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

FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 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

58-2332639(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)


135 North Church Street
Spartanburg, South Carolina 29306(Address of principal executive offices) (Zip Code)

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

None(Former name, former address and former fiscal year, if changed since last report)

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 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. (Check one):

Large accelerated filer ý

Accelerated filer o

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

Smaller reporting company o


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

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

Class

Outstanding as of August 8, 2008Common Stock, par value $.01 per share

61,085,487 shares




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ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.  Form 10-Q  For the three months and six months ended June 30, 2008

PageFORWARD-LOOKING STATEMENTS

3PART I.

FINANCIAL INFORMATION

4Item 1.

Financial Statements

4Unaudited Consolidated Balance Sheets December 31, 2007 and June 30, 2008

4Interim Unaudited Consolidated Statements of Income Three Months and Six Months Ended June 30, 2007 and 2008

5Interim Unaudited Consolidated Statement of Stockholders' Equity Six Months Ended June 30, 2008

6Interim Unaudited Consolidated Statements of Cash Flows Six Months Ended June 30, 2007 and 2008

7Notes to Interim Unaudited Consolidated Financial Statements

8Item 2.

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

24Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47Item 4.

Controls and Procedures

48PART II.

OTHER INFORMATION

49Item 1.

Legal Proceedings

49Item 1A.

Risk Factors

49Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51Item 4.

Submission of Matters to a Vote of Security Holders

51Item 6.

Exhibits

52SIGNATURES

53INDEX TO EXHIBITS

54


2

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FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q 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
matters described in "Part I. Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2007 and in
"Part II. Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q, as well as any cautionary language in this Quarterly 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, the examples we provided.

Forward-looking
statements speak only as of the date of this Quarterly 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 Quarterly 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 Quarterly 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.

3

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PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Advance America, Cash Advance Centers, Inc.        Unaudited Consolidated Balance Sheets        December 31, 2007 and June 30, 2008    
(in thousands, except per share data)

December 31,
2007

June 30,
2008AssetsCurrent assetsCash and cash equivalents

$
28,251

$
22,040Advances and fees receivable, net


221,480


195,695Deferred income taxes


13,737


12,942Other current assets


13,578


28,058Total current assets


277,046


258,735Restricted cash


5,701


5,397Property and equipment, net


57,616


52,985Goodwill


127,286


128,060Other assets


4,049


4,973Total assets

$
471,698

$
450,150Liabilities and Stockholders' EquityCurrent liabilitiesAccounts payable

$
16,204

$
15,200Accrued liabilities


31,823


30,910Income taxes payable





91Accrual for third-party lender losses


4,587


3,617Current portion of long-term debt


542


561Total current liabilities


53,156


50,379Revolving credit facility


142,302


187,928Long-term debt


5,136


4,851Deferred income taxes


20,629


22,189Deferred revenue





5,819Other liabilities


184


269Total liabilities


221,407


271,435Commitments and contingencies (Note 5)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 62,781 outstanding as of December 31, 2007 and June 30, 2008,
respectively


968


968Paid in capital


286,999


288,025Retained earnings


133,789


141,022Accumulated other comprehensive loss


(75
)

(124
)Common stock in treasury (23,874 and 34,040 shares at cost atDecember 31, 2007 and June 30, 2008, respectively)


(171,390
)

(251,176
)Total stockholders' equity


250,291


178,715Total liabilities and stockholders' equity

$
471,698

$
450,150


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

4

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Advance America, Cash Advance Centers, Inc.        Interim Unaudited Consolidated Statements of Income        Three Months and Six Months Ended June 30, 2007
and 2008        (in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,2007

2008

2007

2008Total Revenues

$
173,939

$
162,142

$
342,022

$
327,598Center Expenses:Salaries and related payroll costs


49,759


49,305


98,956


100,706Provision for doubtful accounts


30,824


30,225


46,639


51,005Occupancy costs


23,686


24,605


47,219


50,029Center depreciation expense


4,264


4,228


8,533


8,523Advertising expense


7,592


6,844


12,901


9,990Other center expenses


13,528


11,041


27,686


25,636Total center expenses


129,653


126,248


241,934


245,889Center gross profit


44,286


35,894


100,088


81,709Corporate and Other Expenses (Income):General and administrative expenses


15,684


16,009


28,963


32,384Corporate depreciation expense


812


792


1,630


1,560Interest expense


2,290


2,529


4,603


5,217Interest income


(122
)

(29
)

(198
)

(70
)Loss on disposal of property and equipment


283


92


535


218Loss on impairment of assets








314


236Income before income taxes


25,339


16,501


64,241


42,164Income tax expense


10,186


7,227


26,529


18,086Income before income of consolidatedvariable interest entity


15,153


9,274


37,712


24,078Income of consolidated variable interest entity


(317
)




(560
)

Net income

$
14,836

$
9,274

$
37,152

$
24,078Net income per common share:Basic

$
0.19

$
0.14

$
0.47

$
0.36Diluted

$
0.19

$
0.14

$
0.47

$
0.36Dividends declared per common share

$
0.125

$
0.125

$
0.25

$
0.25Weighted average number of shares outstanding:Basic


79,122


64,508


79,120


67,586Diluted


79,286


64,512


79,199


67,607


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

5

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Advance America, Cash Advance Centers, Inc.        Interim Unaudited Consolidated Statement of Stockholders' Equity        Six Months Ended June 30, 2008
    (in thousands, except per share data)

Common Stock







Common Stock
In TreasuryAccumulated
Other
Comprehensive
LossPar
Value

Paid-In
Capital

Retained
EarningsShares

Shares

Amount

TotalBalances, December 31, 2007


96,821

$
968

$
286,999

$
133,789

$
(75
)

(23,874
)
$
(171,390
)
$
250,291Comprehensive income:Net income











24,078











24,078Foreign currency translation














(49
)







(49
)Total comprehensive income























24,029Dividends paid ($0.25 per share)











(16,779
)










(16,779
)Dividends payable











(66
)










(66
)Purchases of treasury stock

















(10,213
)

(79,896
)

(79,896
)Issuance of restricted stock

















42





Vesting of restricted stock issuedfrom treasury stock








(71
)










71


Amortization of restricted stock








440














440Stock option expense








650














650Issuance of common stock todirector in lieu of cash








7








5


39


46Balances, June 30, 2008


96,821

$
968

$
288,025

$
141,022

$
(124
)

(34,040
)
$
(251,176
)
$
178,715


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

6

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Advance America, Cash Advance Centers, Inc.        Interim Unaudited Consolidated Statements of Cash Flows        Six Months Ended June 30, 2007 and 2008
    (in thousands)

2007

2008Cash flows from operating activitiesNet income

$
37,152

$
24,078Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitionIncome of consolidated variable interest entity


560


Depreciation and amortization


10,163


10,101Non-cash interest expense


495


393Provision for doubtful accounts


46,639


51,005Deferred income taxes


(1,627
)

2,355Loss on disposal of property and equipment


535


218Loss on impairment of assets


314


236Amortization of restricted stock


784


440Stock option expense


489


650Common stock issued to director in lieu of cash


49


46Changes in operating assets and liabilitiesFees receivable, net


(7,306
)

(4,886
)Other current assets


(1,956
)

(14,494
)Other assets


(381
)

268Accounts payable


(1,713
)

(500
)Accrued liabilities


(3,005
)

(1,081
)Income taxes payable


(13,592
)

91Deferred revenue





5,819Other liabilities





38Net cash provided by operating activities


67,600


74,777Cash flows from investing activitiesChanges in advances receivable


(28,350
)

(21,298
)Changes in restricted cash


(101
)

304Acquisition of business, net of cash acquired





(769
)Proceeds from sale of property and equipment


34


22Purchases of property and equipment


(7,046
)

(5,789
)Net cash used in investing activities


(35,463
)

(27,530
)Cash flows from financing activities(Payments on)/proceeds from revolving credit facility, net


(37,989
)

45,626Decrease in non-controlling interest of variable interest entity


(4,482
)

Payments on mortgage payable


(188
)

(203
)Payments on note payable


(91
)

(64
)Payments of financing costs


(11
)

(1,585
)Purchases of treasury stock


(41
)

(79,896
)Payments of dividends


(19,779
)

(16,779
)Changes in book overdrafts


97


(525
)Net cash used in financing activities


(62,484
)

(53,426
)Effect of exchange rate changes on cash and cash equivalents





(32
)Net decrease in cash and cash equivalents


(30,347
)

(6,211
)Cash and cash equivalents, beginning of period


67,245


28,251Cash and cash equivalents, end of period

$
36,898

$
22,040Supplemental disclosures of cash flow information:Cash paid during the period for:Interest

$
3,848

$
5,149Income taxes


41,748


25,142Supplemental schedule of non-cash investing and financing activity:Property and equipment purchases included in accounts payable and accrued expenses


460


151Restricted stock dividends payable


102


67Net assets acquired through acquisition of business





61


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

7

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Advance America, Cash Advance Centers, Inc.        Notes to Interim Unaudited Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim unaudited consolidated financial statements of Advance America, Cash Advance Centers, Inc. ("AACACI")
and its wholly owned subsidiaries (collectively, the "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information
and the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). They do not include all information and footnotes required by accounting principles generally accepted in the
United States for complete financial statements. Although management believes that the disclosures are adequate to prevent the information from being misleading, the interim unaudited consolidated
financial statements should be read in conjunction with the Company's audited financial statements in the Company's Annual Report on Form 10-K for the year ended December 31,
2007 filed with the SEC. In the opinion of the Company's management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of the Company's financial
condition, have been included. The results of operations for the six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for future interim periods or
the entire year ending December 31, 2008.

