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 September 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)








(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
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 x                No
 ̈


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
November 9, 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
              18ITEM
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              35ITEM
      4.
              Controls
      and Procedures
              35ITEM
      4T.
              Controls
      and Procedures
              35PART
      II. – OTHER INFORMATION
              36ITEM
      6.
              Exhibits
              36INDEX
      TO EXHIBITS
              36


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 September 30, 2009, and the related consolidated statement of
operations for the three-month and nine-month periods ended September 30, 2009
and stockholders’ equity and cash flows for the nine-month period ended
September 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


November
9, 2009





3


FREEDOM
FINANCIAL GROUP, INC.


Consolidated
Balance Sheets





September 30,
                            2009
                          
                          
                          December 31,
                            2008AssetsCash
      and cash equivalents
                          
                          $
                          2,192,134
                          
                          
                          $
                          2,145,436Finance
      receivables, net
                          
                          
                          17,894,729
                          
                          
                          
                          15,938,361Accrued
      interest receivable
                          
                          
                          196,564
                          
                          
                          
                          184,807Property
      and equipment, net
                          
                          
                          35,244
                          
                          
                          
                          52,064Deferred
      financing fees
                          
                          
                          211,998
                          
                          
                          
                          296,337Deferred
      origination costs
                          
                          
                          169,338
                          
                          
                          
                          138,013Other
      assets
                          
                          
                          89,905
                          
                          
                          
                          351,647Total
      assets
                          
                          $
                          20,789,912
                          
                          
                          $
                          19,106,665Liabilities
      and Stockholders’ EquityLiabilitiesBank
      line of credit
                          
                          $
                          12,037,332
                          
                          
                          $
                          9,975,734Accounts
      payable
                          
                          
                          8,969
                          
                          
                          
                          34,914Accrued
      expenses
                          
                          
                          137,376
                          
                          
                          
                          147,756Accrued
      compensation costs
                          
                          
                          155,478
                          
                          
                          
                          61,262Other
      liabilities
                          
                          
                          31,831
                          
                          
                          
                          22,126Total
      liabilities
                          
                          
                          12,370,986
                          
                          
                          
                          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)
                          
                          
                          (5,271,033
                          )
                          
                          
                          (4,738,477
                          )Accumulated
      other comprehensive loss
                          
                          
                          (194,042
                          )
                          
                          
                          (280,651
                          )Treasury
      stock, at cost; 4,458 shares
                          
                          
                          (393
                          )
                          
                          
                          (393
                          )Total
      stockholders’ equity
                          
                          
                          8,418,926
                          
                          
                          
                          8,864,873Total
      liabilities and stockholders’ equity
                          
                          $
                          20,789,912
                          
                          
                          $
                          19,106,665





See
Notes to Consolidated Financial Statements.


4





FREEDOM
FINANCIAL GROUP, INC.


Consolidated
Statements of Operations


Unaudited




Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
                    30, 2009
                  
                  
                  September
                    30, 2008
                  
                  
                  September
                    30, 2009
                  
                  
                  September
                    30, 2008RevenuesInterest
      income
                  
                  $
                  1,074,703
                  
                  
                  $
                  789,875
                  
                  
                  $
                  3,102,260
                  
                  
                  $
                  2,062,787Other
      income
                  
                  
                  45,095
                  
                  
                  
                  43,425
                  
                  
                  
                  125,180
                  
                  
                  
                  126,920Total
      revenues
                  
                  
                  1,119,798
                  
                  
                  
                  833,300
                  
                  
                  
                  3,227,440
                  
                  
                  
                  2,189,707Interest
      Expense
                  
                  
                  331,068
                  
                  
                  
                  213,585
                  
                  
                  
                  927,876
                  
                  
                  
                  490,624Revenues
      after Interest Expense
                  
                  
                  788,730
                  
                  
                  
                  619,715
                  
                  
                  
                  2,299,564
                  
                  
                  
                  1,699,083Provision
      for Credit Losses
                  
                  
                  323,214
                  
                  
                  
                  196,704
                  
                  
                  
                  1,002,819
                  
                  
                  
                  337,118Net
      Revenues After Provision for Credit Losses
                  
                  
                  465,516
                  
                  
                  
                  423,011
                  
                  
                  
                  1,296,745
                  
                  
                  
