##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR
THE TRANSITION PERIOD FROM ______ TO ______.
 Commission file number: 0-26680
 NICHOLAS FINANCIAL, INC.
  British Columbia, Canada
    
    8736-3354(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)2454 McMullen Booth Road, Building C
Clearwater, Florida
(Address of Principal Executive Offices)
    
    33759
(Zip Code)
 (727) 726-0763
 þ o
 o þ
 o þ




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NICHOLAS FINANCIAL, INC.
FORM 10-Q
TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of September 30, 2005 and as of March 31, 2005
    
    
    2Condensed Consolidated Statements of Income for the three and six months ended September 30, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2005 and 2004
    
    
    4Notes to the Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22Part II.Other InformationItem 6. Exhibits
    
    
    23Ex-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 CertificationEx-33.1 Amendment No. 6 To Loan Agreement
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
  September 30,
    
    
    March 31,2005
    
    
    2005(Unaudited)AssetsCash
    
    $
    1,242,427
    
    
    $
    853,494Finance receivables, net
    
    
    126,141,483
    
    
    
    113,708,122Accounts receivable
    
    
    8,502
    
    
    
    12,849Assets held for resale
    
    
    836,690
    
    
    
    530,230Prepaid expenses and other assets
    
    
    896,604
    
    
    
    507,952Property and equipment, net
    
    
    828,964
    
    
    
    763,247Derivatives
    
    
    830,711
    
    
    
    740,223Deferred income taxes
    
    
    3,839,133
    
    
    
    3,699,324Total assets
    
    $
    134,624,514
    
    
    $
    120,815,441LiabilitiesLine of credit
    
    $
    74,153,967
    
    
    $
    65,330,897Drafts payable
    
    
    1,033,047
    
    
    
    973,268Notes payable  related party
    
    
    600,000
    
    
    
    1,000,000Accounts payable and accrued expenses
    
    
    5,452,250
    
    
    
    4,852,787Income taxes payable
    
    
    
    
    
    
    540,899Deferred revenues
    
    
    1,508,600
    
    
    
    1,359,696Total liabilities
    
    
    82,747,864
    
    
    
    74,057,547Shareholders equityPreferred stock, no par: 5,000,000 shares authorized;
none issued and outstandingCommon stock, no par: 50,000,000 shares authorized;
9,872,031 and 9,840,531 shares issued and
outstanding, respectively
    
    
    15,287,582
    
    
    
    15,127,922Accumulated other comprehensive income
    
    
    515,041
    
    
    
    458,949Retained earnings
    
    
    36,074,027
    
    
    
    31,171,023Total shareholders equity
    
    
    51,876,650
    
    
    
    46,757,894Total liabilities and shareholders equity
    
    $
    134,624,514
    
    
    $
    120,815,441
 See accompanying notes.
 2




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Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Interest income on finance receivables
    
    $
    10,197,903
    
    
    $
    7,796,997
    
    
    $
    19,307,604
    
    
    $
    15,011,255Sales
    
    
    40,817
    
    
    
    36,668
    
    
    
    91,507
    
    
    
    99,06510,238,720
    
    
    
    7,833,665
    
    
    
    19,399,111
    
    
    
    15,110,320Expenses:Cost of sales
    
    
    9,913
    
    
    
    14,050
    
    
    
    22,284
    
    
    
    28,861Marketing
    
    
    293,594
    
    
    
    219,062
    
    
    
    544,849
    
    
    
    415,688Salaries and employee benefits
    
    
    2,678,672
    
    
    
    2,139,580
    
    
    
    5,312,970
    
    
    
    4,233,648Administrative
    
    
    1,229,562
    
    
    
    841,609
    
    
    
    2,154,471
    
    
    
    1,642,249Provision for credit losses
    
    
    832,009
    
    
    
    659,599
    
    
    
    1,260,034
    
    
    
    1,240,445Depreciation
    
    
    82,595
    
    
    
    55,287
    
    
    
    156,259
    
    
    
    104,825Interest expense
    
    
    1,058,479
    
    
    
    894,764
    
    
    
    2,039,032
    
    
    
    1,810,0846,184,824
    
    
    
    4,823,951
    
    
    
    11,489,899
    
    
    
    9,475,800Operating income before income taxes
    
    
    4,053,896
    
    
    
    3,009,714
    
    
    
