubtful accounts


140,245


19.8
%

135,857


20.1
%

4,388


3.1
%Occupancy costs


96,847


13.6
%

100,315


14.8
%

(3,468
)

(3.6
)%Center depreciation expense


17,200


2.4
%

16,698


2.5
%

502


2.9
%Advertising expense


26,770


3.8
%

20,304


3.0
%

6,466


24.2
%Other center expenses


59,340


8.4
%

48,652


7.2
%

10,688


18.0
%Total center expenses


539,818


76.1
%

518,777


76.7
%

21,041


3.9
%Center gross profit


169,739


23.9
%

157,659


23.3
%

(12,080
)

(7.1
)%Corporate and Other Expenses (Income):General and administrative expenses


59,410


8.4
%

70,518


10.4
%

(11,108
)

(18.7
)%Corporate depreciation expense


3,162


0.5
%

3,033


0.4
%

129


4.1
%Interest expense


11,059


1.6
%

11,188


1.7
%

(129
)

(1.2
)%Interest income


(317
)




(128
)




(189
)

(59.6
)%Loss on disposal of property and equipment


3,189


0.4
%

551


0.1
%

2,638


82.7
%Loss on impairment of assets


314





486





(172
)

(54.8
)%Total corporate and other expenses


76,817


10.9
%

85,648


12.6
%

(8,831
)

(11.5
)%Income before income taxes


92,922


13.0
%

72,011


10.7
%

(20,911
)

(22.5
)%Income tax expense


37,831


5.3
%

33,540


5.0
%

4,291


11.3
%Income before income of consolidated variable interest entity


55,091


7.7
%

38,471


5.7
%

(16,620
)

(30.2
)%Income of consolidated variable interest entity


(706
)

(0.1
)%







706


(100.0
)%Net income

$
54,385


7.6
%
$
38,471


5.7
%
$
(15,914
)

(29.3
)%


55

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Table of Contents



Year Ended
December 31,2007

2008Center Information:Number of centers open at beginning of period


2,853


2,832Opened


209


49Acquired


12


2Closed


(242
)

(86
)Number of centers open at end of period


2,832


2,797Weighted average number of centers open during the period


2,884


2,848Number of customers servedall credit products (thousands)


1,524


1,419Number of cash advances originated (thousands)


11,979


11,787Aggregate principal amount of cash advances originated (thousands)

$
4,317,980

$
4,296,493Average amount of each cash advance originated

$
361

$
366Average charge to customers for providing and processing a cash advance

$
55

$
55Average duration of a cash advance (days)


16.5


16.8Average number of lines of credit outstanding during the period (thousands) (1)


24


10Average amount of aggregate principal on lines of credit outstanding during the period (thousands) (1)

$
10,377

$
6,946Average principal amount on each line of credit outstanding during the period (1)

$
429

$
672Number of installment loans originated (thousands) (2)


31


32Aggregate principal amount of installment loans originated (thousands) (2)

$
12,997

$
14,841Average principal amount of each installment loan originated (2)

$
417

$
462


---

Year Ended December 31,2007

2008

Variance
Favorable/(Unfavorable)Dollars

% Total
Revenues

Dollars

% Total
Revenues

Dollars

%(Dollars in thousands)Per Center (based on weighted average number of centers open during the period):Center revenues

$
246.0


100.0
%
$
237.5


100.0
%
$
(8.5
)

(3.5
)%Center expenses:Salaries and related payroll costs


69.1


28.1
%

69.2


29.1
%

(0.1
)

(0.1
)%Provision for doubtful accounts


48.6


19.8
%

47.7


20.1
%

0.9


1.9
%Occupancy costs


33.6


13.6
%

35.2


14.8
%

(1.6
)

(4.8
)%Center depreciation expense


6.0


2.4
%

5.9


2.5
%

0.1


1.7
%Advertising expense


9.3


3.8
%

7.1


3.0
%

2.2


23.7
%Other center expenses


20.6


8.4
%

17.1


7.2
%

3.5


17.0
%Total center expenses


187.2


76.1
%

182.2


76.7
%

5.0


2.7
%Center gross profit

$
58.8


23.9
%
$
55.3


23.3
%
$
(3.5
)

(6.0
)%


56

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Table of Contents



Total revenues decreased approximately $33.1 million in 2008. Total revenues for the 2,525 centers opened prior to
January 1, 2007 and still open as of December 31, 2008 decreased $12.5 million from $652.8 million in 2007 to $640.3 million in 2008. Total revenues for the 272
centers opened after January 1, 2007 and still open as of December 31, 2008 increased $20.7 million from $7.9 million in 2007 to $28.6 million in 2008. Total
revenues for the remaining 328 centers that closed represented a decrease of approximately $41.3 million for 2008 compared to 2007. Of this decrease, approximately $25.8 million and
$4.8 million was due to the closing of our operations in Pennsylvania and Oregon, respectively, during 2007. In addition, the decrease was affected by approximately $2.3 million and
$1.7 million due to the closing of our operations in Arkansas and New Mexico, respectively, during 2008.



Salaries and related payroll costs.The decrease in salaries and related payroll costs in 2008 was due primarily to a reduction in the
number of
centers open during the year ended December 31, 2008 as compared to the same period in 2007. We averaged approximately 2.06 and 2.00 full-time equivalent field employees, including
district directors, per center during 2007 and 2008, respectively.

Provision for doubtful accounts.As a percentage of total revenues, the provision for doubtful accounts increased to 20.1% in 2008 from
19.8% in
2007. In both periods, the provision was reduced by the bulk sales of certain customer debt, the proceeds of which were approximately $0.6 million in 2008 compared to $6.8 million in
2007. Excluding the sales of debt in both periods, the provision as a percentage of total revenues decreased to 20.2% in 2008 from 20.7% in 2007. In 2008, the provision includes approximately
$1.6 million in charges related to the closure of operations in Arkansas and New Hampshire. In 2007, the provision includes approximately $6.8 million in charges related to the
suspension and subsequent closure of operations in Pennsylvania and Oregon.

Occupancy costs and center depreciation expense.The increases in occupancy costs and center depreciation expense in 2008 were due
primarily to
higher rents and repair and maintenance charges.

Advertising expense.Advertising expense decreased in 2008 compared to 2007 due primarily to a decrease in spending in New Mexico,
Arkansas and New
Hampshire, as well as a decrease in spending on direct mail drops and broadcast.

Other center expenses.The decrease in other center expenses in 2008 was due primarily to a decrease in center closing costs, a
decrease in expense
related to the ramp up of our prepaid card in 2007, a decrease in bank charges, a decrease in center legal expense, a decrease in cash short and a decrease in expenses related to a previously
consolidated variable interest entity.



General and administrative expenses.The increase in general and administrative expenses in 2008 was due primarily to:



57

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Table of Contents



partially
offset by:



Loss on disposal of property and equipment.The decrease in loss on disposal of property and equipment for the year ended
December 31, 2008
compared to the same period in 2007 was primarily due to fewer centers closing in 2008.

Loss on impairment of assets.Loss on impairment of assets in 2007 and 2008 represents the write-down of the undepreciated costs of
certain fixed assets in our centers identified for closure.

Interest expense.The increase in interest expense for the year ended December 31, 2008 compared to the same period in 2007 was
due to an
increase in the average outstanding balance of our revolving credit facility during the year ended December 31, 2008. This increase was partially offset by a decrease in weighted average
interest rates as compared to the prior year.

Income Tax Expense.The decrease in income tax expense for the year ended December 31, 2008 compared to the same period in 2007 was
due to the
decline in net income for 2008 as compared to 2007. This decrease in total income tax expense was partially offset by an increase in our effective income tax rate to 46.6% for 2008 from 40.7% for
2007. This increase in effective income tax rate is largely due to an increase in our nondeductible lobbying expenses.

58

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Table of Contents



The following tables set forth our results of operations for the year ended December 31, 2006 compared to the year ended
December 31, 2007:

Year Ended December 31,2006

2007

Variance
Favorable/
(Unfavorable)% Total
Revenues



% Total
RevenuesDollars

Dollars

Dollars

%(Dollars in thousands, except center information)Revenues:Fees and interest charged to customers

$
659,876


98.2
%
$
709,557


100.0
%
$
49,681


7.5
%Marketing, processing and servicing fees


12,418


1.8
%







(12,418
)

(100.0
)%Total revenues


672,294


100.0
%

709,557


100.0
%

37,263


5.5
%Center Expenses:Salaries and related payroll costs


185,938


27.6
%

199,416


28.1
%

(13,478
)

(7.2
)%Provision for doubtful accounts


120,855


18.0
%

140,245


19.8
%

(19,390
)

(16.0
)%Occupancy costs


87,276


13.0
%

96,847


13.6
%

(9,571
)

(11.0
)%Center depreciation expense


16,233


2.4
%

17,200


2.4
%

(967
)

(6.0
)%Advertising expense


20,375


3.0
%

26,770


3.8
%

(6,395
)

(31.4
)%Other center expenses


54,986


8.2
%

59,340


8.4
%

(4,354
)

(7.9
)%Total center expenses


485,663


72.2
%

539,818


76.1
%

(54,155
)

(11.2
)%Center gross profit


186,631


27.8
%

169,739


23.9
%

(16,892
)

(9.1
)%Corporate and Other Expenses (Income):General and administrative expenses


53,363


7.9
%

59,410


8.4
%

(6,047
)

(11.3
)%Corporate depreciation expense


3,661


0.6
%

3,162


0.5
%

499


13.6
%Interest expense


7,129


1.1
%

11,059


1.6
%

(3,930
)

(55.1
)%Interest income


(538
)

(0.1
)%

(317
)




(221
)

(41.1
)%Loss on disposal of property and equipment


960


0.1
%

3,189


0.4
%

(2,229
)

(232.2
)%Loss on impairment of assets.








314





(314
)

(100.0
)%Total corporate and other expenses


64,575


9.6
%

76,817


10.9
%

(12,242
)

(19.0
)%Income before income taxes


122,056


18.2
%

92,922


13.0
%

(29,134
)

(23.9
)%Income tax expense


48,858


7.3
%

37,831


5.3
%

11,027


22.6
%Income before income of consolidated variable interest entity


73,198


10.9
%

55,091


7.7
%

(18,107
)

(24.7
)%Income of consolidated variable interest entity


(3,047
)

(0.5
)%

(706
)

(0.1
)%

2,341


76.8
%Net income

$
70,151


10.4
%
$
54,385


7.6
%
$
(15,766
)

(22.5
)%


59

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Table of Contents



Year Ended December 31,2006

2007Center Information:Number of centers open at beginning of period


2,604


2,853Opened


302


209Acquired





12Closed


(53
)

(242
)Number of centers open at end of period


2,853


2,832Weighted average number of centers open during the period


2,663


2,884Number of customers servedall credit products (thousands)


1,494


1,524Number of cash advances originated (thousands)


11,539


11,979Aggregate principal amount of cash advances originated (thousands)

$
4,082,865

$
4,317,980Average amount of each cash advance originated

$
353

$
361Average charge to customers for providing and processing a cash advance

$
55

$
55Average duration of a cash advance (days)


16.2


16.5Average number of lines of credit outstanding during the period (thousands) (1)


20


24Average amount of aggregate principal on lines of credit outstanding during the period (thousands) (1)

$
8,963

$
10,377Average principal amount on each line of credit outstanding during the period (1)

$
448

$
429Number of installment loans originated (thousands) (2)


29


31Aggregate principal amount of installment loans originated (thousands) (2)

$
13,905

$
12,997Average principal amount of each installment loan originated (2)

$
486

$
417


---

Year Ended December 31,2006

2007

Variance
Favorable/
(Unfavorable)% Total
Revenues



% Total
RevenuesDollars

Dollars

Dollars

%(Dollars in thousands)Per Center (based on weighted average number of centers open during the period):Center revenues

$
252.5


100.0
%
$
246.0


100.0
%
$
(6.5
)

(2.6
)%Center expenses:Salaries and related payroll costs


69.8


27.6
%

69.1


28.1
%

0.7


1.0
%Provision for doubtful accounts


45.4


18.0
%

48.6


19.8
%

(3.2
)

(7.0
)%Occupancy costs


32.8


13.0
%

33.6


13.6
%

(0.8
)

(2.4
)%Center depreciation expense


6.1


2.4
%

6.0


2.4
%

0.1


1.6
%Advertising expense


7.7


3.0
%

9.3


3.8
%

(1.6
)

(20.8
)%Other center expenses


20.6


8.2
%

20.6


8.4
%




Total center expenses


182.4


72.2
%

187.2


76.1
%

(4.8
)

(2.6
)%Center gross profit

$
70.1


27.8
%
$
58.8


23.9
%
$
(11.3
)

(16.1
)%


60

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Table of Contents



Total revenues increased approximately $37.3 million in 2007. The increase was primarily due to the opening of new centers and
revenue growth in existing centers. Total revenues for the 2,310 centers opened prior to January 1, 2006 and still open as of December 31, 2007 increased $17.1 million from
$613.3 million in 2006 to $630.4 million in 2007. Total revenues for the 522 centers opened after January 1, 2006 and still open as of December 31, 2007 increased
$36.6 million from $6.7 million in 2006 to $43.3 million in 2007. Total revenues for the remaining 295 centers that closed represented a decrease of approximately
$16.4 million for 2007 compared to 2006. Of this decrease, approximately $3.1 million and $3.7 million was due to the suspension and subsequent closure of operations in Oregon and
Pennsylvania, respectively, during the third and fourth quarters of 2007.



Salaries and related payroll costs.The increase in salaries and related payroll costs in 2007 was due primarily to: (1) the new
centers
opened in 2006 and 2007; (2) higher severance costs of approximately $0.8 million in 2007 primarily related to center closures; and (3) higher health and dental insurance costs of
approximately $3.7 million in 2007 due primarily to higher claims costs during the period our health insurance was self-insured. We averaged approximately 2.18 and 2.06
full-time equivalent field employees, including district directors, per center during 2006 and 2007, respectively.

Provision for doubtful accounts.As a percentage of total revenues, the provision for doubtful accounts increased to 19.8% in 2007 from
18.0% in
2006. In both periods, the provision was reduced by the bulk sales of certain customer debt, the proceeds of which were approximately $6.8 million in 2007 compared to $4.7 million in
2006. Excluding the sales of debt in both periods, the provision as a percentage of total revenues increased to 20.7% in 2007 from 18.7% in 2006. In 2007, the provision increased primarily due to
approximately $6.8 million in charges related to the suspension and subsequent closure of operations in Pennsylvania and Oregon and a continued increase in loss rates.

Occupancy costs and center depreciation expense.The increases in occupancy costs and center depreciation expense in 2007 were due
primarily to the
new centers opened in 2006 and 2007.

Advertising expense.Advertising expense increased in 2007 compared to 2006 due primarily to higher marketing expenditures in 2007 tied
to the
introduction of new products and a more aggressive overall marketing strategy.

Other center expenses.The increase in other center expenses in 2007 was due to the new centers opened in 2006 and 2007 as well as
higher center
closure costs of approximately $2.9 million in 2007.



General and administrative expenses.The increase in general and administrative expenses in 2007 was due primarily to:



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Loss on disposal of property and equipment.The increase in loss on disposal of property and equipment in 2007 was primarily due to the
write-off of the undepreciated costs of fixed assets in centers closed.

Loss on impairment of assets.Loss on impairment of assets in 2007 represents the write-down of the undepreciated costs of certain
fixed
assets in our centers identified for closure.

Liquidity and Capital Resources

The following table presents a summary of cash flows for the years ended December 31, 2006, 2007 and 2008:

2007 vs. 2006
Variance

2008 vs. 2007
Variance2006

2007

2008

Dollars

%

Dollars

%Cash flows provided by (used in):Operating activities

$
186,125

$
184,496

$
186,227

$
(1,629
)

(0.9
)%
$
1,731


0.9
%Investing activities


(156,216
)

(113,216
)

(125,674
)

43,000


27.5
%

(12,458
)

(11.0
)%Financing activities


10,077


(110,310
)

(72,164
)

(120,387
)

(1,194.7
)%

38,146


34.6
%Effect of exchange rate changes on cash and cash equivalents





36


(623
)

36


100.0
%

(659
)

(1,830.6
)%Net increase (decrease) in cash and cash equivalents


39,986


(38,994
)

(12,234
)

(78,980
)

(197.5
)%

26,760


68.6
%Cash and cash equivalents, beginning of period


27,259


67,245


28,251


39,986


146.7
%

(38,994
)

(58.0
)%Cash and cash equivalents, end of period

$
67,245

$
28,251

$
16,017

$
(38,994
)

(58.0
)%
$
(12,234
)

(43.3
)%


Our principal sources of cash are from operations and from borrowings under our revolving credit facility. We anticipate that our primary uses of
cash will be to provide working capital, finance capital expenditures, meet debt service requirements, fund advances, finance center growth, fund acquisitions and pay dividends on our common stock.

