UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
One)





x
            QUARTERLY REPORT UNDER SECTION
      13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934


For the
quarterly period ended June 30, 2009





 ̈
            TRANSITION REPORT UNDER SECTION
      13 OR 15(d) OF THE EXCHANGE
ACT





For the
transition period from _____________ to ______________


Commission
file number __________________________________





FREEDOM
FINANCIAL GROUP, INC.


(Exact
name of registrant as specified in its charter)





Delaware
                    43-1647559(State
      or other jurisdiction of incorporation or organization)
                    (I.R.S.
      Employer Identification
No.)


3058 East
Elm Street, Springfield, Missouri  65802


(Address
of principal executive offices) (Zip Code)





(417)
886-6600


(Registrant’s  telephone
number, including area code)












Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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 xNo
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  ̈No
x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.


See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer
                 ̈
                Accelerated
      filer   ̈Non-accelerated
      filer
                 ̈(Do not check if a smaller reporting company)
                Smaller
      reporting company  x





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





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





As of
August 7, 2009 20,462,543 shares of Common Stock, $0.0001 par value were
outstanding.







TABLE
OF CONTENTS





PART
      I.  - FINANCIAL INFORMATION
                      3ITEM
      1.
                      Financial
      Statements
                      3ITEM
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      16ITEM
      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      30ITEM
      4.
                      Controls
      and Procedures
                      31PART
      II. – OTHER INFORMATION
                      31ITEM
      6.
                      Exhibits
                      32INDEX
      TO EXHIBITS
                      32




2


PART I.-FINANCIAL
INFORMATION





ITEM
      1.
            Financial
      Statements





Report
of Independent Registered Public Accounting Firm





Audit
Committee, Board of Directors and Stockholders


Freedom
Financial Group, Inc.


Springfield,
Missouri





We have
reviewed the accompanying consolidated balance sheet of Freedom Financial Group,
Inc. as of June 30, 2009, and the related consolidated statement of operations
for the three-month and six-month periods ended June 30, 2009 and stockholders’
equity and cash flows for the six-month period ended June 30,
2009.  These interim financial statements are the responsibility of
the Company’s management.





We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters.  It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.  Accordingly, we
do not express such an opinion.





Based on
our reviews, we are not aware of any material modifications that should be made
to the consolidated financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States of
America.





We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2008 and the related consolidated statements of operations,
stockholders’ equity and cash flows for the year then ended (not presented
herein); and in our report dated March 10, 2009, we expressed an unqualified
opinion on those consolidated financial statements.  In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 2008 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.





/s/
Weaver & Martin, LLC





Kansas
City, Missouri


August 7,
2009


3


FREEDOM
FINANCIAL GROUP, INC.


Consolidated
Balance Sheets





June 30,
                              
                              
                              December 31,2009
                              
                              
                              2008AssetsCash
      and cash equivalents
                              
                              $
                              2,209,161
                              
                              
                              $
                              2,145,436Finance
      receivables, net
                              
                              
                              17,927,188
                              
                              
                              
                              15,938,361Accrued
      interest receivable
                              
                              
                              192,893
                              
                              
                              
                              184,807Property
      and equipment, net
                              
                              
                              44,470
                              
                              
                              
                              52,064Deferred
      financing fees
                              
                              
                              197,323
                              
                              
                              
                              296,337Deferred
      origination costs
                              
                              
                              175,702
                              
                              
                              
                              138,013Other
      assets
                              
                              
                              21,100
                              
                              
                              
                              351,647Total
      assets
                              
                              $
                              20,767,837
                              
                              
                              $
                              19,106,665Liabilities
      and Stockholders’ EquityLiabilitiesBank
      line of credit
                              
                              $
                              12,033,466
                              
                              
                              $
                              9,975,734Accounts
      payable
                              
                              
                              9,924
                              
                              
                              
                              34,914Accrued
      expenses
                              
                              
                              116,491
                              
                              
                              
                              147,756Accrued
      compensation costs
                              
                              
                              62,128
                              
                              
                              
                              61,262Other
      liabilities
                              
                              
                              31,918
                              
                              
                              
                              22,126Total
      liabilities
                              
                              
                              12,253,927
                              
                              
                              
                              10,241,792Commitments
      and ContingenciesStockholders’
      EquityCommon
      stock, $0.0001 par value; 36,000,000 shares authorized; 20,467,001 shares
      issued; and 20,462,543 shares outstanding
                              
                              
                              2,047
                              
                              
                              
                              2,047Additional
      paid-in capital
                              
                              
                              13,882,347
                              
                              
                              
                              13,882,347Retained
      earnings (deficit)
                              
                              
                              (5,122,545
                              )
                              
                              
                              (4,738,477
                              )Accumulated
      other comprehensive loss
                              
                              
                              (247,546
                              )
                              
                              
                              (280,651
                              )Treasury
      stock, at cost; 4,458 shares
                              
                              
                              (393
                              )
                              
                              
                              (393
                              )Total
      stockholders’ equity
                              
                              
                              8,513,910
                              
                              
                              
                              8,864,873Total
      liabilities and stockholders’ equity
                              
                              $
                              20,767,837
                              
                              
                              $
                              19,106,665




See
Notes to Consolidated Financial Statements.


4


FREEDOM
FINANCIAL GROUP, INC.


Consolidated
Statements of Operations


Unaudited




Three
      Months Ended
                  
                  
                  Six
      Months EndedJune 30,
                  
                  
                  June 30,
                  
                  
                  June 30,
                  
                  
                  June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008RevenuesInterest
      income
                  
                  $
                  1,053,766
                  
                  
                  $
                  649,990
                  
                  
                  $
                  2,027,557
                  
                  
                  $
                  1,272,912Other
      income
                  
                  
                  40,079
                  
                  
                  
                  43,367
                  
                  
                  
                  80,085
                  
                  
                  
                  83,495Total
      revenues
                  
                  
                  1,093,845
                  
                  
                  
                  693,357
                  
                  
                  
                  2,107,642
                  
                  
                  
                  1,356,407Interest
      Expense
                  
                  
                  311,745
                  
                  
                  
                  173,834
                  
                  
                  
                  596,808
                  
                  
                  
                  277,039Revenues
      after Interest Expense
                  
                  
                  782,100
                  
                  
                  
                  519,523
                  
                  
                  
                  1,510,834
                  
                  
                  
                  1,079,368Provision
      for Credit Losses
                  
                  
                  322,749
                  
                  
                  
                  108,794
                  
                  
                  
                  679,605
                  
                  
                  
                  140,414Net
      Revenues After Provision for Credit Losses
                  
                  
                  459,351
                  
                  
                  
                  410,729
                  
                  
                  
                  831,229
                  
                  
                  
                  938,954Operating
      Expenses
                  
                  
                  550,811
                  
                  
                  
                  721,915
                  
                  
                  
                  1,215,297
                  
                  
                  
                  1,424,469Operating
      Loss
                  
                  
                  (91,460
                  )
                  
                  
                  (311,186
                  )
                  
                  
                  (384,068
                  )
                  
                  
                  (485,515
                  )Gain
      on Liquidation of Subsidiary
                  
                  
                  -
                  
                  
                  
                  1,380,250
                  
                  
                  
                  -
                  
                  
                  
                  1,380,250Net
      Income (Loss) Before Income Taxes
                  
                  
                  (91,460
                  )
                  
                  
                  1,069,064
                  
                  
                  
                  (384,068
                  )
                  
                  
                  894,735Provision
      for Income Taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      Income (Loss)
                  
                  $
                  (91,460
                  )
                  
                  $
                  1,069,064
                  
                  
                  $
                  (384,068
                  )
                  
                  $
                  894,735Basic
      and Diluted Income (Loss) Per Share
                  
                  $
                  0.00
                  
                  
                  $
                  0.05
                  
                  
                  $
                  (0.02
                  )
                  
                  $
                  0.04




See
Notes to Consolidated Financial Statements.


5


FREEDOM
FINANCIAL GROUP, INC.


Consolidated
Statements of Stockholders’ Equity


Unaudited




AccumulatedCommon
                              
                              
                              Additional
                              
                              
                              
                              
                              
                              OtherCommon
                              
                              
                              Stock
                              
                              
                              Paid in
                              
                              
                              Retained
                              
                              
                              Comprehensive
                              
                              
                              TreasuryStock Shares
                              
                              
                              Amount
                              
                              
                              Capital
                              
                              
                              Earnings
                              
                              
                              Income
                              
                              
                              Stock
                              
                              
                              TotalBalance,
      December 31, 2007
                              
                              
                              19,922,543
                              
                              
                              $
                              1,993
                              
                              
                              $
                              13,802,873
                              
                              
                              $
                              (5,041,509
                              )
                              
                              $
                              1,599,791
                              
                              
                              $
                              (393
                              )
                              
                              $
                              10,362,755Net
      income
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              303,032
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              303,032Foreign
      currency translationadjustment
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (280,651
                              )
                              
                              
                              —
                              
                              
                              
                              (280,651
                              )Comprehensive
      income
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              22,381Liquidation
      of subsidiary
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (1,599,791
                              )
                              
                              
                              
                              
                              
                              
                              (1,599,791
                              )Stock
      warrants issued
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              30,928
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              30,928Stock
      Grant
                              
                              
                              540,000
                              
                              
                              
                              54
                              
                              
                              
                              48,546
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              48,600Balance,
      December 31, 2008
                              
                              
                              20,462,543
                              
                              
                              $
                              2,047
                              
                              
                              $
                              13,882,347
                              
                              
                              $
                              (4,738,477
                              )
                              
                              $
                              (280,651
                              )
                              
                              $
                              (393
                              )
                              
                              $
                              8,864,873Net
      loss
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (384,068
                              )
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (384,068
                              )Foreign
      currency translation adjustment
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              33,105
                              
                              
                              
                              —
                              
                              
                              
                              33,105Comprehensive
      loss
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (350,963
                              )Balance,
      June 30, 2009
                              
                              
                              20,462,543
                              
                              
                              $
                              2,047
                              
                              
                              $
                              13,882,347
                              
                              
                              $
                              (5,122,545
                              )
                              
                              $
                              (247,546
                              )
                              
                              $
                              (393
                              )
                              
                              $
                              8,513,910


See
Notes to Consolidated Financial Statements.


6


FREEDOM
FINANCIAL GROUP, INC.