    7,909,212
    
    
    
    5,634,520Income tax expense:Current
    
    
    1,535,649
    
    
    
    1,481,512
    
    
    
    3,180,413
    
    
    
    2,892,499Deferred
    
    
    9,071
    
    
    
    (337,470
    )
    
    
    (174,205
    )
    
    
    (756,043
    )1,544,720
    
    
    
    1,144,042
    
    
    
    3,006,208
    
    
    
    2,136,456Net Income
    
    $
    2,509,176
    
    
    $
    1,865,672
    
    
    $
    4,903,004
    
    
    $
    3,498,064Earnings per share:Basic
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.50
    
    
    $
    0.38Diluted
    
    $
    0.24
    
    
    $
    0.18
    
    
    $
    0.47
    
    
    $
    0.36Dividends declared per share
    
    
    
    
    
    $
    0.07
    
    
    
    
    
    
    $
    0.07
 See accompanying notes.
 3




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##### Table of Contents



Six months endedSeptember 30,2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    4,903,004
    
    
    $
    3,498,064Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation
    
    
    156,259
    
    
    
    104,825Gain on sale of property and equipment
    
    
    (14,366
    )
    
    
    Provision for credit losses
    
    
    1,260,034
    
    
    
    1,240,445Deferred income taxes
    
    
    (174,205
    )
    
    
    (756,043
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    4,347
    
    
    
    2,248Prepaid expenses, other assets and assets held for resale
    
    
    (695,112
    )
    
    
    (527,816
    )Accounts payable and accrued expenses
    
    
    599,463
    
    
    
    419,528Income taxes payable
    
    
    (540,899
    )
    
    
    (125,618
    )Deferred revenues
    
    
    148,904
    
    
    
    212,194Net cash provided by operating activities
    
    
    5,647,429
    
    
    
    4,067,827Cash flows from investing activitiesPurchase and origination of finance contracts
    
    
    (63,284,350
    )
    
    
    (40,182,092
    )Principal payments received
    
    
    49,590,955
    
    
    
    31,032,299Purchase of property and equipment
    
    
    (221,976
    )
    
    
    (135,920
    )Proceeds from sale of property and equipment
    
    
    14,366
    
    
    
    Net cash used in investing activities
    
    
    (13,901,005
    )
    
    
    (9,285,713
    )Cash flows from financing activities(Repayment)
issuance of notes payable  related party
    
    
    (400,000
    )
    
    
    319,000Net proceeds from (repayment of) line of credit
    
    
    8,823,070
    
    
    
    (3,969,924
    )Payment of dividend
    
    
    
    
    
    
    (324,913
    )Increase (decrease) in drafts payable
    
    
    59,779
    
    
    
    (155,342
    )Proceeds from exercise of stock options and income tax benefit
related thereto
    
    
    159,660
    
    
    
    45,007Proceeds from the issuance of common stock
    
    
    
    
    
    
    10,416,000Payment of offering costs
    
    
    
    
    
    
    (384,470
    )Net cash provided by financing activities
    
    
    8,642,509
    
    
    
    5,945,358Net increase in cash
    
    
    388,933
    
    
    
    727,472Cash, beginning of period
    
    
    853,494
    
    
    
    957,684Cash, end of period
    
    $
    1,242,427
    
    
    $
    1,685,156
 See accompanying notes.
 4




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1. Basis of Presentation
    2. Revenue Recognition
     5




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##### Table of Contents



3. Earnings Per Share
  Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator
for earnings per share  net income
    
    $
    2,509,176
    
    
    $
    1,865,672
    
    
    $
    4,903,004
    
    
    $
    3,498,064Denominator:Denominator
for basic earnings per share 
weighted average shares
    
    
    9,871,183
    
    
    
    9,736,714
    
    
    
    9,861,474
    
    
    
    9,123,888Effect of dilutive securities:Stock options
    
    
    595,428
    
    
    
    578,394
    
    
    
    612,941
    
    
    
    585,198Denominator for diluted earnings per share
    
    
    10,466,611
    
    
    
    10,315,108
    
    
    
    10,474,415
    
    
    
    9,709,086Earnings per
share  basic
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.50
    
    
    $
    0.38Earnings per
share  diluted
    
    $
    0.24
    
    
    $
    0.18
    
    
    $
    0.47
    
    
    $
    0.36
 6




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##### Table of Contents



4.
    