We
borrow under our revolving credit facility to fund our advances and our other liquidity needs. Our day-to-day balances under our revolving credit facility, as
well as our cash balances, vary because of seasonal and day-to-day requirements resulting from making and collecting advances. For example, if a month ends on a Friday (a
typical payday), our borrowings and our cash balances will be high compared to a month that does not end on a Friday. This is because a substantial portion of the

62

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Table of Contents

advances
will be repaid in cash on that day but sufficient time will not yet have passed for the cash to reduce the outstanding borrowings under our revolving credit facility. Our borrowings under our
revolving credit facility will also increase as the demand for advances increases during our peak periods such as the back-to-school and holiday seasons. Conversely, our
borrowings typically decrease during the tax refund season when cash receipts from customers peak or the customer demand for new advances decreases.

On
May 4, 2005, we announced that our Board of Directors had approved a program authorizing the repurchase of up to $50.0 million of our outstanding common stock. On
August 16, 2006, we announced that our Board of Directors had approved an extension of our stock repurchase program authorizing us to repurchase up to $100.0 million of our outstanding
common stock on and after that date. Additionally, on February 13, 2008, we announced an extension of our stock repurchase program pursuant to which we were authorized to repurchase an
additional $75 million of our outstanding common stock beginning on that date. In July 2008, we completed this stock repurchase program.

During
the years ended December 31, 2007 and 2008, we repurchased 6,512,462 and 11,921,948 shares, respectively, of our common stock at a cost of approximately
$67.0 million and $89.0 million, respectively. During the years ended December 31, 2007 and 2008, 10,662 and 10,686 shares of our common stock, respectively, were surrendered by
employees to satisfy their tax obligations with respect to the vesting of restricted stock awarded pursuant to our 2004 Omnibus Stock Plan. Based on the average of the high and low stock price on the
dates of surrender, the shares surrendered in 2007 and 2008 had an aggregate value of approximately $116,000 and $46,624, respectively.

Although
our revolving credit facility places restrictions on our capital expenditures and acquisitions, we believe that these restrictions do not prohibit us from pursuing our strategy
or limit our current level of operations. Cash that is restricted due to certain states' regulatory liquidity requirements is not included in cash and cash equivalents. Instead, the restricted cash is
shown on our consolidated balance sheet as a non-current asset under the line item "Restricted cash."



Net cash provided by operating activities in 2008 as compared to 2007 increased approximately 0.9% to $186.2 million. The
increase in operating cash flows was attributable to the net change of $28.5 million in operating assets and liabilities. This was partially offset by a decrease in net income of
$15.9 million and a decrease in non-cash expense items of $10.9 million.

The
decrease in net cash provided by operating activities in 2007 compared to 2006 was due primarily to a net decrease in changes in operating assets and liabilities of
$20.9 million (primarily due to a decrease in the change in income taxes payable) and a decrease in net income of $15.8 million, offset by an increase in non-cash adjustments
of $35.0 million.



Net cash used in investing activities in 2008 as compared to 2007 increased approximately 11.0% to $125.7 million. The increase
was primarily related to decreases in advances receivable of $25.1 million. This was partially offset by a decrease in acquisitions of $4.4 million, and purchases of property and
equipment of $7.0 million.

The
decrease in net cash used in investing activities in 2007 compared to 2006 was primarily due to a $52.1 million decrease in the change in cash invested in advances receivable
(of which $33.7 million relates to the consolidation of a variable interest entity in 2006) and a $1.0 million decrease in purchases of property and equipment, partially offset by
approximately $5.1 million for the acquisitions in the United Kingdom, net of cash acquired, and a decrease in the changes in restricted cash of $4.8 million.

63

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Table of Contents



Net cash used in financing activities in 2008 as compared to 2007 decreased 34.6% to $72.2 million. During the period the
Company had net borrowings under the revolving credit facility of approximately $47.5 million. Uses of cash during 2008 included purchases of treasury stock of $89.0 million and payment
of dividends of $28.3 million.

The
increase in net cash used in financing activities in 2007 compared to 2006 was primarily due to a $29.4 million decrease in borrowings on our revolving credit facility, a
$41.7 million decrease in the change in the non-controlling interest of the variable interest entity, an $18.8 million decrease in the change in book overdrafts, a
$3.3 million increase in dividend payments, and a $26.9 million increase in repurchases of our common stock.

Capital Expenditures

For the years ended December 31, 2006, 2007 and 2008, we spent $17.7 million, $16.7 million and
$9.7 million, respectively, on capital expenditures. Capital expenditures included expenditures for: (1) new centers opened; (2) center remodels; and (3) computer equipment
replacements in our centers and at our corporate headquarters.

Prior Off-Balance Sheet Arrangements with the Lending Banks

We previously operated as an agent for lending banks in Arkansas, Michigan, North Carolina, Pennsylvania and Texas. Each lending bank
was responsible for evaluating each of its customers' applications and determining whether the cash advance or installment loan was approved. The lending banks utilized an automated third-party credit
scoring system to evaluate and approve each customer application. We were not involved in the lending banks' approval process or in determining their approval procedures or criteria and, in the normal
course of business, we generally did not fund or acquire any cash advances or installment loans from the lending banks. The cash advances and installment loans were repayable solely to the lending
banks and were assets of the lending banks. Consequently, the lending banks' cash advances and installment loans have never been included in our balance sheet within our advances and fees receivable,
net.

The
lending banks were contractually obligated for all or a specified percentage of the losses on their advances and loans. Therefore, our fee increased by the lending banks' contractual
obligation for losses. If actual losses by a lending bank exceeded a specified percentage, we were potentially obligated to pay the lending bank the outstanding amount of the advances and loans plus
the lending bank's fees and/or interest receivable on the advances and loans, less the lending bank's contractually obligated portion of the losses.

Because
of our economic exposure for excess bank losses related to the lending banks' cash advances and installment loans, we accrued for excess bank losses to reflect our probable
losses related to uncollected lending bank advances and loans. The accrual for excess bank losses was established on a basis similar to the allowance for doubtful accounts.

As
a result of the conversion of our Texas and Michigan operations to our standard business model in July 2005, the discontinuation of our North Carolina operations in September 2005 and
the conversion of our Pennsylvania and Arkansas operations to our standard business model in June 2006, the accrual for excess bank losses and gross profit derived from the agency business model
declined to zero in 2006. Approximately 0.4% of our total center gross profit, in the year ended December 31, 2006, was derived from the agency business model.

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Table of Contents

Off-Balance Sheet Arrangement with Current Third-Party Lender

In Texas, where we operate as a CSO, we offer a fee-based credit services package to assist customers in trying to improve
their credit and in obtaining an extension of consumer credit through a third-party lender. Under the terms of our agreement with this lender, we process customer applications and are contractually
obligated to reimburse the lender for the full amount of the loans and certain related fees that are not collected from the customers. As of December 31, 2007 and 2008, the third-party lender's
outstanding advances and interest receivable (which were not recorded on our balance sheet) totaled approximately $20.5 million and $18.2 million, respectively, which is the amount we
would be obligated to pay the third-party lender if these amounts were to become uncollectible. Additionally, if these advances were to become uncollectible, we would also be required to pay the
third-party lender all related NSF fees and late fees on these advances.

Because
of our economic exposure for losses related to the third-party lender's advances and interest receivable, we have established an accrual for third-party lender losses to reflect
our estimated probable
losses related to uncollectible third-party lender advances. The accrual for third-party lender losses that was reported in our balance sheet at December 31, 2007 and 2008 was approximately
$4.6 million and $4.0 million, respectively, and was established on a basis similar to the allowance for doubtful accounts. If actual losses on the third-party lender's advances are
materially greater than our accrual for third-party lender losses, our business, results of operations and financial condition could be adversely affected. See "Item 8. Financial Statements and
Supplementary DataNote 16. Transactions with Variable Interest Entities."

Certain Contractual Cash Commitments

Our principal future contractual obligations and commitments as of December 31, 2008, including periodic interest payments,
included the following (dollars in thousands):

Payment due by periodContractual Cash Obligations

Total

2009

2010 and
2011

2012 and
2013

2014 and
thereafterLong-term debt obligations:Revolving credit facility

$
189,817

$


$


$
189,817

$
Mortgage payable


6,771


797


1,593


1,593


2,788Note payable


104


104








Operating lease obligations (1)


145,984


61,522


68,524


14,597


1,341Purchase obligations


218


218








Other


160


160








Total

$
343,054

$
62,801

$
70,117

$
206,007

$
4,129


---

In
addition to the contractual cash commitments above we had approximately $1.7 million in unfunded commitments to lend to customers in Virginia under the line of credit product.



Revolving Credit Facility.In March 2008, we entered into an amendment and restatement of our prior credit facility with a syndicate of
banks. As
amended and restated, our revolving credit facility now provides us with a $270.0 million revolving line of credit, including the ability to issue up to $25.0 million in letters of
credit. Our revolving credit facility matures on March 24, 2013. We have the option to increase the revolving credit facility by an additional $95.0 million upon receipt of sufficient
commitments from lenders in the lending syndicate and other eligible lenders as defined in the credit

65

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Table of Contents

agreement.
Any portion of our revolving credit facility that is repaid may be borrowed again subject to any limitations based on financial covenants. In July 2008, we amended our credit facility to
modify the
consolidated net worth test to reduce the requirement by the cost of repurchases of common stock made after January 1, 2008.

As
of December 31, 2008, we had $189.8 million outstanding on the revolving portion of our credit facility and approximately $1.1 million of letters of credit
outstanding, leaving approximately $79.1 million available for future borrowings under this credit facility, subject to additional limitations based on certain financial covenants. As of
December 31, 2008, the senior leverage covenant restricted our availability to approximately $13.9 million.

In
general, our borrowings under our revolving credit facility bear interest, at our option, at a base rate plus an applicable margin or a LIBOR-based rate plus an applicable margin. The
base rate equals the greater of: (i) the prime rate set by Bank of America, the administrative agent under the revolving credit facility; and (ii) the sum of the federal funds rate plus
0.50%. The applicable margin is determined each quarter by a pricing grid based on our total leverage ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, and
amortization ("EBITDA") as defined in the credit agreement. The base rate applicable margin ranges from 1.50% to 2.25% based upon our total leverage ratio. The LIBOR-based applicable margin ranges
from 2.50% to 3.25% based upon our total leverage ratio. As of December 31, 2008, the applicable margin for the prime-based rate was 1.75% and the applicable margin for the LIBOR-based rate was
2.75%.

The
applicable rate is chosen when we request a draw down under the revolving credit facility and is based on the forecasted working capital requirements and the required notice period
for each type of borrowing. LIBOR-based rates can be selected for one-, two-, three- or six-month terms. In the case of a base rate loan, we must notify the bank on
the requested date of any required borrowing and in the case of a LIBOR-based loan, we must notify the bank three business days prior to the date of the requested borrowing. Base rate loans are
variable, and the rates on those loans are changed whenever the underlying rate changes. LIBOR-based loans bear interest for the term of the loan at the rate set at the time of borrowing for that
loan.

Our
obligations under the revolving credit facility are guaranteed by each of our domestic subsidiaries. Our borrowings under the revolving credit facility are collateralized by
substantially all of our assets and the assets of our subsidiaries. In addition, our borrowings under the revolving credit facility are secured by a pledge of all of the capital stock, or similar
equity interests, of our domestic subsidiaries and 65% of the voting capital stock, or similar equity interests, of our foreign subsidiaries. Our revolving credit facility contains various financial
covenants that require, among other things, the maintenance of minimum net worth, maximum leverage and senior leverage, minimum fixed charge coverage and maximum charge-off ratios. The
maximum leverage allowed under the revolving credit facility is three and one half times trailing twelve month EBITDA as defined in the credit agreement. The maximum senior leverage allowed under the
revolving credit facility is two times trailing twelve month EBITDA as defined in the credit agreement. Our trailing 12-month EBITDA, as defined in the credit agreement, as of December 31, 2008
was approximately $105.0 million. The revolving credit facility contains customary covenants, including covenants that restrict our ability to, among other things (i) incur liens,
(ii) incur certain indebtedness (including guarantees or other contingent obligations), (iii) engage in mergers and consolidations, (iv) engage in sales, transfers, and other
dispositions of property and assets (including sale-leaseback transactions), (v) make loans, acquisitions, joint ventures, and other investments, (vi) make dividends and
other distributions to, and redemptions and repurchases from, equity holders, (vii) prepay, redeem, or repurchase certain debt, (viii) make changes in the nature of our business,
(ix) amend our organizational documents, or amend or otherwise modify certain of our debt documents, (x) change our fiscal quarter and fiscal year ends, (xi) enter into
transactions with our affiliates, and (xii) issue certain equity interests. The revolving credit facility contains customary events of default, including events of default resulting from
(i) our failure to pay

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principal
when due or interest, fees, or other amounts after three or more business days, (ii) covenant defaults, (iii) our material breach of any representation or warranty,
(iv) cross defaults to any other indebtedness in excess of $1.0 million in the aggregate, (v) bankruptcy, insolvency, or other similar proceedings, (vi) our inability to
pay debts, (vii) monetary judgment defaults in excess of $1.0 million in the aggregate, (viii) customary ERISA defaults, (ix) actual or asserted invalidity of any material
provision of the loan documentation or impairment of a material portion of the collateral, and (x) a change of control. A breach of a covenant or an event of default could cause all amounts
outstanding under the revolving credit facility to become due and payable. We were in compliance with all financial covenants at December 31, 2008. See "Liquidity and Capital Resources" in this
section for a description of how we utilize the revolving credit facility to meet our liquidity needs.

We
borrow under our revolving credit facility to fund our advances and our other liquidity needs. Our day-to-day balances under our revolving credit facility, as
well as our cash balances, vary because of seasonal and day-to-day requirements resulting from making and collecting advances. For example, if a month ends on a Friday (a
typical payday), our borrowings and our cash balances will be high compared to a month that does not end on a Friday. This is because a substantial portion of the advances will be repaid in cash on
that day but sufficient time will not yet have passed for the cash to reduce the outstanding borrowings under our revolving credit facility. Our borrowings under our revolving credit facility will
also increase as the demand for advances increases during our peak periods such as the back-to-school and holiday seasons. Conversely, our borrowings typically decrease during
the tax refund season when cash receipts from customers peak or the customer demand for new advances decreases.

United Kingdom Overdraft FacilityIn October 2008, our United Kingdom operations entered into an overdraft facility. The maximum
available borrowings
under the facility are GBP 400,000, which is equivalent to approximately $580,000 at December 31, 2008. The interest rate on any borrowings under this facility is the Bank of England base rate
plus 1.75%. The facility is repayable upon demand by the lender. We did not borrow under this facility during the year ended December 31, 2008.

Mortgage Payable.Our corporate headquarters building and related land are subject to a mortgage, the principal amount of which was
approximately
$5.4 million and $5.0 million at December 31, 2007 and 2008, respectively. The mortgage is payable to an insurance company and is collateralized by our corporate headquarters
building and related land. The mortgage is payable in 180 monthly installments of approximately $66,400, including principal and interest, and bears interest at a fixed rate of 7.30% over its
term. The mortgage matures on June 10, 2017. The carrying amount of our corporate headquarters (land, land improvements and building) was approximately $4.9 million and
$4.7 million at December 31, 2007 and 2008, respectively.



We lease our centers from third-party lessors under operating leases. These leases typically have initial terms of three to five years
and may contain provisions for renewal options, additional rental charges based on revenue and payment of real estate taxes and common area charges. In addition, we lease aircraft hangar space and
certain security and office equipment. The lessors under the aircraft hanger space lease and other office and warehouse space leases are companies controlled by or affiliated with our former Chairman.
See "Item 8. Financial Statements and Supplementary DataNote 13. Related Party Transactions."



We enter into agreements with vendors to purchase furniture, fixtures and other items used to open new centers. These purchase
commitments typically extend for a period of two to three months

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after
the opening of a new center. As of December 31, 2008, our purchase obligations totaled approximately $0.2 million.



We have entered into a consulting arrangement for which the retainer will be recognized over the anticipated term of the engagement. We
have also entered into a contract with a service provider that specifies certain minimum payments over the term of the contract.

Critical Estimates, Uncertainties or Assessments in the Financial Statements

The preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. In applying the accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. As might be expected, the actual results
or outcomes are generally different than the estimated or assumed amounts. These differences are usually minor and are included in our consolidated financial statements as soon as they are known.
Estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual
results could differ from those estimates.