Consolidated
Statements of Cash Flows


Unaudited




For
      the Six Months EndedJune
      30,2009
                        
                        
                        2008Operating
      ActivitiesNet
      income (loss)
                        
                        $
                        (384,068
                        )
                        
                        $
                        894,735Adjustments
      to reconcile net income (loss) to net cash used in operating
      activitiesDepreciation
                        
                        
                        17,516
                        
                        
                        
                        24,040Provision
      for credit losses
                        
                        
                        679,605
                        
                        
                        
                        140,414Accretion
      of deferred contract purchase discounts
                        
                        
                        (205,597
                        )
                        
                        
                        (155,384
                        )Recovery
      of charged-off finance receivables
                        
                        
                        506,422
                        
                        
                        
                        530,871Liquidation
      of subsidiary
                        
                        
                        -
                        
                        
                        
                        (1,457,047
                        )Stock
      grant expense
                        
                        
                        -
                        
                        
                        
                        48,600Deferral
      of origination costs
                        
                        
                        (121,151
                        )
                        
                        
                        (64,216
                        )Amortization
      of deferred financing fees
                        
                        
                        144,504
                        
                        
                        
                        122,048Amortization
      of deferred origination costs
                        
                        
                        83,462
                        
                        
                        
                        15,889Changes
      inOther
      assets
                        
                        
                        (43,402
                        )
                        
                        
                        (45,541
                        )Accounts
      payable and accrued expenses
                        
                        
                        (56,953
                        )
                        
                        
                        107,837Net
      cash provided by operating activities
                        
                        
                        620,338
                        
                        
                        
                        162,246Investing
      ActivitiesPurchase
      of finance receivables
                        
                        
                        (5,887,966
                        )
                        
                        
                        (4,848,786
                        )Principal
      collected on finance receivables
                        
                        
                        2,973,594
                        
                        
                        
                        2,887,185Purchase
      of property and equipment
                        
                        
                        (9,922
                        )
                        
                        
                        (58,335
                        )Sale
      of Relocation Asset
                        
                        
                        360,728
                        
                        
                        
                        -Net
      cash used in investing activities
                        
                        
                        (2,563,566
                        )
                        
                        
                        (2,019,936
                        )Financing
      ActivitiesDeferred
      financing costs
                        
                        
                        (37,757
                        )
                        
                        
                        (472,347
                        )Line
      of credit advances, net
                        
                        
                        2,050,000
                        
                        
                        
                        2,422,760Net
      cash provided by financing activities
                        
                        
                        2,012,243
                        
                        
                        
                        1,950,413Effect
      of Exchange Rate Changes on Cash and Cash Equivalents
                        
                        
                        (5,290
                        )
                        
                        
                        (130,625
                        )Net
      Increase (Decrease) in Cash and Cash Equivalents
                        
                        
                        63,725
                        
                        
                        
                        (37,902
                        )Cash
      and Cash Equivalents, Beginning of Period
                        
                        
                        2,145,436
                        
                        
                        
                        1,857,694Cash
      and Cash Equivalents, End of Period
                        
                        $
                        2,209,161
                        
                        
                        $
                        1,819,792




See
Notes to Consolidated Financial Statements.


7


FREEDOM
FINANCIAL GROUP, INC.


Notes
to Consolidated Financial Statements


Unaudited




Note
      1:
            General




The
accompanying unaudited consolidated financial statements of Freedom Financial
Group, Inc. (“FFG” or the “Company”) have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (the “SEC”) for
reporting on Form 10-Q.  Accordingly, certain information and
footnotes required by generally accepted accounting principles for complete
financial statements have been omitted.  The consolidated balance
sheet of the Company as of December 31, 2008 has been derived from the audited
consolidated balance sheet of the Company as of that date.  These
interim statements should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 2008 and notes thereto
included in the Company’s Form 10-K filed with the SEC on March 10,
2009.




The
information contained herein reflects all adjustments that, in the opinion of
management, are necessary to make the financial statements not
misleading.  The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full
year.




Note
      2:
            Basis
      of Presentation




The
consolidated financial statements include the accounts of FFG, FFG’s wholly
owned subsidiary, Freedom Financial Auto Receivables, LLC (FFAR), and FFG’s
wholly owned Canadian subsidiary, T.C.G. – The Credit Group Inc. (TCG), which
collectively comprised a single reporting segment, the “Company.” The Company’s
investment in TCG was liquidated in May 2008.  See Note 10, Discontinued Foreign
Operations, for further discussion of the liquidation of TCG. All
significant intercompany transactions have been eliminated in
consolidation.




Note
      3:
            Finance
      Receivables and Allowance for Credit
Losses




Finance
receivables consist of the following at June 30, 2009 and December 31, 2008,
respectively:




2009
                    
                    
                    2008Automobiles
                    
                    $
                    19,322,353
                    
                    
                    $
                    16,841,865Other
                    
                    
                    268,780
                    
                    
                    
                    466,626Total
      finance receivables
                    
                    
                    19,591,133
                    
                    
                    
                    17,308,491LessUnearned
      discount
                    
                    
                    901,574
                    
                    
                    
                    730,331Allowance
      for credit losses
                    
                    
                    762,371
                    
                    
                    
                    639,7991,663,945
                    
                    
                    
                    1,370,130Net
      finance receivables
                    
                    $
                    17,927,188
                    
                    
                    $
                    15,938,361




Approximately
3% and 6% of the above finance receivables as of June 30, 2009 and December 31,
2008, respectively, are Canadian in origin.




Amounts
contractually receivable (including principal and interest) under our finance
receivables at June 30, 2009, were as shown in the following
table.  The Company expects our actual collections to differ
significantly from the amounts presented below as a result of prepayments,
delinquent payments, partial payments and nonpayments.


8




2009
                    
                    
                    4,407,5502010
                    
                    
                    8,227,2992011
                    
                    
                    7,106,6792012
                    
                    
                    5,167,3552013
                    
                    
                    1,781,8432014
                    
                    
                    16,777Total
                    
                    $
                    26,707,503




Activity
in the allowance for credit losses related to finance receivables for the three
and six months ended June 30, 2009 and 2008 was as follows:




Three Months Ended
                      June 30,
                    
                    
                    Six Months EndedJune
                      30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Balance,
      beginning of period
                    
                    $
                    685,217
                    
                    
                    $
                    650,213
                    
                    
                    $
                    639,799
                    
                    
                    $
                    811,376Provision
      charged to expense
                    
                    
                    322,749
                    
                    
                    
                    108,794
                    
                    
                    
                    679,605
                    
                    
                    
                    140,414Losses
      charged off
                    
                    
                    (514,848
                    )
                    
                    
                    (259,455
                    )
                    
                    
                    (1,066,449
                    )
                    
                    
                    (801,038
                    )Recoveries
      of previously charged-off amounts
                    
                    
                    263,664
                    
                    
                    
                    175,488
                    
                    
                    
                    506,422
                    
                    
                    
                    530,871Effect
      of foreign currency translation
                    
                    
                    5,589
                    
                    
                    
                    900
                    
                    
                    
                    2,994
                    
                    
                    
                    (5,683
                    )Balance,
      end of period
                    
                    $
                    762,371
                    
                    
                    $
                    675,940
                    
                    
                    $
                    762,371
                    
                    
                    $
                    675,940




The
Company’s nonearning finance receivables totaled $161,458 at June 30,
2009.  The Company provided an allowance for credit losses related to
these receivables of $145,312.




Note
      4:
            Bank
      Line of Credit




On
January 31, 2008, the Company entered into a Revolving Credit Loan and Security
Agreement (“the Loan Agreement”) with ReMark Lending Co. a division of ReMark
Capital Group, LLC. for a line of credit of up to $15,000,000.  At the
closing, which occurred on the same date, the Company executed and delivered to
the Lender a promissory note in the principal amount of $15,000,000, bearing
interest at the greater of 6.00% or prime rate, plus 2.00%, adjusted
daily. The maximum loan amount is limited to the Maximum Average Advance
Rate scale as specified in the Loan Agreement.  The Loan Agreement
also contains a Minimum Utilization Percentage which mandates a minimum
outstanding balance required under the facility.  The initial Minimum
Utilization Percentage of 20% increased incrementally through August 2008 when
the minimum required utilization became 50% of the facility for the remaining
term of the loan. Under the terms of the Note, the Company is required to make
monthly payments of interest, fees, and principal (if a borrowing base
deficiency with respect to principal exists), with the entire principal balance
and accrued interest due January 2010.  The amount due under the Note may
be accelerated upon a default by the Company, which includes failure to make a
payment when it is due.  As security for the Note, the Company granted the
Lender a security interest in all assets of the Company.  The Company’s
previously outstanding line of credit balance with Heartland Bank was paid in
full with the initial proceeds of the line.




In
accordance with the terms of the Loan Agreement, FFAR is the borrower of amounts
advanced under the credit facility and FFG is the originator and servicer of
receivables pledged to the credit facility. All receivables originated by FFG
are conveyed without recourse to FFAR together with all other related security
related to the pledged receivables, including, without limitation, the security
interest of the borrower in all related financed vehicles, all collections and
other monies due and to become due in respect of any pledged receivable and any
security received.


9


The loan
agreement contains covenants, among others, that 1) require the Company to
maintain a minimum net worth of $7,500,000 as of the end of each fiscal quarter,
2) restrict the Company’s ability to declare or pay dividends, and 3) limit the
amount of capital expenditures the Company can incur in any fiscal
year.  The Company was not in violation of any of the loan agreement
covenants as of June 30, 2009.




The
Company incurred fees payable to its investment banking firm, its attorneys, and
ReMark totaling $546,704 in connection with consummating the line of credit loan
agreement.  These fees were recorded as deferred financing fees when
paid and are being amortized to interest expense over the 24 month term of the
loan agreement on a straight-line basis.




In
connection with the Loan Agreement, the Company entered into an agreement to
issue to the Lender at the time of or before the second borrowing on the line
occurred, warrants to purchase 700,000 shares of common stock for five years at
an exercise price of $0.35 per share. Pursuant to this agreement the warrants
were issued on February 22, 2008. The warrants were valued at $30,929 using the
Black-Scholes method adjusted by a liquidity valuation allowance applied due to
the limited trading of the Company’s common stock.




Note
      5:
            Income
      Taxes




We
adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109” (“FIN 48”) on January 1,
2007.  FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statements in accordance with FASB Statement
No. 109, “Accounting for Income Taxes”, and prescribes a recognition threshold
and measurement process for financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return.  FIN 48
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.




Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our consolidated financial
statements.  Our evaluation was performed for the tax years ended
December 31, 2006, 2007 and 2008, the tax years which remain subject to
examination by major tax jurisdictions as of June 30, 2009.




As of
December 31, 2008, the Company had approximately $29,000,000 of net operating
loss carryforwards available to offset future federal income
taxes.  The carryforwards expire in 2021 through 2028. The ability to
utilize an NOL carryforward is dependent on the Company’s ability to generate
future net income, which cannot be assured.  A valuation allowance is
established to reduce deferred tax assets if it is likely that a deferred tax
asset will not be realized.




We may
from time to time be assessed interest or penalties by tax jurisdictions,
although any such assessments historically have been minimal and immaterial to
our financial results.  In the event we have received an assessment
for interest or penalties, it has been classified in the financial statements as
provision for income taxes.




Note
      6:
            Commitments
      and Contingencies




The
Company had outstanding commitments to purchase finance receivables totaling
approximately $1,011,386 as of June 30, 2009.  These commitments
generally expire 20 days after they are issued if unused.  Typically,
the Company funds between 20% and 30% of its outstanding
commitments.


