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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended December 25, 2005



or



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



For the transition period
from  to



Commission file number 333-122531



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THE MONEY TREE INC

(Exact name of registrant as specified in its charter)



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|                                                             |  |                                     
|------------------------------------------------------------ |  | ------------------------------------
|Georgia                                                      |  | 58-2171386                          
|State or other jurisdiction of incorporation or organization |  | (I.R.S. Employer Identification No.)



114 South Broad
Street

Bainbridge, Georgia 39817

(Address, including zip code, of principal executive offices)



Registrants telephone number, including area code (229) 246-6536



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Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.    YES  x    NO ̈



Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

|                         |  |                    |  |                         
|------------------------ |  | ------------------ |  | ------------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer  x



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



Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the last practicable date.



|                    |  |                                
|------------------- |  | -------------------------------
|Class               |  | Outstanding at January 31, 2006
|Class A, Voting     |  | 2,686 Shares                   
|Class B, Non-Voting |  | 26,860 Shares                  



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##### Table of Contents

THE MONEY TREE INC.



FORM 10-Q

December 25, 2005



TABLE OF CONTENTS



|         |  |                                                                                                         |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------- |  | ----
|Item No. |  |                                                                                                         |  | Page
|         |  | PART I  FINANCIAL INFORMATION                                                                          |  |     
|         |  |                                                                                                        
|1        |  | Financial Statements                                                                                    |  | 2   
|         |  |                                                                                                        
|         |  | Consolidated Balance Sheets as of December 25, 2005 (Unaudited) and September 25, 2005                  |  | 2   
|         |  |                                                                                                        
|         |  | Consolidated Statements of Income for the three months ended December 25, 2005 and 2004 (Unaudited)     |  | 3   
|         |  |                                                                                                        
|         |  | Consolidated Statements of Cash Flows for the three months ended December 25, 2005 and 2004 (Unaudited) |  | 4   
|         |  |                                                                                                        
|         |  | Notes to Consolidated Financial Statements (Unaudited)                                                  |  | 6   
|         |  |                                                                                                        
|2        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                   |  | 16  
|         |  |                                                                                                        
|3        |  | Quantitative and Qualitative Disclosures About Market Risk                                              |  | 27  
|         |  |                                                                                                        
|4        |  | Controls and Procedures                                                                                 |  | 27  
|         |  |                                                                                                        
|         |  | PART II  OTHER INFORMATION                                                                             |  |     
|         |  |                                                                                                        
|1        |  | Legal Proceedings                                                                                       |  | 28  
|         |  |                                                                                                        
|2        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                             |  | 28  
|         |  |                                                                                                        
|3        |  | Defaults Upon Senior Securities                                                                         |  | 28  
|         |  |                                                                                                        
|4        |  | Submission of Matters to a Vote of Security Holders                                                     |  | 28  
|         |  |                                                                                                        
|5        |  | Other Information                                                                                       |  | 28  
|         |  |                                                                                                        
|6        |  | Exhibits                                                                                                |  | 28  



1



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##### Table of Contents

PART I  FINANCIAL INFORMATION



Item 1. Financial Statements



The Money Tree Inc. and Subsidiaries



Consolidated Balance Sheets



|                                                                                                    |  |                   |             |   |                    |   |            |  
|--------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ------------------ | - | ---------- | -
|                                                                                                    |  | December 25, 2005 |             |   | September 25, 2005 |  
|                                                                                                    |  | (Unaudited)       |             |   |                    |  
|Assets                                                                                              |  |                   |             |   |                    |   |            |  
|                                                                                                    |  |                  
|Cash and cash equivalents                                                                           |  | $                 | 7,541,563   |   |                    | $ | 9,618,557  |  
|Finance receivables, net                                                                            |  |                   | 81,624,015  |   |                    |   | 77,140,790 |  
|Other receivables                                                                                   |  |                   | 1,790,233   |   |                    |   | 1,099,352  |  
|Employee receivables                                                                                |  |                   | 4,918       |   |                    |   | 5,465      |  
|Inventory                                                                                           |  |                   | 2,631,490   |   |                    |   | 2,401,631  |  
|Property and equipment, net                                                                         |  |                   | 4,916,143   |   |                    |   | 4,849,775  |  
|Deferred income taxes                                                                               |  |                   | 2,063,000   |   |                    |   | 1,985,000  |  
|Intangible assets                                                                                   |  |                   | 1,407,816   |   |                    |   | 1,410,019  |  
|Other assets                                                                                        |  |                   | 1,334,626   |   |                    |   | 1,236,318  |  
|                                                                                                    |  |                   |             |   |                    |   |            |  
|Total assets                                                                                        |  | $                 | 103,313,804 |   |                    | $ | 99,746,907 |  
|                                                                                                    |  |                   |             |   |                    |   |            |  
|Liabilities and Shareholders Equity                                                                |  |                   |             |   |                    |   |            |  
|                                                                                                    |  |                  
|Liabilities                                                                                         |  |                   |             |   |                    |   |            |  
|Accounts payable and other accrued liabilities                                                      |  | $                 | 5,010,556   |   |                    | $ | 4,409,495  |  
|Accrued interest payable                                                                            |  |                   | 9,906,724   |   |                    |   | 9,476,662  |  
|Senior debt                                                                                         |  |                   | 1,655,274   |   |                    |   | 1,185,546  |  
|Senior subordinated debt                                                                            |  |                   | 1,000,000   |   |                    |   | 1,000,000  |  
|Variable rate subordinated debentures                                                               |  |                   | 72,078,907  |   |                    |   | 68,904,753 |  
|Demand notes                                                                                        |  |                   | 11,328,883  |   |                    |   | 12,867,207 |  
|Junior subordinated debt, related parties                                                           |  |                   | 800,000     |   |                    |   | 800,000    |  
|                                                                                                    |  |                   |             |   |                    |   |            |  
|Total liabilities                                                                                   |  |                   | 101,780,344 |   |                    |   | 98,643,663 |  
|                                                                                                    |  |                   |             |   |                    |   |            |  
|Shareholders equity                                                                                |  |                   |             |   |                    |   |            |  
|Common stock:                                                                                       |  |                   |             |   |                    |   |            |  
|Class A voting, no par value; 500,000 shares authorized, 2,686 shares issued and outstanding        |  |                   | 1,677,647   |   |                    |   | 1,677,647  |  
|Class B non-voting, no par value; 1,500,000 shares authorized, 26,860 shares issued and outstanding |  |                   |            |   |                    |   |           |  
|Accumulated deficit                                                                                 |  |                   | (144,187    | ) |                    |   | (574,403   | )
|                                                                                                    |  |                   |             |   |                    |   |            |  
|Total shareholders equity                                                                          |  |                   | 1,533,460   |   |                    |   | 1,103,244  |  
|                                                                                                    |  |                   |             |   |                    |   |            |  
|Total liabilities and shareholders equity                                                          |  | $                 | 103,313,804 |   |                    | $ | 99,746,907 |  
|                                                                                                    |  |                   |             |   |                    |   |            |  



See accompanying notes
to the consolidated financial statements.



2



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##### Table of Contents

The Money Tree Inc. and Subsidiaries



Consolidated Statements of Income



|                                                                              |  |             |            |   |      |   |            |  
|----------------------------------------------------------------------------- |  | ----------- | ---------- | - | ---- | - | ---------- | -
|Three months ended December 25,                                               |  | 2005        |            |   | 2004 |  
|                                                                              |  | (Unaudited) |           
|Interest income                                                               |  | $           | 5,227,513  |   |      | $ | 4,261,028  |  
|Interest expense                                                              |  |             | (1,708,569 | ) |      |   | (1,534,718 | )
|                                                                              |  |             |            |   |      |   |            |  
|Net interest income before provision for credit losses                        |  |             | 3,518,944  |   |      |   | 2,726,310  |  
|Provision for credit losses                                                   |  |             | (1,550,844 | ) |      |   | (434,388   | )
|                                                                              |  |             |            |   |      |   |            |  
|Net interest income after provision for credit losses                         |  |             | 1,968,100  |   |      |   | 2,291,922  |  
|Insurance commissions                                                         |  |             | 3,248,373  |   |      |   | 2,385,084  |  
|Commissions from motor club memberships from company owned by related parties |  |             | 563,802    |   |      |   | 569,112    |  
|Income tax service agreement income from company owned by related parties     |  |             |           |   |      |   | 4,000      |  
|Other income                                                                  |  |             | 581,965    |   |      |   | 687,131    |  
|                                                                              |  |             |            |   |      |   |            |  
|Net revenue before retail sales                                               |  |             | 6,362,240  |   |      |   | 5,937,249  |  
|                                                                              |  |             |            |   |      |   |            |  
|Retail sales                                                                  |  |             | 5,414,882  |   |      |   | 4,310,688  |  
|Cost of sales                                                                 |  |             | (3,543,165 | ) |      |   | (2,642,423 | )
|                                                                              |  |             |            |   |      |   |            |  
|Gross margin on retail sales                                                  |  |             | 1,871,717  |   |      |   | 1,668,265  |  
|                                                                              |  |             |            |   |      |   |            |  
|Net revenues                                                                  |  |             | 8,233,957  |   |      |   | 7,605,514  |  
|                                                                              |  |             |            |   |      |   |            |  
|Operating expenses                                                            |  |             |            |   |      |   |            |  
|Personnel expense                                                             |  |             | (4,184,497 | ) |      |   | (3,748,259 | )
|Facilities expense                                                            |  |             | (999,770   | ) |      |   | (910,913   | )
|General and adminstrative expenses                                            |  |             | (806,960   | ) |      |   | (967,288   | )
|Other operating expenses                                                      |  |             | (1,493,647 | ) |      |   | (1,732,125 | )
|                                                                              |  |             |            |   |      |   |            |  
|Total operating expenses                                                      |  |             | (7,484,874 | ) |      |   | (7,358,585 | )
|                                                                              |  |             |            |   |      |   |            |  
|Net operating income                                                          |  |             | 749,083    |   |      |   | 246,929    |  
|Loss on sale of property and equipment                                        |  |             | (5,114     | ) |      |   |           |  
|                                                                              |  |             |            |   |      |   |            |  
|Income before income tax expense                                              |  |             | 743,969    |   |      |   | 246,929    |  
|Income tax expense                                                            |  |             | (313,753   | ) |      |   | (70,119    | )
|                                                                              |  |             |            |   |      |   |            |  
|Net income                                                                    |  | $           | 430,216    |   |      | $ | 176,810    |  
|                                                                              |  |             |            |   |      |   |            |  
|Net income per common share, basic and diluted                                |  | $           | 14.56      |   |      | $ | 5.98       |  
|                                                                              |  |             |            |   |      |   |            |  
|Weighted average shares outstanding                                           |  |             | 29,546     |   |      |   | 29,546     |  
|                                                                              |  |             |            |   |      |   |            |  



See accompanying notes
to the consolidated financial statements.