Actual
results related to the estimates and assumptions made in preparing our consolidated financial statements will emerge over periods of time, such as estimates and assumptions
underlying the determination of allowance for doubtful accounts and accrual for third-party lender losses. These
estimates and assumptions are monitored and periodically adjusted as circumstances warrant. These amounts may be adjusted based on higher or lower actual loss experience. Although there is greater
risk with respect to the accuracy of these estimates and assumptions because of the period over which actual results may emerge, such risk is mitigated by the ability to make changes to these
estimates and assumptions over the same period.

We
test our goodwill for impairment annually as of September 30, or if there is a significant change in the business environment. In addition, we performed an updated goodwill
impairment test as of December 31, 2008 as a result of a change in our reporting units. Estimated cash flows and related goodwill are grouped at the reporting unit level. A reporting unit is an
operating segment, or under certain circumstances, a component of an operating segment that constitutes a business. When estimated future cash flows are less than the carrying value of the net assets
and related goodwill, an impairment test is performed to measure and recognize the amount of the impairment loss, if any. Impairment losses, which are limited to the carrying value of goodwill,
represent the excess of the carrying amount of a reporting unit's goodwill over the implied fair value of that goodwill. In determining the estimated future discounted cash flows, we consider current
and projected future levels of income, as well as business trends, prospects, market and economic conditions. Impairment tests involve the use of judgments and estimates related to the fair market
value of the business operations with which goodwill is associated, taking into consideration both historical operating performance and anticipated financial position and future earnings. We believe
that the estimates of future cash flows and fair value are reasonable. Changes in estimates of those cash flows and fair value, however, could affect the evaluation.

Impact of Inflation

We believe our results of operations are not dependent upon the levels of inflation.

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Impact of New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"), "Fair Value
Measurements," which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements.
SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for
fiscal years beginning after November 15, 2007. The adoption of SFAS 157 did not have a material impact on our financial position, results of operations and cash flows.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits entities to
choose, at specified election dates, to measure eligible items at fair value (the "fair value option") and requires an entity to report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred
and not deferred. SFAS 159 was effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on the Company's financial
position or results of operations.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) modifies the accounting for business combinations
and requires, with limited exceptions, the acquirer in a business combination to recognize 100 percent of the assets acquired, liabilities assumed and any non-controlling interest
in the acquiree at the acquisition-date fair value. In addition, SFAS 141(R) requires the expensing of acquisition-related transaction and restructuring costs and requires that
certain contingent assets and liabilities acquired, as well as contingent consideration, be recognized at fair value. SFAS 141(R) also modifies the accounting for certain acquired income tax
assets and liabilities. SFAS 141(R) is effective for new acquisitions consummated on or after January 1, 2009. We do not expect SFAS 141(R) to have a material impact on our
financial condition or results of operations.

In
December 2007, the FASB issued SFAS No. 160 ("SFAS 160"), "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," which
establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in
a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial
statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest.
SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of this standard to have a material impact on its financial position or
results of operations.

In
December 2008, the FASB issued Staff Position No. FAS 140-4 and FIN 46(R)-8, "Disclosures by Public Entities about Transfers of Financial Assets and Interests in
Variable Interest Entities" ("FSP FAS 140-4 and FIN 46(R)-8"). This Staff Position amends FASB Statements No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46 "Consolidation of
Variable Interest Entities" as revised to require public entities to provide additional disclosures about their involvement with Variable Interest Entities ("VIEs"). FSP 140-4 and
FIN 46(R)-8 are effective for the Company's fiscal year ended December 31, 2008. The Company has adopted the disclosure requirements of FSP FAS 140-4 and FIN 46(R)-8.

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements. All statements other than historical
information or statements of current condition contained in this Annual Report, including statements regarding our future financial performance, our business strategy and expected developments in our
industry, are forward-looking statements. The words "expect," "intend," "plan," "believe," "project," "anticipate," "may," "will," "should," "would," "could," "estimate," "continue" and similar
expressions are intended to identify forward-looking statements.

We
have based these forward-looking statements on management's current views and expectations. Although we believe 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 our
control and may not even be predictable. These risks, uncertainties and other factors could cause the actual results, performance or achievements to differ materially from any future results,
performance or achievements expressed or implied by the forward-looking statements. These risks, uncertainties and factors include, but are not limited to:



We
expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or
expectations, or otherwise. We make no prediction or statement about the performance of our shares of common stock.

You
are cautioned not to rely unduly on any forward-looking statements. These risks and uncertainties are discussed in more detail elsewhere in this Annual Report, including under
"Item 1A. Risk Factors," "Item 1. Business" and this Item 7.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We have no market-risk-sensitive instruments entered into for trading purposes, as defined by GAAP.



We are exposed to interest rate risk on our revolving credit facility. Our variable interest expense is sensitive to changes in the
general level of interest rates. We may from time to time enter into interest rate swaps, collars or similar instruments with the objective of reducing our volatility in borrowing costs. We do not use
derivative financial instruments for speculative or trading purposes. We had no derivative financial instruments outstanding as of December 31, 2007 and 2008. The weighted average interest rate
on our $142.3 million of variable interest debt as of December 31, 2007 was approximately 7.76%. The weighted average interest rate on our $189.8 million of variable interest debt
as of December 31, 2008 was approximately 4.17%.

We
had total interest expense of $7.1 million, $11.1 million and $11.2 million for the years ended December 31, 2006, 2007 and 2008, respectively. The
estimated change in interest expense from a hypothetical 200 basis-point change in applicable variable interest rates would have been approximately $0.8 million in 2006, $1.4 million in
2007 and $3.4 million in 2008.



The expansion of our operations to the United Kingdom and Canada in 2007 has exposed us to shifts in currency valuations. We may from
time to time elect to purchase
financial instruments as hedges against foreign exchange rate risks with the objective of protecting our results of operations in the United Kingdom and Canada against foreign currency fluctuations.
We had no such financial instruments outstanding as of December 31, 2007 and 2008.

As
currency exchange rates change, translation of the financial results of our United Kingdom and Canadian operations into United States dollars will be impacted. Changes in exchange
rates have resulted in cumulative translation adjustments decreasing our net assets at December 31, 2007 and 2008 by approximately $75,000 and $2.6 million, respectively. These
cumulative translation adjustments are included in accumulated other comprehensive loss as a separate component of stockholders' equity. Due to the immateriality of our operations in the United
Kingdom and Canada, a change in foreign currency exchange rates is not expected to have a significant impact on our consolidated financial position, results of operations or cash flows.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements



Report of Independent Registered Public Accounting Firm


73Consolidated Balance Sheets as of December 31, 2007 and 2008


74Consolidated Statements of Income for the Years Ended December 31, 2006, 2007 and 2008


75Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2006,
2007 and 2008


76Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2007 and
2008


77Notes to Consolidated Financial Statements


79


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Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Stockholders of
Advance America, Cash Advance Centers, Inc.

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of Advance America, Cash Advance Centers, Inc. and its subsidiaries at December 31, 2008 and December 31, 2007, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Charlotte, North Carolina
February 26, 2009

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Advance America, Cash Advance Centers, Inc.        Consolidated Balance Sheets        December 31, 2007 and December 31, 2008        (in
thousands, except per share data)

2007

2008AssetsCurrent assetsCash and cash equivalents

$
28,251

$
16,017Advances and fees receivable, net


221,480


220,115Deferred income taxes


13,737


13,008Other current assets


13,578


15,721Total current assets


277,046


264,861Restricted cash


5,701


4,633Property and equipment, net


57,616


46,091Goodwill


127,286


126,661Other assets


4,049


4,764Total assets

$
471,698

$
447,010Liabilities and Stockholders' EquityCurrent liabilitiesAccounts payable

$
16,204

$
13,977Accrued liabilities


31,823


33,917Income taxes payable





1,625Accrual for third-party lender losses


4,587


3,960Current portion of long-term debt


542


545Total current liabilities


53,156


54,024Revolving credit facility


142,302


189,817Long-term debt


5,136


4,590Deferred income taxes


20,629


22,311Deferred revenue





4,791Other liabilities


184


218Total liabilities


221,407


275,751Commitments and contingencies (Note 12)Stockholders' equityPreferred stock, par value $.01 per share, 25,000 shares authorized; no shares issued and outstanding





Common stock, par value $.01 per share, 250,000 shares authorized; 96,821 shares issued and 72,947 and 61,087 outstanding as of December 31, 2007 and
2008, respectively


968


968Paid in capital


286,999


288,635Retained earnings


133,789


143,961Accumulated other comprehensive loss


(75
)

(2,585
)Common stock in treasury (23,874 and 35,734 shares at cost at December 31, 2007 and 2008, respectively)


(171,390
)

(259,720
)Total stockholders' equity


250,291


171,259Total liabilities and stockholders' equity

$
471,698

$
447,010


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

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Advance America, Cash Advance Centers, Inc.        Consolidated Statements of Income        Years Ended December 31, 2006, 2007 and 2008    
(in thousands, except per share data)

2006

2007

2008Revenues:Fees and interest charged to customers

$
659,876

$
709,557

$
676,436Marketing, processing and servicing fees


12,418





Total revenues


672,294


709,557


676,436Center Expenses:Salaries and related payroll costs


185,938


199,416


196,951Provision for doubtful accounts


120,855


140,245


135,857Occupancy costs


87,276


96,847


100,315Center depreciation expense


16,233


17,200


16,698Advertising expense


20,375


26,770


20,304Other center expenses


54,986


59,340


48,652Total center expenses


485,663


539,818


518,777Center gross profit


186,631


169,739


157,659Corporate and Other Expenses (Income):General and administrative expenses


52,816


59,125


70,241General and administrative expenses with related parties


547


285


277Corporate depreciation expense


3,661


3,162


3,033Interest expense


7,129


11,059


11,188Interest income


(538
)

(317
)

(128
)Loss on disposal of property and equipment


960


3,189


551Loss on impairment of assets





314


486Income before income taxes


122,056


92,922


72,011Income tax expense


48,858


37,831


33,540Income before income of consolidated variable interest entity


73,198


55,091


38,471Income of consolidated variable interest entity


(3,047
)

(706
)

Net income

$
70,151

$
54,385

$
38,471Net income per common share:Basic

$
0.87

$
0.70

$
0.60Diluted

$
0.87

$
0.70

$
0.60Dividends declared per common share

$
0.44

$
0.50

$
0.44Weighted average number of shares outstanding:Basic


80,889


77,923


64,233Diluted


80,917


77,935


64,233


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

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Advance America, Cash Advance Centers, Inc.        Consolidated Statements of Stockholders' Equity        Years Ended December 31, 2006, 2007 and 2008
    (in thousands, except per share data)

Common StockAccumulated
Other
Comprehensive
Loss

Common Stock In TreasuryPar
Value

Paid-In
Capital

Retained
EarningsShares

Shares

Amount

TotalBalances, December 31, 2005


96,821

$
968

$
282,840

$
83,842

$



(14,602
)
$
(64,625
)
$
303,025Net income











70,151











70,151Dividends paid ($0.44 per share)











(35,573
)










(35,573
)Dividends payable











(162
)










(162
)Purchases of treasury stock

















(2,821
)

(40,087
)

(40,087
)Issuance of restricted stock

















143





Forfeitures of restricted stock








20








(11
)

(20
)

Amortization of restricted stock








1,529














1,529Stock option expense








951














951Issuance of common stock to director in lieu of cash








42








4


21


63Balances, December 31, 2006


96,821


968


285,382


118,258





(17,287
)

(104,711
)

299,897Comprehensive income:Net income











54,385











54,385Foreign currency translation














(75
)







(75
)Total comprehensive income























54,310Dividends paid ($0.50 per share)











(38,839
)










(38,839
)Dividends payable











(15
)










(15
)Purchases of treasury stock

















(6,513
)

(67,016
)

(67,016
)Issuance of restricted stock

















40





Forfeitures of restricted stock








383








(121
)

(383
)

Vesting of restricted stock issued from treasury stock








(676
)










676


Amortization of restricted stock








948














948Stock option expense








907














907Issuance of common stock to director in lieu of cash








55








7


44


99Balances, December 31, 2007


96,821


968


286,999


133,789


(75
)

(23,874
)

(171,390
)

250,291Comprehensive income:Net income











38,471











38,471Foreign currency translation














(2,510
)







(2,510
)Total comprehensive income























35,961Dividends paid ($0.44 per share)











(28,251
)










(28,251
)Dividends payable











(48
)










(48
)Purchases of treasury stock

















(11,922
)

(88,962
)

(88,962
)Issuance of restricted stock

















42





Vesting of restricted stock issued from treasury stock








(490
)










490


Amortization of restricted stock








862














862Stock option expense








1,309














1,309Issuance of common stock to director in lieu of cash








(45
)







20


142


97Balances, December 31, 2008


96,821

$
968

$
288,635

$
143,961

$
(2,585
)

(35,734
)
$
(259,720
)
$
171,259


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

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Advance America, Cash Advance Centers, Inc.        Consolidated Statements of Cash Flows        Years Ended December 31, 2006, 2007 and 2008    
  (in thousands)

2006

2007

2008Cash flows from operating activitiesNet income

$
70,151

$
54,385

$
38,471Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitionsIncome of consolidated variable interest entity


3,047


706


Depreciation and amortization


19,894


20,362


19,781Non-cash interest expense


987


1,009


704Provisions for doubtful accounts


120,855


140,245


135,857Agency bank charge-offs, net of recoveries


(2,803
)




Deferred income taxes


(7,573
)

5,126


2,411Loss on disposal of property and equipment


960


3,189


551Loss on impairment of assets





314


486Amortization of restricted stock


1,529


948


862Stock option expense


951


907


1,309Common stock issued to director in lieu of cash


63


99


97Changes in operating assets and liabilitiesFees receivable, net


(20,418
)

(27,821
)

(19,060
)Other current assets


(6,632
)

(1,583
)

(2,453
)Other assets


284


511


162Accounts payable


995


2,039


(1,672
)Accrued liabilities


201


(957
)

2,305Deferred revenue








4,791Income taxes payable


3,634


(14,983
)

1,625Net cash provided by operating activities


186,125


184,496


186,227Cash flows from investing activitiesChanges in advances receivable


(143,264
)

(91,178
)

(116,317
)Changes in restricted cash


4,588


(255
)

1,068Acquisitions of business, net of cash acquired


(41
)

(5,128
)

(769
)Proceeds from sale of property and equipment


190


36


74Purchases of property and equipment


(17,689
)

(16,691
)

(9,730
)Net cash used in investing activities


(156,216
)

(113,216
)

(125,674
)


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

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Advance America, Cash Advance Centers, Inc.

Consolidated Statements of Cash Flows (Continued)

Years Ended December 31, 2006, 2007 and 2008

(in thousands)

2006

2007

2008Cash flows from financing activitiesProceeds from revolving credit facility, net


66,902


37,467


47,515Increase (decrease) in non-controlling interest of variable interest entity


8,453


(33,246
)

Payments on mortgage payable


(357
)

(384
)

(413
)Payments on long-term debt





(51
)

Payments on note payable


(116
)

(153
)

(130
)Payments of financing costs


(8
)

(150
)

(1,622
)Purchases of treasury stock


(40,087
)

(67,016
)

(88,962
)Payments of dividends


(35,573
)

(38,839
)

(28,251
)Changes in book overdrafts


10,863


(7,938
)

(301
)Net cash provided by (used in) financing activities


10,077


(110,310
)

(72,164
)Effect of exchange rate changes on cash and cash equivalents





36


(623
)Net increase (decrease) in cash and cash equivalents


39,986


(38,994
)

(12,234
)Cash and cash equivalents, beginning of period


27,259


67,245


28,251Cash and cash equivalents, end of period

$
67,245

$
28,251

$
16,017Supplemental disclosures of cash flow information:Cash paid during the period for:Interest, net of amounts capitalized

$
5,884

$
9,896

$
10,530Income taxes


52,796


49,545


28,665Supplemental schedule of non-cash investing and financing activity:Property and equipment purchases included in accounts payable and accrued expenses


1,563


966


99Restricted stock dividends payable


162


15


48Net assets acquired through acquisitions of business





740


61


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

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Advance America, Cash Advance Centers, Inc.        Notes to Consolidated Financial Statements        December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies

Basis of Presentation, Principles of Consolidation and Description of Business

The accompanying consolidated financial statements include the accounts of Advance America, Cash Advance Centers, Inc.
("AACACI") and its wholly owned subsidiaries (collectively, the "Company"). For the years ended December 31, 2006 and 2007, the Company's consolidated financial statements also include the
accounts of a variable interest entity for which the Company was the primary beneficiarysee Note 16. All significant intercompany balances and transactions have been eliminated.