10


The
Company is obligated under a noncancelable lease for its principal office with a
term of five years.  Future minimum payments under this operating
lease as of June 30, 2009 are as follows:




2009
                    
                    
                    25,2152010
                    
                    
                    50,7402011
                    
                    
                    50,7402012
                    
                    
                    50,7402013
                    
                    
                    29,599Total
                    
                    $
                    207,034




Certain
officers of the Company hold a total of 1,529,583 shares of the Company’s common
stock, all or a portion of which, the Company may be required to repurchase, at
the option of an officer whose employment is terminated due to a permanent
disability, or after death, at the option of the officer’s estate, at a price
per share ranging from 90% to 100% of the common stock’s fair market
value.  The specific terms concerning these options and the repurchase
of the common stock are set forth in the Management Shareholders Agreement filed
as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on August 17, 2007
and the Management Shareholder Agreement filed as Exhibit 1 to the Company’s
Form 8-K filed with the SEC on December 20, 2007.




The
Company’s current agreement with its investment banking firm requires the
Company to pay total aggregate transaction fees of not less than $550,000 to the
investment banking firm should the Company consummate a transaction with a
lender or other party that the investment banking firm introduces to the
Company.  As of June 30, 2009, the Company had paid fees amounting to
$35,000 to the investment banking firm.




The
Company had no other commitments as of June 30, 2009.




Note
      7:
            Earnings
      Per Share




Basic
earnings per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding during the
period.  Diluted earnings per share is computed similar to basic
earnings per share except the denominator is increased to include the number of
additional common shares that would have been outstanding if dilutive potential
common shares had been issued.  Since the effect of converting the
common stock warrants would be anti-dilutive for the three and six months ended
June 30, 2009 and June 30, 2008, basic and diluted loss per share amounts are
based on the weighted average number of common shares outstanding.




Earnings
per share for the three and six months ended June 30, 2009 and 2008, was
computed as follows:




Three
      Months Ended
                    
                    
                    Six
      Months EndedJune 30,
                    
                    
                    June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Net
      income (loss)
                    
                    $
                    (91,460
                    )
                    
                    $
                    1,069,064
                    
                    
                    $
                    (384,068
                    )
      $
                    
                    
                    894,735Weighted
      average shares
                    
                    
                    20,462,543
                    
                    
                    
                    20,337,928
                    
                    
                    
                    20,462,543
                    
                    
                    
                    20,130,235Basic
      and diluted income (loss) per share
                    
                    $
                    0.00
                    
                    
                    $
                    0.05
                    
                    
                    $
                    (0.02
                    )
      $
                    
                    
                    0.04




11


Note
      8:
            Operating
      Expenses




The
components of operating expenses for the three and six months ended June 30,
2009 and 2008, respectively, are as follows:




Three
      Months Ended
                    
                    
                    Six
      Months EndedJune 30,
                    
                    
                    June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Salaries
      and benefits
                    
                    $
                    353,102
                    
                    
                    $
                    431,524
                    
                    
                    $
                    726,848
                    
                    
                    $
                    848,944Professional
      fees
                    
                    
                    47,139
                    
                    
                    
                    48,791
                    
                    
                    
                    138,940
                    
                    
                    
                    161,959Information
      services
                    
                    
                    51,914
                    
                    
                    
                    51,416
                    
                    
                    
                    126,175
                    
                    
                    
                    69,702Insurance
                    
                    
                    41,161
                    
                    
                    
                    42,808
                    
                    
                    
                    83,075
                    
                    
                    
                    87,029Supplies
      and postage
                    
                    
                    29,379
                    
                    
                    
                    22,847
                    
                    
                    
                    56,271
                    
                    
                    
                    50,902Stockholder
      relations
                    
                    
                    4,031
                    
                    
                    
                    58,984
                    
                    
                    
                    23,937
                    
                    
                    
                    63,732Other
                    
                    
                    82,019
                    
                    
                    
                    110,014
                    
                    
                    
                    181,202
                    
                    
                    
                    206,417Deferral
      of origination costs
                    
                    
                    (57,934
                    )
                    
                    
                    (44,469
                    )
                    
                    
                    (121,151
                    )
                    
                    
                    (64,216
                    )$
                    550,811
                    
                    
                    $
                    721,915
                    
                    
                    $
                    1,215,297
                    
                    
                    $
                    1,424,469




Note
      9:
            Stock
      Based Compensation




In
connection with the Company appointing J. Kevin Maxwell as its Treasurer and
Chief Financial Officer on April 21, 2008, the Company granted Mr. Maxwell
100,000 shares of its common stock.  This grant was not made subject
to any contractual conditions or restrictions.




Additionally,
on April 21, 2008, the Company entered into a Management Compensation Plan with
its executive officers, Jerald L. Fenstermaker, Thomas Holgate and J. Kevin
Maxwell, pursuant to which these executive officers were granted 200,000,
100,000 and 100,000 shares, respectively, of the Company’s common
stock.  These shares of stock were considered fully vested when
granted, but 50% of the shares granted are subject to forfeiture if the Company
does not achieve the full year’s operating income for 2008 according to the
Company’s board-approved 2008 operating budget, and an additional 50% of the
shares granted are subject to forfeiture if the Company does not achieve the
full year’s operating income for 2009 according to the board-approved 2009
operating budget.  The performance goal for 2008 was achieved.The plan also provides for
performance-based cash compensation incentives.




Also, on
April 21, 2008, in connection with a new compensation arrangement for the
Company’s independent directors (i.e. all directors other than
Jerald L. Fenstermaker), the Company also granted 10,000 shares to each of its
four independent directors. Each director’s shares became fully vested on March
31, 2009.




The
Company determined in accordance with FASB Statement No. 123(R) that the value
of all the shares granted to executive officers and directors on April 21, 2008,
was $48,600 at the time they were granted, and therefore the Company recognized
this amount as compensation expense for these events.




Note
      10:
            Discontinued
      Foreign Operations




Prior to
May 2008, the Company’s foreign operations, all of which are in Canada, had been
conducted through its wholly owned subsidiary, T.C.G. – The Credit Group Inc.
(“TCG”), based in Winnipeg, Manitoba. In May 2008, TCG ceased originating new
loan purchases and the Company purchased the outstanding receivables of TCG. The
Company began servicing the Canadian receivables from its location in the United
States, and intends to service them until they are fully collected. The
remaining assets of TCG were sold and the Company’s investment in the subsidiary
and accumulated foreign exchange gains were liquidated.  As a result
of the liquidation the Company recognized a $1,380,250 gain in the quarter ended
June 30, 2008. Total revenues, loss before taxes, and net loss from foreign
operations for the three and six months ended June 30, 2009 and 2008,
respectively, were as shown below.


12




Three
      Months Ended
                        
                        
                        Six
      Months EndedJune
      30,
                        
                        
                        June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Total
      revenues
                        
                        $
                        45,242
                        
                        
                        $
                        153,426
                        
                        
                        $
                        102,008
                        
                        
                        $
                        328,788Income
      before income taxes
                        
                        $
                        34,346
                        
                        
                        $
                        72,677
                        
                        
                        $
                        57,350
                        
                        
                        $
                        3,300Net
      income
                        
                        $
                        34,346
                        
                        
                        $
                        72,677
                        
                        
                        $
                        57,350
                        
                        
                        $
                        3,300




Note
      11:
            Additional
      Cash Flow Information




The
Company made cash interest payments totaling $240,698 and $451,898 during the
three and six month periods ended June 30, 2009 and made cash interest payments
totaling $90,551 and $134,129 during the three and six month periods ended June
30, 2008.




The
Company made no cash payments for income taxes during the three and six month
periods ended June 30, 2009 and 2008.




Note
      12:
            Recently
      Issued Accounting Pronouncements




In
September 2006, the Financial Accounting Standards Board (the “FASB”) issued
Statement of Financial Accounting Standards No. 157 (“SFAS 157”), Fair Value
Measurements.  SFAS 157 clarifies the principle that fair value should
be based on the assumptions market participants would use when pricing an asset
or liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions.  Under SFAS 157, fair
value measurements would be separately disclosed by level within the fair value
hierarchy.  SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years, with early adoption permitted.  The adoption of this
statement did not have a material effect on our financial position or results of
operations.




We
adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109” (“FIN 48”) on January 1,
2007.  FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statements in accordance with FASB Statement
No. 109, “Accounting for Income Taxes”, and prescribes a recognition threshold
and measurement process for financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return.  FIN 48
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of SFAS No.
115”.  This statement permits entities to choose to measure many
financial instruments and certain other items at fair value.  The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.  This statement is expected to expand the use
of fair value measurement, which is consistent with the FASB’s long-term
objectives for accounting for financial instruments.  SFAS No. 159 is
effective for our fiscal year beginning January 1, 2008.  We did not
elect to report additional assets and liabilities at fair value other than those
required to be accounted for at fair value prior to the adoption of SFAS No.
159, therefore there was no material effect of the adoption of this standard on
our financial statements.




13




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS
160”). SFAS 160 (a) amends ARB 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary; (b) changes the way the consolidated income
statement is presented; (c) establishes a single method of accounting for
changes in a parent’s ownership interest in a subsidiary that do not result in
deconsolidation; (d) requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated; and (e) requires expanded
disclosures in the consolidated financial statements that clearly identify and
distinguish between the interests of the parent’s owners and the interests of
the noncontrolling owners of a subsidiary.  The accounting provisions
of SFAS 160 must be applied prospectively, but the presentation and disclosure
requirements must be applied retrospectively to provide comparability in the
financial statements.  Early adoption is prohibited.  SFAS
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008.  The adoption of this
statement did not have a material effect on our financial position or results of
operations.




In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations—a replacement
of FASB No. 141(“SFAS 141(R)”).  SFAS 141(R) requires (a) a
company to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at fair value as of the acquisition
date; and (b) an acquirer in preacquisition periods to expense all
acquisition-related costs, among various other modifications to SFAS No.
141.  SFAS 141(R) requires that any adjustments to an acquired
entity’s deferred tax asset and liability balance that occur after the
measurement period be recorded as a component of income tax
expense.  This accounting treatment is required for business
combinations consummated before the effective date of SFAS No. 141(R)
(non-prospective), otherwise SFAS 141(R) must be applied prospectively. The
presentation and disclosure requirements must be applied retrospectively to
provide comparability in the financial statements.  Early adoption is
prohibited.   SFAS 141(R) is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008.  The Company has not entered into any transactions requiring
disclosure under SFAS 141(R). The impact of this standard is dependent upon the
level of future acquisitions, if any.




In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement
No. 133 (“SFAS 161”).  SFAS 161 requires companies to
provide qualitative disclosures about the objectives and strategies for using
derivatives, quantitative data about the fair value of gains and losses on
derivative contracts, and details of credit-risk-related contingent features in
their hedged positions.  The statement also requires companies to disclose
more information about the location and amounts of derivative instruments in
financial statements; how derivatives and related hedges are accounted for under
SFAS 133, Accounting for
Derivative Instruments and Hedging Activities; and how the hedges affect
the entity’s financial position, financial performance and cash
flows.  SFAS 161 is effective for periods beginning after
November 15, 2008.  The Company has not entered into any
transactions requiring disclosure under SFAS 161.




In
April 2008, the FASB issued Staff Position FAS No. 142-3, Determination of the Useful Life of
Intangible Assets (“FAS 142-3”).  FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”).  The objective of the FSP is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141(R).  FAS 142-3 is
effective for fiscal years beginning after December 15,
2008.  Early application is not permitted.  The adoption of
this statement did not have a material effect on our financial position or
results of operations.