3



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The Money Tree Inc. and Subsidiaries



Consolidated Statements of Cash Flows



|                                                                                  |  |             |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ----------- | ----------- | - | ---- | - | ----------- | -
|Three months ended December 25,                                                   |  | 2005        |             |   | 2004 |  
|                                                                                  |  | (Unaudited) |            
|Cash flows from operating activities                                              |  |             |             |   |      |   |             |  
|Net income                                                                        |  | $           | 430,216     |   |      | $ | 176,810     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |             |             |   |      |   |             |  
|Provision for credit losses                                                       |  |             | 1,550,844   |   |      |   | 434,388     |  
|Depreciation                                                                      |  |             | 238,063     |   |      |   | 216,386     |  
|Amortization                                                                      |  |             | 2,203       |   |      |   | 2,048       |  
|Deferred income taxes                                                             |  |             | (78,000     | ) |      |   | (559,000    | )
|Loss on sale of property and equipment                                            |  |             | 5,114       |   |      |   |            |  
|Change in assets and liabilities                                                  |  |             |             |   |      |   |             |  
|Other receivables                                                                 |  |             | (690,881    | ) |      |   | 3,414,953   |  
|Employee receivables                                                              |  |             | 547         |   |      |   | 7,318       |  
|Inventory                                                                         |  |             | (229,859    | ) |      |   | (498,271    | )
|Other assets                                                                      |  |             | (98,308     | ) |      |   | 114,057     |  
|Accounts payable and other accrued liabilities                                    |  |             | 601,061     |   |      |   | 1,107,455   |  
|Accrued interest payable                                                          |  |             | 430,062     |   |      |   | 328,398     |  
|                                                                                  |  |             |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |             | 2,161,062   |   |      |   | 4,744,542   |  
|                                                                                  |  |             |             |   |      |   |             |  
|Cash flows from investing activities                                              |  |             |             |   |      |   |             |  
|Loans originated                                                                  |  |             | (23,852,426 | ) |      |   | (20,650,813 | )
|Loans repaid                                                                      |  |             | 17,818,357  |   |      |   | 15,400,379  |  
|Purchase of property and equipment                                                |  |             | (335,425    | ) |      |   | (328,789    | )
|Proceeds from sale of property and equipment                                      |  |             | 25,880      |   |      |   |            |  
|                                                                                  |  |             |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |             | (6,343,614  | ) |      |   | (5,579,223  | )
|                                                                                  |  |             |             |   |      |   |             |  
|Cash flows from financing activities                                              |  |             |             |   |      |   |             |  
|Net proceeds (repayments) on:                                                     |  |             |             |   |      |   |             |  
|Senior debt                                                                       |  |             | 469,728     |   |      |   | (276,550    | )
|Senior subordinated debt                                                          |  |             |            |   |      |   | (300,000    | )
|Demand notes                                                                      |  |             | (1,538,324  | ) |      |   | (107,547    | )
|Proceeds-variable rate subordinated debentures                                    |  |             | 6,880,055   |   |      |   | 4,088,178   |  
|Payments-variable rate subordinated debentures                                    |  |             | (3,705,901  | ) |      |   | (3,192,159  | )
|                                                                                  |  |             |             |   |      |   |             |  
|Net cash provided by financing activities                                         |  |             | 2,105,558   |   |      |   | 211,922     |  
|                                                                                  |  |             |             |   |      |   |             |  
|Net change in cash and cash equivalents                                           |  |             | (2,076,994  | ) |      |   | (622,759    | )
|                                                                                  |  |            
|Cash and cash equivalents, beginning of period                                    |  |             | 9,618,557   |   |      |   | 8,373,114   |  
|                                                                                  |  |             |             |   |      |   |             |  
|Cash and cash equivalents, end of period                                          |  | $           | 7,541,563   |   |      | $ | 7,750,355   |  
|                                                                                  |  |             |             |   |      |   |             |  



See accompanying notes
to the consolidated financial statements.



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The Money Tree Inc. and Subsidiaries



Consolidated Statements of Cash Flows (continued)



|                                                  |  |             |           |      |   |          
|------------------------------------------------- |  | ----------- | --------- | ---- | - | ---------
|Three months ended December 25,                   |  | 2005        |           | 2004
|                                                  |  | (Unaudited)
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |             |           |      |   |          
|Cash paid during the quarter for:                 |  |             |           |      |   |          
|Interest                                          |  | $           | 1,278,507 |      | $ | 1,206,320
|                                                  |  |             |           |      |   |          
|Income taxes                                      |  | $           | 817,325   |      | $ | 296,475  
|                                                  |  |             |           |      |   |          



See accompanying notes
to the consolidated financial statements.



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



NOTE 1 
BASIS OF PRESENTATION



The consolidated financial statements of The Money
Tree Inc., a Georgia corporation (the Parent) and subsidiaries (collectively with the Parent, the Company) included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the United
States Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. These
unaudited consolidated financial statements should be read in conjunction with the Companys annual audited consolidated financial statements filed with the Securities and Exchange Commission.



The consolidated financial statements include the accounts of the Company and all of its
subsidiaries after eliminating all significant intercompany transactions and reflect all normal, recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the results of operations of the Company in
conformity with accounting principles generally accepted in the United States for the interim periods reported. The results of operations for the three months ended December 25, 2005 and 2004 are not necessarily indicative of the results for
the full fiscal year.



In the Companys year-ended September 25, 2005
financial reporting process, a misstatement was identified that affected the Companys financial statements for each of the three months ended December 25, 2004, March 25, 2005, and June 25, 2005, as included in amendments to the Companys
Form S-1 registration statements during its registration with the Securities and Exchange Commission. To correct this misstatement, the Company increased net income in its financial statements for the three months ended December 25, 2004, March 25,
2005, and June 25, 2005 by $113,601, $90,097, and $94,015, respectively. The adjusted financial statements for the three months ended December 25, 2004 are included in this Form 10-Q. The adjusted financial statements for the three months ended
March 25, 2005 and June 25, 2005 will be included in the respective Form 10-Q when issued.



NOTE 2  NATURE OF BUSINESS



The
Companys business consists of: the operation of finance company offices in 103 locations throughout Georgia, Alabama, Louisiana and Florida; sales of retail merchandise (principally furniture, appliances, and electronics) at certain finance
company locations; and the operation of four used automobile dealerships in the state of Georgia. The Company also earns revenues from commissions on premiums written for certain insurance products, when requested by loan customers, as an agent for
a non-affiliated insurance company. Revenues are also generated from commissions on the sales of prepaid phone service and automobile club memberships.



The Companys loan portfolio consists of sales finance loan receivables and direct consumer loan receivables. Sales finance loan receivables consist principally of
retail installment sale contracts collateralized by used automobiles and consumer goods which are initiated by automobile and consumer good dealerships, subject to credit approval, in the locations where the Company operates offices. Direct loan
receivables are loans originated directly to customers.



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



NOTE 3  RECENT ACCOUNTING PRONOUNCEMENTS



In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position 03-3 (SOP), Accounting for
Certain Loans or Debt Securities Acquired in a Transfer. Statement of Position 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans
or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations and applies to all nongovernmental entities, including
not-for-profit organizations. This SOP does not apply to loans originated by the entity. This SOP limits the yield that may be accreted (accretable yield) to the excess of the investors estimate of undiscounted expected principal, interest,
and other cash flows (cash flows expected at acquisition to be collected) over the investors initial investment in the loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable
difference) not be recognized as an adjustment of yield loss accrual, or valuation allowance. This SOP prohibits carrying over or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are
within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. This SOP is effective for
loans acquired in fiscal years beginning after December 15, 2004. The Company adopted SOP 03-3 on September 26, 2005 and it had no impact on its financial position or operating results.



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 (SFAS No. 153). SFAS No. 153 is based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. APB Opinion No. 29, Accounting for Nonmonetary Transactions (APB Opinion No. 29), provided an exception to its basic measurement principle (fair value) for exchanges of similar
productive assets. Under APB Opinion No. 29, an exchange of a productive asset for a similar productive asset was based on the recorded amount of the asset relinquished. SFAS No. 153 eliminates this exception and replaces it with an exception of
exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 became effective for our Company as of September 26, 2005. There were no significant nonmonetary exchange transactions recorded in the three months ended December
25, 2005. The Company will apply the requirements of SFAS No. 153 on any future nonmonetary exchange transactions.