At
December 31, 2008, the Company operated 2,767 centers throughout the United States under the brand names Advance America ("Advance America") and National Cash Advance
("National Cash") and 20 centers in the United Kingdom and 10 centers in Canada under the brand name National Cash. In each jurisdiction, separate wholly owned subsidiaries own the centers operating
as Advance America and as National Cash. Historically, the Company has conducted business in most states under the authority of a variety of enabling state statutes including cash advance, deferred
presentment, check-cashing, small loan, credit service organization and other state laws whereby advances are made directly to customers (which is referred to as the standard business model). In
certain states, the Company previously conducted business as a marketing, processing and servicing agent for Federal Deposit Insurance Corporation ("FDIC") supervised, state-chartered banks that made
cash advances and installment loans to their customers pursuant to the authority of the laws of the states in which they were located and the authority of federal interstate banking laws, regulations
and guidelines (which is referred to as the agency business model). The banks for which the Company has acted as an agent are referred to as lending banks. The Company no longer operates under the
agency business model. The Company's operations in the United Kingdom are conducted in accordance with applicable English law. The Company's operations in Canada are conducted in accordance with
applicable Canadian federal and provincial law.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and short-term investments with original maturities of three months or less.
The carrying amount of cash and cash equivalents is the estimated fair value at December 31, 2007 and 2008. The Company invests excess funds in certificates of deposit and in overnight sweep
accounts with commercial banks, which in turn invest these funds in short-term, interest-bearing reverse repurchase agreements or overnight Eurodollar deposits. Due to the
short-term nature of these investments, the Company does not take possession of the securities, which are instead held by the financial institution. The market value of the securities held
pursuant to these arrangements approximates the carrying amount. Deposits in excess of $250,000 are not insured by the FDIC.

Restricted Cash

Restricted cash includes cash in certain money market accounts and certificates of deposit. Restricted cash is restricted due to
certain states' liquidity requirements.

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies (Continued)

Revenue Recognition

Revenues can be characterized as fees and/or interest depending on the Company's business operations and product offerings under
enabling regulations. Revenue is recognized on a constant-yield basis ratably over the term of each advance. Under the former agency business model, the Company recognized revenue, which consisted of
marketing, processing and servicing fees from the lending banks, on a constant-yield basis ratably over the term of each advance and installment loan.

Advances and Fees Receivable, Net

The Company segregates its accounts receivable into advances receivable, fees and interest receivable, returned item receivables, loans
and fees receivable of consolidated variable interest entity (related to the Company's former third-party lender in Texassee Note 16) and other receivables. Advances receivable and
fees and interest receivable include advances that have not been repaid. Returned item receivables include advances for which the customer's personal check has been deposited and the check has been
returned due to non-sufficient funds in the customers' accounts, closed accounts or other reasons. Other receivables primarily include miscellaneous receivables. Advances and fees
receivable, net do not include the advances and interest receivable for loans processed by the Company for the current third-party lender in Texas since these loans are owned by the third-party
lender. Advances and fees and interest receivable are carried at cost less unearned revenues and the allowance for doubtful accounts.

Allowance for Doubtful Accounts, Accrual for Third-Party Lender Losses and Accrual for Excess Bank Losses

The allowance for doubtful accounts represents management's estimated probable losses for advances made directly to customers and is
recorded as a reduction of advances and fees receivable, net on the Company's balance sheet. The accrual for third-party lender losses represents management's estimated probable losses for loans and
certain related fees for loans that are processed by the Company for its current third-party lender in Texas (see Note 16) and is recorded as a current liability on the Company's balance sheet.
Under the former agency business model, the Company previously recorded an accrual for excess bank losses as a current liability on the Company's balance sheet which represented the Company's
estimated share of losses on advances and loans the Company marketed, processed and serviced for the lending banks.

The
allowance for doubtful accounts and the accrual for third-party lender losses are (and accrual for excess bank losses was) primarily based upon models that analyze specific portfolio
statistics and also reflect, to a lesser extent, management's judgment regarding overall accuracy. The analytical models take into account several factors including the number of transactions
customers complete and charge-off and recovery rates. Additional factors such as changes in state laws, center closings, length of time centers have been open in a state, relative mix of
new centers within a state and other relevant factors are also evaluated to determine whether the results from the analytical models should be revised.

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies (Continued)

The
Company has charged the portion of advances and fees deemed to be uncollectible against the allowance for doubtful accounts (or the accrual for excess bank losses) and credited any
subsequent recoveries (including sales of debt) to the allowance for doubtful accounts (or the accrual for excess bank losses).

Under
the standard business model, unpaid advances and the related fees and/or interest are generally charged off 60 days after the date the check was returned by the customer's
bank for non-sufficient funds or other reasons, unless the customer has paid at least 15% of the total of his or her loan plus the original fee. Under the former agency business model,
unpaid cash advances and the related fees and/or interest generally were charged off 60 days from the due date and unpaid installment loans and the related fees and/or interest generally were
charged off 60 days from the deposit date if the check was returned by the customer's bank for non-sufficient funds or other reasons. Under either model, unpaid advances of
customers who file for bankruptcy are charged off upon receipt of the bankruptcy notice.

Management
believes that the allowance for doubtful accounts and accrual for third-party lender losses are adequate. Management's ongoing evaluation of the adequacy of the allowance for
doubtful accounts and accrual for third-party lender losses is based on its evaluation of the advances and loans outstanding, historical experience and such other factors that, in management's
judgment, deserve consideration in estimating probable losses.

Property and Equipment

Property and equipment, including improvements that significantly extend useful lives, are recorded at cost. Cost includes major
expenditures for improvements and replacements
that extend useful lives and interest costs associated with significant capital expenditures. Maintenance and repairs are expensed when incurred. Depreciation is calculated for financial reporting
purposes using the straight-line method over the estimated useful lives of the assets as follows: building, 40 years; aircraft, 20 years; land improvements, seven years;
leasehold improvements, office equipment and furniture, typically 3 to 5 years; and software, 3 to 5 years. When property and equipment are sold or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and the resulting gains or losses are included in income.

The
carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.
The Company assesses recoverability by determining whether the net book value of assets will be recovered through projected undiscounted future cash flows. If the Company determines that the carrying
value of assets may not be recoverable, it measures any impairment based on the projected discounted future cash flows or estimated sale proceeds to be provided from the assets as compared to the
carrying value. The Company had no impairment losses in 2006. The Company recorded in the first quarter of 2007 an impairment of assets expense of approximately $0.3 million to write off the
undepreciated costs of underperforming centers identified for future closure. The Company recorded in 2008 an impairment of assets expense of approximately $0.5 million to write off the
undepreciated costs of underperforming centers identified for future closure.

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies (Continued)

The
Company accounts for internally developed software costs in accordance with SOP 98-1, Accounting for the Costs of Computer Software Developed for or Obtained for
Internal Use, which requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. The Company capitalizes internal use software if that
software meets the following criteria:



If
these two criteria are met, the Company will capitalize labor costs of full-time and temporary employees working directly on the development or modification of internal use software and
hardware and software purchased specifically for the internal use software. Capitalized costs are depreciated over the estimated useful lives of 3 to 5 years when the software is complete and
ready for its intended use.

Cash Overdrafts

The Company has included in accounts payable book overdrafts of $6.7 million and $5.2 million at December 31, 2007
and 2008, respectively.

Operating Leases

The Company's center leases typically have a lease term of three years and contain lessee renewal options and cancellation clauses in
the event of regulatory changes. Because of the economic penalties associated with relocating its centers, combined with the loss of customers and additional capital requirements, the Company
typically renews its leases for one or more option periods. Accordingly, the Company amortizes its leasehold improvements over the shorter of their economic lives, which are generally five years, or
the lease term that considers renewal periods that are reasonably assured.

Concentration of Risk

During the year ended December 31, 2008, the Company operated in 35 states in the United States. For the years ended
December 31, 2006, 2007 and 2008, total revenues within the Company's five largest states (measured by total revenues) accounted for approximately 47%, 47% and 48%, respectively, of the
Company's total revenues.

Advertising Costs

Advertising costs are expensed when incurred.

Pre-opening Costs

New center pre-opening costs are expensed when incurred.

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies (Continued)

Center Closing Costs

Center closing costs represent management's estimate of severance payments, costs to clean and vacate the premises, losses related to
the write-off of leasehold improvements and signage, and lease cancellation expense related to closing a center. A liability for severance payments is recognized when management:
(i) decides to close a center and this plan is unlikely to change; (ii) determines that an employee cannot be relocated to another center; and (iii) informs the employee of the
termination and the benefits that will be paid. The severance liability is recognized at the time the termination is communicated to the employee or, if the employee is required to continue service in
order to receive the benefit, ratably until the center closes. Costs to terminate the lease are recorded at the earlier of the date the lease is terminated or the lease's cease-use date.
All other expenses are recorded when incurred.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases and for operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

Derivative and Hedging Activities

The Company has occasionally used derivative financial instruments for the purpose of managing exposure to adverse fluctuations in
interest rates. While these instruments are subject to fluctuations in value, such fluctuations are generally offset by the change in value of the underlying exposures being hedged. The Company does
not enter into any derivative financial instruments for speculative or trading purposes. The Company had no derivative financial instruments outstanding as of December 31, 2007 and 2008.

Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period
excluding unvested restricted stock. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period, after adjusting for the
dilutive effect of unvested restricted stock and stock options. At December 31, 2006, 2007 and 2008, zero, 22,277, and 241,363, respectively, unvested shares of restricted stock were not
included in the computation of diluted earnings per share because the effect of including them would be anti-dilutive. At December 31, 2006, 2007 and 2008, options to purchase
1,280,000, 1,230,000 and 1,582,500 shares of common stock, respectively, that were outstanding at those dates were not included in the computation of diluted earnings per share because the effect of
including them would be anti-dilutive.

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies (Continued)

The
following table presents the reconciliation of the denominator used in the calculation of basic and diluted earnings per share for the years ended December 31, 2006, 2007 and
2008 (in thousands):

2006

2007

2008Reconciliation of denominator:Weighted average number of common shares outstandingbasic


80,889


77,923


64,233Effect of dilutive unvested restricted stock


28


10


Effect of dilutive outstanding stock options





2


Weighted average number of common shares outstanding-diluted


80,917


77,935


64,233


Stock-Based Compensation Plans

The Company's stock-based compensation plans include the 2004 Omnibus Stock Plan which was approved by the Company's Board of Directors
in 2004 and a Nonqualified Stock Option Agreement and a Restricted Stock Agreement, both of which are between the Company and the Company's President and Chief Executive Officer and were approved by
the Company's Board of Directors in 2005.

Under
the Company's stock-based compensation plans, the Company has granted shares of restricted stock and options to purchase the Company's common stock. In 2004, the Company adopted
Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment ("SFAS No. 123(R)"). As required by SFAS No. 123(R), the Company uses the fair value method of
accounting for compensation cost for its restricted stock and stock options. Accordingly, compensation cost was measured at the grant date based on the fair value of the awards and is being recognized
over each award's respective service period. See Note 11 for the impact of these stock-based compensation plans on the Company's results of operations and financial condition as well as other
disclosures required by SFAS No. 123(R).

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and related notes to the financial statements. Actual results could differ from these estimates. Significant
estimates include the determination of the allowance for doubtful accounts, accrual for third-party lender losses, accounting for income taxes,
self-insurance accruals for workers' compensation and medical insurance and fair value of goodwill under required impairment analysis.

Risks and Uncertainties

The Company's future operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating
results and cause actual results to differ materially from

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies (Continued)

expectations
include, but are not limited to: application of laws and regulations to the Company's business, as more fully disclosed in Note 2; the Company's ability to manage credit risk;
continued access to revolving credit facilities; and interest rate fluctuation on variable rate debt. The Company manages these risks through political and legal efforts, continual evaluation of
advance loss experience and, occasionally, entering into interest rate hedging instruments, respectively.

Fair Value of Financial Instruments

For certain of the Company's financial instruments, including cash and cash equivalents, advances and fees receivable, the carrying
amounts approximate fair value due to their short maturities.

Treasury Stock

The Company's Board of Directors periodically authorizes the repurchase of common stock. The Company's repurchases of shares of common
stock are recorded as "Common stock in treasury" and result in a reduction of stockholders' equity. When treasury shares are reissued, the Company uses an average cost method. Gains on sales of
treasury stock not previously accounted for as constructively retired are credited to additional paid-in-capital. Losses on sales of treasury stock are charged to additional
paid in capital to the extent that previous net "gains" from sales or retirements are included therein, otherwise to retained earnings.

Business Segment

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, ("SFAS No. 131"), established
standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance. For purposes of disclosure required by SFAS No. 131, the Company
operates in one segment, retail financial services.

Insurance Recoveries

As a result of Hurricanes Katrina and Rita during the last half of 2005, the Company incurred property and equipment losses and the
interruption of its business at certain centers. Accordingly, at December 31, 2005, the Company recorded an estimated $1.0 million receivable for insurance recoveries, which was included
as an other receivable in advances and fees receivable, net. Of this amount, approximately $0.8 million was recorded in 2005 as a reduction of the provision for doubtful accounts in the
accompanying consolidated statements of income. During the year ended December 31, 2006, actual insurance recovery proceeds totaled approximately $1.3 million and an additional
$0.2 million was recorded as a recovery in the allowance for doubtful accounts.

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies (Continued)

Foreign Currency Translation and Transactions

The Company operates centers in the United Kingdom and Canada. The financial statements of these foreign businesses have been
translated into United States dollars in accordance with U.S. generally accepted accounting principles. All balance sheet accounts were translated at the respective current exchange rate as of the
balance sheet date and all income statement accounts were translated at the respective average exchange rate for the period. The resulting translation adjustments, as well as exchange rate gains and
losses on intercompany balances of a long-term investment nature, are included in accumulated other comprehensive loss, a separate component of stockholders' equity. Gains or losses
resulting from foreign currency transactions
are included in general and administrative expenses. Accumulated other comprehensive loss of $75,000 at December 31, 2007 consists of approximately $124,000 of foreign currency translation
adjustments, net of related tax of $49,000. Accumulated other comprehensive loss of $2.6 million at December 31, 2008 consists of approximately $2.7 million of foreign currency
translation adjustments, net of related tax of approximately $0.1 million.

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. 48, Accounting for
Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a
company's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. Effective January 1, 2007, the Company adopted FIN 48. As a result of the adoption of FIN 48, the Company recognized no
adjustments in the liability for unrecognized income tax benefits. At the adoption date and through December 31, 2008, the Company did not have any unrecognized tax benefits and did not have
any interest or penalties accrued. The Company is subject to U.S. income taxes as well as various other foreign, state and local jurisdictions. With few exceptions, the Company is no longer subject to
U.S. federal, state and local income tax examinations by tax authorities for years before the tax year ended September 30, 2005.

In
September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"), "Fair Value Measurements," which defines fair value, establishes
guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 did not have a
material impact on the Company's financial position, results of operations or cash flows.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits entities to
choose, at specified election dates, to measure eligible items at fair value (the "fair value option") and requires an entity to report unrealized gains and losses on items for which the fair value
option has been elected in earnings at

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

1. Description of Business and Significant Accounting Policies (Continued)

each
subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS 159 was
effective for fiscal
years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on the Company's financial position or results of operations.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) modifies the accounting for business combinations
and requires, with limited exceptions, the acquirer in a business combination to recognize 100 percent of the assets acquired, liabilities assumed and any non-controlling interest
in the acquiree at the acquisition-date fair value. In addition, SFAS 141(R) requires the expensing of acquisition-related transaction and restructuring costs and requires that
certain contingent assets and liabilities acquired, as well as contingent consideration, be recognized at fair value. SFAS 141(R) also modifies the accounting for certain acquired income tax
assets and liabilities. SFAS 141(R) is effective for new acquisitions consummated on or after January 1, 2009. The Company does not expect SFAS 141(R) to have a material impact on
its financial condition or results of operations.

In
December 2007, the FASB issued SFAS No. 160 ("SFAS 160"), "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," which
establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in
a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial
statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest.
SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of this standard to have a material impact on its financial position or
results of operations.