On
November 14, 2008, the Securities and Exchange Commission (“SEC”) issued its
long-anticipated proposed International Financial Reporting Standards (“IFRS”)
roadmap outlining milestones that, if achieved, could lead to mandatory
transition to IFRS for U.S. domestic registrants starting in
2014.  IFRS is a comprehensive series of accounting standards
published by the International Accounting Standards Board
(IASB).  Under the proposed roadmap, the Company could be required to
prepare financial statements in accordance with IFRS, and the SEC will make a
determination in 2011 regarding the mandatory adoption of IFRS for U.S. domestic
registrants.  Management is currently assessing the impact that this
potential change would have on the Company’s consolidated financial statements,
and will continue to monitor the development of the potential implementation of
IFRS.




14




In May
2009, the FASB issued SFAS No. 165 Subsequent Events. SFAS No.
165 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued or available to be issued. The statement
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements. The statement
also sets forth the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial
statements. Furthermore, this statement identifies the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date. It is effective for interim or annual financial periods ending after
June 15, 2009. The adoption of this statement did not have a material effect on
our financial position or results of operations.




Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the American Institute of Certified Public Accountants, and
the SEC did not or are not believed by management to have a material impact on
the Company’s present or future consolidated financial statements.




15


ITEM
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





SPECIAL
CAUTIONARY NOTICE REGARDING


FORWARD-LOOKING
STATEMENTS





The
information included or incorporated by reference in this quarterly report on
Form 10-Q contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.  Words such as “intend,”
“anticipate,” “believe,” “estimate,” “plan,” “expect,” “may,” “will,” “should,”
“could,” and variations of these words and similar expressions are intended to
identify these forward-looking statements.  All statements other than
statements of historical facts contained in this report, including statements
regarding our future financial position or performance, business strategy,
budgets, capital commitments and resources, projected costs and plans and
objectives of management for future operations, are considered to be
forward-looking statements.  Freedom Financial Group, Inc. (the
“Company” or “FFG”) cautions that, by their nature, forward-looking statements
are not guarantees of future performance or results.  They involve
risks, uncertainties and contingencies, both known and unknown, and actual
results may differ materially from those expressed, contemplated or implied by
the forward looking statements, or such risks, uncertainties or contingencies
could affect the extent to which a certain plan, objective, projection, estimate
or prediction is realized.  We express our expectations, beliefs or
projections in good faith and believe our expectations reflected in these
forward-looking statements are based on reasonable assumptions; however, we
cannot assure you that these expectations, beliefs or projections will prove to
have been correct.  These forward-looking statements involve risks and
uncertainties including, but not limited to, the following:


(i)
            the
      risks associated with business
expansion;


(ii)
            our
      ability to achieve profitable
operations;


(iii)
            economic
      and market conditions, including unemployment and underemployment,
      recession and the risk of adverse economic conditions reducing demand for
      our products or adversely affecting the credit quality or collectability
      of our loan portfolio;


(iv)
            volatility
      of market prices and rates that could affect the value of investments or
      collateral held by the Company as security for the obligations of its
      customers;


(v)
            our
      ability to obtain debt or equity capital to sustain operations and finance
      growth;


(vi)
            our
      continued compliance with the financial covenants under our $15 million
      credit facility, and our ability to renew or refinance the credit facility
      when it matures in January, 2010;


(vii)
            political
      events, including legislative, regulatory, judicial or other developments
      that affect the Company;


(viii)
            the
      adequacy of our loss reserves;


(ix)
            our
      ability to compete successfully against competitors with significantly
      greater financial, marketing and advertising resources than the
      Company;


(x)
            our
      ability to attract and retain skilled
  individuals;


(xi)
            the
      pace of technological change and the ability to develop and support
      technology and information systems, including Internet based systems,
      sufficient to manage the risks and operations of the Company’s business
      effectively;


(xii)
            risk
      of litigation filed against the Company;
and


(xiii)
            inflation/deflation.





Investors
are cautioned not to place undue reliance on any forward-looking
statements.




16




For
additional information regarding these and other risks, see Item 1A -
Risk Factors in our annual report on form 10-K, filed on March 10, 2009
and incorporated herein by reference.  Any forward-looking statements
made or incorporated by reference in this quarterly report on Form 10-Q or that
we may make from time to time are representative only as of the date they are
made, and we undertake no obligation to update or revise our forward-looking
statements, whether as a result of new information, future events or
otherwise.





WHERE YOU CAN FIND
ADDITIONAL INFORMATION





We file
annual, quarterly and current reports and other information with the Securities
and Exchange Commission (“SEC”).  You may read and copy such material
at the public reference facilities maintained by the SEC at 100 F Street, NE,
Washington, DC 20549. Please call the SEC at 1-800-732-0330 for more information
on the public reference room. You can also find our SEC filings at the SEC’s Web
site at www.sec.gov. We provide a link on our Web site to the SEC’s Web site to
access our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC.





Overview





We are a
consumer finance company specializing in the acquisition, collection and
servicing of sub-prime automobile loans purchased primarily from independent
used car dealers.  We invest significant amounts of cash to acquire
motor vehicle installment contracts. We generate cash over the terms of those
installment contracts in the form of interest and principal payments we
collect.





Our
primary source of revenue is interest income generated from our portfolio of
installment contracts.





The
Company’s former Canadian subsidiary, T.C.G. – The Credit Group, Inc. (TCG”),
acquired a variety of consumer installment contracts in previous years,
including small ticket leases, loans secured by home appliances and other
consumer goods, and loans for bulk food purchases.  During 2008, the
subsidiary was liquidated and the Company purchased TCG’s outstanding portfolio
of installment contracts. The Company intends to service the Canadian portfolio
until the remaining balances are fully collected or liquidated in some other
manner. The Company’s portfolio of outstanding installment contracts has been
increasingly comprised of sub-prime automobile loans.  As of June 30,
2009, the Company’s loan portfolio consisted of over 98% sub-prime automobile
loans.




The
Company plans to continue to devote the majority of its marketing resources and
efforts to acquiring sub-prime automobile loans. The Company’s management
intends to focus on the following:





(1)
            Consistently
      acquiring sub-prime automobile-secured installment contracts, through our
      point-of-sale programs, that meet the Company’s underwriting
      guidelines;





(2)
            Obtaining
      additional outside debt and/or equity financing to meet the Company’s
      future cash requirements;





(3)
            Minimizing
      the credit losses in the installment contracts portfolio;
    and





(4)
            Monitoring
      key performance measures, including cost per loan acquired, book to look
      ratio (computed as the number of contracts acquired compared to the number
      of credit applications received/reviewed), turnaround time for responding
      to credit applications submitted by dealers, and turnaround time for
      funding a loan package submitted by a
dealer.




17




The
Company’s management continues to monitor the impact of current economic
conditions on the Company. We continuously scrutinize delinquency rates, vehicle
repossessions, bankruptcies, and other data for trends that may require us to
update our underwriting standards, increase our reserve for bad debts, or take
some other action.  We regularly observe unemployment statistics and
information regarding worker layoffs for major employers in areas we offer our
financing programs that would necessitate an appropriate action, such as
offering extensions or loan modifications, on a case by case basis, to borrowers
who have suffered temporary income disruptions.  Currently, less than
6% of the Company’s installment contracts have been modified or extended. We do
not expect loan modifications or extensions to increase significantly as a
percent of the total loan portfolio during 2009. A prolonged economic recession
could adversely affect our ability to acquire suitable installment
contracts.  Continued weakness in the economy could adversely affect
our business and that of the dealers from which we purchase contracts and result
in reductions in our revenues.





Critical Accounting
Policies, Judgments and Estimates





The
accounting and reporting policies of the Company conform to U.S. generally
accepted accounting principles (“GAAP”).  The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and the accompanying notes.  Actual results could differ
from those estimates.





The
Company considers the determination of the allowance for credit losses to
involve a higher degree of subjective judgment and complexity than its other
significant accounting policies.  The allowance for credit losses is
calculated with the objective of maintaining an allowance for credit losses that
management believes is adequate to absorb reasonably estimable probable losses
in the Company’s portfolio of installment contracts.  Management’s
determination of the adequacy of the allowance for credit losses is based on
periodic evaluations of the Company’s portfolio of finance receivables, credit
loss history, and other relevant factors.  This evaluation is
inherently subjective as it requires material estimates, including, among
others, expected default probabilities, value of collateral, the amount and
timing of expected future cash flows on delinquent loans, estimated losses and
general amounts for historical loss experience.  The process also
considers prevailing and expected future economic conditions, uncertainties in
estimating losses and inherent risks in the installment contracts
portfolio.  All of these factors may be subject to significant
change.  To the extent actual outcomes differ from management
estimates, additional provisions for credit losses may be required that would
adversely impact our earnings in future periods. See Item 2, MANAGEMENT’S DISCUSSION AND
ANALYSIS, under the headings Results
of Operations– Provision for
Credit Lossesand Financial
Condition– Asset
Quality.





This
evaluation is based on a review of various quantitative and qualitative
analyses.  Quantitative analyses include the review of all loans
charged-off by asset class, static pool analysis by month of acquisition and by
dealer, review of delinquency trends, and analysis of the historical cumulative
losses in the portfolio.  Other quantitative analyses include a review
of the current delinquency ratios and an analysis of the relative size of each
asset class in relation to historical amounts.  Qualitative analyses
include an assessment of prevailing and anticipated economic conditions, trends
in deficiency balance collections, trends in the number of loan modifications
and extensions, trends in average borrower credit scores and trends in the
percentage of balances recovered through sale of collateral.




18




Selected Portfolio
Statistics





The
following table presents selected unaudited portfolio statistics for the three
and six months ended June 30, 2009 and 2008.  This table should be
read in conjunction with the Condensed Consolidated Financial Statements and the
notes thereto, included herein.





Three
      Months Ended
                                                                
                                                                
                                                                Six
      Months Ended JuneJune
      30,
                                                                
                                                                
                                                                30,2009
                                                                
                                                                
                                                                
                                                                2008
      *
                                                                
                                                                
                                                                2009
                                                                
                                                                
                                                                
                                                                2008
      *Installment
      contracts acquired (total principalamount)
                                                                
                                                                $
                                                                2,839,948
                                                                
                                                                
                                                                $
                                                                3,077,478
                                                                
                                                                
                                                                $
                                                                6,304,956
                                                                
                                                                
                                                                $
                                                                5,115,911Purchase
      price of Installment contractsAcquired
                                                                
                                                                $
                                                                2,644,357
                                                                
                                                                
                                                                $
                                                                2,922,811
                                                                
                                                                
                                                                $
                                                                5,888,144
                                                                
                                                                
                                                                $
                                                                4,852,299Percentage
      of dollar amount paid to principalbalance
      acquired
                                                                
                                                                
                                                                93.11
                                                                %
                                                                
                                                                
                                                                94.97
                                                                %
                                                                
                                                                
                                                                93.39
                                                                %
                                                                
                                                                
                                                                94.85
                                                                %Number
      of installment contracts acquiredduring
      the quarter
                                                                
                                                                
                                                                260
                                                                
                                                                
                                                                
                                                                281
                                                                
                                                                
                                                                
                                                                573
                                                                
                                                                
                                                                
                                                                504Average
      principal balance acquired
                                                                
                                                                $
                                                                10,923
                                                                
                                                                
                                                                $
                                                                10,952
                                                                
                                                                
                                                                $
                                                                11,003
                                                                
                                                                
                                                                $
                                                                10,151Acquisition
      cost per acquired installmentcontract
      (including overhead, US only)
                                                                
                                                                $
                                                                834
                                                                
                                                                
                                                                $
                                                                756
                                                                
                                                                
                                                                $
                                                                814
                                                                
                                                                
                                                                $
                                                                774Monthly
      servicing cost per installment contract(including overhead, US
      only)
                                                                
                                                                $
                                                                11.74
                                                                
                                                                
                                                                $
                                                                23.39
                                                                
                                                                
                                                                $
                                                                12.42
                                                                
                                                                
                                                                $
                                                                26.29




*
Purchases of Canadian finance receivables were discontinued in May
2008.