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS 154 requires retroactive application of a voluntary change in
accounting principle to prior period financial statements unless it is impracticable. SFAS No. 154 also requires that a change in method of depreciation, amortization or depletion for long-lived, non-financial assets be accounted for as a change in
accounting estimate that is affected by a change in accounting principle. SFAS No. 154 replaces APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005. The Company does not expect the adoption of the provisions of SFAS No. 154 to have a material impact on its results of operations or financial
condition.



In December 2004, the FASB revised SFAS No. 123, Accounting
for Stock-based Compensation to require all companies to expense the fair value of employee stock options. SFAS 123R is effective for the first period beginning after December 15, 2005. This pronouncement is not expected to have a material
impact on the Companys financial position or results of operations.



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



NOTE 4  FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES



Finance receivables consisted of the following:



|                                                        |  |                   |             |   |                    |   |             |  
|------------------------------------------------------- |  | ----------------- | ----------- | - | ------------------ | - | ----------- | -
|                                                        |  | December 25, 2005 |             |   | September 25, 2005 |  
|                                                        |  | (Unaudited)       |             |   |                    |  
|Finance receivables, direct consumer                    |  | $                 | 57,303,217  |   |                    | $ | 53,762,475  |  
|Finance receivables, consumer sales finance             |  |                   | 10,908,574  |   |                    |   | 9,661,474   |  
|Finance receivables, auto sales finance                 |  |                   | 30,966,025  |   |                    |   | 29,765,603  |  
|                                                        |  |                   |             |   |                    |   |             |  
|Total gross finance receivables                         |  |                   | 99,177,816  |   |                    |   | 93,189,552  |  
|Unearned insurance commissions                          |  |                   | (4,031,175  | ) |                    |   | (3,741,947  | )
|Unearned finance charges                                |  |                   | (11,826,576 | ) |                    |   | (10,715,230 | )
|Accrued interest receivable                             |  |                   | 1,122,972   |   |                    |   | 1,180,436   |  
|Unearned discounts                                      |  |                   | (19,694     | ) |                    |   | (140,207    | )
|                                                        |  |                   |             |   |                    |   |             |  
|Finance receivables, before allowance for credit losses |  |                   | 84,423,343  |   |                    |   | 79,772,604  |  
|Allowance for credit losses                             |  |                   | (2,799,328  | ) |                    |   | (2,631,814  | )
|                                                        |  |                   |             |   |                    |   |             |  
|Finance receivables, net                                |  | $                 | 81,624,015  |   |                    | $ | 77,140,790  |  
|                                                        |  |                   |             |   |                    |   |             |  



An analysis of the allowance for
credit losses is as follows:



|                             |  |                                                      |            |   |                                               |   |            |  
|---------------------------- |  | ---------------------------------------------------- | ---------- | - | --------------------------------------------- | - | ---------- | -
|                             |  | As of and for thethree months endedDecember 25, 2005 |            |   | As of and for theyear endedSeptember 25, 2005 |  
|                             |  | (Unaudited)                                          |            |   |                                               |  
|Beginning balance            |  | $                                                    | 2,631,814  |   |                                               | $ | 2,055,402  |  
|Provisions for credit losses |  |                                                      | 1,550,844  |   |                                               |   | 2,767,868  |  
|Charge-offs                  |  |                                                      | (1,414,312 | ) |                                               |   | (2,300,592 | )
|Recoveries                   |  |                                                      | 23,683     |   |                                               |   | 104,404    |  
|Other                        |  |                                                      | 7,299      |   |                                               |   | 4,732      |  
|                             |  |                                                      |            |   |                                               |   |            |  
|Ending balance               |  | $                                                    | 2,799,328  |   |                                               | $ | 2,631,814  |  
|                             |  |                                                      |            |   |                                               |   |            |  



NOTE 5  INVENTORY



Inventory consisted of the following:



|                                 |  |                   |           |                    |   |          
|-------------------------------- |  | ----------------- | --------- | ------------------ | - | ---------
|                                 |  | December 25, 2005 |           | September 25, 2005
|                                 |  | (Unaudited)       |           |                   
|Used automobiles                 |  | $                 | 2,125,460 |                    | $ | 1,900,894
|Home furnishings and electronics |  |                   | 506,030   |                    |   | 500,737  
|                                 |  |                   |           |                    |   |          
|Total inventory                  |  | $                 | 2,631,490 |                    | $ | 2,401,631
|                                 |  |                   |           |                    |   |          



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



NOTE 6  ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES



Accounts payable and other accrued liabilities consisted of the following:



|                                                     |  |                   |           |                    |   |          
|---------------------------------------------------- |  | ----------------- | --------- | ------------------ | - | ---------
|                                                     |  | December 25, 2005 |           | September 25, 2005
|                                                     |  | (Unaudited)       |           |                   
|Accounts payable                                     |  | $                 | 154,350   |                    | $ | 182,994  
|Insurance payable, loan related                      |  |                   | 1,046,367 |                    |   | 751,317  
|Accrued payroll                                      |  |                   | 576,049   |                    |   | 578,370  
|Accrued payroll taxes                                |  |                   | 44,298    |                    |   | 44,560   
|Money orders                                         |  |                   | 1,233,637 |                    |   | 823,585  
|Sales tax payable                                    |  |                   | 1,213,942 |                    |   | 1,118,648
|Other liabilities                                    |  |                   | 741,913   |                    |   | 910,021  
|                                                     |  |                   |           |                    |   |          
|Total accounts payable and other accrued liabilities |  | $                 | 5,010,556 |                    | $ | 4,409,495
|                                                     |  |                   |           |                    |   |          



Note 7  DEBT



Debt consisted of the following:



|                                                                                                                                                                                                                                                                                                                                                                                         |  |                   |           |                    |   |          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ------------------ | - | ---------
|                                                                                                                                                                                                                                                                                                                                                                                         |  | December 25, 2004 |           | September 25, 2005
|                                                                                                                                                                                                                                                                                                                                                                                         |  | (Unaudited)       |           |                   
|Senior debt: due to banks and commercial finance companies, collateralized by inventory and certain automotive equipment, and certain notes
include personal guarantees of the shareholder, interest at 4.49% to 8.25% (some variable), due 2006 to 2019. The carrying value of the collateral at December 25, 2005 and September 25, 2005 were $3,086,367 and $2,960,186,
respectively. |  | $                 | 1,655,274 |                    | $ | 1,185,546
|                                                                                                                                                                                                                                                                                                                                                                                         |  |                   |           |                    |   |          
|Total senior debt                                                                                                                                                                                                                                                                                                                                                                        |  |                   | 1,655,274 |                    |   | 1,185,546
|                                                                                                                                                                                                                                                                                                                                                                                         |  |                   |           |                    |   |          



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



NOTE 7  DEBT (Continued)



|                                                                                                                                                                                                                                                                                                   |  |                   |            |                    |   |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | ------------------ | - | ----------
|                                                                                                                                                                                                                                                                                                   |  | December 25, 2005 |            | September 25, 2005
|                                                                                                                                                                                                                                                                                                   |  | (Unaudited)       |            |                   
|Senior subordinated debt: due to credit insurance company, unsecured, guaranteed by a Company shareholder, interest at prime (4.5% and 4.5% at
December 25, 2005 and September 25, 2005, respectively) plus 1 % (8% floor, 12% ceiling), interest payable quarterly, principal due August 5, 2007. |  |                   | 1,000,000  |                    |   | 1,000,000 
|                                                                                                                                                                                                                                                                                                   |  |                   |            |                    |   |           
|Total senior subordinated debt                                                                                                                                                                                                                                                                     |  |                   | 1,000,000  |                    |   | 1,000,000 
|                                                                                                                                                                                                                                                                                                   |  |                   |            |                    |   |           
|Variable rate subordinated debentures: due to individuals, unsecured, interest at 4.25% to 9.6%, due at various dates through
2009.                                                                                                                                                                |  |                   | 72,078,907 |                    |   | 68,904,753
|                                                                                                                                                                                                                                                                                                   |  |                   |            |                    |   |           
|Demand notes: due to individuals, unsecured, interest at 4.25% to 5.0%, due on demand.                                                                                                                                                                                                             |  |                   | 11,328,883 |                    |   | 12,867,207
|                                                                                                                                                                                                                                                                                                   |  |                   |            |                    |   |           
|Junior subordinated debt, related parties: due to a shareholder, interest rate at 8%, due November 20, 2006.                                                                                                                                                                                       |  |                   | 300,000    |                    |   | 300,000   
|Junior subordinated debt, related parties: due to a shareholder, interest rate at 8% due June 28, 2008.                                                                                                                                                                                            |  |                   | 500,000    |                    |   | 500,000   
|                                                                                                                                                                                                                                                                                                   |  |                   |            |                    |   |           
|Total junior subordinated debt, related parties                                                                                                                                                                                                                                                    |  |                   | 800,000    |                    |   | 800,000   
|                                                                                                                                                                                                                                                                                                   |  |                   |            |                    |   |           
|Total debt                                                                                                                                                                                                                                                                                         |  | $                 | 86,863,064 |                    | $ | 84,757,506
|                                                                                                                                                                                                                                                                                                   |  |                   |            |                    |   |           



NOTE 8  INCOME TAXES



The Company accounts for income taxes in accordance with Statement of
Financial Accounting Statement No. 109 (FAS 109); accordingly deferred income taxes are provided at the enacted marginal rates on the difference between the financial statement and income taxes bases of assets and liabilities. Deferred income
tax provisions or benefits are based on the change in the deferred tax assets and liabilities from period to period.