    Finance Receivables
 Finance receivables consist of automobile finance installment Contracts and direct consumer loans
and are detailed as follows:
 September 30,
    
    
    March 31,2005
    
    
    2005Finance receivables, gross Contract
    
    $
    201,566,731
    
    
    $
    182,386,735Unearned interest
    
    
    (51,928,343
    )
    
    
    (43,432,023
    )Finance receivables, net of unearned interest
    
    
    149,638,388
    
    
    
    138,954,712Dealer discounts
    
    
    (16,355,319
    )
    
    
    (18,598,147
    )Allowance for credit losses
    
    
    (7,141,586
    )
    
    
    (6,648,443
    )Finance receivables, net
    
    $
    126,141,483
    
    
    $
    113,708,122
  5. Line of Credit
  6. Notes Payable  Related Party
  7




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7. Derivatives and Hedging
   Fixed RateDate Entered
    
    Effective Date
    
    Notional Amount
    
    Of Interest
    
    Maturity DateJanuary 6, 2003
    
    April 2, 2003
    
    
    10,000,000
    
    
    
    3.350
    %
    
    April 2, 2007January 31, 2003
    
    August 1, 2003
    
    
    10,000,000
    
    
    
    3.200
    %
    
    August 2, 2006February 26, 2003
    
    May 17, 2004
    
    
    10,000,000
    
    
    
    3.910
    %
    
    May 19, 2008March 11, 2004
    
    October 5, 2004
    
    
    10,000,000
    
    
    
    3.640
    %
    
    October 5, 2009January 18, 2005
    
    July 2, 2005
    
    
    10,000,000
    
    
    
    4.380
    %
    
    July 2, 2010September 9, 2005
    
    September 13, 2005
    
    
    10,000,000
    
    
    
    4.458
    %
    
    September 2, 2010
  8




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##### Table of Contents



7. Derivatives and Hedging (continued)
  Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Income
    
    $
    2,509,176
    
    
    $
    1,865,672
    
    
    $
    4,903,004
    
    
    $
    3,498,064Mark to market interest rate swaps
(net of tax)
    
    
    421,933
    
    
    
    (304,808
    )
    
    
    56,092
    
    
    
    762,929Comprehensive income
    
    $
    2,931,109
    
    
    $
    1,560,864
    
    
    $
    4,959,096
    
    
    $
    4,260,993
 8. Stock Options
    Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reported net income
    
    $
    2,509,176
    
    
    $
    1,865,672
    
    
    $
    4,903,004
    
    
    $
    3,498,064Stock based employee compensation cost
under the fair value method, net of tax
    
    
    13,183
    
    
    
    11,353
    
    
    
    27,186
    
    
    
    23,390Pro forma net income
    
    $
    2,495,993
    
    
    $
    1,854,319
    
    
    $
    4,875,818
    
    
    $
    3,474,674Reported basic earnings per share
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.50
    
    
    $
    0.38Pro forma basic earnings per share
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.50
    
    
    $
    0.38Reported diluted earnings per share
    
    $
    0.24
    
    
    $
    0.18
    
    
    $
    0.47
    
    
    $
    0.36Pro forma diluted earnings per share
    
    $
    0.24
    
    
    $
    0.18
    
    
    $
    0.47
    
    
    $
    0.36
 9




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Information
  Critical Accounting Policy
  Introduction
  10




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##### Table of Contents



Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,Portfolio Summary
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Average finance receivables, net of
unearned interest (1)
    
    $
    146,973,291
    
    
    $
    128,266,971
    
    
    $
    144,471,462
    
    
    $
    125,646,208Average indebtedness (2)
    
    $
    71,747,445
    
    
    $
    63,070,954
    
    
    $
    69,843,069
    
    
    $
    63,392,887Finance revenue (3)
    
    $
    10,197,903
    
    
    $
    7,796,997
    
    
    $
    19,307,604
    
    
    $
    15,011,255Interest expense
    
    
    1,058,479
    
    
    
    894,764
    
    
    
    2,039,032
    
    
    
    1,810,084Net finance revenue
    
    $
    9,139,424
    
    
    $
    6,902,233
    
    
    $
    17,268,572
    
    
    $
    13,201,171Weighted average contractual rate (4)
    
    
    23.92
    %
    
    
    24.06
    %
    
    
    24.02
    %
    
    
    24.17
    %Average cost of borrowed funds (2)
    