In
December 2008, the FASB issued Staff Position No. FAS 140-4 and FIN 46(R)-8, "Disclosures by Public Entities about Transfers of Financial Assets and Interests in
Variable Interest Entities" ("FSP FAS 140-4 and FIN 46(R)-8"). This Staff Position amends FASB Statement No. 140 "Accounting for Transfers and Serving of Financial Assets and
Extinguishments of Liabilities" to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46 "Consolidation of
Variable Interest Entities" as revised to require public entities to provide additional disclosures about their involvement with Variable Interest Entities ("VIEs"). FSP 140-4 and
FIN 46(R)-8 are effective for the Company's fiscal year ended December 31, 2008. The Company has adopted the disclusure requirements of FSP FAS 140-4 and FIN 46(R)-8.

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current presentation. The provision for doubtful accounts
has previously been included in the
accompanying consolidated statements of income as a reduction of revenue but is now included in center expenses for all periods presented.

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

2. Regulatory Requirements

The Company's business is regulated under numerous state laws and regulations, which are subject to change and which may impose significant costs or limitations on the way the Company
conducts or expands its business. As of December 31, 2008, 38 states and the District of Columbia had specific laws that permitted cash advances or a similar form of short-term
consumer loans. As of December 31, 2008, the Company operated in 33 of these 38 states.

The
Company does not currently conduct business in the remaining five of these 38 states or in the District of Columbia, and will stop conducting business in New Hampshire in early 2009,
because the Company does not believe it is currently economically attractive to offer its current products and services in these jurisdictions due to specific legislative restrictions such as interest
rate ceilings, an unattractive population density or unattractive location characteristics. The remaining 12 states do not have laws specifically authorizing the cash advance business or
short-term consumer finance business. However, other laws may permit the Company to offer its current products and services in these states.

The
scope of state regulation, including the fees and terms of the Company's products and services, varies from state to state. Most states with laws that specifically regulate the
Company's products and services establish allowable fees and/or interest and other charges to consumers. In addition, many states regulate the maximum amount, maturity and renewal or extension of cash
advances or loans. State statutes often specify minimum and maximum maturity dates for cash advances and, in some cases, specify mandatory cooling-off periods between transactions.

State
statutes authorizing our products and services typically provide the state agencies that regulate banks and financial institutions with significant regulatory powers to administer
and enforce the law. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in
different ways or issue new administrative rules. In addition, when the staff of state regulatory bodies change, it is possible that the interpretations of applicable laws and regulations may also
change.

The
Company's centers are individually licensed under these state laws. Certain states have minimum net worth or minimum asset level requirements for each company conducting business in
the state as a provider of cash advances or similar short-term consumer credit.

Although
states provide the primary regulatory framework under which the Company offers cash advance services, certain federal laws also impact the business. The Company's cash advance
services are subject to federal laws and regulations, including the Truth-in-Lending Act ("TILA"), the Equal Credit Opportunity Act ("ECOA"), the Fair Credit Reporting Act
("FCRA"), the Fair Debt Collection Practices Act ("FDCPA"), the Gramm-Leach-Bliley Act ("GLBA"), the Bank Secrecy Act, the Money Laundering Act, and the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the "PATRIOT Act") and the regulations promulgated for each. Among other things, these laws require disclosure of the principal
terms of each transaction to every customer, prohibit misleading advertising, protect against discriminatory lending practices, proscribe unfair credit
practices and prohibit creditors from discriminating against credit applicants on the basis of race, sex, age or marital status. The GLBA and its implementing regulations generally require the Company
to protect the confidentiality of its customers' nonpublic personal information and to disclose to the Company's customers its privacy policy and practices.

88

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

2. Regulatory Requirements (Continued)

The
Company's marketing efforts and the representations it makes about advance services also are subject to federal and state unfair and deceptive practices statutes. The Federal Trade
Commission ("FTC") enforces the Federal Trade Commission Act and the state attorneys general and private plaintiffs enforce the analogous state statutes. These statutes generally prohibit unfair or
deceptive conduct. The FTC has not initiated any formal actions against the Company.

Additionally,
various anti-cash advance legislation has been proposed or introduced in the U.S. Congress. Congressional members continue to receive pressure from consumer advocates and
other industry opposition groups to adopt such legislation. Most recently, on February 26, 2009, U.S. Senator Richard Durbin introduced a bill in Congress to establish a federal cap of 36% on
the effective annual percentage rate ("APR") on all consumer loan transactions. Likewise, U.S. Representative Luis Gutierrez introduced a bill on the same day that would, among other things, place a
15 cent per dollar borrowed ($.15/$1.00) cap on fees for cash advances, ban rollovers (payment of a fee to extend the term of a cash advance or other short-term financing) and require us to offer an
extended payment plan that severely restricts our cash advance product. In addition to these bills, the Obama Administration agenda states that U.S. President Barack Obama and Vice President Joseph
Biden seek to extend a 36% APR limit to all consumer credit transactions.

The
Company's subsidiaries in the United Kingdom must maintain licenses from the Office of Fair Trading, which is responsible for regulating consumer credit and competition, for policy
and for consumer protection. The United Kingdom also has rules regarding the presentation, form and content of loan agreements, including statutory warnings and the layout of financial information. In
Canada, the Company's subsidiaries will need to operate in compliance with pending provincial legislation.

Violations
of the statutes and regulations described above may result in actions for damages, claims for refund of payments made, certain fines and penalties, injunctions against certain
practices and the potential forfeiture of rights to repayment of loans.

3. Marketing, Processing and Servicing Arrangements

In connection with the Company's former agency business model, the Company entered into marketing, processing and servicing agreements ("MP&S Agreements") with lending banks that offered
cash advances and installment loans.

During
2005, the Company was compensated under MP&S Agreements with the lending banks for Arkansas, Michigan, North Carolina, Pennsylvania and Texas. Operations in Michigan and Texas
were converted to operate under state-based legislation during June and July 2005, respectively, and operations in Pennsylvania and Arkansas were converted to operate under state-based legislation
during June 2006. During 2006, the Company was compensated under MP&S Agreements relating to only Pennsylvania and Arkansas. Since December 31, 2006, the Company has only operated pursuant to
enabling state statutes under its standard business model.

Although
the Company marketed, processed and serviced cash advances and installment loans made by the lending banks, each lending bank was responsible for evaluating each of its
customers' applications and determining whether to approve the cash advance or installment loan. The Company

89

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

3. Marketing, Processing and Servicing Arrangements (Continued)

was
not involved in the lending banks' cash advance or installment loan approval process or the determination of their approval procedures or criteria. The cash advances and installment loans were
repayable solely to the lending banks and were assets of the lending banks; accordingly, they were never included in the Company's balance sheet.

Prior
to July 2005, under each MP&S Agreement, the Company's fees included each lending bank's contractual obligation for its portion of the losses on cash advances. If actual losses
exceeded the lending bank's contractual obligations, the Company was potentially obligated to pay the lending bank the outstanding amount of the advances plus the lending bank's fees and/or interest
receivable on the advances, less the lending bank's contractually obligated portion of the losses. Beginning in July 2005,
the lending bank in North Carolina and Arkansas became responsible for all losses associated with its cash advances and installment loans, while the lending bank in Pennsylvania continued to be
contractually obligated only for a portion of its losses.

4. Advances and Fees Receivable, Net

Advances and fees receivable, net, consisted of the following (in thousands):

2007

2008Advances receivable

$
209,897

$
215,577Fees and interest receivable


36,454


33,633Returned items receivable


49,442


42,996Other


11,224


3,751Allowance for doubtful accounts


(61,306
)

(59,441
)Unearned revenues


(24,231
)

(16,401
)Advances and fees receivable, net

$
221,480

$
220,115


5. Allowance for Doubtful Accounts, Accrual for Excess Bank Losses and Accrual for Third-Party Lender Losses

Changes in the allowance for doubtful accounts were as follows (in thousands):

2006

2007

2008Beginning balance

$
45,585

$
57,396

$
61,306Provision for doubtful accounts


119,425


140,245


136,484Charge-offs


(137,714
)

(165,716
)

(162,932
)Recoveries


30,100


33,859


24,583Transfer to accrual for third-party lender losses





(4,587
)

Acquired





109


Ending balance

$
57,396

$
61,306

$
59,441


90

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

5. Allowance for Doubtful Accounts, Accrual for Excess Bank Losses and Accrual for Third-Party Lender Losses (Continued)

Changes
in the accrual for excess bank losses were as follows (in thousands):

2006

2007

2008Beginning balance

$
1,373

$


$
Provision for doubtful accounts


1,430





Charge-offs


(4,752
)




Recoveries


1,949





Ending balance

$


$


$



The
provision for doubtful accounts related to the accrual for excess bank losses consisted of those losses for which the lending banks were contractually obligated and an estimate by
which actual losses differed from the lending banks' contractual obligations.

Changes
in the accrual for third-party lender losses were as follows (in thousands):

2006

2007

2008Beginning balance

$


$


$
4,587Provision for doubtful accounts





4,587


(627
)Ending balance

$


$
4,587

$
3,960


The
total changes in the allowance for doubtful accounts, the accrual for excess bank losses and the accrual for third-party lender losses were as follows (in thousands):

2006

2007

2008Beginning balance

$
46,958

$
57,396

$
65,893Provision for doubtful accounts


120,855


140,245


135,857Charge-offs


(142,466
)

(165,716
)

(162,932
)Recoveries


32,049


33,859


24,583Acquired





109


Ending balance

$
57,396

$
65,893

$
63,401


91

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

6. Property and Equipment, Net

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

2007

2008Land and land improvements

$
1,479

$
1,479Leasehold improvements


48,534


50,086Office furniture and equipment


78,465


80,884Software


10,544


11,101Building


5,293


5,293Aircraft


2,790


2,790Construction in progress


2,091


771Property and equipment


149,196


152,404Less accumulated depreciation


(91,580
)

(106,313
)Property and equipment, net

$
57,616

$
46,091


7. Goodwill

Goodwill represents the excess cost over the fair value of assets acquired. During the year ended December 31, 2008, the Company completed two acquisitions in the United Kingdom
consisting of a total of two centers for an aggregate purchase price, including transaction-related costs, of approximately $0.8 million in cash and an increase in goodwill of approximately
$0.7 million. During the year ended December 31, 2007, the Company completed four acquisitions in the United Kingdom consisting of a total of 12 centers and 85 limited licensees for an
aggregate purchase price, including transaction-related costs, of approximately $5.5 million in cash and an increase in goodwill of approximately $4.7 million.

The
Company tests its goodwill for impairment annually as of September 30, or if there is a significant change in the business environment. In addition, the Company performed an
updated goodwill impairment test as of December 31, 2008 as a result of a change in its reporting units. Estimated cash flows and related goodwill are grouped at the reporting unit level. A
reporting unit is an operating segment, or under certain circumstances, a component of an operating segment that constitutes a business. When estimated future cash flows are less than the carrying
value of the net assets and related goodwill, an impairment test is performed to measure and recognize the amount of the impairment loss, if any. Impairment losses, which are limited to the carrying
value of goodwill, represent the excess of the carrying amount of a reporting unit's goodwill over the implied fair value of that goodwill. In determining the estimated future cash flows, the Company,
considers current and projected future levels of income, as well as business trends, prospects, market and economic conditions. Impairment tests involve the use of judgments and estimates related to
the fair market value of the business operations with which goodwill is associated, taking into consideration both historical operating performance and anticipated financial position and future
earnings. The results of the 2006, 2007 and 2008 tests indicated there was no impairment.

We
have approximately $4.0 million of goodwill in our UK operations. As of December 31, 2008, those operations have cumulatively generated negative cash flow and currently have
not reached break

92

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

7. Goodwill (Continued)

even
at the center gross profit level. Our expansion efforts in the UK are approximately 15 months old and therefore we are still in the early stages of our build out. The goodwill impairment model
projects future positive cash flows sufficient to support the goodwill and long-lived asset base.

8. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

2007

2008Employee compensation

$
11,797

$
13,533Workers' compensation


4,629


4,851Health and dental insurance


925


Lease smoothing


2,920


3,011Advertising


436


584Construction in progress


962


99Center closing costs


1,696


871Accounting and tax


1,058


1,158Property, sales and franchise taxes


558


558Legal


1,789


1,128Deferred revenue





1,830Legal settlements





2,600Severance


1,113


374Other


3,940


3,320Total

$
31,823

$
33,917


9. Revolving Credit Facility and Long-Term Debt

Revolving Credit Facility

In March 2008, the Company amended and restated its prior revolving credit facility with a syndicate of banks. This credit facility now
provides the Company with a $270.0 million revolving line of credit, which amount includes the ability to issue up to $25.0 million in letters of credit. This revolving credit facility
matures on March 24, 2013. The Company has the option to increase the revolving credit facility by an additional $95.0 million, subject to compliance with the credit agreement's
covenants and conditions and upon receipt of sufficient commitments from lenders in the lending syndicate.

The
credit facility is collateralized by substantially all of the Company's assets and contains various financial covenants that require, among other things, the maintenance of a minimum
net worth and certain leverage and fixed charge coverage ratios and also restricts the encumbrance of assets and the creation of indebtedness. A breach of a covenant or an event of default could
prohibit the Company from accessing otherwise available borrowings, or could cause all amounts outstanding under the revolving credit facility to become due and payable. The Company was in compliance
with all financial covenants at December 31, 2008.

93

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

9. Revolving Credit Facility and Long-Term Debt (Continued)

In
general, the Company's borrowings under the revolving credit facility bear interest, at the Company's option, at a base rate plus an applicable margin or a LIBOR-based rate plus an
applicable margin. The base rate equals the greater of: (i) the prime rate set by Bank of America; and (ii) the sum of the federal funds rate plus 0.50%. The applicable margin is
determined each quarter by a pricing grid based on the Company's total leverage ratio of consolidated debt to consolidated EBITDA. The base rate applicable margin ranges from 1.50% to 2.25% based upon
the Company's total leverage ratio. The LIBOR-based applicable margin ranges from 2.50% to 3.25% based upon the Company's total leverage ratio. As of December 31, 2008, the applicable margin
for the prime-based rate was 1.75% and the applicable margin for the LIBOR-based rate was 2.75%.

As
of December 31, 2008, the Company had $189.8 million outstanding on the revolving portion of the credit facility and $1.1 million of letters of credit
outstanding. Borrowings under the revolving credit facility are subject to compliance with certain covenants and conditions.

In
connection with this amended and restated credit facility, the Company incurred approximately $1.6 million in loan origination costs that were capitalized in other assets and
are being amortized over the remaining term of the credit facility.

The
weighted average interest rate was 7.76% and 4.17% at December 31, 2007 and 2008, respectively.

Total
commitment fees paid were $1.0 million, $1.2 million, and $0.4 million for the years ended December 31, 2006, 2007, and 2008, respectively.

The
carrying value of the credit facility approximated its fair value at December 31, 2007 and 2008.

In
October 2008, our United Kingdom operations entered into an overdraft facility. The maximum borrowings under this facility are GBP 400,000, which is equivalent to approximately
$580,000 at December 31, 2008. The interest rate on any borrowings under this overdraft facility is the Bank of England base rate plus 1.75%. This facility is repayable upon demand by the
lender. The Company did not borrow under this facility during the year ended December 31, 2008.

Long-Term Debt

Long-term debt consisted of the following (in thousands):

2007

2008Mortgage payable

$
5,447

$
5,034Note payable


231


101Total long-term debt


5,678


5,135Less current portion


(542
)

(545
)Long-term debt

$
5,136

$
4,590


The
Company owns its headquarters building and related land subject to a mortgage. The mortgage is payable to an insurance company and is secured by the Company's corporate headquarters
building and related land. The mortgage is payable in 180 monthly installments of approximately

94

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

9. Revolving Credit Facility and Long-Term Debt (Continued)

$66,400,
including principal and interest, and bears interest at a fixed rate of 7.30% over its term. The mortgage matures on June 10, 2017. The carrying amount of the corporate headquarters
(land, land improvements and building) was $4.9 million and $4.7 million at December 31, 2007 and 2008, respectively.

The
fair value of the long-term debt is estimated using a discounted cash flow analysis and was approximately $5.6 million and $5.8 million at
December 31, 2007 and 2008, respectively.