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##### Table of Contents

The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



NOTE 9  RELATED PARTY TRANSACTIONS



Martin Family Group, LLLP, of which the CEO is the general partner, owns the real estate of thirteen branch offices, two used car lots, and the Companys principal
executive offices. The Company has entered into lease agreements where by rent is paid monthly for use of these locations. In addition, the CEO leases, and then subleases to the Company, another 57 branch office locations and two used car lots for
amounts greater than are paid in the underlying leases. This spread is generally to cover property operating cost or improvements made directly by the CEO. In the opinion of Management, rates paid for these are comparable to those obtained from
third parties. Total rents paid were $519,468 and $476,737 for the three months ended December 25, 2005 and 2004, respectively and are included in operating expense on the accompanying unaudited consolidated statement of income.



The Company receives commissions from sales of motor club memberships from an entity, owned
by the CEO and his three children, pursuant to an Agency Sales Agreement. Commissions earned on the sale of these memberships were $563,802 and $569,112 for the three months ended December 25, 2005 and 2004, respectively.



The Company receives income tax service agreement income, pursuant to a service agreement,
from an entity owned by the CEO and two other officers of the Company. Tax service agreement income was $-0- and $4,000 for the three months ended December 25, 2005 and 2004, respectively.



The Company also engages from time to time in other transactions with related parties. Refer
to the Related Party Transactions disclosure in the notes to the Companys Consolidated Financial Statements as of and for the year ended September 25, 2005.



NOTE 10  CONTINGENT LIABILITIES



The Company is a party to litigation arising in the normal course of business. With respect to all such lawsuits, claims, and proceedings, the Company establishes
reserves when it is probable a liability has been incurred and the amount can reasonably be estimated. In the opinion of management, the resolution of such matters will not have a material effect on the financial statements.



NOTE 11  DISCRETIONARY BONUSES



From time to time, the Company pays discretionary bonuses to its employees. The amount of
these bonuses charged to operating expenses was $594,526 and $501,480 for the three months ended December 25, 2005 and 2004, respectively.



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



NOTE 12  NET INCOME PER COMMON SHARE



Net income per share is computed based upon weighted-average common shares outstanding. The basic weighted-average shares have been restated for stock splits affected
in the form of stock dividends for the three months ended December 25, 2005 and 2004. There are no potentially dilutive securities issued or outstanding.



NOTE 13  SEGMENT FINANCIAL INFORMATION



Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information (SFAS 131), requires companies to
determine segments based on how management makes decisions about allocating resources to segments and measuring their performance.



The Company has two reportable segments: Consumer Finance and Sales and Automotive Finance and Sales.



Consumer finance and sales segment



This segment is comprised of original core operations of the Company: the small consumer loan business in the four states in which the
Company operates. The 103 offices that make up this segment are similar in size and in the market they serve. All, with few exceptions, offer consumer goods for sale acting as an agent for another subsidiary of the Company, Home Furniture Mart Inc.,
which is aggregated in this segment since its sales are generated through these finance offices. This segment is structured with branch management reporting through a regional management level to an operational manager and ultimately to the chief
operating decision maker.



Automotive
finance and sales segment



This segment is comprised of four used
automobile sales locations and offers financing in conjunction with these sales. These locations target similar customers in the Bainbridge, GA, Columbus, GA and Dublin, GA markets and surrounding areas who generally cannot qualify for traditional
financing. The sales and the financing organizations are aggregated in the segment. A general manager is responsible for sales and finance administration at each of the locations and reports to an operational manager and ultimately to the chief
operating decision maker.



Accounting policies of the segments are the same as
those described in the summary of significant accounting policies. Performance is measured by various factors such as segment profit, loan volumes and delinquency and loss management. All corporate expenses are allocated to the segments. Provision
for income taxes are not allocated to segments.



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|---------------------------------------------- |  | -------------------------------- | ------ | - | ---------------------------------- | - | ------ | ------------- |  | - | ------- | -
|Three months ended December 25, 2005           |  | Consumer Finance& Sales Division |        |   | Automotive Finance& Sales Division |   |        | TotalSegments | 
|In Thousands                                   |  | (Unaudited)                      |       
|Net revenues before retail sales               |  | $                                | 6,279  |   |                                    | $ | 83     |               |  | $ | 6,362   |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|Gross margin on retail sales                   |  |                                  | 712    |   |                                    |   | 1,160  |               |  |   | 1,872   |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|Segment operating expenses                     |  |                                  | (6,264 | ) |                                    |   | (1,221 | )             |  |   | (7,485  | )
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|Segment operating profit                       |  | $                                | 727    |   |                                    | $ | 22     |               |  | $ | 749     |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|                                               |  |                                  |       
|December 25, 2005                              |  |                                  |        |   |                                    |   |        |               | 
|In Thousands                                   |  |                                  |        |   |                                    |   |        |               | 
|Assets                                         |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|Total segment assets                           |  | $                                | 67,263 |   |                                    | $ | 29,625 |               |  | $ | 96,888  |  
|                                               |  |                                  |       
|RECONCILIATION:                                |  |                                  |        |   |                                    |   |        | 12/25/2005    | 
|                                               |  |                                  |        |   |                                    |   |        | (Thousands)   | 
|Assets:                                        |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|Total assets for reportable segments           |  |                                  |        |   |                                    |   |        |               |  | $ | 96,888  |  
|                                               |  |                                  |       
|Cash and cash equivalents at corporate level   |  |                                  |        |   |                                    |   |        |               |  |   | 45      |  
|Other receivables at corporate level           |  |                                  |        |   |                                    |   |        |               |  |   | 1,790   |  
|Employee receivables at corporate level        |  |                                  |        |   |                                    |   |        |               |  |   | 5       |  
|Property and equipment, net at corporate level |  |                                  |        |   |                                    |   |        |               |  |   | 1,394   |  
|Deferred income taxes at corporate level       |  |                                  |        |   |                                    |   |        |               |  |   | 2,063   |  
|Other assets at corporate level                |  |                                  |        |   |                                    |   |        |               |  |   | 1,129   |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  
|Consolidated Assets                            |  |                                  |        |   |                                    |   |        |               |  | $ | 103,314 |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |         |  



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|---------------------------------------------- |  | -------------------------------- | ------ | - | ---------------------------------- | - | ------ | ------------- |  | - | ------ | -
|Three months ended December 25, 2004           |  | Consumer Finance& Sales Division |        |   | Automotive Finance& Sales Division |   |        | TotalSegments | 
|In Thousands                                   |  | (Unaudited)                      |       
|Net revenues before retail sales               |  | $                                | 5,822  |   |                                    | $ | 115    |               |  | $ | 5,937  |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|Gross margin on retail sales                   |  |                                  | 848    |   |                                    |   | 821    |               |  |   | 1,669  |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|Segment operating expenses                     |  |                                  | (6,297 | ) |                                    |   | (1,062 | )             |  |   | (7,359 | )
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|Segment operating profit (loss)                |  | $                                | 373    |   |                                    | $ | (126   | )             |  | $ | 247    |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|                                               |  |                                  |       
|December 25, 2004                              |  |                                  |        |   |                                    |   |        |               | 
|In Thousands                                   |  |                                  |        |   |                                    |   |        |               | 
|Assets                                         |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|Total segment assets                           |  | $                                | 56,566 |   |                                    | $ | 28,560 |               |  | $ | 85,126 |  
|                                               |  |                                  |       
|RECONCILIATION:                                |  |                                  |        |   |                                    |   |        | 12/25/2004    | 
|                                               |  |                                  |        |   |                                    |   |        | (Thousands)   | 
|Assets:                                        |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|Total assets for reportable segments           |  |                                  |        |   |                                    |   |        |               |  | $ | 85,126 |  
|                                               |  |                                  |       
|Cash and cash equivalents at corporate level   |  |                                  |        |   |                                    |   |        |               |  |   | 59     |  
|Other receivables at corporate level           |  |                                  |        |   |                                    |   |        |               |  |   | 1,489  |  
|Employee receivables at corporate level        |  |                                  |        |   |                                    |   |        |               |  |   | 11     |  
|Property and equipment, net at corporate level |  |                                  |        |   |                                    |   |        |               |  |   | 1,429  |  
|Deferred income taxes at corporate level       |  |                                  |        |   |                                    |   |        |               |  |   | 1,819  |  
|Other assets at corporate level                |  |                                  |        |   |                                    |   |        |               |  |   | 656    |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  
|Consolidated Assets                            |  |                                  |        |   |                                    |   |        |               |  | $ | 90,589 |  
|                                               |  |                                  |        |   |                                    |   |        |               |  |   |        |  



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The Money Tree Inc. and Subsidiaries



Notes to Consolidated Financial Statements



NOTE 14  DEBT REGISTRATIONS



The Money Tree Inc. has registered with the Securities and Exchange Commission on Form S-1 Registration Statements (1) $75,000,000 of Series A Variable Rate
Subordinated Debentures (Commission File No. 333-122531) and (2) $35,000,000 of Subordinated Demand Notes (Commission File No. 333-122533). These Registration Statements were declared effective on November 4, 2005. We have also
registered these securities with the state regulatory authorities in the States of Georgia, Florida and Louisiana.



NOTE 15  VOTING COMMON STOCK SALE



On December 30, 2005, Vance R. Martin, Chief Executive Officer of The Money Tree Inc., sold and transferred 1,475 shares of voting common stock (55% of the
outstanding shares) to the Vance Rudolph Martin Defective Grantor Trust u/t/a dated December 28, 2005. W. Derek Martin, President of The Money Tree Inc. and son of Vance R. Martin, serves as the sole trustee of the trust and, accordingly, has
the power to vote the shares held by the trust. Vance R. Martin has retained ownership of the remaining 1,211 shares of voting common stock (45% of the outstanding shares).