Description of Business

The Company conducts business under the authority of a variety of enabling state statutes including payday advance, deferred
presentment, check-cashing, small loan, credit service organization and other state laws whereby advances are made directly to customers. 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.

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. The Company has also entered into a long-term services contract for which the
Company receives advance payments. These advance payments are recorded as deferred revenue and recognized as revenue over the life of the contract subject to certain terms and conditions.

Concentration of Risk

For the three months ended June 30, 2007 and 2008, total revenues within the Company's five largest states (measured by total
revenues) accounted for approximately 46% and 48%, respectively, of the Company's total revenues. For the six months ended June 30, 2007 and 2008, total revenues within the Company's five
largest states (measured by total revenues) accounted for approximately 46% and 48%, respectively, of the Company's total revenues.

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

8

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

1. Summary of Significant Accounting Policies (Continued)

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.

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 outstanding stock options. For the three months ended June 30, 2007 and 2008, zero and 285,613 restricted shares, respectively, were not
included in the computation of diluted earnings per share because the effect of including them would be anti-dilutive. For the six months ended June 30, 2007 and 2008, zero and
243,613 restricted shares, respectively were not included in the computation of diluted earnings per share because the effect of including them would be anti-dilutive. For the three and
six months ended June 30, 2007, options to purchase 340,000 shares and 1,290,000 shares, respectively, of common stock were not included in the computation of diluted earnings per share because
the effect of including them would be anti-dilutive. For the three and six months ended June 30, 2008, options to purchase 1,612,500 shares of common stock were not included in the
computation of diluted earnings per share because the effect of including them would be anti-dilutive.

The
following table presents the reconciliation of the denominator used in the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2007
and 2008 (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

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


79,122


64,508


79,120


67,586Effect of dilutive unvested restricted stock


105


4


79


21Effect of dilutive outstanding stock options


59








Weighted average number of common shares
outstandingdiluted


79,286


64,512


79,199


67,607


Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (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 was 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 or results of operations.

9

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

1. Summary of Significant Accounting Policies (Continued)

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% 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 the adoption of this standard to have a material impact on
its financial position 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
May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, "The Hierarchy of Generally Accepted Accounting Principles" (SFAS "162"). SFAS 162
identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles ("GAAP") in the United States ("the GAAP hierarchy"). SFAS 162 makes the GAAP hierarchy explicitly and directly applicable to preparers
of financial statements, a step that recognizes the preparers' responsibilities for selecting the accounting principles for their financial statements, and sets the stage for making the framework of
FASB Concept Statements fully authoritative. The effective date for SFAS 162 is 60 days following the SEC's approval of the Public Company Accounting Oversight Board's related amendments
to remove the GAAP hierarchy from auditing standards, where it has resided for some time. The adoption of SFAS 162 will have no impact on the Company's financial position or results of
operations.

10

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

1. Summary of Significant Accounting Policies (Continued)

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.

2. Advances and Fees Receivable, Net

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

December 31,
2007

June 30,
2008Advances receivable

$
209,897

$
187,103Fees and interest receivable


36,454


31,191Returned items receivable


49,442


42,594Other


11,224


4,155Allowance for doubtful accounts


(61,306
)

(53,496
)Unearned revenues


(24,231
)

(15,852
)Advances and fees receivable, net

$
221,480

$
195,695


3. Allowance for Doubtful Accounts and Accrual for Third-Party Lender Losses

Changes in the allowance for doubtful accounts for the three and six months ended June 30, 2007 and 2008 were as follows (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Beginning balance

$
47,417

$
49,877

$
57,396

$
61,306Provision for doubtful accounts


30,824


30,101


46,639


51,975Charge-offs


(30,459
)

(31,828
)

(68,942
)

(75,503
)Recoveries


8,530


5,346


21,219


15,718Ending balance

$
56,312

$
53,496

$
56,312

$
53,496


Changes
in the accrual for third-party lender losses for the three and six months ended June 30, 2007 and 2008 were as follows (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Beginning balance

$


$
3,493

$


$
4,587Provision for doubtful accounts





124





(970
)Ending balance

$


$
3,617

$


$
3,617


11

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

3. Allowance for Doubtful Accounts and Accrual for Third-Party Lender Losses (Continued)

The
total changes in the allowance for doubtful accounts and the accrual for third-party lender losses for the three and six months ended June 30, 2007 and 2008 were as follows
(in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Beginning balance

$
47,417

$
53,370

$
57,396

$
65,893Provision for doubtful accounts


30,824


30,225


46,639


51,005Charge-offs


(30,459
)

(31,828
)

(68,942
)

(75,503
)Recoveries


8,530


5,346


21,219


15,718Ending balance

$
56,312

$
57,113

$
56,312

$
57,113


4. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

December 31,
2007

June 30,
2008Employee compensation

$
11,797

$
12,600Workers' compensation


4,629


4,413Health and dental insurance


925


275Lease smoothing


2,920


2,970Advertising


436


1,045Construction in progress


962


151Center closing costs


1,696


1,140Accounting and tax


1,058


558Property, sales and franchise taxes


558


747Legal


1,789


1,547Severance


1,113


295Deferred revenue





1,855Other


3,940


3,314Total

$
31,823

$
30,910


5. Commitments and Contingencies

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. The Company is vigorously defending against these actions and will, when management believes appropriate in consideration of ongoing litigation expenses
and other factors, evaluate reasonable settlement opportunities. The amount of losses and/or the probability of an unfavorable outcome, if any, cannot be reasonably estimated at this time for these
legal proceedings. Accordingly, no accrual has been recorded for any of these matters as of June 30, 2008.

12

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

5. Commitments and Contingencies (Continued)



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 loans, which would total approximately $87 million in damages, 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 on April 22, 2008. The Company appealed both decisions. The Appellate Court has issued a stay of proceedings in the trial court pending outcome of the Company's appeal of the
arbitration issue.



On July 3, 2007, Phyliss Garrett filed a motion for contempt in the Circuit Court of Clark County, Arkansas alleging a violation of the 2001 class action
settlement agreement entered into by the Company's prior subsidiary in Arkansas and incorporated into a court order. The relief sought by the plaintiff and the Company's defenses are substantially
similar to those at issue in theBrenda McGinnislawsuit described above. The plaintiff has voluntarily made a motion to withdraw and dismiss this case
which, when entered by the court, will resolve all claims against the Company.



On May 31, 2007, Kelvin White and two other individuals filed a lawsuit in the Circuit Court of Ouachita County, Arkansas making substantially similar
allegations and seeking substantially similar relief to theBrenda McGinnislawsuit described above. The Company's defenses are also substantially
similar. In July 2008, the parties settled this case, and, once entered by the court, all claims will be resolved against the Company.



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 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 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

13

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

5. Commitments and Contingencies (Continued)

unspecified
damages, and the named defendants could be required to refund fees and/or interest collected, refund the principal amount of payday 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. The trial court has denied the
defendants' motion to compel arbitration of Ms. Kelly's claims, the substituted named plaintiff. All proceedings at the trial court level are stayed pending the outcome of the defendants'
appeal of the trial court's decision to deny arbitration.



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 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 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 payday 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 payday 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. The Company and the other defendants have denied the plaintiffs' claims and intend to continue to resist plaintiffs' efforts to conduct class arbitration.



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 payday 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. Accordingly, the case is proceeding to trial before the U.S. Bankruptcy Court.

14

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

5. Commitments and Contingencies (Continued)



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. The action alleges that the arbitration clause and 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.



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 payday 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 payday cash advances it offered. The lawsuit also claims that the payday 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 payday 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.