Interest
expense consisted of the following (in thousands):

2006

2007

2008Interest expense:Mortgage payable

$
438

$
411

$
382Credit facility


4,484


7,012


10,076Amortization of deferred financing costs


987


1,009


704Interest expense of consolidated variable interest entity


1,036


2,517


Other


184


110


26Total interest expense

$
7,129

$
11,059

$
11,188


Revolving
credit facility and long-term debt maturities for the next five years and thereafter are (in thousands):

2009

$
5452010


4772011


5132012


5522013


190,411Thereafter


2,454Total

$
194,952


10. Income Taxes

Income tax expense consisted of the following (in thousands):

2006

2007

2008CurrentFederal

$
47,078

$
25,915

$
27,606State


9,352


6,743


3,41656,430


32,658


31,022Deferred


(7,572
)

5,173


2,518Total

$
48,858

$
37,831

$
33,540


95

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

10. Income Taxes (Continued)

A
reconciliation of the statutory federal income tax rate and the Company's effective income tax rate follows:

2006

2007

2008Statutory income tax rate


35.0
%

35.0
%

35.0
%State income taxes, net


4.3


4.3


4.6Nondeductible Lobbying Expense








5.1Other


0.7


1.4


1.9Effective income tax rate


40.0
%

40.7
%

46.6
%


The
tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are (in thousands):

2007

2008Deferred tax assetsAccrued expenses

$
8,074

$
8,008Bad debts


5,665


5,230Net operating loss carryforwards


1,048


2,247State credit carryforwards


1,424


1,495Other


1,099


439Valuation allowance


(897
)

(1,556
)Total deferred tax assets


16,413


15,863Deferred tax liabilitiesGoodwill


(16,524
)

(19,176
)Depreciation


(4,619
)

(4,000
)Prepaid expenses


(1,497
)

(1,334
)Book versus tax basis difference for aircraft


(665
)

(656
)Total deferred tax liabilities


(23,305
)

(25,166
)Net deferred tax liability

$
(6,892
)
$
(9,303
)


As
of December 31, 2007 and 2008, the Company had net operating loss carryforwards for state income tax purposes totaling approximately $1.0 million and
$1.1 million, respectively, which will begin to expire in 2014. A valuation allowance of $0.5 million has been recorded at December 31, 2008 because management believes it is more
likely than not that the entire deferred tax asset related to state net operating loss carryforwards will not be realized. As of December 31, 2007 and 2008, the Company had credit carryforwards
for state income tax purposes totaling approximately $1.4 million and $1.5 million, respectively, which will begin to expire in 2010. Additionally, as of December 31, 2008, the
Company had foreign net operating losses in the United Kingdom and Canada totaling approximately $1.1 million. A full valuation allowance has been recorded at December 31, 2008 because
management believes it is more likely than not that the entire deferred tax asset related to the foreign net operating loss carryforwards will not be realized.

96

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

10. Income Taxes (Continued)

Effective January 1, 2007, the Company adopted FIN 48. As a result of the adoption of FIN 48, the Company recognized no adjustments in the liability for unrecognized
income tax benefits. At the adoption date and through December 31, 2008 the Company did not have any unrecognized tax benefits and did not have any interest or penalties accrued.

The
Company is subject to U.S. income taxes as well as various other foreign, state and local jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state
and local income tax examinations by tax authorities for years before the tax year ended September 30, 2005.

11. Stock-Based Compensation Plans

In 2004, the Company adopted SFAS No. 123(R). Accordingly, the Company measures the cost of its stock-based employee compensation at fair value on the grant date and recognizes
such cost in the financial statements on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

The
Company's 2004 Omnibus Stock Plan provides for the granting of restricted stock, stock options and other stock awards to certain directors, officers and other key employees of the
Company. Additionally, during 2005, the Company granted stock options and shares of restricted stock to its President and Chief Executive Officer under a Nonqualified Stock Option Agreement and a
Restricted Stock Agreement, respectively. Both of these agreements are separate from the Company's 2004 Omnibus Stock Plan.

Restricted
stock grants under the Company's stock-based compensation plans generally vest in equal annual installments over three, five or eight years from the date of grant. Stock
option grants under the Company's stock-based compensation plans are generally exercisable in equal annual installments over three, five or eight years from the date of grant and generally expire ten
years after the date of grant.

The
grant date fair value of all shares of restricted stock was based on the market value of the Company's common stock on the dates of grant. These amounts are being expensed ratably
over each award's respective vesting period.

All
stock options were granted with an exercise price equal to the market value of the Company's common stock on the dates of grant. The Company estimated the fair value of stock options
on the date of grant using the Black-Scholes option pricing model using the following assumptions:



97

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

11. Stock-Based Compensation Plans (Continued)



To
estimate each stock option's weighted-average fair value on the grant dates, the following weighted-average assumptions were used in the Black-Scholes option pricing model for all
stock options granted during the years ended December 31, 2006, 2007 and 2008:

2006

2007

2008Expected term (years)


4.41


4.95


5.42Expected volatility


47
%

46
%

48
%Expected dividends (yield)


3.6
%

3.5
%

4.1
%Risk-free rate


4.63
%

3.91
%

2.93
%


The
weighted-average grant-date fair values of options granted during the years ended December 31, 2006, 2007 and 2008 were $4.85 per option, $3.51 per option and
$2.70 per option, respectively, and are being expensed ratably over each award's respective vesting period.

The
following table provides certain information with respect to stock options outstanding and exercisable at December 31, 2008 under the Company's stock-based compensation plans:

Outstanding

ExercisableNumber of stock options


1,582,500


592,500Range of exercise prices

$
8.48-$14.70

$
8.60-$14.70Weighted-average exercise price

$
11.81

$
12.43Aggregate intrinsic value (in thousands)

$
(15,693,925
)
$
(6,244,337
)Weighted-average remaining contractual term (years)


7.56


7.27


98

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

11. Stock-Based Compensation Plans (Continued)

A
summary of the Company's authorized and available shares, activity and the weighted average stock option exercise prices under its stock based compensation plans follows:

OutstandingAuthorized

Restricted
Stock

Stock
Options

Available
For Grant

Weighted Average
Stock Option
Exercise PriceOutstanding at December 31, 2005


5,200,000


457,043


1,200,000


3,542,957

$
12.47Authorized














Granted





143,334


80,000


(223,334
)

14.70Exercised














Canceled





(11,333
)




11,333


Outstanding at December 31, 2006


5,200,000


589,044


1,280,000


3,330,956


12.61Authorized














Granted





40,000


457,500


(497,500
)

10.69Exercised














Canceled





(121,056
)

(260,000
)

381,056


12.21Outstanding at December 31, 2007


5,200,000


507,988


1,477,500


3,214,512


12.08Authorized














Granted





42,000


152,500


(194,500
)

8.52Exercised














Canceled








(47,500
)

47,500


9.88Outstanding at December 31, 2008


5,200,000


549,988


1,582,500


3,067,512

$
11.81


A
summary of the Company's restricted stock activity and the weighted average grant date fair values follows:

Shares

Weighted Average
Fair ValueNonvested at December 31, 2005


391,488

$
12.69Granted


143,334


14.37Vested


(102,689
)

13.58Forfeited


(11,333
)

14.81Nonvested at December 31, 2006


420,800


12.99Granted


40,000


11.67Vested


(73,077
)

13.10Forfeited


(121,056
)

14.44Nonvested at December 31, 2007


266,667


12.10Granted


42,000


8.65Vested


(67,304
)

12.28Forfeited





Nonvested at December 31, 2008


241,363

$
10.30


99

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

11. Stock-Based Compensation Plans (Continued)

The
total grant date fair value of restricted shares vested during the years ended December 31, 2006, 2007 and 2008 was approximately $1.4 million, $1.0 million and
$0.8 million, respectively, and the total market value of these shares on the dates vested was approximately $1.5 million, $0.7 million and $0.2 million, respectively.

A
summary of the stock-based compensation cost included in general and administrative expenses in the accompanying consolidated statements of income for the years ended
December 31, 2006, 2007 and 2008 follows (in thousands):

2006

2007

2008Restricted stock

$
1,529

$
948

$
862Stock options


951


907


1,309Total stock-based compensation expense

$
2,480

$
1,855

$
2,171


As
of December 31, 2008, the total compensation cost not yet recognized related to nonvested stock awards under the Company's plans is approximately $6.3 million. The
weighted average period over which this expense is expected to be recognized is approximately 4.0 years.

12. Commitments and Contingencies

Legal Proceedings

The Company is involved in a number of active lawsuits, including lawsuits arising out of actions taken by state regulatory
authorities, and is involved in various other legal proceedings with state and federal regulators. Unless otherwise stated below, the Company is vigorously defending against these actions. The amount
of losses and/or the probability of an unfavorable outcome, if any, cannot be reasonably estimated for these legal proceedings unless otherwise stated below.



On February 27, 2007, Brenda McGinnis filed a putative class action in the Circuit Court of Clark County, Arkansas alleging
violations of the Arkansas usury law, the Arkansas Deceptive Trade Practices Act and a 2001 class action settlement agreement entered into by the Company's prior subsidiary in Arkansas. The complaint
alleges that the Company's current subsidiary made usurious loans under the Arkansas Check Cashers Act and seeks compensatory damages in amount equal to twice the interest paid on the deferred
presentment transactions made from 2001 to present (which would total approximately $21.4 million for deferred presentment transactions made during that time or approximately $87 million
in damages for all transactions originated processed, and serviced during that time) as well as a declaration that the contracts are void, enforcement of the 2001 class action settlement agreement,
attorneys' fees and costs. The trial court has denied the Company's motion to compel arbitration and the class was certified in April 2008. The Company appealed both decisions. The appellate court
denied the company's appeal as to the motion to compel arbitration, but the class certification appeal remains pending. The plaintiff has filed a motion for summary judgment which the Company has
opposed. A ruling on this motion is expected sometime in the latter half of 2009.

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

12. Commitments and Contingencies (Continued)



On October 13, 2008, Gary Neil Magee and Charlotte Johnson filed a putative class action in the Circuit Court of Clark County,
Arkansas alleging that the Company's Arkansas subsidiary violated the Arkansas usury law and the Arkansas Deceptive Trade Practices Act. The complaint alleges that the fees charged by the Company's
subsidiary to cash checks were interest on consumer loans and usurious under state law. The parties seek compensatory damages in amount equal to twice the combined interest plus unrelated check
cashing fees on the loans from April 2008 to October 2008, and a declaration that the transactions are void, plus attorneys' fees and costs. The Company has filed separate motions to dismiss and to
compel arbitration.



On July 18, 2008, Kerri Stone, filed a putative class action complaint in the Supreme Court of California against the Company
and its California subsidiary alleging violations of the California Deferred Deposit Transaction Law, the California Unfair Competition Law and the California Consumer Legal Remedies Act. The case has
been removed to the U.S. District Court for the Southern District of California. The putative class action complaint seeks trebling of compensatory damages, disgorgement of profits, attorney's fees,
punitive damages, and an order enjoining enforcement of class action waiver clauses in cash advance contracts. The Company has filed a motion to dismiss the Plaintiff's complaint.



The Company and the Company's subsidiary McKenzie Check Advance of Florida, LLC ("McKenzie") are defendants in a putative class
action lawsuit commenced by former customers, Wendy Betts and Donna Reuter on January 11, 2001, and a third named class representative, Tiffany Kelly, in the Circuit Court of Palm Beach County,
Florida. This putative class action alleges that McKenzie, by and through the actions of certain officers, directors and employees, engaged in unfair and deceptive trade practices and violated
Florida's criminal usury statute, the Florida Consumer Finance Act and the Florida Racketeer Influenced and Corrupt Organizations Act. The suit seeks unspecified damages, and the named defendants
could be required to refund fees and/or interest collected, refund the principal amount of cash advances, pay multiple damages and pay other monetary penalties. Ms. Reuter's claim has been held
to be subject to binding arbitration, which the Company expects to proceed in parallel with this case. However, the trial court has denied the defendants' motion to compel arbitration of
Ms. Kelly's claims, the substituted named plaintiff , and the resulting appeal has been dismissed by the Florida court of appeals. The Company will seek review of the arbitration issue by the
Florida Supreme Court. All proceedings at the trial court level effectively stayed pending exhaustion of the defendants' appellate rights.



A second Florida lawsuit was filed on August 24, 2004 in the Circuit Court of Palm Beach County by former customers Gerald Betts
and Ms. Reuter against the Company, the Company's subsidiary, Advance America, Cash Advance Centers of Florida, Inc., and certain officers and directors. The allegations, relief sought
and the Company's defenses in this lawsuit are nearly identical to those

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

12. Commitments and Contingencies (Continued)

alleged
in the firstBetts and Reuterlawsuit described above. The proceedings at the trial court level are stayed pending the outcome of the Company's
appeal of the trial court's denial of certain defendants' motion to dismiss for lack of personal jurisdiction.



On August 6, 2004, Tahisha King and James E. Strong, who were customers of BankWest, the lending bank for which the Company
previously marketed, processed and serviced cash advances in Georgia, filed a putative class action lawsuit in the State Court of Cobb County, Georgia against the Company, William M. Webster IV, the
Company's Chairman, and other unnamed officers, directors, owners and "stakeholders," alleging various causes of action including that the Georgia subsidiary made illegal cash advance loans in Georgia
in violation of Georgia's usury law, the Georgia Industrial Loan Act and Georgia's Racketeer Influenced and Corrupt Organizations Act. The complaint alleges that BankWest was not the "true lender" and
that the Company was the "de facto" lender. The complaint seeks compensatory damages, attorneys' fees, punitive damages and the trebling of any compensatory damages.

On
February 9, 2009, the parties signed a settlement agreement for the purpose of resolving all claims in connection with the class action. If the court approves the settlement
agreement, the Company will pay a minimum of approximately $2.0 million from which (1) a settlement pool will be established to cover payment of claims, individually varying from $30 to
$90, and (2) payment of all costs and fees, including attorney's fees, related to the litigation and settlement administration of the class action will be made. If claims made plus costs exceed
approximately $2.0 million, the Company will be required to pay additional funds into the settlement pool up to an aggregate cap of approximately $3.7 million. All named defendants will
be released from all claims in connection with originating, marketing or servicing loans in Georgia.



The Company's Georgia subsidiary is involved in another case in Georgia that, although not a class action lawsuit, contains essentially
the same allegations as theKing and Strongcase described above. On March 10, 2003, Angela Glasscock, a customer of BankWest, filed an adversary
proceeding in the U.S. Bankruptcy Court for the Southern District of Georgia alleging that the Company's Georgia subsidiary was making cash advances in Georgia in violation of the Georgia Industrial
Loan Act. BankWest intervened into the case and subsequently both the subsidiary and BankWest filed a motion for summary judgment, which was granted in September 2005. In April 2007, on appeal, the
United States District Court overturned the U.S. Bankruptcy Court's grant of summary judgment. The parties have agreed to settle this case for an immaterial amount if the Kingsettlement discussed above
receives court approval and the settlement will become effective upon final court approval of the Kingsettlement.



On March 10, 2008, Trishia Hooper and Josephine Vaughn filed a putative class action lawsuit in the United States District Court
for the Western District of Missouri against our subsidiary, Advance America, Cash Advance Centers of Missouri, Inc. The action alleges that the arbitration clause and

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

12. Commitments and Contingencies (Continued)

class
action waiver in the Company's subsidiary's loan agreement is unconscionable, that the Company's subsidiary's practices violate the Missouri statutes governing unfair and deceptive trade
practices, interest rates, loan renewals, debt reduction, and consideration of borrower's ability to repay. The lawsuit seeks certification as a class action, unspecified monetary damages, and a
declaratory judgment that the arbitration clause and class action waiver is unconscionable, and injunctive relief. The company moved to compel arbitration, which motion was denied by the trial court.
The company is appealing the denial of that motion.



On July 27, 2004, John Kucan, Welsie Torrence and Terry Coates, each of whom was a customer of Republic Bank & Trust
Company ("Republic"), the lending bank for whom the Company previously marketed, processed and serviced cash advances in North Carolina, filed a putative class action lawsuit in the General Court of
Justice for the Superior Court Division for New Hanover County, North Carolina against the Company and Mr. William M. Webster IV, Chairman of the Company's Board of Directors and prior Chief
Executive Officer, alleging, among other things, that the relationship between the Company's North Carolina subsidiary and Republic was a "rent a charter" relationship and therefore Republic was not
the "true lender" on the cash advances it offered. The lawsuit also claims that the cash advances were made, administered and collected in violation of numerous North Carolina consumer protection
laws. The lawsuit seeks an injunction barring the subsidiary from continuing to do business in North Carolina, the return of the principal amount of the cash advances made to the plaintiff class since
August 2001, the return of any interest or fees associated with those advances, treble damages, attorneys' fees and other unspecified costs. Litigation regarding the Company's arbitration rights is
proceeding before the trial court and a decision on the issue of arbitration is expected in the third quarter of 2009.



On February 1, 2005, the Commissioner of Banks of North Carolina initiated a contested case against the Company's North Carolina
subsidiary for alleged violations of the North Carolina Consumer Finance Act. In December 2005, the Commissioner of Banks ordered that the Company's North Carolina subsidiary immediately cease and
desist operating. In accordance with the Commissioner of Banks' order, the Company's North Carolina subsidiary ceased all business operations on December 22, 2005. The Company has moved to
continue the stay of the case pending outcome ofKucanlitigation, which motion is still pending.