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##### Table of Contents

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



Forward-Looking Statements



The discussion set forth below, as well as other portions of this quarterly report, contains forward-looking statements within the meaning of federal
securities law. Words such as may, will, expect, anticipate, believe, estimate, continue, predict, or other similar words, identify forward-looking statements.
Forward-looking statements include statements regarding our managements intent, belief or current expectation about, among other things, trends affecting the markets in which we operate, our business, our financial condition and our growth
strategies. Although we believe that the expectation reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those predicted in the forward-looking statements as a result of various factors, including, but not limited to, those risk factors set forth in our post-effective amendment to registration statement on Form S-1,
filed with the Securities and Exchange Commission on January 5, 2006. Other factors not identified herein could also have such an effect. If any of these risk factors occur, they could have an adverse effect on our business, financial condition
and results of operations. When considering forward-looking statements keep these risks in mind. These forward-looking statements are made as of the date of this filing. You should not place undo reliance on any forward-looking statement. We are not
obligated to update forward-looking statements and will not update any forward-looking statements in this quarterly report to reflect future events or developments.



The following discussion should be read in conjunction with our unaudited consolidated financial statements and related
notes and other financial data included elsewhere in this report. See also the notes to our consolidated financial statements, Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in our annual report on Form 10-K for the year ended September 25, 2005.



Overview



We
make consumer finance loans and provide other financial products and services through our branch offices in Georgia, Alabama, Louisiana and Florida. We sell retail merchandise, principally furniture, appliances and electronics, at certain of our
branch office locations and operate four used automobile dealerships in the State of Georgia. We also offer insurance products, prepaid phone services and automobile club memberships to our loan customers.



We fund our consumer loan demand through a combination of cash collections
from our consumer loans, proceeds raised from the sale of debentures and demand notes and loans from various banks and other financial institutions. Our consumer loan business consists of making, purchasing and servicing direct consumer loans,
consumer sales finance contracts and motor vehicle installment sales contracts. Direct consumer loans generally serve individuals with limited access to other sources of consumer credit, such as banks, savings and loans, other consumer finance
businesses and credit cards. Direct consumer loans are general loans made typically to people who need money for some unusual or unforeseen expense, for the purpose of paying off an accumulation of small debts or for the purchase of furniture and
appliances. The following table sets forth certain information about the components of our finance receivables for the period presented:



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|                                           |  |                                                   |            |   |      |   |            |  
|------------------------------------------ |  | ------------------------------------------------- | ---------- | - | ---- | - | ---------- | -
|Description of Loans and Contracts         |  |                                                   |            |   |      |  
|                                           |  | As of, or for, the Three MonthsEnded December 25, |           
|                                           |  | 2005                                              |            |   | 2004 |  
|Direct Consumer Loans:                     |  |                                                   |            |   |      |   |            |  
|                                           |  |                                                  
|Number of Loans Made to New Borrowers      |  |                                                   | 6,182      |   |      |   | 7,305      |  
|                                           |  |                                                  
|Number of Loans Made to Former Borrowers   |  |                                                   | 13,924     |   |      |   | 14,136     |  
|                                           |  |                                                  
|Number of Loans Made to Existing Borrowers |  |                                                   | 25,613     |   |      |   | 25,183     |  
|Total Number of Loans Made                 |  |                                                   | 45,719     |   |      |   | 46,624     |  
|Total Volume of Loans Made                 |  | $                                                 | 24,506,115 |   |      | $ | 21,287,682 |  
|Average Size of Loans Made                 |  | $                                                 | 536        |   |      | $ | 457        |  
|Number of Loans Outstanding                |  |                                                   | 72,897     |   |      |   | 69,696     |  
|Total of Loans Outstanding*                |  | $                                                 | 51,911,429 |   |      | $ | 42,682,107 |  
|Percent of Loans Outstanding               |  |                                                   | 55.35      | % |      |   | 52.22      | %
|Average Balance on Outstanding Loans       |  | $                                                 | 712        |   |      | $ | 612        |  
|                                           |  |                                                  
|Motor Vehicle Installment Sales Contracts: |  |                                                   |            |   |      |   |            |  
|Total Number of Contracts Made             |  |                                                   | 288        |   |      |   | 225        |  
|Total Volume of Contracts Made             |  | $                                                 | 4,930,148  |   |      | $ | 3,675,539  |  
|Average Size of Contracts Made             |  | $                                                 | 17,119     |   |      | $ | 16,336     |  
|Number of Contracts Outstanding            |  |                                                   | 2,489      |   |      |   | 2,248      |  
|Total of Contracts Outstanding*            |  | $                                                 | 30,966,025 |   |      | $ | 30,804,348 |  
|Percent of Total Loans and Contracts       |  |                                                   | 33.02      | % |      |   | 37.69      | %
|Average Balance on Outstanding Contracts   |  | $                                                 | 12,441     |   |      | $ | 13,703     |  
|                                           |  |                                                  
|Consumer Sales Finance Contracts:          |  |                                                   |            |   |      |   |            |  
|Number of Contracts Made to New Customers  |  |                                                   | 42         |   |      |   | 28         |  
|                                           |  |                                                  
|Number of Loans Made to Former Customers   |  |                                                   | 746        |   |      |   | 678        |  
|                                           |  |                                                  
|Number of Loans Made to Existing Customers |  |                                                   | 760        |   |      |   | 521        |  
|Total Contracts Made                       |  |                                                   | 1,548      |   |      |   | 1,227      |  
|Total Volume of Contracts Made             |  | $                                                 | 4,099,525  |   |      | $ | 2,955,314  |  
|Number of Contracts Outstanding            |  |                                                   | 5,900      |   |      |   | 4,769      |  
|Total of Contracts Outstanding*            |  | $                                                 | 10,908,574 |   |      | $ | 8,246,296  |  
|Percent of Total Loans and Contracts       |  |                                                   | 11.63      | % |      |   | 10.09      | %
|                                           |  |                                                  
|Average Balance of Outstanding Contracts   |  | $                                                 | 1,849      |   |      | $ | 1,729      |  

---

|* | Contracts outstanding are exclusive of the following aggregate amounts of bankrupt accounts: $5,391,788 for the three months ended December 25, 2005 and $3,841,026 for the
three months ended December 25, 2004.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Below is a table showing our total gross outstanding finance receivables and bankrupt accounts:



|                                               |  |                                 |            |      |   |           
|---------------------------------------------- |  | ------------------------------- | ---------- | ---- | - | ----------
|                                               |  | Three Months Ended December 25,
|                                               |  | 2005                            |            | 2004
|Total Loans and Contracts Outstanding (gross): |  |                                 |            |      |   |           
|Direct Consumer Loans                          |  | $                               | 51,911,429 |      | $ | 42,682,107
|Motor Vehicle Installment                      |  |                                 | 30,966,025 |      |   | 30,804,348
|Consumer Sales Finance                         |  |                                 | 10,908,574 |      |   | 8,246,296 
|Bankrupt Accounts                              |  |                                 | 5,391,788  |      |   | 3,841,026 
|                                               |  |                                 |            |      |   |           
|Total Gross Outstanding                        |  | $                               | 99,177,816 |      | $ | 85,573,777
|                                               |  |                                 |            |      |   |           



Below is a
roll-forward of the balance of each category of our outstanding finance receivables. Loans originated reflect the gross amount of loans made or purchased during the period presented inclusive of pre-computed interest, fees and insurance premiums.
Collections represent cash receipts in the form of repayments made on our loans as reflected in our Consolidated Statements of Cash Flows. Refinancings represent the amount of the pay off of loans refinanced. Charge offs represent the gross amount
of loans charged off as uncollectible (charge offs are shown net of non-file insurance receipts in our Allowance for Credit Losses). Rebates represent reductions to gross loan amounts of precomputed interest and insurance premiums resulting from
loans refinanced and other loans paid off before maturity. Other adjustments primarily represent accounts transferred to and from the department that administers bankrupt accounts.