    
    5.90
    %
    
    
    5.67
    %
    
    
    5.84
    %
    
    
    5.71
    %Gross portfolio yield (5)
    
    
    27.75
    %
    
    
    24.31
    %
    
    
    26.73
    %
    
    
    23.89
    %Interest expense as a percentage of
average finance receivables, net of
unearned interest
    
    
    2.88
    %
    
    
    2.79
    %
    
    
    2.82
    %
    
    
    2.88
    %Provision for credit losses as a
percentage of average finance
receivables, net of unearned interest
    
    
    2.26
    %
    
    
    2.06
    %
    
    
    1.74
    %
    
    
    1.97
    %Net portfolio yield (5)
    
    
    22.61
    %
    
    
    19.46
    %
    
    
    22.17
    %
    
    
    19.04
    %Operating expenses as a percentage
of average finance receivables, net of
unearned interest (6)
    
    
    11.46
    %
    
    
    9.96
    %
    
    
    11.10
    %
    
    
    10.00
    %Pre-tax yield as a percentage of
average finance receivables, net of
unearned interest (7)
    
    
    11.15
    %
    
    
    9.50
    %
    
    
    11.07
    %
    
    
    9.04
    %Write-off to liquidation (8)
    
    
    6.48
    %
    
    
    7.99
    %
    
    
    5.77
    %
    
    
    6.75
    %Net charge-off percentage (9)
    
    
    5.83
    %
    
    
    6.85
    %
    
    
    5.13
    %
    
    
    5.77
    %
 
 Note:
    
    All three and six month key performance indicators expressed as percentages have
been annualized.(1)
    
    Average finance receivables, net of unearned interest, represents the average of gross
finance receivables, less unearned interest throughout the period.(2)
    
    Average indebtedness represents the average outstanding borrowings under the Line and notes
payable-related party. Average cost of borrowed funds represents interest expense as a
percentage of average indebtedness.(3)
    
    Finance revenue does not include revenue generated by NDS. See pages 12 and 13 for details on
NDS revenue during the period.(4)
    
    Weighted average contractual rate represents the weighted average annual percentage rate
(APR) of all Contracts purchased and direct loans originated during the period.(5)
    
    Gross portfolio yield represents finance revenues as a percentage of average finance
receivables, net of unearned interest. Net portfolio yield represents finance revenue minus
(a) interest expense and (b) the provision for credit losses as a percentage of average
finance receivables, net of unearned interest.(6)
    
    Operating expenses represent total expenses, less interest expense, the provision for credit
losses and operating costs associated with NDS. See pages 12 and 13 for details on NDS
operating expenses during the period.(7)
    
    Pre-tax yield represents net portfolio yield minus operating expenses as a percentage of
average finance receivables, net of unearned interest.(8)
    
    Write-off to liquidation percentage is defined as net charge-offs divided by liquidation.
Liquidation is defined as beginning receivable balance plus current period purchases minus
voids and refinances minus ending receivable balance.(9)
    
    Net charge-off percentage represents net charge-offs divided by average finance
receivables, net of unearned interest, outstanding during the period. 11




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Three months ended September 30, 2005 compared to three months ended September 30, 2004
 Interest Income and Loan Portfolio
  Computer Software Business
  Operating Expenses
  Interest Expense
  12




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Six months ended September 30, 2005 compared to six months ended September 30, 2004
 Interest Income and Loan Portfolio
  Computer Software Business
  Operating Expenses
  Interest Expense
  13




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Contract Procurement
   Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,State
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004FL
    
    $
    13,012,013
    
    
    $
    9,500,663
    
    
    $
    24,831,034
    
    
    $
    20,521,502GA
    
    
    2,819,508
    
    
    
    1,798,615
    
    
    
    4,752,551
    
    
    
    4,309,158NC
    
    
    3,311,071
    
    
    
    2,342,704
    
    
    
    5,902,662
    
    
    
    4,495,934SC
    
    
    1,049,646
    
    
    
    930,773
    
    
    
    1,865,373
    
    
    
    2,065,391OH
    
    
    3,348,157
    
    
    
    3,319,862
    
    
    
    6,446,621
    
    
    
    6,571,070MI
    
    
    642,703
    
    
    
    861,955
    
    
    
    1,000,078
    
    
    