Results of
Operations





Interest
Income





Our
interest income totaled $1,053,766 and $2,027,557 for the three months and six
months ended June 30, 2009, respectively, compared to $649,990 and $1,272,912
for the three months and six months ended June 30, 2008. The increase in
interest income for the three and six months ended June 30, 2009 as compared to
2008 is attributed primarily to the increase in the installment contract
portfolio in the United States, offset by a decline in the outstanding balance
of the Canadian installment loan portfolio and lower yields on installment
contracts experienced in 2009.




19




The
following tables present information relative to the average balances and
interest rates of our interest earning assets for the three and six months ended
June 30, 2009 and 2008, respectively:





For
      the Three Months Ended June 30, 2009 and 20082009
                                  
                                  
                                  2008Average
                                  
                                  
                                  Interest
                                  
                                  
                                  
                                  
                                  
                                  Average
                                  
                                  
                                  InterestBalance
                                  
                                  
                                  Income
                                  
                                  
                                  Yield
                                  
                                  
                                  Balance
                                  
                                  
                                  Income
                                  
                                  
                                  YieldInstallment
      Contracts
                                  
                                  $
                                  18,382,803
                                  
                                  
                                  $
                                  1,052,943
                                  
                                  
                                  
                                  22.91%
                                  
                                  
                                  $
                                  10,948,199
                                  
                                  
                                  $
                                  641,091
                                  
                                  
                                  
                                  23.42%Cash
      and cash equivalents
                                  
                                  
                                  1,997,572
                                  
                                  
                                  
                                  823
                                  
                                  
                                  
                                  0.16%
                                  
                                  
                                  
                                  2,159,137
                                  
                                  
                                  
                                  8,899
                                  
                                  
                                  
                                  1.65%Total
                                  
                                  $
                                  20,380,374
                                  
                                  
                                  $
                                  1,053,766
                                  
                                  
                                  
                                  20.68%
                                  
                                  
                                  $
                                  13,107,336
                                  
                                  
                                  $
                                  649,990
                                  
                                  
                                  
                                  19.84%




For
      the Six Months Ended June 30, 2009 and 20082009
                                    
                                    
                                    2008Average
                                    
                                    
                                    Interest
                                    
                                    
                                    
                                    
                                    
                                    Average
                                    
                                    
                                    InterestBalance
                                    
                                    
                                    Income
                                    
                                    
                                    Yield
                                    
                                    
                                    Balance
                                    
                                    
                                    Income
                                    
                                    
                                    YieldInstallment
      Contracts
                                    
                                    $
                                    17,816,350
                                    
                                    
                                    $
                                    2,025,123
                                    
                                    
                                    
                                    22.73%
                                    
                                    
                                    $
                                    10,707,955
                                    
                                    
                                    $
                                    1,251,270
                                    
                                    
                                    
                                    23.37%Cash
      and cash equivalents
                                    
                                    
                                    2,021,074
                                    
                                    
                                    
                                    2,434
                                    
                                    
                                    
                                    0.24%
                                    
                                    
                                    
                                    2,147,192
                                    
                                    
                                    
                                    21,642
                                    
                                    
                                    
                                    2.02%Total
                                    
                                    $
                                    19,837,424
                                    
                                    
                                    $
                                    2,027,557
                                    
                                    
                                    
                                    20.44%
                                    
                                    
                                    $
                                    12,855,147
                                    
                                    
                                    $
                                    1,272,912
                                    
                                    
                                    
                                    19.80%


The
decrease in yield on our installment contracts is primarily the result of an
increase in the amortization of deferred origination costs during 2009, and
changes in the mix of our portfolio.  Beginning January 1, 2008, the
Company adopted Financial Accounting Standard No. 91, Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases (“SFAS91”).  Loan costs deferred under
SFAS 91 are amortized as an offset to interest income over the expected
outstanding terms of the loans. Amortization of SFAS 91 costs amounted to
$45,508 and $83,462 for the three and six months ended June 30, 2009,
respectively, and $12,357 and $15,889 for the three and six months ended June
30, 2008, respectively. In addition, throughout 2008 and 2009 our portfolio of
installment contracts has been increasingly comprised of contracts acquired
through our United States point-of-sale automobile financing
programs.  These contracts typically have lower yields than the other
types of contracts in our portfolio, among them, automobile contracts acquired
in bulk purchase transactions, and contracts purchased by our former Canadian
subsidiary which include small ticket leases, loans secured by home appliances
and other consumer goods, and loans for bulk food purchases.




20





The
following table sets forth the changes in interest income attributable to
changes in volume (change in average balance multiplied by the prior period
yield) and changes in rate (change in yield multiplied by the prior period
average balance).  Changes due to the rate/volume variance (the
combined effect of change in yield and change in average balance) have been
allocated proportionately based on the absolute value of the rate and volume
variances.





For
      the Three Months Ended June 30, 2009 compared tothe
      Three Months Ended June 30, 2008Volume
                              
                              
                              Rate
                              
                              
                              TotalIncrease
      (decrease) in interest income:Installment
      Contracts
                              
                              $
                              425,588
                              
                              
                              $
                              (12,319
                              )
                              
                              $
                              413,269Cash
      and cash equivalents
                              
                              
                              (719
                              )
                              
                              
                              (8,774
                              )
                              
                              
                              (9,493
                              )Total
      Interest Income
                              
                              $
                              424,869
                              
                              
                              $
                              (21,093
                              )
                              
                              $
                              403,776




For
      the Six Months Ended June 30, 2009 compared to theSix
      Months Ended June 30, 2008Volume
                              
                              
                              Rate
                              
                              
                              TotalIncrease
      (decrease) in interest income:Installment
      Contracts
                              
                              $
                              808,877
                              
                              
                              $
                              (35,026
                              )
                              
                              $
                              773,851Cash
      and cash equivalents
                              
                              
                              (1,201
                              )
                              
                              
                              (18,005
                              )
                              
                              
                              (19,206
                              )Total
      Interest Income
                              
                              $
                              807,676
                              
                              
                              $
                              (53,031
                              )
                              
                              $
                              754,645


Interest
Expense





We
incurred interest expense of $311,745, including $72,252 amortization of
deferred financing fees, and $173,834, including $72,252 amortization of
deferred financing fees, during the three months ended June 30, 2009 and 2008,
respectively.  We incurred interest expense of $596,808, including
$144,504 amortization of deferred financing fees, and $277,039, including
$122,048 amortization of deferred financing fees, during the six months ended
June 30, 2009 and 2008, respectively.  Our interest expense increased
primarily because of the increase in the outstanding balance of our line of
credit from June 30, 2008 to June 30, 2009.




21




Provision
for Credit Losses





Our
provision for credit losses totaled $322,749 and $679,605 for the three months
and six months ended June 30, 2009, respectively, compared to $108,794 and
$140,414 for the three months and six months ended June 30, 2008,
respectively.  The increase in the provision for the three months and
six months ended June 30, 2009 compared to the three months and six months ended
June 30, 2008 is a result of a reduction of our reserve for credit losses in the
first quarter of 2008, and an increase in net charge-offs in 2009 as compared to
2008. The Company assigned senior management to its account servicing and
collection department in the fourth quarter of 2007, and, as a result of the
improved reporting and controls over the loan losses implemented by senior
management, the Company experienced an improvement in delinquencies during the
first quarter of 2008. Because of this improvement in delinquencies, the Company
reduced its reserve for credit losses through a lower charge to the provision
during the first quarter of 2008. Net charge-offs increased in 2009 due to 1) an
increase in charge-offs experienced in the first quarter of 2009, which was a
result of a significant number of vehicles repossessed in late 2008, 2)
approximately $124,000 in recoveries received in the first quarter 2008 on
receivables that had been charged off in 2007, and 3) because of the overall
growth in size of the Company’s loan portfolio from 2008 to 2009.  Net
charge-offs increased to $251,184 and $560,027 for the three months and six
months ended June 30, 2009 and June 30, 2008, respectively, from $83,967 and
$270,167 for the three months and six months ended June 30, 2008, respectively.
As a percent of net contracts net charge-offs were 5.47% and 6.29% for the three
months and six months ended June 30, 2009, respectively, compared to 3.07% and
5.05% for the three months and six months ended June 30, 2008, respectively. See
Item 2, MANAGEMENT’S DISCUSSION
AND ANALYSIS,under the heading Financial
Condition– Asset Qualityfor a discussion of the Company’s delinquencies and actual credit loss
experience and its allowance for credit losses. As the Company continues to
acquire installment contracts, and our average contracts receivable outstanding
increases, we expect the charge to our earnings for credit losses will continue
to increase.