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|                                           |  |                                         |             |   |      |   |             |  
|------------------------------------------ |  | --------------------------------------- | ----------- | - | ---- | - | ----------- | -
|                                           |  | For the Three Months Ended December 25, |            
|                                           |  | 2005                                    |             |   | 2004 |  
|Direct Consumer Loans:                     |  |                                         |             |   |      |   |             |  
|Balance - beginning                        |  | $                                       | 48,840,570  |   |      | $ | 38,281,888  |  
|Loans originated                           |  |                                         | 24,506,115  |   |      |   | 21,287,682  |  
|Collections                                |  |                                         | (13,705,994 | ) |      |   | (11,649,874 | )
|Refinances                                 |  |                                         | (4,545,814  | ) |      |   | (3,975,616  | )
|Charge offs                                |  |                                         | (1,431,743  | ) |      |   | (794,133    | )
|Rebates / other adjustments                |  |                                         | (1,751,705  | ) |      |   | (467,840    | )
|                                           |  |                                         |             |   |      |   |             |  
|Balance - end                              |  | $                                       | 51,911,429  |   |      | $ | 42,682,107  |  
|                                           |  |                                         |             |   |      |   |             |  
|Consumer Sales Finance Contracts:          |  |                                         |             |   |      |   |             |  
|Balance - beginning                        |  | $                                       | 9,661,474   |   |      | $ | 7,240,653   |  
|Loans originated                           |  |                                         | 4,099,525   |   |      |   | 2,955,314   |  
|Collections                                |  |                                         | (1,091,493  | ) |      |   | (820,691    | )
|Refinances                                 |  |                                         | (1,156,315  | ) |      |   | (724,216    | )
|Charge offs                                |  |                                         | (119,158    | ) |      |   | (104,197    | )
|Rebates / other adjustments                |  |                                         | (485,459    | ) |      |   | (300,566    | )
|                                           |  |                                         |             |   |      |   |             |  
|Balance - end                              |  | $                                       | 10,908,574  |   |      | $ | 8,246,296   |  
|                                           |  |                                         |             |   |      |   |             |  
|Motor Vehicle Installment Sales Contracts: |  |                                         |             |   |      |   |             |  
|Balance - beginning                        |  | $                                       | 29,765,603  |   |      | $ | 30,557,683  |  
|Loans originated                           |  |                                         | 4,930,148   |   |      |   | 3,675,539   |  
|Collections                                |  |                                         | (3,020,870  | ) |      |   | (2,929,814  | )
|Refinances                                 |  |                                         |            |   |      |   |            |  
|Charge offs                                |  |                                         | (356,900    | ) |      |   | (214,615    | )
|Rebates / other adjustments                |  |                                         | (351,955    | ) |      |   | (284,445    | )
|                                           |  |                                         |             |   |      |   |             |  
|Balance - end                              |  | $                                       | 30,966,025  |   |      | $ | 30,804,348  |  
|                                           |  |                                         |             |   |      |   |             |  
|Total Active Accounts:                     |  |                                         |             |   |      |   |             |  
|Balance - beginning                        |  | $                                       | 88,267,647  |   |      | $ | 76,080,224  |  
|Loans originated                           |  |                                         | 33,535,788  |   |      |   | 27,918,534  |  
|Collections                                |  |                                         | (17,818,357 | ) |      |   | (15,400,379 | )
|Refinances                                 |  |                                         | (5,702,129  | ) |      |   | (4,699,833  | )
|Charge offs                                |  |                                         | (1,907,801  | ) |      |   | (1,112,945  | )
|Rebates / other adjustments                |  |                                         | (2,589,119  | ) |      |   | (1,052,851  | )
|                                           |  |                                         |             |   |      |   |             |  
|Balance - end                              |  | $                                       | 93,786,028  |   |      | $ | 81,732,751  |  
|                                           |  |                                         |             |   |      |   |             |  
|Total Bankrupt Accounts:                   |  |                                         |             |   |      |   |             |  
|Balance - beginning                        |  | $                                       | 4,921,905   |   |      | $ | 3,531,667   |  
|Charge offs                                |  |                                         | (211,707    | ) |      |   | (76,694     | )
|Adjustments                                |  |                                         | 681,590     |   |      |   | 386,053     |  
|                                           |  |                                         |             |   |      |   |             |  
|Balance - end                              |  | $                                       | 5,391,788   |   |      | $ | 3,841,026   |  
|                                           |  |                                         |             |   |      |   |             |  
|Total Gross O/S Receivables                |  | $                                       | 99,177,816  |   |      | $ | 85,573,777  |  
|                                           |  |                                         |             |   |      |   |             |  



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Below is a reconciliation of the amounts of the loans originated and repaid (collections) from the
receivable roll-forward to the amounts shown in our Consolidated Statements of Cash Flows.



|                                         |  |                                 |            |   |      |   |            |  
|---------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                         |  | Three Months Ended December 25, |           
|                                         |  | 2005                            |            |   | 2004 |  
|Loans Originated:                        |  |                                 |            |   |      |   |            |  
|Direct consumer loans                    |  | $                               | 24,506,115 |   |      | $ | 21,287,682 |  
|Consumer sales finance                   |  |                                 | 4,099,525  |   |      |   | 2,955,314  |  
|Motor vehicle installment sales          |  |                                 | 4,930,148  |   |      |   | 3,675,538  |  
|Total gross loans originated             |  |                                 | 33,535,788 |   |      |   | 27,918,534 |  
|Non-cash items included in gross loans * |  |                                 | (9,683,362 | ) |      |   | (7,267,721 | )
|                                         |  |                                 |            |   |      |   |            |  
|Loans originated - cash flows            |  | $                               | 23,852,426 |   |      | $ | 20,650,813 |  
|                                         |  |                                 |            |   |      |   |            |  
|Loans Repaid:                            |  |                                 |            |   |      |   |            |  
|Collections                              |  |                                 |            |   |      |   |            |  
|Direct consumer loans                    |  | $                               | 13,705,994 |   |      | $ | 11,649,874 |  
|Consumer sales finance                   |  |                                 | 1,091,493  |   |      |   | 820,691    |  
|Motor vehicle installment sales          |  |                                 | 3,020,870  |   |      |   | 2,929,814  |  
|                                         |  |                                 |            |   |      |   |            |  
|Loans repaid - cash flows                |  | $                               | 17,818,357 |   |      | $ | 15,400,379 |  
|                                         |  |                                 |            |   |      |   |            |  

---

|* | Includes precomputed interest and fees (since these amounts are included in the gross amount of loans originated but are not advanced in the form of cash to customers) and
refinanced loan balances (since there is no cash generated from the repayment of original loans refinanced).
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Segments and Seasonality



We segment our business operations into the following two segments:



| |  |  | consumer finance and sales; and
| | - |  | -------------------------------



| |  |  | automotive finance and sales.
| | - |  | -----------------------------



The consumer finance and sales segment is comprised primarily of small consumer loans and sales of consumer goods such as furniture, appliances and
electronics. We typically experience our strongest financial performance for the consumer finance and sales segment during the holiday season, which is our first fiscal quarter ending December 25.



The automotive finance and sales segment is comprised exclusively of used
vehicle sales and their related financing. We typically experience our strongest financial performance for the automotive finance and sales segment during our second fiscal quarter ending March 25 when used car sales are the highest. Please
refer to Note 13 in the Notes to Consolidated Financial Statements for a breakdown of our operations by segment.



Net Interest Margin



A principal component of our profitability is our net interest margin, which is the difference between the interest that we earn on finance receivables
and the interest that we pay on borrowed funds. In some states, statutes regulate the interest rates that we may charge our customers, while, in other locations, competitive market conditions establish interest rates that we may charge. Differences
also exist in the interest rates that we earn on the various components of our finance receivable portfolio.



Unlike our interest income, our interest expense is sensitive to general market interest rate fluctuations. These general market fluctuations directly
impact our cost of funds. Our general limited ability to increase the interest rates earned on new and existing finance receivables restricts our ability to



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react to increases in our cost of funds. Accordingly, increases in market interest rates generally will narrow our interest rate spread and lower our
profitability, while decreases in market interest rates generally will widen our interest rate spread and increase our profitability. Significant increases in market interest rates will likely result in a reduction in our liquidity and profitability
and impair our ability to pay interest and principal on the Debentures. See Quantitative and Qualitative Disclosures About Market Risk below.



The following table presents important data relating to our net interest margin:



|                                                       |  |                                                   |            |   |      |   |            |  
|------------------------------------------------------ |  | ------------------------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                       |  | As of, or for, the Three MonthsEnded December 25, |           
|                                                       |  | 2005                                              |            |   | 2004 |  
|Average net finance receivables(1)                     |  | $                                                 | 82,254,393 |   |      | $ | 68,181,208 |  
|Average notes payable(2)                               |  | $                                                 | 86,555,846 |   |      | $ | 77,086,433 |  
|Interest income                                        |  | $                                                 | 4,136,558  |   |      | $ | 3,237,871  |  
|Loan fee income                                        |  | $                                                 | 1,090,955  |   |      | $ | 1,023,157  |  
|                                                       |  |                                                   |            |   |      |   |            |  
|Total interest and fee income                          |  | $                                                 | 5,227,513  |   |      | $ | 4,261,028  |  
|Interest expense                                       |  | $                                                 | 1,708,569  |   |      | $ | 1,534,718  |  
|                                                       |  |                                                   |            |   |      |   |            |  
|Net interest income before provision for credit losses |  | $                                                 | 3,518,944  |   |      | $ | 2,726,310  |  
|Average interest rate earned (annualized)              |  |                                                   | 25.4       | % |      |   | 25.0       | %
|Average interest rate paid (annualized)                |  |                                                   | 7.9        | % |      |   | 8.0        | %
|Net interest rate spread (annualized)                  |  |                                                   | 17.5       | % |      |   | 17.0       | %
|Net interest margin (annualized)(3)                    |  |                                                   | 17.1       | % |      |   | 16.0       | %

---

|(1) | Averages are computed using month-end balances of finance receivables (net of unearned interest/fees, unearned insurance commissions, and unearned discounts) during
the period presented.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Averages are computed using month-end balances of interest bearing debt during the period presented.
|--- | ----------------------------------------------------------------------------------------------------

|(3) | Net interest margin represents net interest income (before provision for credit losses) divided by the average net finance receivables.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



Analysis of Allowance for Credit Losses



An allowance for credit losses is maintained primarily to account for loans
that are delinquent. The allowance is calculated based upon managements estimate of the expected collectability of loans outstanding based upon a variety of factors, including, without limitation, periodic analysis of the loan portfolio,
historic loan loss experience, borrowers ability to repay and collateral considerations. We maintain an allowance for credit losses at a level that we consider adequate to provide for potential losses based on historical ratios of charge-offs
to average notes receivable.



The following table shows these
ratios of charge offs to average notes receivable for the categories of our finance receivables. The average net finance receivables are computed using monthly balances, net of unearned interest, unearned insurance commissions and unearned
discounts. Charge offs are shown at gross amounts as presented in the receivable roll-forward on page 19. Recoveries represent receipts from non-file insurance claims and cash recoveries.