                  1,361,965Operating
      Expenses
                  
                  
                  614,004
                  
                  
                  
                  644,060
                  
                  
                  
                  1,829,301
                  
                  
                  
                  2,068,528Operating
      Loss
                  
                  
                  (148,488
                  )
                  
                  
                  (221,049
                  )
                  
                  
                  (532,556
                  )
                  
                  
                  (706,563
                  )Gain
      on Liquidation of Subsidiary
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,380,250Net
      Income (Loss) Before Income Taxes
                  
                  
                  (148,488
                  )
                  
                  
                  (221,049
                  )
                  
                  
                  (532,556
                  )
                  
                  
                  673,687Provision
      for Income Taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      Income (Loss)
                  
                  $
                  (148,488
                  )
                  
                  $
                  (221,049
                  )
                  
                  $
                  (532,556
                  )
                  
                  $
                  673,687Basic
      and Diluted Income (Loss) Per Share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  0.03





See
Notes to Consolidated Financial Statements.


5





FREEDOM
FINANCIAL GROUP, INC.


Consolidated
Statements of Stockholders’ Equity


Unaudited




Common
                          Stock Shares
                        
                        
                        Common
                          Stock
                          Amount
                        
                        
                        Additional
                          Paid-in
                          Capital
                        
                        
                        Retained
                          Earnings
                        
                        
                        Accumulated
                          Other
                          Comprehensive
                          Income
                        
                        
                        Treasury
                          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 translation adjustment
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (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
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (532,556
                        )
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (532,556
                        )Foreign
      currency translation adjustment
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        86,609
                        
                        
                        
                        —
                        
                        
                        
                        86,609Comprehensive
      loss
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (445,947
                        )Balance,
      September 30, 2009
                        
                        
                        20,462,543
                        
                        
                        $
                        2,047
                        
                        
                        $
                        13,882,347
                        
                        
                        $
                        (5,271,033
                        )
                        
                        $
                        (194,042
                        )
                        
                        $
                        (393
                        )
                        
                        $
                        8,418,926





See
Notes to Consolidated Financial Statements.


6




FREEDOM
FINANCIAL GROUP, INC.


Consolidated
Statements of Cash Flows


Unaudited




For
      the Nine MonthsEnded
                      September
      30,2009
                    
                    
                    2008Operating
      ActivitiesNet
      income (loss)
                    
                    $
                    (532,556
                    )
                    
                    $
                    673,687Adjustments
      to reconcile net income (loss) to net cash used in operating
      activitiesDepreciation
                    
                    
                    26,741
                    
                    
                    
                    34,345Provision
      for credit losses
                    
                    
                    1,002,819
                    
                    
                    
                    337,118Accretion
      of deferred contract purchase discounts
                    
                    
                    (320,304
                    )
                    
                    
                    (244,889
                    )Recovery
      of charged-off finance receivables
                    
                    
                    724,235
                    
                    
                    
                    696,966Liquidation
      of subsidiary
                    
                    
                    -
                    
                    
                    
                    (1,457,047
                    )Stock
      grant expense
                    
                    
                    -
                    
                    
                    
                    48,600Deferral
      of origination costs
                    
                    
                    (163,462
                    )
                    
                    
                    (146,655
                    )Amortization
      of deferred financing fees
                    
                    
                    216,756
                    
                    
                    
                    194,300Amortization
      of deferred origination costs
                    
                    
                    132,136
                    
                    
                    
                    45,260Changes
      inOther
      assets
                    
                    
                    (118,772
                    )
                    
                    
                    157,628Accounts
      payable and accrued expenses
                    
                    
                    56,326
                    
                    
                    
                    9,359Net
      cash provided by operating activities
                    
                    
                    1,023,919
                    
                    
                    
                    348,672Investing
      ActivitiesPurchase
      of finance receivables
                    
                    
                    (7,722,480
                    )
                    
                    
                    (9,515,932
                    )Principal
      collected on finance receivables
                    
                    
                    4,456,536
                    
                    
                    
                    4,267,962Purchase
      of property and equipment
                    
                    
                    (9,922
                    )
                    
                    
                    (66,136
                    )Sale
      of Relocation Asset
                    
                    
                    360,728
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (2,915,138
                    )
                    