Operating
Expenses





Our
operating expenses totaled $550,811 and $1,215,297 for the three months and six
months ended June 30, 2009, respectively, compared to $721,915 and $1,424,469
for the three months and six months ended June 30, 2008,
respectively.  A summary of these expenses follows:





Three
      Months Ended June 30,
                                    
                                    
                                    Six
      Months Ended June 30,Percent
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    Percent2009
                                    
                                    
                                    2008
                                    
                                    
                                    Change
                                    
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    ChangeSalaries
      and benefits
                                    
                                    $
                                    353,102
                                    
                                    
                                    $
                                    431,524
                                    
                                    
                                    
                                    -18.17%
                                    
                                    
                                    $
                                    726,848
                                    
                                    
                                    $
                                    848,944
                                    
                                    
                                    
                                    -14.38%Professional
      fees
                                    
                                    
                                    47,139
                                    
                                    
                                    
                                    48,791
                                    
                                    
                                    
                                    -3.39%
                                    
                                    
                                    
                                    138,940
                                    
                                    
                                    
                                    161,959
                                    
                                    
                                    
                                    -14.21%Information
      services
                                    
                                    
                                    51,914
                                    
                                    
                                    
                                    51,416
                                    
                                    
                                    
                                    0.97%
                                    
                                    
                                    
                                    126,175
                                    
                                    
                                    
                                    69,702
                                    
                                    
                                    
                                    81.02%Insurance
                                    
                                    
                                    41,161
                                    
                                    
                                    
                                    42,808
                                    
                                    
                                    
                                    -3.85%
                                    
                                    
                                    
                                    83,075
                                    
                                    
                                    
                                    87,029
                                    
                                    
                                    
                                    -4.54%Supplies
      and postage
                                    
                                    
                                    29,379
                                    
                                    
                                    
                                    22,847
                                    
                                    
                                    
                                    28.59%
                                    
                                    
                                    
                                    56,271
                                    
                                    
                                    
                                    50,902
                                    
                                    
                                    
                                    10.55%Stockholder
      relations
                                    
                                    
                                    4,031
                                    
                                    
                                    
                                    58,984
                                    
                                    
                                    
                                    -93.17%
                                    
                                    
                                    
                                    23,937
                                    
                                    
                                    
                                    63,732
                                    
                                    
                                    
                                    -62.44%Other
                                    
                                    
                                    82,019
                                    
                                    
                                    
                                    110,014
                                    
                                    
                                    
                                    -25.45%
                                    
                                    
                                    
                                    181,202
                                    
                                    
                                    
                                    206,417
                                    
                                    
                                    
                                    -12.22%Deferral
      of origination costs
                                    
                                    
                                    (57,934
                                    )
                                    
                                    
                                    (44,469
                                    )
                                    
                                    
                                    30.28%
                                    
                                    
                                    
                                    (121,151
                                    )
                                    
                                    
                                    (64,216
                                    )
                                    
                                    
                                    88.66%Total
                                    
                                    $
                                    550,811
                                    
                                    
                                    $
                                    721,915
                                    
                                    
                                    
                                    -23.70%
                                    
                                    
                                    $
                                    1,215,297
                                    
                                    
                                    $
                                    1,424,469
                                    
                                    
                                    
                                    -14.68%


22




Salaries
and benefits decreased for the three and six months ended June 30, 2009 as
compared to 2008 because of a decrease in employee costs resulting from 21%
fewer individuals being employed by the Company in 2009 as compared to the prior
year, employee relocation expenses that occurred in 2008 that did not recur in
2009, and stock grants to the Company’s management that occurred in 2008 that
did not recur in 2009.  These decreases were offset by an increase in
sales commissions paid in 2009 to individuals employed by the Company to market
our financing programs. As the Company continues to grow, however, we expect our
salaries and benefits costs to increase, but anticipate that as a percentage of
total revenues these costs will continue to decrease. Professional fees
decreased during the three and six months ended June 30, 2009 compared to the
three and six months ended June 30, 2008 as a result of the December 31, 2008
accrual of fiscal 2008 audit fees, offset by examination fees billed by our
lender during the six month period ended June 30, 2009. Information services
increased for the three and six month periods ended June 30, 2009 as compared to
2008, as a result of the Company’s implementation of installment loan
origination and underwriting systems during the quarter ended June 30, 2008 and
ongoing costs incurred as a result of the use of these systems. Insurance
expense decreased because of a decrease in premiums for Directors and Officers
insurance, and because of the elimination of insurance premiums for coverage on
our former Canadian office building, which was sold in June
2008.  Stockholder relations decreased for the three and six month
period ended June 30, 2009, as compared to 2008, primarily because of the
elimination of stockholder solicitation costs as a result of the reduced quorum
requirement approved by the Company’s stockholders in 2008, and the systematic
accrual of annual meeting expenses beginning in the 4th quarter
of 2008. Supplies and postage costs increased for the three and six month
periods ended June 30, 2009, as compared to 2008 as a result of the increase in
size of our loan portfolio. Deferred Origination Costs increased as a result of
an increase in the number of loans acquired during the six month period ended
June 30, 2009, as compared to the six month period ended June 30, 2008, and as a
result of additional origination costs identified for deferral.  Other
operating costs include, among other items, occupancy costs, licenses and taxes,
depreciation, communications, and travel.  Other costs
have decreased primarily as a result of the liquidation of our Canadian
subsidiary in May 2008 and the elimination of costs related to the
subsidiary.





Our
growth plan, if achieved, will cause our operating costs to increase over time,
but as a percent of revenues we expect these costs to continue to
decrease.





The
Company’s average cost to acquire an installment contract (which includes all
direct marketing, business development and underwriting expenses and an
allocation of certain overhead costs) during the three month and six month
periods ended June 30, 2009 was approximately $834 and $814, respectively, per
contract as compared to $756 and $774 for the three month and six month periods
ended June 30, 2008, respectively.  This increase in average
acquisition cost is a result of usage costs related to loan origination and
underwriting systems utilized during 2009 which were not utilized by the Company
until beginning in June 2008 and higher payroll costs in our loan acquisition
department during 2009. These increases have been offset by an improvement in
the Company’s book to look ratio during the three and six month period ended
June 30, 2009. For the three month and six month periods ended June 30, 2009,
the Company’s book to look ratio was 5.47% and 4.75%, respectively, compared to
4.10% and 3.96% for the three month and six month periods ended June 30,
2008.  Management is attempting to further increase this ratio, and
thereby reduce our average acquisition cost, by training our customers to send
the Company only those credit applications that have a high probability of being
approved and purchased by us, and by following up on approved applications to
encourage the placement of the financing applied for with us instead of with a
competitor.





The
Company’s average monthly cost to service an Installment Contract (which
includes all direct collections and servicing expenses and an allocation of
certain overhead costs) during the three month and six month periods ended June
30, 2009 was $11.74 and $12.42, respectively, per serviced contract, as compared
to $23.39 and $26.29 during the three month and six month periods ended June 30,
2008, respectively.  The decrease for the quarter ended June 30, 2009
reflects a restructure of the Company’s account servicing department which
resulted in gains in efficiency, and investments that have resulted in lower
delinquencies, fewer charge-offs and added capacity. Management anticipates that
this average servicing cost per contract will continue to decrease as the size
of the portfolio of installment contracts increases due to continued efficiency
gains and economies of scale.





The
Company formally tracks our response time for responding to credit applications
received and our response time for funding loan packages submitted by dealers,
and we monitor these statistics on a daily basis.  Our goal is to
reduce these response times to better serve the needs of our
customers.  We believe that reducing these response times will also
reduce our overall costs of underwriting and funding.




23




Financial
Condition





Installment
Contracts Portfolio





The
Company acquired Installment Contracts with outstanding principal balances
totaling $2,839,948 and $6,304,956, respectively, during the three months and
six months ended June 30, 2009.  We invested cash of approximately
$2,644,357 and $5,888,144, respectively, to acquire these contracts.  As a
result of these acquisitions, our portfolio of Installment Contracts increased
from $15,938,361, net of an allowance for credit losses of $639,799, at December
31, 2008 to $17,927,188, net of an allowance for credit losses of $762,371, at
June 30, 2009.





All of
the Company’s installment contracts are held for investment and are recorded at
their outstanding principal balances adjusted for unamortized purchase discounts
and an allowance for credit losses.  Discounts on purchased
installment contracts are recognized as income over the respective contractual
terms using methods that approximate the interest method.  A summary
of our installment contracts portfolio as of June 30, 2009 and December 31, 2008
follows:





June
      30, 2009
                                  
                                  
                                  December
      31, 2008United
      States
                                  
                                  
                                  Canada
                                  
                                  
                                  Total
                                  
                                  
                                  United
      States
                                  
                                  
                                  Canada
                                  
                                  
                                  TotalAutomobiles
                                  
                                  $
                                  18,998,787
                                  
                                  
                                  $
                                  323,565
                                  
                                  
                                  $
                                  19,322,352
                                  
                                  
                                  $
                                  16,327,262
                                  
                                  
                                  $
                                  514,603
                                  
                                  
                                  $
                                  16,841,865Other
                                  
                                  
                                  -
                                  
                                  
                                  
                                  268,780
                                  
                                  
                                  
                                  268,780
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  466,626
                                  
                                  
                                  
                                  466,626Total
                                  
                                  
                                  18,998,787
                                  
                                  
                                  
                                  592,345
                                  
                                  
                                  
                                  19,591,132
                                  
                                  
                                  
                                  16,327,262
                                  
                                  
                                  
                                  981,229
                                  
                                  
                                  
                                  17,308,491LessUnearned
      discount
                                  
                                  
                                  895,893
                                  
                                  
                                  
                                  5,680
                                  
                                  
                                  
                                  901,573
                                  
                                  
                                  
                                  718,717
                                  
                                  
                                  
                                  11,614
                                  
                                  
                                  
                                  730,331Allowance
      forcredit losses
                                  
                                  
                                  682,051
                                  
                                  
                                  
                                  80,320
                                  
                                  
                                  
                                  762,371
                                  
                                  
                                  
                                  569,794
                                  
                                  
                                  
                                  70,005
                                  
                                  
                                  
                                  639,799Net
                                  
                                  $
                                  17,420,843
                                  
                                  
                                  $
                                  506,345
                                  
                                  
                                  $
                                  17,927,188
                                  
                                  
                                  $
                                  15,038,751
                                  
                                  
                                  $
                                  899,610
                                  
                                  
                                  $
                                  15,938,361




Asset
Quality





Substantially
all of the installment contracts we acquire are considered sub-prime and are
subject to a high degree of risk of default by the obligors.  We
define sub-prime installment contracts as those entered into with borrowers that
have credit scores below 620, or due to other circumstances, such borrowers have
limited or no access to traditional sources of consumer credit.





Charge-offs
directly impact our earnings and cash flows.  To minimize the amount
of credit losses we incur, we monitor delinquent accounts, promptly repossess
and remarket collateral, attempt to collect deficiency balances, and employ
other servicing and collection techniques as we deem appropriate.





We
calculate delinquency based on the number of days payments are contractually
past due.  The following table sets forth information with respect to
the delinquency of our portfolio of installment contracts as of June 30, 2009
and December 31, 2008, respectively:


24


June 30, 2009United States
                  
                  
                  Canada
                  
                  
                  TotalAmount
                  
                  
                  Pct.
                  
                  
                  Amount
                  
                  
                  Pct.
                  
                  
                  Amount
                  
                  
                  Pct.Installment
      Contracts
                  
                  
                  18,998,787
                  
                  
                  
                  100%
                  
                  
                  
                  592,346
                  
                  
                  
                  100%
                  
                  
                  
                  19,591,133
                  
                  
                  
                  100%Period
      of delinquency:31
      - 60 days
                  
                  
                  304,607
                  
                  
                  
                  1.60%
                  
                  
                  
                  9,530
                  
                  
                  
                  1.61%
                  
                  
                  
                  314,137
                  
                  
                  
                  1.60%61
      - 90 days
                  
                  
                  119,576
                  
                  
                  
                  0.63%
                  
                  
                  
                  8,454
                  
                  
                  
                  1.43%
                  
                  
                  
                  128,030
                  
                  
                  
                  0.65%91
      – 120 days
                  
                  
                  62,995
                  
                  
                  
                  0.33%
                  
                  
                  
                  12,663
                  
                  
                  
                  2.14%
                  
                  
                  
                  75,658
                  
                  
                  
                  0.39%121+
      days
                  
                  
                  85,637
                  
                  
                  
                  0.45%
                  
                  
                  
                  163
                  
                  
                  
                  0.03%
                  
                  
                  
                  85,800
                  
                  
                  
                  0.44%Total
                  
                  
                  572,815
                  
                  
                  
                  3.01%
                  
                  
                  
                  30,810
                  
                  
                  
                  5.21%
                  
                  
                  
                  603,625
                  
                  
                  
                  3.08%




December31,2008UnitedStates
                      
                      
                      Canada
                      
                      
                      TotalAmount
                      
                      
                      Pct.
                      