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|                                                            |  |                                                   |            |   |      |   |            |  
|----------------------------------------------------------- |  | ------------------------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                            |  | As of, or for, the Three MonthsEnded December 25, |           
|                                                            |  | 2005                                              |            |   | 2004 |  
|Direct Consumer Loans and Consumer Sales Finance Contracts: |  |                                                   |            |   |      |   |            |  
|Average net finance receivables                             |  | $                                                 | 55,013,834 |   |      | $ | 44,625,141 |  
|                                                            |  |                                                  
|Charge offs - direct consumer                               |  | $                                                 | 1,431,743  |   |      | $ | 794,133    |  
|Charge offs - consumer sales finance                        |  | $                                                 | 119,158    |   |      | $ | 104,197    |  
|Charge offs - bankruptcy                                    |  | $                                                 | 211,707    |   |      | $ | 76,694     |  
|                                                            |  |                                                   |            |   |      |   |            |  
|Total gross charge offs                                     |  | $                                                 | 1,762,608  |   |      | $ | 975,024    |  
|Recoveries (all direct consumer)                            |  | $                                                 | (728,879   | ) |      | $ | (661,248   | )
|                                                            |  |                                                   |            |   |      |   |            |  
|Charge offs, net                                            |  | $                                                 | 1,033,729  |   |      | $ | 313,776    |  
|Percent of net charge offs to average receivables           |  |                                                   | 1.9        | % |      |   | 0.7        | %
|                                                            |  |                                                  
|Motor Vehicle Installment Sales Contracts:                  |  |                                                   |            |   |      |   |            |  
|Average outstanding finance receivables                     |  | $                                                 | 27,240,558 |   |      | $ | 26,173,061 |  
|                                                            |  |                                                  
|Charge offs, gross                                          |  | $                                                 | 356,900    |   |      | $ | 214,615    |  
|Recoveries                                                  |  | $                                                 |           |   |      | $ |           |  
|                                                            |  |                                                   |            |   |      |   |            |  
|Charge offs, net                                            |  | $                                                 | 356,900    |   |      | $ | 214,615    |  
|Percent of net charge offs to average receivables           |  |                                                   | 1.3        | % |      |   | 0.8        | %
|                                                            |  |                                                  
|Total Receivables:                                          |  |                                                   |            |   |      |   |            |  
|Average outstanding finance receivables                     |  | $                                                 | 82,254,392 |   |      | $ | 70,798,202 |  
|                                                            |  |                                                  
|Charge offs, gross                                          |  | $                                                 | 2,119,508  |   |      | $ | 1,189,639  |  
|Recoveries (all direct consumer)                            |  | $                                                 | (728,879   | ) |      | $ | (661,248   | )
|                                                            |  |                                                   |            |   |      |   |            |  
|Charge offs, net                                            |  | $                                                 | 1,390,629  |   |      | $ | 528,391    |  
|Percent of net charge offs to average receivables           |  |                                                   | 1.7        | % |      |   | 0.7        | %



As of
December 25, 2005 and September 25, 2005, our allowance for credit losses was $2.8 million and $2.6 million, respectively. The growth in outstanding finance receivables was the primary reason for the increase in our allowance for credit losses.



Delinquency Information



Our delinquency levels reflect, among other factors, changes in the mix of
loans in the portfolio, the quality of receivables, the success of collection efforts, bankruptcy trends and general economic conditions. The delinquency information in the following tables is computed on the basis of the amount past due in
accordance with the original payment terms of the loan (contractual method). We use the contractual method for all external reporting purposes. Management closely monitors delinquency using this method to measure the quality of our loan portfolio
and the probability of credit loss. We also use other tools, such as a recency report, which shows the date of the last full contractual payment received on the loan, to determine a particular customers willingness to pay. For example, if a
delinquent customer has made a recent payment, we may decide to delay more serious collection measures, such as repossession of collateral. However, such a payment will not change the non-accrual status of the account until all of the



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principal and interest amounts contractually due are brought current (we receive one or more full contractual payments and the account is less than 60 days
contractually delinquent), at which time we believe future payments are reasonably assured. Below is certain information relating to the delinquency status of each category of our receivables for the quarters ended December 25, 2005 and 2004:

|                                                  |  |                         |            |   |                                |   |            |                                        |  |   |                    |   |  |       |           |   |  |   |            |  
|------------------------------------------------- |  | ----------------------- | ---------- | - | ------------------------------ | - | ---------- | -------------------------------------- |  | - | ------------------ | - |  | ----- | --------- | - |  | - | ---------- | -
|                                                  |  | As of December 25, 2005 |           
|                                                  |  | DirectConsumer Sales    |            |   | Consumer SalesFinanceContracts |   |            | Motor VehicleInstallmentSalesContracts |  |   | BankruptcyAccounts |   |  | Total |          
|Gross Loans and Contracts Receivables             |  | $                       | 51,911,429 |   |                                | $ | 10,908,574 |                                        |  | $ | 30,966,025         |   |  | $     | 5,391,788 |   |  | $ | 99,177,816 |  
|                                                  |  |                         |            |   |                               
|Loans and Contracts 60 - 90 days past due         |  | $                       | 696,344    |   |                                | $ | 154,387    |                                        |  | $ |                   |   |  | $     | 238,759   |   |  | $ | 1,089,490  |  
|Percentage of Outstanding                         |  |                         | 1.3        | % |                                |   | 1.4        | %                                      |  |   | 0.0                | % |  |       | 4.4       | % |  |   | 1.1        | %
|                                                  |  |                         |            |   |                               
|Loans and Contracts greater than 90 days past due |  | $                       | 9,278,169  |   |                                | $ | 2,442,171  |                                        |  | $ | 40,012             |   |  | $     | 2,775,633 |   |  | $ | 14,535,985 |  
|Percentage of Outstanding                         |  |                         | 17.9       | % |                                |   | 22.4       | %                                      |  |   | 0.1                | % |  |       | 51.5      | % |  |   | 14.7       | %
|                                                  |  |                         |            |   |                               
|Loans and Contracts greater than 60 days past due |  | $                       | 9,974,513  |   |                                | $ | 2,596,558  |                                        |  | $ | 40,012             |   |  | $     | 3,014,392 |   |  | $ | 15,625,475 |  
|Percentage of Outstanding                         |  |                         | 19.2       | % |                                |   | 23.8       | %                                      |  |   | 0.1                | % |  |       | 55.9      | % |  |   | 15.8       | %
|                                                  | 
|                                                  |  | As of December 25, 2004 |           
|                                                  |  | DirectConsumer Sales    |            |   | Consumer SalesFinanceContracts |   |            | Motor VehicleInstallmentSalesContracts |  |   | BankruptcyAccounts |   |  | Total |          
|Gross Loans and Contracts Receivables             |  | $                       | 42,682,107 |   |                                | $ | 8,246,296  |                                        |  | $ | 30,804,348         |   |  | $     | 3,841,026 |   |  | $ | 85,573,777 |  
|                                                  |  |                         |            |   |                               
|Loans and Contracts 60 - 90 days past due         |  | $                       | 733,844    |   |                                | $ | 133,131    |                                        |  | $ | 50,553             |   |  | $     | 200,102   |   |  | $ | 1,117,630  |  
|Percentage of Outstanding                         |  |                         | 1.7        | % |                                |   | 1.6        | %                                      |  |   | 0.2                | % |  |       | 5.2       | % |  |   | 1.3        | %
|                                                  |  |                         |            |   |                               
|Loans and Contracts greater than 90 days past due |  | $                       | 8,718,747  |   |                                | $ | 2,023,442  |                                        |  | $ | 17,572             |   |  | $     | 2,106,005 |   |  | $ | 12,865,766 |  
|Percentage of Outstanding                         |  |                         | 20.4       | % |                                |   | 24.5       | %                                      |  |   | 0.1                | % |  |       | 54.8      | % |  |   | 15.0       | %
|                                                  |  |                         |            |   |                               
|Loans and Contracts greater than 60 days past due |  | $                       | 9,452,591  |   |                                | $ | 2,156,573  |                                        |  | $ | 68,125             |   |  | $     | 2,306,107 |   |  | $ | 13,983,396 |  
|Percentage of Outstanding                         |  |                         | 22.1       | % |                                |   | 26.2       | %                                      |  |   | 0.2                | % |  |       | 60.0      | % |  |   | 16.3       | %



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Results of Operations



Comparison of Three Months Ended December 25, 2005 and 2004



Net Revenues



Net revenues were $8.2 million and $7.6 million for the three months ended
December 25, 2005 and 2004, respectively. Growth in net revenues generally was the result of the significant increase in gross loan volume over the same period for the prior year (approximately 20%) and the corresponding increases in interest,
fees and related charges earned on customers loans, as well as the sale of various ancillary products to such customers, as described in more detail below.



Net Interest Income Before Provision for Credit Losses



Net interest income before provision for credit losses was $3.5 million and
$2.7 million for three months ended December 25, 2005 and 2004, respectively. The increase was due primarily to the increase in loan volume, as mentioned above. During the first quarter of fiscal year 2006, gross interest income increased $0.9
million to $5.2 million. Interest expense was $1.7 million and $1.5 million for the three month periods ended December 25, 2005 and 2004, respectively. The increase in interest expense was due to the additional borrowings required to fund the
higher levels of lending to our customers, primarily from the sale of debentures by our subsidiary, The Money Tree of Georgia, Inc.



Provision for Credit Losses



Provision for credit losses was $1.6 million and $0.4 million for three months ended December 25, 2005 and 2004, respectively. Finance receivables
charged off increased approximately $1.0 million over the previous year, while recoveries of charge offs remained relatively stable. The amounts recovered from non file insurance coverage decreased as a percentage of charge offs, which was due to
timing factors. Bankruptcy filings increased dramatically in the early part of the firstquarter of fiscal 2006 due
to bankruptcy reform legislation that went into effect in October 2005. We believe this change will have a positive impact on the provision for credit losses in future months. The growth in outstanding finance receivables also contributed to
necessary increases in the allowance for credit losses and corresponding provisions.



Insurance and Other Products



Income from commissions on insurance products and motor club memberships increased $0.8 million from $3.0 million to $3.8 million for the three months ended December 25, 2005 and 2004, respectively. This increase
is consistent with our overall increase in income and loan volume during the first quarter of fiscal 2006. Other income decreased by $0.1 million from the same period last year. This decrease was primarily due to diminished late fees.