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 Commissioner of Banks has agreed to stay this
case until October 1, 2008, at which time the parties will either agree to further stay the case pending outcome ofKucanarbitration issue or
resume ongoing litigation with respect to the alleged violations of the North Carolina Consumer Finance Act.

15

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

5. Commitments and Contingencies (Continued)



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. The usury claim could result in damages equal to three times the monthly participation fees paid by customers since June 2006, which would total
approximately $135 million in damages plus attorneys fees and costs. 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 as the CDCA violations continued and
from collecting monthly participation fees. The Company appealed to the Pennsylvania Supreme Court. On May 29, 2008 the Pennsylvania Supreme Court upheld the lower court's ruling. The
Commonwealth Court has not yet ruled on the usury claims.



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.



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 payday 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 payday 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 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. Both parties appealed this
order and, in July 2008, the Court of

16

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

5. Commitments and Contingencies (Continued)

Appeals
ordered the parties to engage in mediation. The parties are currently engaged in court-ordered mediation.



Seven 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; and Kimberly Kinney filed a complaint on
October 12, 2007 in the Marion County Court of Common Pleas. 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 has been
removed to the United States District Court for the District of South Carolina. The complaint filed by Lisa Johnson and Gilbert Herbert has been remanded to state court and the Company is seeking an
appeal of this ruling. The plaintiffs in the remaining class actions have moved to remand those actions to state court and the parties are awaiting the court's decision on those motions.



On September 12, 2007, Francisco Gonzalez filed a collective action lawsuit against the Company's 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. The Company is awaiting a ruling on its
motion to dismiss in this matter.



In June 2008, the Governor of Ohio signed a bill into law that would cap interest rates on payday loans and limit the number of advances a customer may take in
any one year. This law is currently scheduled to become effective on September 1, 2008. The Company, together with other industry leaders, has initiated legal challenges and grassroots ballot
initiatives to attempt to postpone the effective date and overturn this legislation. However, if these efforts are unsuccessful, this legislation will likely become effective as scheduled. If this
occurs, the Company may not be able to implement an economically viable alternative loan product, and therefore may need to close its centers in Ohio.

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

17

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

5. Commitments and Contingencies (Continued)

termination
costs and the write-down of fixed assets would be approximately $6.9 million to $18.5 million. The collectibility of advances and fees receivable in Ohio would most likely be
impaired. As of June 30, 2008, the net receivable balance in Ohio was approximately $17.4 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 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.

6. Capital Stock and Stock-Based Compensation Plans

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 announced that its Board of Directors had approved a further extension of the
Company's stock repurchase program to cover an additional $75.0 million of the Company's currently outstanding common stock. During the three months ended June 30, 2007, the Company did
not repurchase any shares pursuant to its stock repurchase program. During the three months ended June 30, 2008, the Company repurchased 5,455,018 shares of its common stock at a cost of
approximately $43.1 million pursuant to its stock repurchase program. During the six months ended June 30, 2007 and 2008, the Company repurchased zero and 10,211,068 shares of its
common stock, respectively, at a cost of approximately zero and $79.9 million, respectively pursuant to its stock repurchase program. Additionally, for the six months ended June 30, 2007
and 2008, 2,826 and 3,272 shares of common stock, respectively, were surrendered by 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.

In
2004, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment ("SFAS 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

18

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

6. Capital Stock and Stock-Based Compensation Plans (Continued)

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:



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 six months ended June 30, 2007 and 2008:

2007

2008Expected term (years)


4.41


5.42Expected volatility


46
%

48
%Expected dividends (yield)


3.0
%

4.1
%Risk-free rate


4.42
%

2.93
%


The
weighted average grant date fair values of options granted during the six months ended June 30, 2007 and 2008 were $4.51 per option and $2.70 per option, respectively, and are
being expensed ratably over each award's respective vesting period.

19

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

6. Capital Stock and Stock-Based Compensation Plans (Continued)

The
following table provides certain information with respect to stock options outstanding and exercisable at June 30, 2008 under the Company's stock-based compensation plans:

Outstanding

ExercisableNumber of stock options


1,612,500


325,000Range of exercise prices

$
8.48  $14.70

$
12.11  $14.70Weighted average exercise price

$
11.79

$
13.02Aggregate intrinsic value (in thousands)

$
(10,812
)
$
(2,581
)Weighted average remaining contractual term (years)


8.1


7.3


A
summary of the Company's authorized and available shares, activity for the six months ended June 30, 2008, 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 PriceAt 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








(17,500
)

17,500


8.60At June 30, 2008


5,200,000


549,988


1,612,500


3,037,512

$
11.79


A
summary of the Company's restricted stock activity for the six months ended June 30, 2008 and the weighted average grant date fair values follows:

Shares

Weighted
Average
Fair ValueNonvested at December 31, 2007


266,667

$
12.10Granted


42,000


8.65Vested


(9,777
)

14.67Forfeited





Nonvested at June 30, 2008


298,890

$
11.53


The
total grant date fair value of restricted shares vested during the six months ended June 30, 2007 and 2008 was approximately $0.1 million and $0.1 million,
respectively, and the total market value of these shares on the dates vested was approximately $0.1 million and $0.1 million, respectively.

20

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

6. Capital Stock and Stock-Based Compensation Plans (Continued)

A
summary of the stock-based compensation cost included in general and administrative expenses in the accompanying consolidated statements of income for the three and six months ended
June 30, 2007 and 2008 follows (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Restricted stock

$
392

$
224

$
784

$
440Stock options


246


327


489


650Total stock-based compensation expense

$
638

$
551

$
1,273

$
1,090


As
of June 30, 2008, the total compensation cost not yet recognized related to nonvested stock awards under the Company's plans is approximately $7.4 million. The weighted
average period over which this expense is expected to be recognized is approximately 4.3 years.

7. 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 ("CSO 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. The Company processed loan applications and committed to reimburse the lender for any loans
or related fees that were not collected from those 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 and for the three and six months ended June 30, 2007.

The
Company has determined that the new lender is also a VIE but that the Company is not the primary beneficiary of this VIE. Therefore, the Company has not consolidated the new lender
as of and for the three and six months ended June 30, 2008.

21

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

7. Transactions with Variable Interest Entities (Continued)

The
impact of the consolidation of the former lender on the Company's consolidated statements of income for the three and six months ended June 30, 2007 was to increase (decrease)
the following income statement accounts as follows (in thousands):

Three Months Ended
June 30, 2007

Six Months Ended
June 30, 2007Total revenues

$
1,067

$
2,106Provision for doubtful accounts


(349
)

(671
)Other center expenses


228


454Interest expense


656


1,379Income tax expense


215


384Income of consolidated variable interest entity


317


560


Under
the terms of the Company's agreement with its new 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 June 30, 2008, the third-party lender's outstanding advances and interest receivable (which were not recorded on the Company's
balance sheet) totaled approximately $16.9 million, 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. The accrual for third-party lender losses that was reported in the Company's balance
sheet at June 30, 2008 was approximately $3.6 million and was established on a basis similar to the allowance for doubtful accounts.

8. Related Party Transactions

Included in center expenses are expenses for center leases with related parties of approximately $13,000 and zero for the three months ended June 30, 2007 and 2008, respectively,
and approximately $23,000 and $5,000 for the six months ended June 30, 2007 and 2008, respectively. Included in general and administrative expenses are expenses with related parties, relating
primarily to aircraft operating expenses and operating leases for office and warehouse space, of approximately $154,000 and $86,000 for the three months ended June 30, 2007 and 2008,
respectively, and approximately $153,000 and $173,000 for the six months ended June 30, 2007 and 2008, respectively.

In
addition, under a time-share arrangement, the Company's Chairman and Vice 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 Chairman and formerly owned, in part, by the Company's Vice Chairman. Included in accounts receivable at June 30, 2008 is a $4,000 net receivable
related to this arrangement.

9. Revolving Credit Facility

In March 2008, the Company amended and restated its prior credit facility with a syndicate of banks. This revolving credit facility now provides the Company with a $270.0 million
revolving line of

22

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Advance America, Cash Advance Centers, Inc.

Notes to Interim Unaudited Consolidated Financial Statements (Continued)

9. Revolving Credit Facility (Continued)

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 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.

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 June 30, 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 June 30, 2008 the Company had $187.9 million outstanding on the revolving portion of the credit facility and $1.1 million of letters of credit outstanding.

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.

10. Subsequent Events

On July 23, 2008, the Company's Board of Directors declared a cash dividend of $0.125 per share of common stock, payable on September 5, 2008 to shareholders of record on
August 26, 2008.

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, the Company determined on July 24, 2008 that it was no longer economically viable to continue operating in New Mexico and will
close its remaining nine New Mexico centers in the third quarter of 2008.