On September 27, 2006, the Pennsylvania Department of Banking filed a lawsuit in the Commonwealth Court of Pennsylvania alleging
that the Company's Delaware subsidiary was providing lines of credit to borrowers in Pennsylvania without a license required under Pennsylvania's financial licensing law and charging interest and fees
in excess of the amounts permitted by Pennsylvania's usury law. In July 2007, the court determined that certain aspects of the Company's Choice Line of Credit required the Company to be licensed under
Pennsylvania's Consumer Discount Company Act ("CDCA") and enjoined the Company from continuing its lending activities in Pennsylvania for so long

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

12. Commitments and Contingencies (Continued)

as
the CDCA violations continued and from collecting monthly participation fees. The Company appealed to the Pennsylvania Supreme Court and in May 2008, the Pennsylvania Supreme Court upheld the lower
court's ruling. The Pennsylvania Department of Banking amended its complaint to add the Pennsylvania Attorney General as a plaintiff and the Parent Company as a defendant;. The amended complaint also
seeks to perfect a claim for alleged violations of the state's usury law by seeking unspecified damages, including disgorgement of profits earned in Pennsylvania, treble actual damages, and
restitution, which could total approximately $135 million, plus civil penalties of $1,000 for each violation of the Pennsylvania Consumer Protection Law and of an additional $2,000 for
violations against customers over the age of 60, and attorneys fees and costs. The matter is proceeding before the trial court. The Company has filed a motion to dismiss the amended complaint and will
continue to vigorously defend against the lawsuit.



On August 1, 2007, Sharlene Johnson, Helena Love and Bonny Bleacher filed a putative class action lawsuit in the United States
District Court, Eastern District of Pennsylvania against the Company and two of its subsidiaries alleging that they provided lines of credit to borrowers in Pennsylvania without a license required
under Pennsylvania law and with interest and fees in excess of the amounts permitted by Pennsylvania law. The complaint seeks, among other things, a declaratory judgment that the monthly participation
fee charged to customers with a line of credit is illegal, an injunction prohibiting the collection of the monthly participation fee and the payment by the Company of damages equal to three times the
monthly participation fees paid by customers since June 2006, which could total approximately $135 million in damages plus attorneys' fees and costs. In January 2008, the trial court entered an
order compelling the purported class representatives to arbitrate their claims on an individual basis, unless determined otherwise by the arbiter. Both parties appealed this order and, in July 2008,
the Court of Appeals ordered the parties to engage in mediation. The parties are currently engaged in court-ordered mediation, and the appeals in the matter are stayed, pending the outcome of that
mediation.



On January 18, 2007, Raymond King and Sandra Coates, who were customers of BankWest, the lending bank for which the Company
previously marketed, processed and serviced cash advances in Pennsylvania, filed a putative class action lawsuit in the United States District Court, Eastern District of Pennsylvania alleging various
causes of action, including that the Pennsylvania subsidiary made illegal cash advance loans in Pennsylvania in violation of Pennsylvania's usury law, the Pennsylvania Consumer Discount Company Act,
the Pennsylvania Unfair Trade Practices and Consumer Protection Law, the Pennsylvania Fair Credit Extension Uniformity Act and the Pennsylvania Credit Services Act. The complaint alleges that BankWest
was not the "true lender" and that the Company's Pennsylvania subsidiary was the "lender in fact." The complaint seeks compensatory damages, attorneys' fees, punitive damages and the trebling of any
compensatory damages. In January 2008, the trial court entered an order compelling the purported class representatives to arbitrate their claims on an individual basis, unless determined otherwise by
the arbiter. The parties engaged in court-ordered

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

12. Commitments and Contingencies (Continued)

mediation,
which was not successful, and the appeals on the issue of compelled arbitration are proceeding.



Eight separate putative class actions have been filed in South Carolina against the Company's subsidiary, Advance America, Cash Advance
Centers of South Carolina, Inc., and several other unaffiliated defendants. John and Rebecca Morgan filed a complaint on August 27, 2007 in the Horry County Court of Common Pleas;
Margaret Horne filed a complaint on September 6, 2007 in the Spartanburg County Court of Common Pleas; Tawan Smalls filed a complaint on September 10, 2007 in the Charleston County Court
of Commons Pleas; Chadric and Lisa Wiley filed a complaint on September 27, 2007 in the Richland County Court of Common Pleas; Mildred Weaver filed a complaint on September 27, 2007 in
the Darlington County Court of Common Pleas; Lisa Johnson and Gilbert Herbert filed a complaint on October 2, 2007 in the Georgetown County Court of Common Pleas; Kimberly Kinney filed a
complaint on October 12, 2007 in the Marion County Court of Common Pleas; and Carl G. Ferrell filed a complaint on October 30, 2008. The allegations and relief sought are similar in each
case. Plaintiffs allege that the Company's South Carolina subsidiary violated the South Carolina Deferred Presentment Services Act and the Consumer Protection Code by failing to perform a credit check
and evaluate a customer's ability to repay the advance. Each complaint seeks an injunction to prohibit the Company from continuing its operations, the return of fees and interest, actual damages,
punitive damages and attorneys' fees and costs. Each of the lawsuits had been removed to United
States District Court for the District of South Carolina, which subsequently remanded all of the class actions to state court. The Company appealed these rulings and the appellate court has remanded
all of the cases to state court. The Company will join ongoing litigation in the South Carolina state court system pursuant to an order of the Supreme Court consolidating all cases brought against the
industry.



On September 12, 2007, Francisco Gonzalez filed a collective action lawsuit against the Company's Texas subsidiary, Advance
America, Cash Advance Centers of Texas, Inc., in the United States District Court for the Southern District of Texas alleging violations of the Fair Labor Standards Act and Texas PayDay Act.
The complaint alleges the Company's subsidiary in Texas failed to pay overtime wages to its employees. The complaint seeks compensatory and liquidated damages, attorneys' fees, interest and costs. A
class of employees limited to the Houston, Texas area has been certified to conduct this litigation. The Company sought an appeal of the class certification issue, which was denied, leading to the
conditional certification of a class. The parties will now litigate the matter on the merits.



In June 2008, the Governor of Ohio signed a bill into law that capped interest rates on cash advance loans and limits the number of
advances a customer may take in any one year. This law became effective on November 24, 2008.

As
a result of this legislation, the Company began offering small loans pursuant to the Ohio Small Loan Act and check-cashing services. The small loan product is not as profitable as the
former cash advance product and, therefore, the Company may need to close its centers in Ohio.

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

12. Commitments and Contingencies (Continued)

If it is not economically viable to continue operations in Ohio and we decide to close our Ohio centers, our estimated range of closing costs, including severance, center
tear-down costs, lease termination costs and the write-down of fixed assets would be approximately $7.5 million to $17.4 million. The collectability of advances
and fees receivable in Ohio would most likely be impaired. As of December 31, 2008, the net receivable balance in Ohio was approximately $18.6 million. The Company has not quantified the
amount of goodwill impairment, if any, that would result from the cessation of operations in Ohio.



The Company is also involved in other litigation and administrative proceedings that are incidental to its business, including, without
limitation, individual consumer claims, contractual disputes, employee claims for workers' compensation, wrongful termination, harassment, discrimination, payment of wages due and customer claims
relating to collection practices and violations of state and/or federal consumer protection laws.

Other Commitments and Contingencies

The Company is self-insured for certain elements of its employee benefits, including workers' compensation, but limits its
liability through stop-loss insurance. Self-insurance liabilities are based on claims filed and estimates of claims incurred but not reported.

Substantially
all center locations and certain office equipment are leased from third-party lessors under operating leases. Total rent expense in 2006, 2007 and 2008 was
$61.0 million, $66.5 million and $67.2 million, respectively. As of December 31, 2008, minimum future lease commitments under the operating leases having
non-cancelable lease terms in excess of one year are (in thousands):

Operating
Lease2009

$
61,5222010


43,6002011


24,9242012


10,5172013


4,080Thereafter


1,341Operating lease obligations

$
145,984


The
Company enters into agreements with vendors to purchase furniture, fixtures and other items used to open new centers. These purchase commitments typically extend for a period of two
to three months after the opening of a new center. As of December 31, 2008, the Company's purchase obligations totaled approximately $0.2 million.

At
December 31, 2008, the Company had approximately $1.7 million in unfunded commitments to lend to customers in Virginia under the line of credit product.

Under
the terms of the Company's agreement with its current third-party lender in Texas, the Company is contractually obligated to reimburse the lender for the full amount of the loans
and certain related fees that are not collected from the customerssee Note 16.

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

13. Related Party Transactions

The Company has entered into operating leases for centers, aircraft hangar space and other office and warehouse space with companies controlled by or affiliated with the Company's former
Chairman and members of his family.

During
2006, the Company periodically leased, on an hourly basis, airplanes owned by companies controlled by the Company's current Chairman and/or former Chairman or in which they had
ownership interests.

Additionally,
companies controlled by the Company's current Chairman and/or former Chairman or in which they had ownership interests, provided pilots, fuel and other operating services
for the Company's aircraft.

The
Company's former Chairman has a brother who is a partner of a law firm that provided the Company certain routine legal services during 2006, 2007 and 2008.

Under
a time-share arrangement, the Company's current Chairman and former Chairman have used the Company's aircraft for private purposes in exchange for the Company's use of
an identical aircraft owned by the Company's former Chairman and formerly owned, in part, by the Company's current Chairman. Included in accrued liabilities at December 31, 2008 is a $3,000 net
payable related to this arrangement.

Expenses
related to all transactions with related parties consisted of the following (in thousands):

2006

2007

2008Aircraft

$
390

$
183

$
194Center leases


51


53


5Office and warehouse space leases


93


61


51Legal


64


41


32Total

$
598

$
338

$
282


14. Capital Stock

The Company's Amended and Restated Certificate of Incorporation authorizes 250 million shares of par value $.01 per share of common stock and 25 million shares of par value
$.01 per share preferred stock. Each share of common stock is entitled to one vote.

On
May 4, 2005, the Company announced that its Board of Directors had approved a program authorizing the repurchase by the Company of up to $50.0 million of its outstanding
common stock. On August 16, 2006, the Company announced that its Board of Directors had approved an extension of the Company's stock repurchase program authorizing the Company to repurchase up
to $100.0 million of its outstanding common stock on and after that date. On February 13, 2008, the Company's Board of Directors approved an extension of the Company's stock repurchase
program to cover an additional $75 million of the Company's currently outstanding common stock. In July 2008, the Company completed the repurchase of its common stock under the stock repurchase
program. During the years ended December 31, 2006, 2007 and 2008, the Company repurchased 2,820,782, 6,512,462, and 11,921,262 shares of its common stock, respectively, at a cost of
approximately $40.1 million, $67.0 and $89.0 million, respectively. For the years ended December 31, 2006, 2007, and 2008, these amounts include 5,482, 10,662, and 10,686 shares
of common stock, respectively, which were surrendered by

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

14. Capital Stock (Continued)

employees
to satisfy their tax obligations with respect to the vesting of shares of restricted stock awarded pursuant to the Company's 2004 Omnibus Stock Plan.

15. Quarterly Financial Information (unaudited)

Quarterly financial information for the years ended December 31, 2008 and 2007 is presented below ($ in thousands, except per share data):

2008Three months ended,March 31

June 30

Sept 30

Dec 31

Total YearTotal revenues

$
165,456

$
162,142

$
173,861

$
174,977

$
676,436Total center expenses


119,641


126,248


136,432


136,456


518,777Center gross profit


45,815


35,894


37,429


38,521


157,659Total corporate and other expenses


20,152


19,393


22,285


23,818


85,648Income before income taxes


25,663


16,501


15,144


14,703


72,011Income tax expense


10,859


7,227


6,689


8,765


33,540Net income

$
14,804

$
9,274

$
8,455

$
5,938

$
38,471Net income per common sharebasic

$
0.21

$
0.14

$
0.14

$
0.10

$
0.60diluted

$
0.21

$
0.14

$
0.14

$
0.10

$
0.60




2007Three months ended,March 31

June 30

Sept 30

Dec 31

Total YearTotal revenues

$
168,083

$
173,939

$
183,926

$
183,609

$
709,557Total center expenses


112,281


129,653


153,329


144,555


539,818Center gross profit


55,802


44,286


30,597


39,054


169,739Total corporate and other expenses


16,900


18,947


20,821


20,149


76,817Income before income taxes


38,902


25,339


9,776


18,905


92,922Income tax expense


16,343


10,186


3,792


7,510


37,831Income before (income) loss of consolidated variable interest entity


22,559


15,153


5,984


11,395


55,091(Income) loss of consolidated variable interest entity


(243
)

(317
)

(251
)

105


(706
)Net income

$
22,316

$
14,836

$
5,733

$
11,500

$
54,385Net income per common sharebasic

$
0.28

$
0.19

$
0.07

$
0.15

$
0.70diluted

$
0.28

$
0.19

$
0.07

$
0.15

$
0.70


The
provision for doubtful accounts has previously been included in the Company's consolidated statements of income as a reduction of revenue but is now included in center expenses for
all periods presented.

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Table of Contents

Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

16. Transactions with Variable Interest Entities

The Company conducts business in Texas through a wholly owned subsidiary registered as a Credit Services Organization ("CSO") under Texas law. In connection with operating as a CSO, the
Company entered into a credit services organization agreement with an unaffiliated third-party lender in 2005. The agreement governed the terms by which the Company referred customers in Texas to that
lender, on a non-exclusive basis, for a possible extension of credit, processed loan applications and committed to reimburse the lender for any loans or related fees that were not
collected from such customers. During the fourth quarter of 2007, the Company terminated its agreement with this lender (the "former lender") and entered into a new agreement with another unaffiliated
third-party lender (the "new lender") with substantially similar terms and conditions as the CSO Agreement with the former lender.

The
Company had determined that the former lender was a variable interest entity ("VIE") under Financial Accounting Standards Board Interpretation No. 46 (Revised)
("FIN 46(R)") and had also determined that the Company was the primary beneficiary of this VIE. As a result, the Company consolidated the former lender into the Company's financial statements
as of December 31, 2006 and for the years ended December 31, 2006 and 2007 (for the period in 2007 prior to the CSO Agreement termination date).

The
Company has determined that the current lender is also a VIE but that the Company is not the primary beneficiary of this VIE. Therefore, the Company has not consolidated the current
lender in 2007 or 2008.

The
impact of the consolidation of the former lender on the Company's consolidated statements of income for the years ended December 31, 2006 and 2007 (for the period prior to the
termination date) was to increase (decrease) the following income statement accounts as follows (in thousands):

2006

2007Total revenues

$
3,294

$
3,508Provision for doubtful accounts


(1,856
)

(1,132
)Other center expenses


1,067


913Interest expense


1,036


2,517Income tax expense





504Income of consolidated variable interest entity


3,047


706


Under
the terms of the Company's agreement with its current third-party lender, the Company is contractually obligated to reimburse the lender for the full amount of the loans and
certain related fees that are not collected from the customers. As of December 31, 2007 and 2008, the third-party lender's outstanding advances and interest receivable (which were not recorded
on the Company's balance sheet) totaled approximately $20.5 million and $18.2 million, respectively, which is the amount the Company would be obligated to pay the third-party lender if
these amounts were to become uncollectible. Additionally, if these advances were to become uncollectible, the Company would also be required to pay the third-party lender all related NSF fees and late
fees on these advances.

Because
of the Company's economic exposure for losses related to the third-party lender's advances and interest receivable, the Company has established an accrual for third-party lender
losses to reflect the Company's estimated probable losses related to uncollectible third-party lender advances.

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Advance America, Cash Advance Centers, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2006, 2007 and 2008

16. Transactions with Variable Interest Entities (Continued)

The
accrual for third-party lender losses that was reported in the Company's balance sheet at December 31, 2007 and 2008 was approximately $4.6 million and $4.0 million,
respectively and was established on a basis similar to the allowance for doubtful accounts.

17. Subsequent Events

On February 10, 2009, the Company filed a Form 8-K disclosing the following information related to the settlement of the Georgia class action lawsuit and the
closing of all centers in New Hampshire.