    1,813,086VA
    
    
    2,083,987
    
    
    
    1,492,136
    
    
    
    3,669,665
    
    
    
    2,869,886IN
    
    
    739,037
    
    
    
    
    
    
    
    1,252,205
    
    
    
    KY
    
    
    683,413
    
    
    
    
    
    
    
    1,116,505
    
    
    
    MD
    
    
    375,913
    
    
    
    
    
    
    
    650,716
    
    
    
    Total
    
    $
    28,065,448
    
    
    $
    20,246,708
    
    
    $
    51,487,410
    
    
    $
    42,646,027
 Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,Contracts
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Purchases
    
    $
    28,065,448
    
    
    $
    20,246,708
    
    
    $
    51,487,410
    
    
    $
    42,646,027Weighted APR
    
    
    23.79
    %
    
    
    23.91
    %
    
    
    23.88
    %
    
    
    24.01
    %Average discount
    
    
    8.71
    %
    
    
    8.67
    %
    
    
    8.63
    %
    
    
    8.71
    %Weighted average
term (months)
    
    
    46
    
    
    
    44
    
    
    
    45
    
    
    
    44Average loan
    
    $
    8,884
    
    
    $
    8,391
    
    
    $
    8,801
    
    
    $
    8,329Number of Contracts
    
    
    3,159
    
    
    
    2,413
    
    
    
    5,850
    
    
    
    5,120
 Loan Origination
  Three months ended
    
    
    Three months endedDirect Loans
    
    September 30,
    
    
    September 30,Originated
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Originations
    
    $
    1,837,236
    
    
    $
    1,308,918
    
    
    $
    3,751,867
    
    
    $
    2,464,441Weighted APR
    
    
    26.02
    %
    
    
    26.14
    %
    
    
    25.88
    %
    
    
    26.13
    %Weighted average
term (months)
    
    
    27
    
    
    
    26
    
    
    
    28
    
    
    
    26Average loan
    
    $
    3,275
    
    
    $
    3,023
    
    
    $
    3,347
    
    
    $
    3,013Number of loans
    
    
    561
    
    
    
    433
    
    
    
    1,121
    
    
    
    818
 14




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Analysis of Credit Losses
       15




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##### Table of Contents



September 30, 2005
    
    
    September 30, 2004% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Contracts
    
    
    Amount
    
    
    ContractsFinance receivables, gross Contract
    
    $
    201,566,731
    
    
    
    100.00
    
    
    $
    169,428,401
    
    
    
    100.00Unearned interest
    
    
    (51,928,343
    )
    
    
    (25.76
    )
    
    
    (40,357,244
    )
    
    
    (23.82
    )Finance receivables, net of
unearned interest
    
    
    149,638,388
    
    
    
    74.24
    
    
    
    129,071,157
    
    
    
    76.18Dealer discounts
    
    
    (16,355,319
    )
    
    
    (8.11
    )
    
    
    (17,432,841
    )
    
    
    (10.29
    )Allowance for credit losses
    
    
    (7,141,586
    )
    
    
    (3.54
    )
    
    
    (6,492,452
    )
    
    
    (3.83
    )Finance receivables, net
    
    $
    126,141,483
    
    
    
    62.59
    
    
    $
    105,145,864
    
    
    
    62.06
     16




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##### Table of Contents



Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    17,893,618
    
    
    $
    16,817,393
    
    
    $
    18,598,147
    
    
    $
    15,377,582Discounts acquired on new volume
    
    
    2,419,454
    
    
    
    3,349,986
    
    
    
    4,384,664
    
    
    
    7,030,792Losses absorbed
    
    
    (2,351,280
    )
    
    
    (1,994,088
    )
    
    
    (3,751,255
    )
    
    
    (3,667,937
    )Recoveries
    
    
    320,575
    
    
    
    315,550
    
    
    
    683,254
    
    
    
    633,378Discounts accreted
    
    
    (1,927,048
    )
    
    
    (1,056,000
    )
    
    
    (3,559,491
    )
    
    
    (1,940,974
    )Balance at end of period
    
    
    16,355,319
    
    
    $
    17,432,841
    
    
    $
    16,355,319
    
    
    $
    17,432,841Dealer discounts as a percent of
gross indirect Contracts
    
    
    8.41
    %
    
    
    10.61
    %
    
    
    8.41
    %
    
    
    10.61
    %
  Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    6,288,330
    
    
    $
    6,224,932
    
    
    $
    6,448,790
    
    
    $
    5,787,764Current period provision
    
    
    771,025
    
    
    