During
the third quarter of 2008, the Company expects to record closing costs for severance, lease termination, and write-off of the undepreciated costs of fixed assets and
other closing costs in these centers totaling approximately $0.6 million. The Company expects to sell its related receivables and no further charge to write-down those receivables
is expected. The cessation of the Company's New Mexico operations is not expected to result in an impairment of goodwill.

On
August 5, 2008, the Company announced that William M. "Billy" Webster IV was elected by the Company's Board of Directors as its Chairman. Mr. Webster
succeeds George Dean Johnson Jr., who resigned as a director due to personal reasons and not because of any disagreement with the Company.

23

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ITEM 2.    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 1. Financial Statements." This discussion contains forward-looking statements that involve risks and uncertainties such
as our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated by these forward-looking statements. Please see Item 1A of
Part II of this Quarterly Report and "Forward-Looking Statements" at the end of this section for further discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

Headquartered in Spartanburg, South Carolina, we are the largest provider of payday 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 June 30, 2008, we
operated 2,832 centers in 35 states in the United States, 14 centers in the United Kingdom and 10 centers in Canada, and had 82 limited licensees in the United Kingdom.

We
conduct our business in most states under the authority of a variety of enabling state statutes including payday advance, deferred presentment, check-cashing, small loan, credit
service organization and other state laws. In Texas, where we operate as a credit services organization ("CSO"), we refer customers to a third-party lender that may approve and fund advances to
customers. 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. During 2006, we began offering the Advance America Choice-Line of Credit to customers in Pennsylvania and installment loans to
customers in Illinois. As a result of a July 2007 ruling in Pennsylvania, we ceased offering the Choice-Line of Credit. In the United Kingdom, we have recently started offering
short-term advances, check-cashing and other related financial products and providing limited licenses of our services to independent contractors.

We
provide advances and charge fees and/or interest as specified by the laws of the jurisdictions where we operate. The permitted size of an advance varies by jurisdiction and ranges
from $50 to $1,000. The permitted fees and/or interest on an advance also vary by jurisdiction and range from 10% to 22% of the amount of a payday cash advance. Fees and interest for the line of
credit product in Pennsylvania consisted of a monthly service fee for the line of credit plus interest on the average outstanding balance. Fees and interest for installment loans are larger relative
to the size of the advance because of the longer term of this product.

Additional
fees that we may collect include fees for returned checks and late fees. The returned check fee varies by state and ranges up to $30. We charge a customer this fee if a
deposited check is returned due to non-sufficient funds ("NSF") in the customer's account or other reasons. In three states, we are also permitted to charge a late fee, the amount of which
varies by state. In Texas, the third-party lender charges a late fee on its loans in accordance with state law.

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 are substantially similar in most jurisdictions.



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

24

---





We
determine whether to approve an advance to our customers (except in Texas, where the third-party lender makes this determination). We do not undertake any evaluation of the
creditworthiness of our customers in determining whether to approve customers for advances, other than requiring proof of identification, bank account and income source, as described above. We also
consider the customer's income in determining the amount of the advance.



Generally, when customers return to a center to repay their advances they may: (1) pay their outstanding advances in full; (2) pay their outstanding
advances in full and enter into a new advance on the same date; or (3) in some states, extend their outstanding advance by paying only the applicable charges (which is often referred to in our
industry as a rollover). Our policies regarding repayment options are based on the Community Financial Services Association of America's ("CFSA") Best Practices and the various applicable state laws,
which do not make a consistent distinction among stand-alone, rollover and other types of consecutive transactions.

Currently,
we generally limit transactions to the lower of either four rollovers or the applicable state limit. Other than in regard to compliance with this policy, we do not
systematically gather, review or analyze whether a transaction may be considered a rollover transaction because this distinction is not consistent under the various applicable statutes and we do not
believe this distinction is relevant to our revenue analysis.

If
a customer does not return to repay the amount due, the center manager 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. If the center manager has decided to commence past-due collection efforts in lieu of
depositing the customer's personal check, center employees typically contact the customer by telephone or in person to obtain a payment or a promise to pay and attempt to exchange the customer's check
for a cashier's check, if funds are available.

If
a customer is unable to meet his or her current repayment for an advance, they may qualify for an extended payment plan ("Payment Plan"). In most states, the terms of our Payment Plan
conform to the CFSA's Best Practices and guidelines. 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 will 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, center personnel
may resume normal collection procedures. We do not offer a Payment Plan for installment loans, nor does the third-party lender in Texas offer a Payment Plan for advances to its customers.

25

---



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 then deposited. For the year
ended December 31, 2007, approximately 6.2% of total customer checks were deposited and for the six months ended June 30, 2008, approximately 5.7% of total customer checks were
deposited. Additional collection efforts are not required if the customer's deposited check clears. For the year ended December 31, 2007, approximately 24% of deposited customer checks cleared
(i.e., were not returned NSF) and for the six months ended June 30, 2008, approximately 25.4% of deposited customer checks cleared. If the customer's check 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, additional collection efforts begin. 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.



The following table presents key operating data for our business:

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Number of centers open at end of period


2,909


2,856


2,909


2,856Number of customers servedall credit products (thousands)


881


820


1,097


1,042Number of payday cash advances originated (thousands)


2,936


2,864


5,640


5,645Aggregate principal amount of payday cash advances originated (thousands)

$
1,045,306

$
1,045,174

$
2,013,534

$
2,065,964Average amount of each payday cash advance originated

$
356

$
365

$
357

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

$
56

$
56

$
55

$
56Average duration of a payday cash advance (days)


16.4


16.7


16.4


16.7Average number of lines of credit outstanding during the period (thousands) (1)


24





24


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

$
10,185

$


$
10,193

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

$
433

$


$
428

$
Number of installment loans originated (thousands)


9


8


15


14Aggregate principal amount of installment loans originated (thousands)

$
3,812

$
4,049

$
6,157

$
6,374Average principal amount of each installment loan originated

$
410

$
482

$
412

$
460Average charge to customers for providing and processing an installment loan (2)

$
562

$
118

$
565

$
497


---

26

---





Our revenues consist of fees and/or interest paid to us directly by our customers. 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.



The effective income tax rate as a percentage of income before income taxes was 40.2% and 43.8% for the three months ended June 30, 2007 and 2008,
respectively. The effective income tax rate as a percentage of income before income taxes was 41.3% and 42.9% for the six months ended June 30, 2007 and 2008, respectively. The increase in the
current year tax rate is primarily due to losses from our foreign operations and an increase in non-deductible expenses for the three and six months ended June 30, 2008.



During the last few years, legislation that prohibits or severely restricts payday cash advances and similar services has been introduced or adopted in a number
of states, and we expect that trend to continue in other states for the foreseeable future. For example, legislation has been adopted recently in Virginia and New Hampshire that will require us to
change our product offerings. If we are able to develop legally-viable alternative products, we will likely incur a reduction in our revenues and profitability in those states. Further, legislation
permitting payday cash advances in certain states, such as Arizona, is scheduled to expire over the next few years. 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 product offerings and developing new products or business models 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- or long-term
changes, interruptions in revenues, and lower operating margins. Until and unless we are able to develop legally-viable alternative products, we generally cannot estimate in advance the actual effect
of operational changes we make in response to legislative and regulatory changes.



In 2006, we began providing check-cashing services to customers in Arkansas pursuant to the Arkansas Check Cashers Act. 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. Although we are defending the legality of our check-cashing operations in other litigation in Arkansas, we have voluntarily cooperated with the Attorney General's demands. We believe we have
strictly complied with the Check Cashers Act while operating in Arkansas. We now offer consumer loans for personal, family, and household purposes at interest rates below the usury cap and continue to
offer check cashing services from all
centers located in Arkansas. We believe our operations in Arkansas will be economically viable on a going-forward basis.

For
the three months ended June 30, 2007 and 2008, 0.8% and 0.5%, respectively, of our total revenues were generated from our operations in Arkansas. For the six months ended
June 30, 2007 and 2008, 0.8% and 0.7%, respectively, of our total revenues were generated from our operations in

27

---



Arkansas.
The following is a summary of financial information for our operations in Arkansas for the three and six months ended June 30, 2007 and 2008 (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Total revenues

$
1,426

$
822

$
2,709

$
2,351Total center expenses


1,135


1,398


2,161


2,749Center gross profit (loss)

$
291

$
(576
)
$
548

$
(398
)


Included
in total center expenses for the three and six months ended June 30, 2008 are charges of approximately $248,000 and $485,000, respectively, for the write down of
receivables related to the change in our operations in Arkansas.