The
Company entered into a settlement agreement on February 9, 2009, for the purpose of resolving all claims in connection with the Georgia class action lawsuit of King and Strong v. Advance America, Cash Advance Centers
of Georgia, Inc.If the settlement agreement is approved by the court, the
Company will pay a minimum of approximately $2.0 million from which (1) a settlement pool will be established to cover payment of claims, individually varying from $30 to $90, and
(2) payment of all costs and fees, including attorney's fees, related to the litigation and settlement administration of the class action will be made. If claims made plus costs exceed
approximately $2.0 million, the Company will be required to pay additional funds into the settlement pool up to an aggregate cap of approximately $3.7 million. All named defendants will
be released of all claims in connection with originating, marketing or servicing loans in Georgia. The Company has reserved approximately $2.0 million for the settlement of the Georgia class
action lawsuit, which resulted in a charge against earnings in the fourth quarter of 2008.

On
December 9, 2008, the Company requested assurances from the New Hampshire State Banking Department (the "Banking Department") that no actions would be taken against the Company
for offering a new line of credit product to New Hampshire consumers beginning in January 2009. On January 6, 2009, the Banking Department responded that it could not provide the assurances
sought by the Company. As a result, the Company immediately discontinued offering the line of credit product in New Hampshire. Pursuant to an order issued by the Bank Commissioner on
January 15, 2009, the Company can seek repayment of the principal amounts borrowed by consumers from January 1, 2009 through January 6, 2009 under the line of credit product.
Although the Company continues to believe that the line of credit product is legal under New Hampshire law, the Company decided to close all centers it has operated in New Hampshire in early 2009.

On
February 19, 2009, our Board of Directors declared a quarterly cash dividend of $0.0625 per common share, payable on March 6, 2009, to stockholders of record on
February 24, 2009.

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Table of Contents

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES.

Evaluation of Disclosure, Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of
December 31, 2008. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2008, our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal
control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with
generally accepted accounting principles in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors
of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect
on our financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our
management assessed the effectiveness of our internal control over financial reporting based on the framework inInternal ControlIntegrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over
financial reporting was effective as of December 31, 2008.

The
effectiveness of the Company's internal control over financial reporting as of December 31, 2008 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears in "Item 8. Financial Statements and Supplementary Data."

Additionally,
as required by Section 303A.12(a) of the New York Stock Exchange ("NYSE") Listed Company Manual, the Registrant's Chief Executive Officer filed a certificate with
the NYSE on June 20, 2008 reporting that he was not aware of any violation by us of the NYSE's Corporate Governance listing standards. The certifications of the President and Chief Executive
Officer and the

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Executive
Vice President and Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of the Company's disclosure in this 2008 Annual Report on
Form 10-K, have been filed as exhibits 31.1 and 31.2 hereto.

ITEM 9B.    OTHER INFORMATION.

None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Executive Officers

Our executive officers, their ages at February 28, 2009, and their positions with us are set forth below. Our executive officers
are elected by and serve at the discretion of our Board of Directors.

Name

Age

PositionKenneth E. Compton


56

President and Chief Executive OfficerJ. Patrick O'Shaughnessy


43

Executive Vice President and Chief Financial Officer


Kenneth E. Comptonhas served as our President and Chief Executive Officer since August 26, 2005. From February 1992 to February
2005, Mr. Compton was President of the Global Automotive Group for Milliken & Company, an international textile and chemical manufacturer headquartered in Spartanburg,
South Carolina. From June 1974 to February 1992 Mr. Compton served Milliken & Company in various management positions.

J. Patrick O'Shaughnessyhas served as our Executive Vice President and Chief Financial Officer since August 2007.
Mr. O'Shaughnessy has been an investment banker since 1992, most recently as a partner at Thomas Weisel Partners LLC ("Thomas Weisel"). Prior to joining Thomas Weisel,
Mr. O'Shaughnessy spent much of his career at Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and with Credit Suisse First Boston, where he remained after its acquisition of
DLJ until 2002.

Other Information

The information set forth under the captions "Election of our Board of Directors," "Principal
StockholdersSection 16(a) Beneficial Ownership Reporting Compliance" and "Corporate GovernanceMeeting and Committees of the Board of DirectorsAudit
Committee" in the proxy statement for our 2009 annual meeting is incorporated herein by reference.

We
have a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and
principal accounting officer. You can find our Code of Business Conduct and Ethics by going to the following website address: http://investors.advanceamerica.netand clicking "Code of Conduct." We will
post on our website
(http://www.advanceamerica.net) any amendments to the Code of Business Conduct and Ethics, as well as any waivers that are required to be disclosed by
the rules of either the U.S. Securities and Exchange Commission ("SEC") or the New York Stock Exchange. You can also obtain a printed copy of any of the materials referred to above without charge by
contacting us at the following address and requesting a copy:

Advance America, Cash Advance Centers, Inc.
Attention: Corporate Secretary
135 North Church Street
Spartanburg, South Carolina 29306
Telephone: 864-342-5600


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ITEM 11.   EXECUTIVE COMPENSATION.

Information contained under the captions "Executive and Director Compensation," "Compensation Committee Report" and "Corporate
GovernanceMeetings and Committees of the Board of
DirectorsCompensation Committee Interlocks and Insider Participation" in the proxy statement for our 2009 annual meeting is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information set forth under the caption "Principal Stockholders" in the proxy statement for our 2009 annual meeting is incorporated
herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information set forth under the captions "Certain Transactions" and "Corporate GovernanceIndependent Directors" in the
proxy statement for our 2009 annual meeting is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Information contained under the caption "Appointment of Our Independent Auditors" in the proxy statement for our 2009 annual meeting is
incorporated herein by reference.

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1) Financial Statements

The information required by this Item is included in "Item 8. Financial Statements and Supplementary Data."

(a)(2) Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted because they are not
required under the related instructions, are not applicable, or the information has been provided in the consolidated financial statements or the notes thereto, included in "Item 8. Financial
Statements and Supplementary Data."

(a)(3) Exhibits:

The exhibits to this report are listed in the Exhibit Index included elsewhere herein. Included in the exhibits listed are the
following exhibits that constitute management contracts or compensatory plans or arrangements of the Company:

10.2(a)

2004 Omnibus Stock Plan.10.2(b)

Form of Restricted Stock Agreement.10.2(c)

Form of Nonqualified Stock Option Agreement.10.3

Form of Registration Rights Agreement.10.4

Nonqualified Stock Option Agreement between Advance America, Cash Advance Centers, Inc. and Kenneth E. Compton, dated as of October 27, 2005.


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10.5

Restricted Stock Agreement between Advance America, Cash Advance Centers, Inc. and Kenneth E. Compton, dated as of October 27, 2005.10.7

Advance America, Cash Advance Centers, Inc. Policy Regarding Receipt of Company Stock in Lieu of Cash Director's Fees.10.8

Description of Compensation Arrangement for Non-executive Directors.10.12

Summary of Terms of Arrangement for Personal Use of Aircraft by Kenneth E. Compton.10.13

Description of 2007 Cash Bonus Arrangement for Named Executive Officers.10.14

Separation Agreement and General Release between Advance America, Cash Advance Centers, Inc. and John I. Hill, dated as of August 28, 2007.10.15

Offer letter between Advance America, Cash Advance Centers, Inc. and Patrick O'Shaughnessy, dated as of August 20, 2007.10.16

Description of 2008 Cash Bonus Arrangement for Named Executive Officers.10.17

Description of 2009 Cash Bonus Arrangement for Named Executive Officers.


(b) Exhibits

Exhibit
Number

Description3(i)

Amended and Restated Certificate of Incorporation of the registrant (incorporated herein by reference to Exhibit 3.1 to Advance America, Cash Advance Centers, Inc.'s Registration Statement, on Form S-1,
Registration No. 333-118227 (the "IPO Registration Statement")).3(ii)

Amended and Restated Bylaws of the registrant effective as of October 24, 2007 (incorporated herein by reference to Exhibit 3.1 to Advance America, Cash Advance Centers, Inc.'s Current Report on
Form 8-K dated October 24, 2007).4.1

Specimen common stock certificate (incorporated herein by reference to Exhibit 4.1 to the IPO Registration Statement).10.1(a)

Amended and Restated Credit Agreement, dated as of March 24, 2008 (the "2008 Credit Facility") (incorporated herein by reference to Exhibit 10.1 to Advance America, Cash Advance Centers, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2008).10.1(b)

First Amendment, dated as of June 26, 2008, to the 2008 Credit Facility (incorporated herein by reference to Exhibit 10.1 to Advance America, Cash Advance Centers, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2008).10.2(a)

2004 Omnibus Stock Plan (incorporated herein by reference to Exhibit 10.5(a) to the IPO Registration Statement).10.2(b)

Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.5(b) to the IPO Registration Statement).10.2(c)

Form of Nonqualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.3 to Advance America, Cash Advance Centers, Inc.'s Current Report on Form 8-K filed on November 3, 2005
(the "November 2005 8-K")).10.3

Form of Registration Rights Agreement (incorporated herein by reference to Exhibit 10.6 to the IPO Registration Statement).


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Exhibit
Number

Description10.4

Nonqualified Stock Option Agreement between Advance America, Cash Advance Centers, Inc. and Kenneth E. Compton, dated as of October 27, 2005 (incorporated herein by reference to Exhibit 10.1 to the November
2005 8-K).10.5

Restricted Stock Agreement between Advance America, Cash Advance Centers, Inc. and Kenneth E. Compton, dated as of October 27, 2005 (incorporated herein by reference to Exhibit 10.2 to the November 2005
8-K).10.6

Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.11 to the IPO Registration Statement).10.7

Advance America, Cash Advance Centers, Inc. Policy Regarding Receipt of Company Stock in Lieu of Cash Director's Fees (incorporated herein by reference to Exhibit 99.1 to Advance America, Cash Advance
Centers, Inc.'s Current Report on Form 8-K filed on February 23, 2006).10.8

Description of Compensation Arrangement for Non-executive Directors (incorporated herein by reference to Exhibit 10.3 to the July 2006 8-K).10.9

Aircraft Dry Lease by and between Advance America, Cash Advance Centers, Inc. and Arizona, LLC, dated as of May 9, 2006 (incorporated herein by reference to Exhibit 10.2 to Advance America, Cash
Advance Centers, Inc.'s Current Report on Form 8-K filed on November 22, 2006 (the "November 2006 8-K")).10.10

Aircraft Dry Lease by and between Advance America, Cash Advance Centers, Inc. and Arizona, LLC, dated as of June 15, 2005 (incorporated herein by reference to Exhibit 10.3 to the November 2006
8-K).10.11

Summary of Terms of Reciprocal Use Agreement by and between Advance America, Cash Advance Centers, Inc. and Arizona, LLC (incorporated herein by reference to Exhibit 10.1 to the November 2006
8-K).10.12

Summary of Terms of Arrangement for Personal Use of Aircraft by Kenneth E. Compton (incorporated herein by reference to Exhibit 10.4 to the November 2006 8-K).10.13

Description of 2007 Cash Bonus Arrangement for Named Executive Officers (incorporated herein by reference to Exhibit 10.1 to Advance America, Cash Advance Centers, Inc.'s Current Report on Form 8-K
filed on February 26, 2007).10.14

Separation Agreement and General Release between Advance America, Cash Advance Centers, Inc. and John I. Hill, dated as of August 28, 2007 (incorporated herein by reference to Exhibit 10.1 to Advance
America, Cash Advance Centers, Inc.'s Current Report on Form 8-K filed on September 7, 2007).10.15

Offer letter between Advance America, Cash Advance Centers, Inc. and Patrick O'Shaughnessy, dated as of August 20, 2007 (incorporated herein by reference to Exhibit 10.1 to Advance America, Cash Advance
Centers, Inc.'s Current Report on Form 8-K filed on August 24, 2007).10.16

Description of 2008 Cash Bonus Arrangement for Named Executive Officers (incorporated herein by reference to Exhibit 10.1 to Advance America, Cash Advance Centers, Inc.'s Current Report on Form 8-K
filed on February 20, 2008).10.17

Description of 2009 Cash Bonus Arrangement for Named Executive Officers (incorporated herein by reference to Exhibit 10.1 to Advance America, Cash Advance Centers, Inc.'s Current Report on Form 8-K
filed on February 25, 2009).


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Exhibit
Number

Description21.1

Subsidiaries of the registrant.23.1

Consent of PricewaterhouseCoopers LLP.31(i)(A)

Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as amended.31(i)(B)

Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as amended.32.1

Certification of Chief Executive Officer of Advance America, Cash Advance Centers, Inc. pursuant to 18 U.S.C. Section 1350 (Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002).32.2

Certification of Chief Financial Officer of Advance America, Cash Advance Centers, Inc. pursuant to 18 U.S.C. Section 1350 (Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002).


(c)   Financial Statement Schedules

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 3rd day of March, 2009.

ADVANCE AMERICA,
CASH ADVANCE CENTERS, INC.By:

/s/ KENNETH E. COMPTON Kenneth E. Compton President and Chief Executive Officer


Pursuant
to the requirement 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 and on
the dates indicated.

Signature

Title

Date/s/ WILLIAM M. WEBSTER, IV William M. Webster, IV

Chairman of the Board and Director

March 3, 2009/s/ KENNETH E. COMPTON Kenneth E. Compton

President and Chief Executive Officer (Principal Executive Officer) and Director

March 3, 2009/s/ J. PATRICK O'SHAUGHNESSY J. Patrick O'Shaughnessy

Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) and Director

March 3, 2009/s/ STEPHEN K. BENJAMIN Stephen K. Benjamin

Director

March 3, 2009/s/ ROBERT H. CHAPMAN, III Robert H. Chapman, III

Director

March 3, 2009/s/ TONY S. COLLETTI Tony S. Colletti

Director

March 3, 2009/s/ THOMAS E. HANNAH Thomas E. Hannah

Director

March 3, 2009


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Signature

Title

Date/s/ DONOVAN A. LANGFORD, III Donovan A. Langford, III

Director

March 3, 2009/s/ W. OLIN NISBET W. Olin Nisbet

Director

March 3, 2009


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BOARD OF DIRECTORSWilliam M. Webster, IV
Chairman
Advance America, Cash
    Advance Centers, Inc.Kenneth E. Compton
President and Chief
    Executive Officer
Advance America, Cash
    Advance Centers, IncJ. Patrick O'Shaughnessy
Executive Vice President and
    Chief Financial Officer
Advance America, Cash
    Advance Centers, Inc.Stephen K. Benjamin (2)
Principal
McAngus, Goudelock and
    Courie, LLCRobert H. Chapman, III (1)(3)
Chairman and
    Chief Executive Officer
Inman MillsTony S. Colletti
Principal
Colletti & AssociatesThomas E. Hannah (2)(3)
Chief Executive Officer and
    President
USLC, Southport SourcingDonovan A. Langford, III (1)(2)
Vice President
WMX, Inc.W. Olin Nisbet (1)(3)
Partner
Lions Gate Capital, LLC


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MANAGEMENT TEAMKenneth E. Compton
President and
    Chief Executive OfficerJ. Patrick O'Shaughnessy
Executive Vice President and
    Chief Financial OfficerW. Thomas Newell
Vice President Legal &
    RegulatoryLadson F. Belcher
Senior Vice President
    North American Field
    OperationsMarlin Askew
Zone ExecutiveRichard A. Fadel, Jr.
Zone ExecutiveJennifer G. Rodriguez
Zone ExecutiveGeorge S. Leishman
Zone ExecutiveCORPORATE
HEADQUARTERSAdvance America, Cash
    Advance Centers, Inc.
135 North Church Street
Spartanburg, SC 29306 www.advanceamerica.netREGISTERED PUBLIC
ACCOUNTING FIRMPricewaterhouseCoopers LLP
Charlotte, North CarolinaANNUAL MEETING OF STOCKHOLDERSMay 21, 2009; 9:00AM EDT
Advance America, Cash
    Advance Centers, Inc.
135 North Church Street
Spartanburg, SC 29306TRANSFER AGENT AND REGISTRAROur transfer agent, National City Bank, can assist you with stock-related questions,
including stock certificates, stock transfers, name change or change of address.
Within the U.S.: 800-622-6757 Outside the U.S.: 216-257-8663 Hearing Impaired TTY: 800-622-5571Or you may write to:Advance America, Cash
    Advance Centers, Inc.
c/o National City Bank
Corporate Trust Operations
Loc. 5352 P. O. Box 92301
Cleveland, OH 44193-0900E-mail:
shareholder.inquiries@
nationalcity.comSTOCK EXCHANGE
LISTINGOur common stock is listed on the New York Stock Exchange under the symbol AEA.ADDITIONAL FINANCIAL INFORMATIONFor further information about Advance America, Cash Advance Centers, Inc., additional copies of this booklet, our Form 10-K, or other financial information without charge, visit the Investor
Relations section of the Advance America, Cash Advance Centers, Inc. website atwww.advanceamerica.netand click on "Information Requests."


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