                    
                    (5,314,106
                    )Financing
      ActivitiesDeferred
      financing costs
                    
                    
                    (120,817
                    )
                    
                    
                    (472,347
                    )Line
      of credit advances, net
                    
                    
                    2,050,000
                    
                    
                    
                    5,422,760Net
      cash provided by financing activities
                    
                    
                    1,929,183
                    
                    
                    
                    4,950,413Effect
      of Exchange Rate Changes on Cash and Cash Equivalents
                    
                    
                    8,734
                    
                    
                    
                    (142,942
                    )Net
      Increase (Decrease) in Cash and Cash Equivalents
                    
                    
                    46,698
                    
                    
                    
                    (157,963
                    )Cash
      and Cash Equivalents, Beginning of Period
                    
                    
                    2,145,436
                    
                    
                    
                    1,857,694Cash
      and Cash Equivalents, End of Period
                    
                    $
                    2,192,134
                    
                    
                    $
                    1,699,731





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 September 30, 2009 and December 31,
2008, respectively:




2009
                        
                        
                        2008Automobiles
                        
                        $
                        19,336,362
                        
                        
                        $
                        16,841,865Other
                        
                        
                        231,731
                        
                        
                        
                        466,626Total
      finance receivables
                        
                        
                        19,568,093
                        
                        
                        
                        17,308,491LessUnearned
      discount
                        
                        
                        909,823
                        
                        
                        
                        730,331Allowance
      for credit losses
                        
                        
                        763,541
                        
                        
                        
                        639,7991,673,364
                        
                        
                        
                        1,370,130Net
      finance receivables
                        
                        $
                        17,894,729
                        
                        
                        $
                        15,938,361




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




Amounts
contractually receivable (including principal and interest) under our finance
receivables at September 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
                  
                  
                  2,365,9842010
                  
                  
                  8,855,5632011
                  
                  
                  7,596,6532012
                  
                  
                  5,652,5772013
                  
                  
                  2,190,8642014
                  
                  
                  45,510Total
                  
                  $
                  26,707,151




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




Three Months Ended
                    September 30,
                  
                  
                  Nine Months Ended
                    September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Balance,
      beginning of period
                  
                  $
                  762,371
                  
                  
                  $
                  675,940
                  
                  
                  $
                  639,799
                  
                  
                  $
                  811,376Provision
      charged to expense
                  
                  
                  323,214
                  
                  
                  
                  196,704
                  
                  
                  
                  1,002,819
                  
                  
                  
                  337,118Losses
      charged off
                  
                  
                  (546,626
                  )
                  
                  
                  (384,599
                  )
                  
                  
                  (1,613,075
                  )
                  
                  
                  (1,185,637
                  )Recoveries
      of previously charged-off amounts
                  
                  
                  217,812
                  
                  
                  
                  166,095
                  
                  
                  
                  724,234
                  
                  
                  
                  696,966Effect
      of foreign currency translation
                  
                  
                  6,770
                  
                  
                  
                  (4,281
                  )
                  
                  
                  9,764
                  
                  
                  
                  (9,964
                  )Balance,
      end of period
                  
                  $
                  763,541
                  
                  
                  $
                  649,859
                  
                  
                  $
                  763,541
                  
                  
                  $
                  649,859




The
Company’s nonearning finance receivables totaled $185,367 at September 30,
2009.  The Company provided an allowance for credit losses related to
these receivables of $166,830.




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 September 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.




The
Company received notice in June, 2009, from the 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.




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 September 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 $328,400 as of September 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 September 30, 2009 are as follows:




2009
                    
                    
                    12,6862010
                    
                    
                    50,7402011
                    
                    
                    50,7402012
                    
                    
                    50,7402013
                    
                    
                    29,599Total
                    
                    $
                    194,505




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 loan transaction with a
lender or other party that the investment banking firm introduces to the
Company. If the transaction were to be consummated as a sale of all or a portion
of the Company’s receivables, the fee would be 2.5% multiplied by the amount of
consideration received by the Company for the sale. As of September 30, 2009,
the Company had paid fees amounting to $65,000 to the investment banking
firm.