In June 2008, the Governor of Ohio signed into law a bill that would cap interest rates on payday loans and limit the number of advances a customer may take in
any one year. This law is scheduled to become effective on September 1, 2008. If our legal challenges and ballot initiatives are not successful in delaying or defeating this law and this law
becomes effective, we do not expect it to be economically viable for us to continue operations in Ohio. Presently, we continue to serve our existing customers who are in good standing.

For
the three months ended June 30, 2007 and 2008, 9.4% and 8.3%, respectively, of our total revenues were generated from our operations in Ohio. For the six months ended
June 30, 2007 and 2008, 9.3% and 8.8%, respectively, of our total revenues were generated from our operations in Ohio. The following is a summary of financial information for our operations in
Ohio for the three and six months ended June 30, 2007 and 2008 (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Total revenues

$
16,316

$
13,415

$
31,756

$
28,967Total center expenses


11,250


10,563


20,799


21,625Center gross profit

$
5,066

$
2852

$
10,957

$
7,342


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 $6.9 million to $18.5 million. The collectibility of advances and fees receivable in Ohio would most
likely be impaired. As of June 30, 2008, the net receivable balance in Ohio was approximately $17.4 million. The Company has not quantified the amount of goodwill impairment, if any,
that would result from the cessations of operations in Ohio.



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 and we expect to close the remaining nine New Mexico centers during the third quarter of 2008.

28

---



The
following is a summary of financial information for our operations in New Mexico for the three and six months ended June 30, 2007 and 2008 (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Total revenues

$
528

$
124

$
1,068

$
224Total center expenses


455


318


890


649Center gross profit (loss)

$
73

$
(194
)
$
178

$
(425
)


Closing of Operations in Pennsylvania.In June 2006, we began offering the Advance America Choice-Line of Credit ("Choice-Line") in
Pennsylvania. The Choice-Line product allowed customers access to up to $500 in credit for which we charged a monthly participation fee plus interest on outstanding loan balances. In July
2007, an unfavorable ruling was issued by the Commonwealth Court of Pennsylvania directing our subsidiary operating in Pennsylvania to immediately suspend its operations. See "Item 1. Financial
StatementsNotes to Interim Unaudited Consolidated Financial StatementsNote 5. Commitments and Contingencies." During the third and fourth quarters of 2007, we closed
all of our remaining centers in Pennsylvania.

The
following is a summary of financial information for our operations in Pennsylvania for the three and six months ended June 30, 2007 and 2008 (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Total revenues

$
10,770

$


$
21,814

$
Total center expenses


5,957


(309
)

11,254


(16
)Center gross profit

$
4,813

$
309

$
10,560

$
16


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.

The
following is a summary of financial information for our operations in Oregon for the three and six months ended June 30, 2007 and 2008 (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2007

2008

2007

2008Total revenues

$
2,079

$


$
4,068

$
7Total center expenses


1,886


17


3,943


70Center gross profit (loss)

$
193

$
(17
)
$
125

$
(63
)




During the six months ended June 30, 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.

29

---





The following table illustrates the composition of our center network at December 31, 2007 and June 30, 2008:

State

December 31,
2007

June 30,
2008Alabama


145


145Arizona


56


56Arkansas


30


30California


286


291Colorado


72


70Delaware


15


16Florida


261


260Idaho


11


11Illinois


81


81Indiana


117


116Iowa


36


36Kansas


59


59Kentucky


42


43Louisiana


85


87Michigan


150


151Mississippi


61


61Missouri


90


91Montana


7


6Nebraska


24


24Nevada


14


14New Hampshire


24


24New Mexico


10


9North Dakota


8


8Ohio


244


246Oklahoma


65


68Rhode Island


18


21South Carolina


136


138South Dakota


12


12Tennessee


63


63Texas


256


255Utah


6


6Virginia


150


151Washington


103


103Wisconsin


66


69Wyoming


10


11Total United States


2,813


2,832Canada


7


10United Kingdom


12


14Total


2,832


2,856


30

---







We opened 67 and 9 new centers during the three months ended June 30, 2007 and 2008, respectively. We opened 106 and 36 new centers during the six months
ended June 30, 2007 and 2008, respectively.



We closed 30 and 8 centers during the three months ended June 30, 2007 and 2008, respectively. We closed 51 and 14 centers during the six
months ended June 30, 2007 and 2008, respectively. 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 $0.3 million and $0.2 million in the
three months ended June 30, 2007 and 2008, respectively. We recorded expenses related to center closures of approximately $0.9 million and $0.8 million in the six months ended
June 30, 2007 and 2008, respectively.

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 the third-party lender in Texas (See "Consolidation of Variable Interest Entity" in this section). The allowance for doubtful accounts and the accrual for
third-party lender losses represent amounts that we believe will be adequate to absorb probable losses on existing accounts that may become uncollectible by us or by the third-party lender. Our
advances and fees receivable, net on our balance sheet do not include the advances and interest receivable for loans processed by us for the third-party lender in Texas 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 but not limited to the number of transactions customers complete and
charge-off and recovery rates. Additional factors such as changes in state laws, center closings, and 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. Because of the short-term nature of our products and the
charge-off process, aging of accounts is not a distinct component of the analysis.

31

---



We
record the allowance for doubtful accounts as a reduction of advances and fees receivable, net on our balance sheet. We record the accrual for third-party lender losses as a current
liability on our balance sheet. We charge the portion of advances and fees deemed to be uncollectible against the
allowance for doubtful accounts and credit 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, the 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 Friday. In general, receivable balances decrease approximately 4% to 7% from a typical Thursday to a typical Friday. The second quarter of 2007 began on a Sunday (a relative low point in
weekly receivable balances) and ended on a Saturday (a relative low point in weekly receivable balances). The second quarter of 2008 began on a Tuesday (a relative low point in weekly receivable
balances) and ended on a Monday (a relative low 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 June 30, 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 $2.8 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 $5.5 million. As of June 30, 2008, the carrying
value of goodwill is $128 million due to the amortization of goodwill prior to
the adoption of SFAS 142. 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. The amount of any impairment would lower our net income.

32

---





Accrued liabilities in our December 31, 2007 and June 30, 2008 financial statements include accruals of approximately $0.9 million and
$0.3 million, respectively, for the remaining liability under our former self-insured health and dental insurance plans and approximately $4.6 million and
$4.4 million, respectively, for workers' compensation. Beginning in the fourth quarter of 2007 and first quarter of 2008, we are no longer self-insured for our health insurance and
dental insurance, respectively. 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 loss development factors change or other assumptions used by management do not prevail, our expense and related accrued
liabilities could increase or decrease.



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 as of and for the three and six months ended June 30, 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 and for the three and six months ended
June 30, 2008. See "Item 1. Financial StatementsNotes to Interim Unaudited Consolidated Financial StatementsNote 7. 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
June 30, 2008, the total compensation cost not yet recognized related to nonvested stock awards under our stock-based employee compensation plans is approximately $7.4 million. The
weighted average period over which this expense is expected to be recognized is approximately 4.3 years. See "Item 1. Financial StatementsNotes to Interim Unaudited
Consolidated Financial StatementsNote 6. Capital Stock and 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.



See "Item 1. Financial StatementsNotes to Interim Unaudited Consolidated Financial StatementsNote 1. Summary of
Significant Accounting Policies" for a description of the most recent pronouncements.

33

---



Results of Operations



The following tables set forth our results of operations for the three months ended June 30, 2007 compared to the three months ended June 30, 2008:

Three Months Ended June 30,2007

2008

Variance
Favorable/(Unfavorable)Dollars

% Total
Revenues

Dollars

% Total
Revenues

Dollars

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

$
173,939


100.0
%
$
162,142


100.0
%
$
(11,797
)

(6.8
)%Center Expenses:Salaries and related payroll
costs


49,759


28.6
%

49,305


30.4
%

454


0.9
%Provision for doubtful accounts


30,824


17.7
%

30,225


18.6
%

599


1.9
%Occupancy costs


23,686


13.6
%

24,605


15.2
%

(919
)

(3.9
)%Center depreciation expense


4,264


2.4
%

4,228


2.6
%

36


0.8
%Advertising expense


7,592


4.4
%

6,844


4.2
%

748


9.9
%Other center expenses


13,528


7.8
%

11,041


6.8
%

2,487


18.4
%Total center expenses


129,653


74.5
%

126,248


77.8
%

3,405


2.6
%Center gross profit


44,286


25.5
%

35,894


22.2
%

(8,392
)

(18.9
)%Corporate and Other Expenses (Income):General and administrative expenses


15,684


9.0
%

16,009


9.9
%

(325
)