Gross Margin on Retail Sales



Gross margins on retail sales were $1.9 million and $1.7 million for three
months ended December 25, 2005 and 2004, respectively. The slight increase in gross margins was a result of stronger sales in the automotive segment, up $0.8 million over the same period last year. Sales in the consumer segment were up slightly
to last periods sales; however, margins were approximately the same.



Operating Expenses



Operating expenses were $7.5 million and $7.4 million for three months ended December 25, 2005 and 2004, respectively. Personnel expenses were up 11% over the same period last year primarily due to increases in discretionary bonuses
paid and increases in health benefit related costs. Other operating expenses were down approximately 14% due to decreased level of spending for advertising, postage, and other solicitation costs.



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Liquidity and Capital Resources



General



Liquidity is our ability to meet short-term financial obligations whether through collection of receivables, sales of Debentures and Demand Notes or by
generating additional funds through sales of assets to our competitors (such as our finance receivables or vehicle inventory). Continued liquidity is, therefore, largely dependent on the collection of our receivables and the sale of debt securities
that meet the investment requirements of the public. We believe the cash flow from our operations coupled with sales of the Debentures and Demand Notes will be sufficient to cover our liquidity needs and cash flow requirements during 2006.



Liquidity management refers to our ability to generate sufficient cash to fund
the following primary uses of cash:



| |  |  | meet all of our debenture and demand note redemption obligations;
| | - |  | -----------------------------------------------------------------



| |  |  | pay interest on all of our debentures and demand notes;
| | - |  | -------------------------------------------------------



| |  |  | pay operating expenses; and
| | - |  | ---------------------------



| |  |  | fund consumer finance loan demand and used automobile vehicle inventory.
| | - |  | ------------------------------------------------------------------------



The primary objective for liquidity management is to ensure that at all times we can meet the redemption obligations of our note holders. A secondary purpose of liquidity
management is profit management. Because profit and liquidity are often conflicting objectives, we attempt to maximize our net interest margin by making adequate, but not excessive, liquidity provisions. To the extent we have adequate cash to meet
our redemption obligations and pay interest to our note holders, we will use remaining cash to make consumer finance loans, purchase used automobile vehicle inventory and invest in other sources of potential revenues.



Changes in our liquidity position result from operating, investing and
financing activities. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of our net income, including, without limitation, purchases of used automobiles,
electronics, furnishings and other consumer goods for resale to our customers. The primary investing activities include consumer loan originations and purchases and collections on such consumer loans. Our financing activities focus almost entirely
on the sale of Debentures and Demand Notes.



Cash and cash
equivalents decreased from $7.8 million at December 25, 2004 to $7.5 million at December 25, 2005. The $0.3 million decrease was primarily a result of funds used in investing activities by virtue of increased amounts of loans made to our
customers of $3.2 million offset by increases in repayments on loans of $2.4 million. During the first quarter of fiscal 2006, the primary sources of cash were proceeds net of redemptions from sales of debentures and demand notes by our subsidiary,
The Money Tree of Georgia, Inc., along with increased borrowing on senior debt related to purchases of vehicle inventory. Cash provided by operating activities was down $2.5 million from the same period last year primarily due to an increase in
other receivables of $4.1 million offset by an increase of $1.1 million in provision for credit losses.



During 2006, we expect to continue to use a significant amount of net offering proceeds we raise from the sale of Debentures and Demand Notes to fund
redemption obligations and pay interest on our securities. We will use any remaining net offering proceeds to fund our consumer loan demand, purchase used automobiles, open new branch office locations and to fund the other company activities.



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Debentures and Demand Notes



During the three months ended December 25, 2005, our subsidiary, The Money Tree of Georgia Inc., (1) received
gross proceeds of $6.9 million from the sale of debentures, and (2) paid $3.7 million for redemption of debentures and $1.5 million for net redemptions of demand notes. As of December 25, 2005, this subsidiary had $72.1 million of
debentures and $11.3 million of demand notes outstanding compared to $68.9 million of debentures and $12.9 million of demand notes outstanding, as of September 25, 2005.



Recent Developments



The Company continues to evaluate the effects of Hurricane Katrina on our operations in the New Orleans area. Our plans to re-open one office in New
Orleans are still on hold due to the lack of communications services in that area. Existing offices in the area are servicing our New Orleans customers loans. Increases in loan losses have occurred, however, many of these are not attributable
to the effects of the hurricane, but are loans that have met the charge off policy criteria. The Company has and will continue to follow its normal policy of charge off of delinquent accounts.



Recent Accounting Pronouncements



Recent accounting pronouncements have been issued that may have a future
effect on operations. Refer to note 3 to the unaudited consolidated financial statements for a discussion of these pronouncements and their possible effects.



Voting Common Stock Sale



On December 30, 2005, Vance R. Martin, Chief Executive Officer of The Money Tree Inc., sold and transferred 1,475 shares of voting common stock (55%
of the outstanding shares) to the Vance Rudolph Martin Defective Grantor Trust u/t/a dated December 28, 2005. W. Derek Martin, President of The Money Tree Inc. and son of Vance R. Martin, serves as the sole trustee of the trust and,
accordingly, has the power to vote the shares held by the trust. Vance R. Martin has retained ownership of the remaining 1,211 shares of voting common stock (45% of the outstanding shares).



Critical Accounting Policies



Our accounting and reporting policies conform with accounting principles
generally accepted in the United States of America (GAAP) and predominant practice within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.



We believe that the determination of our allowance for credit losses involves a higher degree of judgment and complexity than our other significant
accounting policies. The Allowance for Credit Losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses. Managements determination of the adequacy of the
allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, loss given
default, the amounts and timing of expected future cash flows on impaired loans, and general amounts for historical loss experience. We also consider economic conditions, uncertainties in estimating losses and inherent risks in the loan portfolio.
All of these factors may be susceptible to significant change. To the extent actual outcomes differ from managements estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.



Finance receivables are considered impaired, i.e. income
recognition ceases, as a result of past-due status or a judgment by management that, although payments are current, such action is prudent. Finance receivables on which payments are past due 90 days or more are considered impaired unless they are
well-secured and in the process of collection or renewal. Any losses incurred from finance receivables that are impaired are charged off at 180 days past due. Related accrued interest and fees are reversed against current period income.



When a loan is impaired, interest accrued but uncollected is generally
reversed against interest income. Cash receipts on impaired loans are generally applied to reduce the unpaid principal balance.



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We recognize deferred tax assets and liabilities for the future tax effects of temporary differences, net
operating loss carry-forwards and tax credits. Deferred tax assets are subject to managements judgment based upon available evidence that future realization is more likely than not. If management determines that we may be unable to realize all
or part of net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the expected realizable amount.



We have not substantially changed any aspect of our overall approach in the
application of the foregoing policies. There have been no material changes in assumptions or estimation techniques utilized as compared to previous years.



Impact of Inflation and General Economic Conditions



Although inflation has not had a material adverse effect on our financial condition or results of operations, increases in the inflation rate are
generally associated with increased interest rates. A significant and sustained increase in the interest rates would likely unfavorably impact our profitability by reducing the interest rate spread between the rate of interest we receive on our
customer loans and interest rates we pay to our note holders, banks and finance companies. Inflation may also negatively affect our operating expenses.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



Our profitability and financial performance are sensitive to changes in the U.S. Treasury yields and the spread between the effective rate of
interest we receive on customer loans and the interest rates we pay on our borrowings. Our finance income is generally not sensitive to fluctuations in market interest rates. The primary exposure that we face is changes in interest rates on our
borrowings. A substantial and sustained increase in market interest rates would likely adversely affect our growth and profitability since we will be required to increase the interest rates we pay to holders of Debentures at the end of each interest
adjustment period. We would also face pressure to increase interest rates on our demand notes to stay competitive. The overall objective of our interest rate risk management strategy is to mitigate the effects of changing interest rates on our
interest expense through the utilization of short-term variable rate debt and medium and long term fixed rate debt. We have not entered into any derivative instruments to manage our interest rate risk. Please see Note 7 in the notes to our
unaudited consolidated financial statements for information on our debt, including maturities and interest rates.



Item 4. Controls and Procedures



The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Companys reports under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Companys
management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, under the supervision and with the participation of our principal
executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal quarter which is the subject of this Quarterly Report on Form 10-Q.
Based on this evaluation, our principal executive officer and principal financial officer have concluded that the design and operation of our disclosure controls and procedures are effective. There were no significant changes in our internal control
over financial reporting during the quarter ending December 25, 2005, that have materially affected, or are likely to materially affect, our internal control over financial reporting.



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PART II  OTHER INFORMATION



Item 1. Legal Proceedings



We were not involved in any material legal proceedings during the quarter ended December 25, 2005 requiring disclosure under item 103 of Regulation S-K.



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



None.



Item 3. Defaults Upon Senior Securities



None.



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



None.



Item 5. Other Information



None.



Item 6. Exhibits



|     |  |                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Principal Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002                         
|     | 
|31.2 |  | Certification of Principal Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002                         
|     | 
|32.1 |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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SIGNATURES



Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.



|       |  |                                                      
|------ |  | -----------------------------------------------------
|       |  | THE MONEY TREE INC.                                  
|       | 
|2/8/06 |  | /s/ Vance R. Martin                                  
|Date   |  | Vance R. Martin                                      
|       |  | Chief Executive Officer (Principal Executive Officer)
|       | 
|2/8/06 |  | /s/ Steven P. Morrison                               
|Date   |  | Steven P. Morrison,                                  
|       |  | Controller (Principal Financial Officer)             



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