                      
                      Amount
                      
                      
                      Pct.
                      
                      
                      Amount
                      
                      
                      Pct.Installment
      Contracts
                      
                      
                      16,327,262
                      
                      
                      
                      100%
                      
                      
                      
                      981,228
                      
                      
                      
                      100%
                      
                      
                      
                      17,308,490
                      
                      
                      
                      100%Period
      of delinquency:31
      - 60 days
                      
                      
                      392,693
                      
                      
                      
                      2.41%
                      
                      
                      
                      70,388
                      
                      
                      
                      7.17%
                      
                      
                      
                      463,081
                      
                      
                      
                      2.68%61
      - 90 days
                      
                      
                      228,915
                      
                      
                      
                      1.40%
                      
                      
                      
                      33,887
                      
                      
                      
                      3.45%
                      
                      
                      
                      262,802
                      
                      
                      
                      1.52%91
      – 120 days
                      
                      
                      38,276
                      
                      
                      
                      0.23%
                      
                      
                      
                      34,230
                      
                      
                      
                      3.49%
                      
                      
                      
                      72,506
                      
                      
                      
                      0.42%121+
      days
                      
                      
                      51,720
                      
                      
                      
                      0.32%
                      
                      
                      
                      7,317
                      
                      
                      
                      0.75%
                      
                      
                      
                      59,037
                      
                      
                      
                      0.34%Total
                      
                      
                      711,604
                      
                      
                      
                      4.36%
                      
                      
                      
                      145,822
                      
                      
                      
                      14.86%
                      
                      
                      
                      857,426
                      
                      
                      
                      4.96%





At
December 31, 2008, delinquent accounts, defined as accounts more than 30 days
contractually past due, totaled 4.96% of our outstanding installment
contracts.  Delinquencies declined as of June 30, 2009 to 3.08% of our
outstanding installment contracts.  The decrease is attributable to
the Company’s devotion of senior management personnel to its account servicing
and collection efforts. New controls and systems were implemented by management
beginning in 2008 to better monitor delinquent accounts, resulting in fewer
delinquencies and credit losses. We expect delinquencies as a percent of the
total portfolio in the United States to remain constant throughout 2009, unless
continued adverse economic conditions cause higher unemployment or
underemployment, or an increase in consumer prices (such as fuel), or some other
significant event occurs that affects our borrowers’ ability to make their
payments.




25




The
following tables set forth information with respect to actual credit loss
experience in our portfolio of installment contracts for the three and six
months ended June 30, 2009 and 2008, respectively:




Three Months Ended June 30,2009
                  
                  
                  2008United States
                  
                  
                  Canada
                  
                  
                  Total
                  
                  
                  United States
                  
                  
                  Canada
                  
                  
                  TotalInstallment
      Contracts, net of unearned discounts, end of period
                  
                  $
                  18,102,893
                  
                  
                  $
                  586,666
                  
                  
                  $
                  18,689,559
                  
                  
                  $
                  9,879,209
                  
                  
                  $
                  1,862,213
                  
                  
                  $
                  11,741,422Installment
      Contracts, net of unearned discounts, average during the period
      (1)
                  
                  
                  17,703,333
                  
                  
                  
                  679,470
                  
                  
                  
                  18,382,803
                  
                  
                  
                  8,901,432
                  
                  
                  
                  2,046,767
                  
                  
                  
                  10,948,199Gross
      charge-offs
                  
                  
                  495,679
                  
                  
                  
                  19,169
                  
                  
                  
                  514,848
                  
                  
                  
                  231,978
                  
                  
                  
                  27,477
                  
                  
                  
                  259,455Recoveries
                  
                  
                  250,420
                  
                  
                  
                  13,244
                  
                  
                  
                  263,664
                  
                  
                  
                  164,182
                  
                  
                  
                  11,306
                  
                  
                  
                  175,488Net
      charge-offs
                  
                  
                  245,259
                  
                  
                  
                  5,925
                  
                  
                  
                  251,184
                  
                  
                  
                  67,796
                  
                  
                  
                  16,171
                  
                  
                  
                  83,967Net
      charge-offs as a % of avg. contracts during the period
      (annualized)
                  
                  
                  5.54
                  %
                  
                  
                  3.49
                  %
                  
                  
                  5.47
                  %
                  
                  
                  3.05
                  %
                  
                  
                  3.16
                  %
                  
                  
                  3.07
                  %




(1) - Average is based on month-end balances




Six Months Ended June 30,2009
                    
                    
                    2008United States
                    
                    
                    Canada
                    
                    
                    Total
                    
                    
                    United States
                    
                    
                    Canada
                    
                    
                    TotalInstallment
      Contracts, net of unearned discounts, end of period
                    
                    $
                    18,102,893
                    
                    
                    $
                    586,666
                    
                    
                    $
                    18,689,559
                    
                    
                    $
                    9,879,209
                    
                    
                    $
                    1,862,214
                    
                    
                    $
                    11,741,423Installment
      Contracts, net of unearned discounts, average during the period
      (1)
                    
                    
                    17,051,715
                    
                    
                    
                    764,634
                    
                    
                    
                    17,816,349
                    
                    
                    
                    8,504,084
                    
                    
                    
                    2,203,870
                    
                    
                    
                    10,707,954Gross
      charge-offs
                    
                    
                    1,017,035
                    
                    
                    
                    49,414
                    
                    
                    
                    1,066,449
                    
                    
                    
                    722,840
                    
                    
                    
                    78,198
                    
                    
                    
                    801,038Recoveries
                    
                    
                    488,013
                    
                    
                    
                    18,409
                    
                    
                    
                    506,422
                    
                    
                    
                    500,554
                    
                    
                    
                    30,317
                    
                    
                    
                    530,871Net
      charge-offs
                    
                    
                    529,022
                    
                    
                    
                    31,005
                    
                    
                    
                    560,027
                    
                    
                    
                    222,286
                    
                    
                    
                    47,881
                    
                    
                    
                    270,167Net
      charge-offs as a % of avg. contracts during the period
      (annualized)
                    
                    
                    6.20
                    %
                    
                    
                    8.11
                    %
                    
                    
                    6.29
                    %
                    
                    
                    5.23
                    %
                    
                    
                    4.35
                    %
                    
                    
                    5.05
                    %


(1) - Average is based on month-end balances
  26





The
Company maintains an allowance for credit losses at an amount it believes is
adequate to absorb reasonably estimable probable losses in its portfolio of
installment contracts.  The Company’s management evaluates the
adequacy of the allowance for credit losses on a regular basis.  In
performing these periodic evaluations, management follows an
appropriately-documented methodology.  This methodology requires
management to evaluate the adequacy of the allowance for credit losses based on
a review of various quantitative and qualitative analyses as described in Item 2, MANAGEMENT’S DISCUSSION AND
ANALYSIS, under the heading Critical
Accounting Policies, Judgments and Estimates. The Company incurs a charge
against its earnings, as a provision for credit losses, based on this analysis
as described in Item 2, MANAGEMENT’S DISCUSSION AND ANALYSIS,under the heading Results
of Operations– Provision for
Credit Losses.





Our
allowance for credit losses was $762,371 at June 30, 2009 compared to $639,799
at December 31, 2008.  As a percentage of our outstanding net
Installment Contracts, our allowance for credit losses was 4.08% at June 30,
2009 and 3.86% at December 31, 2008. The allowance for credit losses was 15.86%
and 24.35% of past due accounts and 126.30% and 134.25% of accounts considered
delinquent as of June 30, 2009 and 2008 respectively.





During
the six months ended June 30, 2009, our net Installment Contracts increased
$2,111,399.  This increase was the result of a $2,305,190 increase in
automobile-secured contracts offset by a $193,791 decrease in all other
Installment Contracts.  The $2,305,190 increase in automobile-secured
Installment Contracts was comprised of a $2,503,874 increase in Installment
Contracts acquired through our U.S. point-of-sale program offset by a $189,157
decrease in Installment Contracts acquired through our Canadian point-of-sale
program, and a $9,527 decrease in Installment Contracts acquired through bulk
purchases.





The
Company’s loss history in its U.S. portfolio of installment contracts and in its
Canadian portfolio of automobile-secured installment contracts is
limited.  Due to this limited operating history, using historical loss
ratios to predict future probable losses is of limited
usefulness.  Additionally, uncertainty exists with respect to the
accuracy of our estimates of amounts we will recover through the sale of
repossessed collateral and with respect to anticipated future economic
conditions, both in the U.S. and Canada, and their effect on the performance of
our portfolio of installment contracts. For these reasons, our historical loss
ratios may not be relied upon as predictions of the future performance of our
portfolio or our future loss experience.





During
the six months ended June 30, 2009, we experienced net charge-offs of $560,027,
which represented 6.29% of our average outstanding installment contracts during
the period.  During the year ended December 31, 2008, we experienced
net charge-offs of $751,578, which represented 5.96% of our average outstanding
installment contracts during the year.





The
allowance for credit losses as of June 30, 2009 of $762,371 is 4.08% of our
outstanding net installment contracts. Based on the analyses we performed
related to our allowance for credit losses as described above and as described
in Item 2, MANAGEMENT’S
DISCUSSION AND ANALYSIS, under the heading Critical
Accounting Policies and Judgments, we believe that our allowance for
credit losses is adequate to cover probable losses that can be reasonably
estimated as of June 30, 2009.