(2.1
)%Corporate depreciation expense


812


0.5
%

792


0.5
%

20


2.5
%Interest expense


2,290


1.3
%

2,529


1.6
%

(239
)

(10.4
)%Interest income


(122
)

(0.1
)%

(29
)




(93
)

(76.2
)%Loss on disposal of property and equipment


283


0.2
%

92





191


67.5
%Total corporate and other expenses


18,947


10.9
%

19,393


12.0
%

(446
)

(2.4
)%Income before income taxes


25,339


14.6
%

16,501


10.2
%

(8,838
)

(34.9
)%Income tax expense


10,186


5.9
%

7,227


4.5
%

2,959


29.0
%Income before income of consolidated variable interest entity


15,153


8.7
%

9,274


5.7
%

(5,879
)

(38.8
)%Income of consolidated variable interest entity


(317
)

(0.2
)%







317


100.0
%Net income

$
14,836


8.5
%
$
9,274


5.7
%
$
(5,562
)

(37.5
)%


34

---



Three Months Ended
June 30,2007

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


2,871


2,854Opened


67


9Acquired


1


1Closed


(30
)

(8
)Number of centers open at end of period


2,909


2,856Weighted average number of centers open during the period


2,888


2,856Number of customers servedall credit products (thousands)


881


820Number of payday cash advances originated (thousands)


2,936


2,864Aggregate principal amount of payday cash advances originated (thousands)

$
1,045,306

$
1,045,174Average amount of each payday cash advance originated

$
356

$
365Average charge to customers for providing and processing a payday cash advance

$
56

$
56Average duration of a payday cash advance (days)


16.4


16.7Average number of lines of credit outstanding during the period (thousands) (1)


24


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

$
10,185

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

$
433

$
Number of installment loans originated (thousands)


9


8Aggregate principal amount of installment loans originated (thousands)

$
3,812

$
4,049Average principal amount of each installment loan originated

$
410

$
482Average charge to customers for providing and processing an installment loan (2)

$
562

$
118


---

35

---



Three Months Ended June 30,2007

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

$
60.2


100.0
%
$
56.8


100.0
%
$
(3.4
)

(5.6
)%Center expenses:Salaries and related payroll costs


17.2


28.6
%

17.4


30.4
%

(0.2
)

(1.2
)%Provision for doubtful accounts


10.6


17.7
%

10.6


18.6
%




Occupancy costs


8.2


13.6
%

8.6


15.2
%

(0.4
)

(4.9
)%Center depreciation expense


1.5


2.4
%

1.5


2.6
%




Advertising expense


2.6


4.4
%

2.4


4.2
%

0.2


7.7
%Other center expenses


4.7


7.8
%

3.9


6.8
%

0.8


17.0
%Total center expenses


44.8


74.5
%

44.4


77.8
%

0.4


0.9
%Center gross profit

$
15.4


25.5
%
$
12.4


22.2
%
$
(3.0
)

(19.5
)%




Total revenues decreased approximately $11.8 million during the three months ended June 30, 2008 compared to the same period in 2007. Total revenues
for the 2,636 centers opened prior to April 1, 2007 and still open as of June 30, 2008 decreased $2.2 million from $158.9 million for the three months ended
June 30, 2007 to $156.7 million for the same period in 2008. Centers opened prior to April 1, 2007 were at least three months and fifteen months old as of June 30, 2007 and
2008, respectively. Total revenues for the 220 centers opened or acquired after April 1, 2007 and still open as of June 30, 2008 increased $5.0 million from
$0.3 million for the three months ended June 30, 2007 to $5.3 million for the same period in 2008. Total revenues for the remaining 256 centers that closed represented a
decrease of
approximately $14.6 million for the three months ended June 30, 2008 compared to the same period in 2007. Of this decrease, approximately $10.6 million and $2.1 million
were due to the closure of our centers in Pennsylvania and Oregon, respectively, during the third and fourth quarters of 2007. In addition, we believe the demand for payday advance products decreased
due to the government's economic stimulus payment made in the second quarter of 2008.



Salaries and related payroll costs.The increase in salaries and related payroll costs for the three
months ended June 30, 2008 compared to the same period in 2007 was due primarily to an increase in bonuses as compared to 2007. This was partially offset by lower workers compensation expense
as well as lower medical costs for our health and dental costs. We averaged approximately 2.05 and 2.03 full-time equivalent field employees, including district directors, per center
during the three months ended June 30, 2007 and 2008, respectively.

36

---





Provision for doubtful accounts.As a percentage of total revenues, the provision for doubtful accounts increased to 18.6% for the three months ended
June 30, 2008 from 17.7% for the same period in 2007. The increase in the provision during the second quarter of 2008 was due to a continued increase in loss rates and a decrease in the amount
of receivables sold in the second quarter of 2008 as compared to the second quarter of 2007. Losses generally continue to trend higher year over year and we believe the worsening economic conditions
in the United States may be contributing to increased loss rates.

Occupancy costs.The increase in occupancy costs for the three months ended June 30, 2008 compared to the same period in 2007 was due primarily to higher
rent and utility costs.

Advertising expense.Advertising expense decreased for the three months ended June 30, 2008 compared to the same period in 2007 due primarily to a reduction
in marketing activity in Ohio, New Mexico and New Hampshire in response to the pending legislation regarding payday lenders.

Other center expenses.The decrease in other center expenses for the three months ended June 30, 2008 compared to the same period in 2007 was due primarily
to decreases in office supply and toner, travel, legal and telephone expenses, the decrease in the cost related to the ramp up of our prepaid card in 2007 and a decrease in expenses related to a
previously consolidated variable interest entity.



General and administrative expenses.The increase in general and administrative expenses for the three months ended
June 30, 2008 compared to the same period in 2007 was due primarily to:



Loss on disposal of property and equipment.The decrease in loss on disposal of property and equipment for the three months ended June 30, 2008 compared to
the same period in 2007 was primarily due to fewer centers closing during 2008.

37

---





The following tables set forth our results of operations for the six months ended June 30, 2007 compared to the six months ended June 30, 2008:

Six Months Ended June 30,2007

2008

Variance
Favorable/
(Unfavorable)Dollars

% Total
Revenues

Dollars

% Total
Revenues

Dollars

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

$
342,022


100.0
%
$
327,598


100.0
%
$
(14,424
)

(4.2
)%Center Expenses:Salaries and related payroll costs


98,956


28.9
%

100,706


30.8
%

(1,750
)

(1.8
)%Provision for doubtful accounts


46,639


13.6
%

51,005


15.6
%

(4,366
)

(9.4
)%Occupancy costs


47,219


13.8
%

50,029


15.3
%

(2,810
)

(6.0
)%Center depreciation expense


8,533


2.5
%

8,523


2.6
%

10


0.1
%Advertising expense


12,901


3.8
%

9,990


3.0
%

2,911


22.6
%Other center expenses


27,686


8.1
%

25,636


7.8
%

2,050


7.4
%Total center expenses


241,934


70.7
%

245,889


75.1
%

(3,955
)

(1.6
)%Center gross profit


100,088


29.3
%

81,709


24.9
%

(18,379
)

(18.4
)%Corporate and Other Expenses (Income):General and administrative expenses


28,963


8.5
%

32,384


9.8
%

(3,421
)

(11.8
)%Corporate depreciation expense


1,630


0.5
%

1,560


0.5
%

70


4.3
%Interest expense


4,603


1.3
%

5,217


1.6
%

(614
)

(13.3
)%Interest income


(198
)

(0.1
)%

(70
)




(128
)

(64.6
)%Loss on disposal of property and equipment


535


0.2
%

218



%

317


59.3
%Loss on impairment of assets


314


0.1
%

236


0.1
%

78


24.8
%Total corporate and other expenses


35,847


10.5
%

39,545


12.0
%

(3,698
)

(10.3
)%Income before income taxes


64,241


18.8
%

42,164


12.9
%

(22,077
)

(34.4
)%Income tax expense


26,529


7.8
%

18,086


5.5
%

8,443


31.8
%Income before income of consolidated variable interest entity


37,712


11.0
%

24,078


7.4
%

(13,634
)

(36.2
)%Income of consolidated variable interest entity


(560
)

(0.1
)%







560


100.0
%Net income

$
37,152


10.9
%
$
24,078


7.4
%
$
(13,074
)

(35.2
)%


38

---





Six Months Ended
June 30,2007

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


2,853


2,832Opened


106


36Acquired


1


2Closed


(51
)

(14
)Number of centers open at end of period


2,909


2,856Weighted average number of centers open during the period


2,870


2,852Number of customers servedall credit products (thousands)


1,097


1,042Number of payday cash advances originated (thousands)