    618,777
    
    
    
    1,152,632
    
    
    
    1,166,478Losses absorbed
    
    
    (144,994
    )
    
    
    (531,496
    )
    
    
    (687,061
    )
    
    
    (642,029
    )Balance at end of period
    
    $
    6,914,361
    
    
    $
    6,312,213
    
    
    $
    6,914,361
    
    
    $
    6,312,213Allowance as a percent of gross
indirect Contracts
    
    
    3.56
    %
    
    
    3.84
    %
    
    
    3.56
    %
    
    
    3.84
    %
  Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    210,794
    
    
    $
    189,837
    
    
    $
    199,653
    
    
    $
    184,334Current period provision
    
    
    49,290
    
    
    
    26,138
    
    
    
    88,808
    
    
    
    52,782Losses absorbed
    
    
    (39,468
    )
    
    
    (46,434
    )
    
    
    (76,362
    )
    
    
    (74,194
    )Recoveries
    
    
    6,609
    
    
    
    10,698
    
    
    
    15,126
    
    
    
    17,317Balance at end of period
    
    $
    227,225
    
    
    $
    180,239
    
    
    $
    227,225
    
    
    $
    180,239Allowance as a percent of gross
direct loan receivables
    
    
    3.21
    %
    
    
    3.51
    %
    
    
    3.21
    %
    
    
    3.51
    %
   17




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18




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##### Table of Contents



At September 30, 2005
    
    
    At September 30, 2004ContractsGross balance outstanding
    
    $
    194,489,189
    
    
    
    
    
    
    $
    164,289,883Delinquencies30 to 59 days
    
    $
    2,793,371
    
    
    
    1.44
    %
    
    $
    2,866,168
    
    
    
    1.75
    %60 to 89 days
    
    
    707,902
    
    
    
    0.36
    %
    
    
    801,212
    
    
    
    0.49
    %90 + days
    
    
    375,156
    
    
    
    0.19
    %
    
    
    253,180
    
    
    
    0.15
    %Total delinquencies
    
    $
    3,876,429
    
    
    
    1.99
    %
    
    $
    3,920,560
    
    
    
    2.39
    %Direct LoansGross balance outstanding
    
    $
    7,077,542
    
    
    
    
    
    
    $
    5,138,518Delinquencies30 to 59 days
    
    $
    42,556
    
    
    
    0.60
    %
    
    $
    39,728
    
    
    
    0.77
    %60 to 89 days
    
    
    21,067
    
    
    
    0.30
    %
    
    
    33,915
    
    
    
    0.66
    %90 + days
    
    
    28,138
    
    
    
    0.40
    %
    
    
    27,475
    
    
    
    0.54
    %Total delinquencies
    
    $
    91,761
    
    
    
    1.30
    %
    
    $
    101,118
    
    
    
    1.97
    %
   Income Taxes
  19




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##### Table of Contents



Liquidity and Capital Resources
  Six months ended September 30,2005
    
    
    2004Cash provided by (used in):Operating
activities 
    
    $
    5,647,429
    
    
    $
    4,067,827Investing
activities 
(primarily purchase of Contracts)
    
    
    (13,901,005
    )
    
    
    (9,285,713
    )Financing activities
    
    
    8,642,509
    
    
    
    5,945,358Net increase in cash
    
    $
    388,933
    
    
    $
    727,472
    20




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Future Expansion
   Recently Issued Accounting Standards
    21




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##### Table of Contents



Item 3. Quantitative And Qualitative Disclosures About Market Risk
 Note
 
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in internal controls
 22




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  23




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##### Table of Contents



SIGNATURES
  NICHOLAS FINANCIAL, INC.
 Date: November 10, 2005
    
    /s/ Peter L. VosotasPeter L. VosotasChairman of the Board, President,Chief Executive Officer and DirectorDate: November 10, 2005
    
    /s/ Ralph T. FinkenbrinkRalph T. FinkenbrinkSr. Vice President -FinanceChief Financial Officer and Director
 24




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Certification of President and Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. § 135032.2
    
    Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. § 135033.1
    
    Amendment No. 6 to Loan Agreement, dated September 15, 2005