The
following tables set forth the activity in the allowance for credit losses for
the three months and six months ended June 30, 2009 and 2008,
respectively:


27




Three Months Ended June 30,2009
                            
                            
                            2008UnitedUnited States
                            
                            
                            Canada
                            
                            
                            Total
                            
                            
                            States
                            
                            
                            Canada
                            
                            
                            TotalBalance
      at beginning of period
                            
                            $
                            613,086
                            
                            
                            $
                            72,131
                            
                            
                            $
                            685,217
                            
                            
                            $
                            527,753
                            
                            
                            $
                            122,460
                            
                            
                            $
                            650,213Charge-offs
                            
                            
                            (495,679
                            )
                            
                            
                            (19,169
                            )
                            
                            
                            (514,848
                            )
                            
                            
                            (231,978
                            )
                            
                            
                            (27,477
                            )
                            
                            
                            (259,455
                            )Recoveries
                            
                            
                            250,420
                            
                            
                            
                            13,244
                            
                            
                            
                            263,664
                            
                            
                            
                            164,182
                            
                            
                            
                            11,306
                            
                            
                            
                            175,488Net
      charge-offs
                            
                            
                            (245,259
                            )
                            
                            
                            (5,925
                            )
                            
                            
                            (251,184
                            )
                            
                            
                            (67,796
                            )
                            
                            
                            (16,171
                            )
                            
                            
                            (83,967
                            )Provision
      for credit losses
                            
                            
                            314,224
                            
                            
                            
                            8,525
                            
                            
                            
                            322,749
                            
                            
                            
                            109,837
                            
                            
                            
                            (1,043
                            )
                            
                            
                            108,794Effect
      of foreign currency translation
                            
                            
                            -
                            
                            
                            
                            5,589
                            
                            
                            
                            5,589
                            
                            
                            
                            
                            
                            
                            
                            900
                            
                            
                            
                            900Balance
      at end of period
                            
                            $
                            682,051
                            
                            
                            $
                            80,320
                            
                            
                            $
                            762,371
                            
                            
                            $
                            569,794
                            
                            
                            $
                            106,146
                            
                            
                            $
                            675,940


Six Months Ended June 30,2009
                    
                    
                    2008UnitedUnited States
                    
                    
                    Canada
                    
                    
                    Total
                    
                    
                    States
                    
                    
                    Canada
                    
                    
                    TotalBalance
      at beginning of period
                    
                    $
                    569,794
                    
                    
                    $
                    70,005
                    
                    
                    $
                    639,799
                    
                    
                    $
                    670,222
                    
                    
                    $
                    141,154
                    
                    
                    $
                    811,376Charge-offs
                    
                    
                    (1,017,035
                    )
                    
                    
                    (49,414
                    )
                    
                    
                    (1,066,449
                    )
                    
                    
                    (722,840
                    )
                    
                    
                    (78,198
                    )
                    
                    
                    (801,038
                    )Recoveries
                    
                    
                    488,013
                    
                    
                    
                    18,409
                    
                    
                    
                    506,422
                    
                    
                    
                    500,554
                    
                    
                    
                    30,317
                    
                    
                    
                    530,871Net
      charge-offs
                    
                    
                    (529,022
                    )
                    
                    
                    (31,005
                    )
                    
                    
                    (560,027
                    )
                    
                    
                    (222,286
                    )
                    
                    
                    (47,881
                    )
                    
                    
                    (270,167
                    )Provision
      for credit losses
                    
                    
                    641,279
                    
                    
                    
                    38,326
                    
                    
                    
                    679,605
                    
                    
                    
                    121,858
                    
                    
                    
                    18,556
                    
                    
                    
                    140,414Effect
      of foreign currency translation
                    
                    
                    -
                    
                    
                    
                    2,994
                    
                    
                    
                    2,994
                    
                    
                    
                    -
                    
                    
                    
                    (5,683
                    )
                    
                    
                    (5,683
                    )Balance
      at end of period
                    
                    $
                    682,051
                    
                    
                    $
                    80,320
                    
                    
                    $
                    762,371
                    
                    
                    $
                    569,794
                    
                    
                    $
                    106,146
                    
                    
                    $
                    675,940


Liquidity and Capital
Resources





We
require substantial capital resources and cash to support our business strategy.
We use cash to make sub-prime used automobile loans and meet our cash needs for
operations.





The
Company’s growth strategy requires the Company to increase its acquisitions of
installment contracts.  We anticipate, however, to acquire installment
contracts for the remainder of 2009 at a slower pace than we are capable of due
to limited access to credit resulting from the current economic
situation.  We expect to pay between 92% and 94% of the outstanding
principal balance for installment contracts that are purchased. We expect to
fund these acquisitions from a combination of internally generated cash flow and
our line of credit. Our $15 million line of credit had an outstanding balance of
over $12 million as of June 30, 2009.


28





The
Company has received notice from its lender that the lender is no longer
extending credit to finance companies and thus our line of credit will not be
renewed or extended when it matures in January, 2010.  If the current
economic conditions and tight credit markets continue, we may be unable to
refinance our bank line of credit when it matures, and if we are unable to
refinance our line of credit we will be considered in default and the entire
outstanding balance of the credit facility will become immediately due and
payable.  To cure the default the lender could assume ownership of all
of our assets and liquidate the assets in a manner the lender deems satisfactory
in order to satisfy the line of credit balance. We can give no assurance that we
will be able to secure additional financing with terms acceptable to us. If we
are unable to secure additional financing, we may be forced to
liquidate.  Management and the Company’s investment banking firm are
currently seeking alternative sources of debt and equity financing.





The
Company began 2009 with $2,145,436 cash on hand and had cash on hand of
$2,209,161 at June 30, 2009.  Operating activities provided cash of
$620,338 during the six month period ended June 30, 2009.





We
invested cash of approximately $5,888,000 to acquire installment contracts
during the six month period ended June 30, 2009.  We collected
principal payments on our installment contracts of approximately $2,974,000
during the six month period ended June 30, 2009.





During
the three months and six months ended June 30, 2009 the Company received net
advances on its bank line of credit totaling $1,250,000 and $2,050,000,
respectively, to partially fund the acquisition of Installment
Contracts.  Total advances outstanding under the line of credit
agreement as of June 30, 2009 totaled approximately $12,042,000.  Our
ability to continue to draw funds under the line of credit depends on our
ability to maintain a sufficient borrowing base by submitting  loan
documents purchased to our lender that are considered eligible assets by our
lender, and our continued compliance with the covenants in our line of credit
agreement.





We paid
financing fees totaling $472,347 during 2008 in connection with fund raising
activities performed by our investment banking firms and fees paid to our
lender. These financing fees have been deferred and are being amortized to
interest expense over the term of the line of credit.  The fees
amortized during the six month period ended June 30, 2009 amounted to
$144,504.





The
Company’s current agreement with its investment banking firm requires the
Company to pay total aggregate transaction fees of not less than $550,000 to the
investment banking firm should the Company consummate a transaction with a
lender or other party that the investment banking firm introduces to the
Company.  As of June 30, 2009, the Company had paid fees amounting to
$35,000 to the investment banking firm.





Our line
of credit agreement contains covenants, among others, that 1) require the
Company to maintain a minimum net worth of $7,500,000 as of the end of each
fiscal quarter, 2) restrict the Company’s ability to declare or pay dividends,
and 3) limit the amount of capital expenditures the Company can incur in any
fiscal year.  The Company was not in violation of any financial
covenants as of June 30, 2009.  If the Company experiences additional
net losses totaling $1 million, it would be at risk of defaulting under the
minimum net worth covenant.





The
Company spent approximately $35,000 upgrading its underwriting and loan
servicing systems during the fiscal year ended December 31, 2008.  The
Company had no additional material commitments for capital expenditures as of
June 30, 2009.  We believe these investments will serve to strengthen
our internal controls, allow us to quicken our response time to our customers,
provide management with improved reporting tools and fulfill our software needs
for the foreseeable future.


29





As the
Company continues to grow, we may need to recruit and hire additional sales,
operating and administrative personnel.  We expect to be able to fund
the costs of these activities from operating cash flows.





Off-Balance Sheet
Arrangements





The
Company, in its ordinary course of business, commits to purchase certain
installment contracts from its customers.  Each commitment is
essentially an “offer” by the Company to purchase a specific installment
contract that the Company has pre-approved, and customers generally have up to
20 days to “accept” the offer by selling to the Company the pre-approved
installment contract.  The Company had outstanding commitments to
acquire installment contracts totaling approximately $1,011,386 as of June 30,
2009.  Typically, the Company funds between 20% and 30% of its
outstanding commitments.





The
Company is also obligated under a noncancelable lease for its principal office
with a term of five years.  Future minimum payments under this lease
as of June 30, 2009 are as
follows:




2009
                      
                      
                      25,2152010
                      
                      
                      50,7402011
                      
                      
                      50,7402012
                      
                      
                      50,7402013
                      
                      
                      29,599Total
                      
                      $
                      207,034




Certain
officers of the Company hold a total of 1,529,583 shares of the Company’s common
stock, all or a portion of which, the Company may be required to repurchase, at
the option of an officer whose employment is terminated due to a permanent
disability, or after death, at the option of the officer’s estate, at a price
per share ranging from 90% to 100% of the common stock’s fair market
value.  The specific terms concerning these options and the repurchase
of the common stock are set forth in the Management Shareholders Agreement filed
as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on August 17, 2007
and the Management Shareholder Agreement filed as Exhibit 1 to the Company’s
Form 8-K filed with the SEC on December 20, 2007.




The
Company’s current agreement with its investment banking firm requires the
Company to pay total aggregate transaction fees of not less than $550,000 to the
investment banking firm should the Company consummate a transaction with a
lender or other party that the investment banking firm introduces to the
Company.  As of June 30, 2009, the Company had paid fees amounting to
$35,000 to the investment banking firm.





The
Company had no other off-balance sheet arrangements as of June 30,
2009.





ITEM
3.           Quantitative
and Qualitative Disclosures About Market Risk





A smaller
reporting company is not required to provide the information required by this
item.


30




ITEM
4.           Controls and
Procedures





The
Company maintains disclosure controls and procedures (as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) that are
designed to ensure that information required to be disclosed in the Company’s
Exchange Act reports is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission’s rules and
forms, and that such information is accumulated and communicated to the
Company’s management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure.





The
Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer and the Company’s Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures.  Based on the foregoing, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures were effective as of June 30, 2009.





There
have been no changes in the Company’s internal control over financial reporting
during the quarter ended June 30, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





ITEM
4T.        Controls and
Procedures





Not
applicable.


31


PART
II. - OTHER INFORMATION




ITEM
6.Exhibits





INDEX
TO EXHIBITS


ExhibitNumber
                  Description2.1
                  Corrected
      Trustee’s Amended Plan of Reorganization  (1)2.2
                  Disclosure
      Statement for Trustee’s Amended Plan of
      Reorganization  (1)3.1
                  First
      Amended and Restated Certificate of
      Incorporation  (1)3.1.1
                  Certificate
      of Amendment of Certificate of
Incorporation  (1)3.1.2
                  Certificate
      of Amendment of Certificate of Incorporation (2)3.2
                  Bylaws  (1)3.2.1
                  Amendment
      to Bylaws  (1)3.2.2
                  Amendment
      to Bylaws  (2)4.1
                  Amended
      and Restated Trust Agreement of Freedom Financial Group I Statutory
      Trust  (1)31.1
                  Certification
      of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a), as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
                  Certification
      of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a), as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
                  Certifications
      of Principal Executive Officer and Principal Financial Officer Pursuant to
      18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.





(1)           Filed
as an exhibit to the Company’s registration statement filed on Form 10-SB on May
2, 2005 (File Number 000-51286), and incorporated herein by
reference.





(2)           Filed
as an exhibit to the Company’s Form 10-Q on November 6, 2008, and incorporated
herein by reference.


32


SIGNATURES





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





FREEDOM
      FINANCIAL GROUP, INC.Date:
                      August 7, 2009
                      
                      By:
                      /s/ Jerald L.
  FenstermakerJerald
      L. FenstermakerPresident
      and Chief Executive Officer(Principal
      Executive Officer)Date:
                      August 7, 2009
                      
                      By:
                      /s/ J. Kevin MaxwellJ.
      Kevin MaxwellTreasurer
      and Chief Financial Officer(Principal
      Financial
Officer)


33