5,640


5,645Aggregate principal amount of payday cash advances originated (thousands)

$
2,013,534

$
2,065,964Average amount of each payday cash advance originated

$
357

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

$
55

$
56Average duration of a payday cash advance (days)


16.4


16.7Average number of lines of credit outstanding during the period
(thousands) (1)


24


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

$
10,193

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

$
428

$
Number of installment loans originated (thousands)


15


14Aggregate principal amount of installment loans originated (thousands)

$
6,157

$
6,374Average principal amount of each installment loan originated

$
412

$
460Average charge to customers for providing and processing an installment
loan (2)

$
565

$
497


---

39

---



Six Months Ended June 30,2007

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

$
119.2


100.0
%
$
114.9


100.0
%
$
(4.3
)

(3.6
)%Center expenses:Salaries and related payroll costs


34.5


28.9
%

35.4


30.8
%

(0.9
)

(2.6
)%Provision for doubtful accounts


16.3


13.6
%

17.9


15.6
%

(1.6
)

(9.8
)%Occupancy costs


16.5


13.8
%

17.5


15.3
%

(1.0
)

(6.1
)%Center depreciation expense


3.0


2.5
%

3.0


2.6
%




Advertising expense


4.5


3.8
%

3.5


3.0
%

1.0


22.2
%Other center expenses


9.6


8.1
%

9.0


7.8
%

0.6


6.3
%Total center expenses


84.4


70.7
%

86.3


75.1
%

(1.9
)

(2.3
)%Center gross profit

$
34.8


29.3
%
$
28.6


24.9
%
$
(6.2
)

(17.8
)%




Total revenues decreased approximately $14.4 million during the six months ended June 30, 2008 compared to the same period in 2007. Total revenues
for the 2,605 centers opened prior to January 1, 2007 and still open as of June 30, 2008 increased $4.3 million from $310.8 million for the six months ended June 30,
2007 to $315.2 million for the same period in 2008. Centers opened prior to January 1, 2007 were at least six months and eighteen months old as of June 30, 2007 and 2008,
respectively. Total revenues for the 251 centers opened or acquired after January 1, 2007 and still open as of June 30, 2008 increased $11.2 million from $0.8 million for
the six months ended June 30, 2007 to $12.0 million for the same period in 2008. Total revenues for the remaining 256 centers that closed represented a decrease of approximately
$29.9 million for the six months ended June 30, 2008 compared to the same period in 2007. Of this decrease, approximately $21.6 million and $4.1 million were due to the
closure of our centers in Pennsylvania and Oregon, respectively, during the third and fourth quarters of 2007. In addition, we believe the demand for payday advance products decreased due to the
government's economic stimulus payment made in the second quarter of 2008.



Salaries and related payroll costs.The increase in salaries and related payroll costs for the six months ended June 30, 2008
compared to the
same period in 2007 was due primarily to higher salaries and bonuses offset slightly by a decrease in contract labor expense. We averaged approximately 2.12 and 2.07 full-time equivalent
field employees, including district directors, per center during the six months ended June 30, 2007 and 2008, respectively.

Provision for doubtful accounts.As a percentage of total revenues, the provision for doubtful accounts increased to 15.6% for the six months ended June 30,
2008 from 13.6% for the same period in 2007. The increase in the provision during 2008 was due primarily to a continued increase in loss rates. Losses generally continue to trend higher year over year
and we believe the worsening economic conditions in the United States may be contributing to increased loss rates.

Occupancy costs.The increase in occupancy costs for the six months ended June 30, 2008 compared to the same period in 2007 was due primarily to higher rent
and repair and maintenance charges.

40

---



Advertising expense.Advertising expense decreased for the six months ended June 30, 2008 compared to the same period in 2007 due primarily to a reduction
in marketing in Ohio, New Mexico and New Hampshire in response to the pending legislation regarding payday lenders. In addition, 2007 included higher expenses for CFSA non-consumer media
efforts than those in 2008.

Other center expenses.The decrease in other center expenses for the six months ended June 30, 2008 compared to the same period in 2007 was due primarily to
a decrease in expense related to the ramp up of our prepaid card in 2007, a decrease in legal, taxes and business licenses expenses, and a decrease in expenses related to the previously consolidated
variable interest entity.



General and administrative expenses.The increase in general and administrative expenses for the six months ended
June 30, 2008 compared to the same period in 2007 was due primarily to:



Loss on disposal of property and equipment.The decrease in loss on disposal of property and equipment for the six months ended June 30, 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.

Liquidity and Capital Resources

The following table presents a summary of cash flows for the six months ended June 30, 2007 and 2008 (dollars in thousands):

Variance2007

2008

Dollars

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

$
67,600

$
74,777

$
7,177


10.6
%Investing activities


(35,463
)

(27,530
)

7,933


22.4
%Financing activities


(62,484
)

(53,426
)

9,058


14.5
%Effect of exchange rate changes on cash and cash equivalents





(32
)

(32
)

(100.0
)%Net decrease in cash and cash equivalents


(30,347
)

(6,211
)

24,136


79.5
%Cash and cash equivalents, beginning of period


67,245


28,251


(38,994
)

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

$
36,898

$
22,040

$
(14,858
)

(40.3
)%


41

---



Our
principal sources of cash are from operations and from borrowings under our revolving credit facility. See "Certain Contractual Cash CommitmentsLong-Term
Debt Obligations" in this section for a detailed description of 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, pay dividends on our common stock and repurchase shares of our outstanding common stock.

We
borrow under our $270.0 million revolving credit facility to fund our advances and to meet 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. Advances and fees receivable, net decreased
approximately $31.0 million, or 13.7%, to $195.7 million at June 30, 2008 compared to $226.7 million at June 30, 2007. Advances and fees receivable, net decreased
approximately $25.8 million, or 11.6%, to $195.7 million at June 30, 2008 compared to $221.5 million at December 31, 2007.

In
May 2005, our Board of Directors approved a program authorizing the repurchase of up to $50.0 million of our outstanding common stock. In August 2006, our Board of Directors
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, in February 2008,
our Board of Directors approved a further extension of our stock repurchase program authorizing us to repurchase up to an additional $75.0 million of our outstanding common stock. Our Board of
Directors determined
that the continuation and increase of the stock repurchase program served the best interest of us and our stockholders by returning capital to our stockholders.

During
the six months ended June 30, 2007 and 2008, we repurchased zero and 10,214,340 shares of our common stock, respectively, at a cost of approximately zero and
$79.9 million, respectively. Additionally, for the six months ended June 30, 2007 and 2008, 2,826 and 3,272 shares of common stock, respectively, were surrendered by employees to satisfy
their tax obligations with respect to the vesting of shares of restricted stock awarded pursuant to our 2004 Omnibus Stock Plan. We completed our authorized share repurchase program in July 2008.

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 growth
strategy as currently planned. 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 increased approximately 10.6% to $74.8 million for the six months ended June 30, 2008 compared to the same
period ended June 30, 2007. The increase in operating cash flow was attributable to a decrease in non-cash expense items of $7.0 million. The decrease in net income of
$13.1 million was offset by the $13.2 million net change in operating assets and liabilities.

42

---





Net cash used in investing activities decreased approximately 22.4% to $27.5 million for the six months ended June 30, 2008 compared to the same
period ended June 30, 2007. The decrease was primarily related to a reduction in the funding of cash advances during the period.



Net cash used in financing activities decreased 14.5% to $53.4 million compared to the same period ended June 30, 2007. During the six months ended
June 30, 2008, the Company had net borrowings under the revolving credit facility of approximately $45.6 million. Uses of cash during the six months ended June 30, 2008, included
purchases of treasury stock of $79.9 million and payment of dividends of $16.8 million.

Capital Expenditures

For the six months ended June 30, 2007 and 2008, we spent $7.0 million and $5.8 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.

Off-Balance Sheet Arrangement with 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 June 30, 2008, the third-party lender's outstanding
advances and interest receivable (which were not recorded on our balance sheet) totaled approximately $16.9 million, 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 June 30, 2008 was
approximately $3.6 million 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 1. Financial
StatementsNotes to Interim Unaudited Consolidated Financial StatementsNote 7. Transactions with Variable Interest Entities."

43

---



Certain Contractual Cash Commitments

Our principal future contractual obligations and commitments as of June 30, 2008, including periodic interest payments, included
the following (dollars in thousands):

Payment due by December 31,Contractual Cash Obligations

Total

2008

2009 and
2010

2011 and
2012

2013 and
thereafterLong-term debt obligations:Revolving credit facility

$
187,928

$


$


$


$
187,928Mortgage payable


7,169


398


1,593


1,593


3,585Note payable


173


69


104





Operating lease obligations (1)


156,504


33,177


92,941


26,570


3,816Purchase obligations


488


485


3





Other


4,060


1,450


2,160


450


Total

$
356,322

$
35,579

$
96,801

$
28,613

$
195,329


---



Revolving Credit Facility.In March 2008, we amended and restated our credit facility with a syndicate of banks. Our revolving credit
facility now
provides us 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. 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.
Any portion of our revolving credit facility that is repaid may be borrowed again.

As
of June 30, 2008, we had $187.9 million outstanding on the revolving portion of our credit facility and $1.1 million of letters of credit outstanding, leaving
approximately $81.0 million available for future borrowings under our credit facility. We believe that this availability under our credit facility in addition to cash generated from operations
should be sufficient to meet our currently anticipated liquidity requirements.

In
general, our borrowings under our revolving credit facility bear interest, at our option, at either 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 EBITDA. 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 June 30, 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.

44

---



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 3.5 times trailing twelve month earnings before interest, taxes, depreciation and amortization ("EBITDA") as defined in the credit
agreement. The maximum senior leverage allowed under the revolving credit facility is 2 times trailing twelve month EBITDA as defined in the credit agreement. 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 principal when due or interest, fees, or other amounts after
grace periods to be mutually agreed upon, (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 June 30, 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.

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 $5.2 million at December 31, 2007 and June 30, 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
$4.8 million at December 31, 2007 and June 30, 2008, respectively.



We lease all of 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 hangar space lease and other office and warehouse space leases are companies controlled by or affiliated with Mr. George D. Johnson, Jr.,
our Chairman. See "Item 1. Financial StatementsNotes to Interim Unaudited Consolidated Financial StatementsNote 8. Related Party Transactions."

45

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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 after
the opening of a new center. As of June 30, 2008, our purchase obligations totaled approximately $0.5 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, this risk is mitigated by the ability to make changes to these estimates and assumptions over the same period.

We
periodically review the carrying value of goodwill and other intangible assets when events and circumstances warrant such a review. One of the methods used for this review is
performed using estimates of future cash flows. If the carrying value of goodwill or other intangible assets is considered impaired, an impairment charge is recorded for the amount by which the
carrying value of the goodwill or intangible assets exceeds its fair value. 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.

Forward-Looking Statements

The matters discussed in this Quarterly Report on Form 10-Q 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

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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.

Potential
risks and uncertainties, which may cause our actual results to differ materially from the expectations we describe in our forward-looking statements, include, but are not
limited to those factors described under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2007 and under Item 1A of
Part II of this Quarterly Report, and the following:



All
forward-looking statements in this Quarterly Report are based on information available to us as of the date of this Quarterly 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 Quarterly 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 Quarterly 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.

ITEM 3.    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

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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 or June 30, 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 $187.9 million of variable interest debt as of June 30, 2008 was
approximately 5.31%.

We
had total interest expense of $2.3 million and $2.5 million for the three months ended June 30, 2007 and 2008, respectively. We had total interest expense of
$4.6 million and $5.2 million for the six months ended June 30, 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 $0.2 million and $0.8 million for the three months ended June 30, 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 $0.4 million and $1.4 million for the six months
ended June 30, 2007 and 2008, respectively.



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 or June 30, 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 which decreased our net assets by approximately $75,000 and $124,000 as of December 31, 2007 and June 30, 2008, 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 current 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.

ITEM 4.    CONTROLS AND PROCEDURES.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
we have evaluated the effectiveness of the design and operation 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, and our internal control over financial reporting, as of the end of the period covered by this Report. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that those disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the quarter
ended June 30, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS.

See "Part I. Item 1. Financial StatementsNotes to Interim Unaudited Consolidated Financial
StatementsNote 5. Commitments and Contingencies," which is incorporated herein by reference.

ITEM 1A.    RISK FACTORS.

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, results
of operations, financial condition, future results and the trading price of our common stock. In addition to the other information set forth in this Quarterly Report, you should carefully consider the
factors described under the heading "Risk Factors" in Part I of our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our
business, results of operations, financial condition, future results and
the trading price of our common stock. The following items are changes and additions to the risks and uncertainties previously disclosed.



Our
business is regulated under a variety of enabling state statutes, including payday 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 June 30, 2008, 39 states
and the District of Columbia had specific laws that permitted payday cash advances or a similar form of short-term consumer loans. As of June 30, 2008, we operated in 35 of these 39
states. Currently, we do not conduct business in the remaining four states or in the District of Columbia 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 11 states do not have laws specifically authorizing
the payday cash advance or short-term consumer finance business. Despite the lack of specific laws, other laws may permit us to do business in these states.

During
the last few years, legislation has been adopted in some states that prohibits or severely restricts payday cash advance and similar services. Many similar bills have also been
introduced in state legislatures. In 2007, bills that would severely restrict or effectively prohibit payday cash advances if adopted as law were introduced in 20 states plus the District of Columbia.
In addition, two states have sunset provisions in their payday cash advance laws that require renewal of the laws by these state legislatures at periodic intervals. Arizona's and Mississippi's payday
lending laws will expire in 2010 and 2012, respectively, if no further action is taken. Such new or modified legislation could have a material adverse impact on our results of operations. For example,
as a result of legislation in Oregon that became effective in July 2007, we concluded that operating in that state was no longer economically viable and closed all of our Oregon centers. Restrictive
legislation has recently been adopted in New Hampshire and Virginia. In Virginia we are attempting to develop a new loan product, in response to new legislation, which will likely not be as profitable
as our current product. Laws prohibiting payday cash advance and similar 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, results of operations and financial condition. For instance, in June 2008, the Governor of
Ohio signed into law a bill that would cap interest rates on payday loans and limit the number of advances a customer may take in any one year. Currently, we along with other industry leaders have
initiated legal challenges and grassroots ballot initiatives that

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could
affect the effective date of this legislation or defeat it completely. If this law becomes effective, it may not be economically viable for us to continue operations in Ohio, which could have a
material effect on our future results of operations and financial condition.

Statutes
authorizing payday cash advance and similar 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 new administrative rules, even if not contained in state statutes, that impact 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 could have a material adverse effect on our business,
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 and negatively affect 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 have begun to scrutinize payday cash advances and other alternative financial products and take actions that could 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 1. Financial StatementsNotes to Interim Unaudited Consolidated Financial
StatementsNote 5. Commitments and Contingencies." The closures in Pennsylvania have had a material adverse effect on our results of operations and financial condition. 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. Although no legal determination has been made that the Check Cashers Act is unconstitutional or that we have violated any provision of Arkansas state law, we
have voluntarily cooperated with the Attorney General's demands. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations in
Arkansas."

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table sets forth information about our stock repurchases for the three months ended June 30, 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)April 1 to April 30


2,776,828

$
8.35


2,776,828

$
25,791,086May 1 to May 31


1,368,980

$
8.65


1,368,980

$
13,943,989June 1 to June 30


1,270,780

$
5.30


1,270,780

$
7,206,268Total


5,416,588

$
7.71


5,416,588

$
7,206,268


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

The following table summarizes the votes at the Annual Meeting of our stockholders held on May 22, 2008:

Matter

For

Against

Withheld

Abstain

Non-VoteElection of Directors:George D. Johnson, Jr


65,701,616





1,362,838





William M. Webster IV


66,050,164





1,014,290





Stephen K. Benjamin


66,582,982





481,472





Robert H. Chapman III


66,582,385





482,069





Kenneth E. Compton


66,118,913





945,541





Thomas E. Hannah


66,582,855





481,599





Donovan A. Langford III


66,583,005





481,449





W. Olin Nisbet


66,582,415





482,039





J. Patrick O'Shaughnessy


65,918,524





1,145,930





Ratification of the appointment of PricewaterhouseCoopers LLP As Independent Auditors for the Company for 2008


66,599,312


462,380





2,761





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ITEM 6.    EXHIBITS.

Exhibit

Description10.1

First Amendment dated June 26, 2008 to the Amended and Restated Credit Agreement dated as of March 24, 2008.31(i)(A)

Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d- 14(a) under the Securities 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 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)


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SIGNATURES

Pursuant to the requirements 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.

ADVANCE AMERICA, CASH ADVANCE
CENTERS, INC.August 8, 2008

By:

/s/J. PATRICK O'SHAUGHNESSYJ. Patrick O'Shaughnessy Executive Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)


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INDEX TO EXHIBITS

Exhibit Number

Description10.1

First Amendment dated June 26, 2008 to the Amended and Restated Credit Agreement dated as of March 24, 2008.31(i)(A)

Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities 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 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).


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