As of
September 30, 2009, the Company had entered into an agreement to sell
substantially all of its consumer loan portfolio to an unrelated third
party.  The purchase agreement for the transaction provides for a
$150,000 breakage fee if the Company elected to terminate or failed to
consummate the sale.  On October 19, 2009, the Company entered into a
new purchase agreement with a different unrelated third party at a substantially
higher sale price and terminated the first purchase agreement and on October 20,
2009, paid the $150,000 breakage fee.  The second purchase agreement
provides for a $300,000 breakup fee if the Company elects to terminate the
agreement.




The
Company had no other commitments as of September 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 nine months ended
September 30, 2009 and September 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 nine months ended September 30, 2009 and 2008, was
computed as follows:


11




Three
      Months Ended
                  
                  
                  Six
      Months EndedSeptember 30,
                  
                  
                  September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      income (loss)
                  
                  $
                  (148,487
                  )
                  
                  $
                  (221,049
                  )
                  
                  $
                  (532,556
                  )
                  
                  $
                  673,687Weighted
      average shares
                  
                  
                  20,462,543
                  
                  
                  
                  20,462,543
                  
                  
                  
                  20,462,543
                  
                  
                  
                  20,241,813Basic
      and diluted income (loss) per share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  0.03




Note
      8:
            Operating
      Expenses




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




Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember 30,
                  
                  
                  September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Salaries
      and benefits
                  
                  $
                  433,051
                  
                  
                  $
                  394,005
                  
                  
                  $
                  1,159,899
                  
                  
                  $
                  1,242,949Professional
      fees
                  
                  
                  36,967
                  
                  
                  
                  45,730
                  
                  
                  
                  175,907
                  
                  
                  
                  207,689Information
      services
                  
                  
                  42,568
                  
                  
                  
                  109,065
                  
                  
                  
                  168,743
                  
                  
                  
                  178,767Insurance
                  
                  
                  40,071
                  
                  
                  
                  42,073
                  
                  
                  
                  123,146
                  
                  
                  
                  129,102Supplies
      and postage
                  
                  
                  19,401
                  
                  
                  
                  27,846
                  
                  
                  
                  75,672
                  
                  
                  
                  78,748Stockholder
      relations
                  
                  
                  7,735
                  
                  
                  
                  5,305
                  
                  
                  
                  31,672
                  
                  
                  
                  69,037Other
                  
                  
                  76,522
                  
                  
                  
                  103,200
                  
                  
                  
                  257,724
                  
                  
                  
                  309,617Deferral
      of origination costs
                  
                  
                  (42,311
                  )
                  
                  
                  (83,164
                  )
                  
                  
                  (163,462
                  )
                  
                  
                  (147,380
                  )$
                  614,004
                  
                  
                  $
                  644,060
                  
                  
                  $
                  1,829,301
                  
                  
                  $
                  2,068,529




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.


12




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 nine months ended September 30, 2009 and 2008,
respectively, were as shown below.




Three
      Months Ended
                    
                    
                    Nine
      Months EndedSeptember
      30,
                    
                    
                    September
      30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Total
      revenues
                    
                    $
                    37,417
                    
                    
                    $
                    118,400
                    
                    
                    $
                    139,425
                    
                    
                    $
                    447,188Income
      before income taxes
                    
                    $
                    34,907
                    
                    
                    $
                    81,140
                    
                    
                    $
                    92,257
                    
                    
                    $
                    84,440Net
      income
                    
                    $
                    34,907
                    
                    
                    $
                    81,140
                    
                    
                    $
                    92,257
                    
                    
                    $
                    84,440Per
      share amount
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -




Note
      11:
            Additional
      Cash Flow Information




The
Company made cash interest payments totaling $247,432 and $699,331 during the
three and nine month periods ended September 30, 2009 and made cash interest
payments totaling $143,895 and $278,024 during the three and nine month periods
ended September 30, 2008.




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




Note
      12:
            Recently
      Issued Accounting Pronouncements




In
September 2006, the Financial Accounting Standards Board (the “FASB”) issued a
new pronouncement regarding fair value measurements.  The
pronouncement 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 the pronouncement, fair value
measurements would be separately disclosed by level within the fair value
hierarchy.  This pronouncement 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.


13




We
adopted the provisions of the FASB’s interpretation regarding accounting for
uncertainty in income taxes on January 1, 2007. The interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company’s financial
statements, 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.  The interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.





In
February 2007, the FASB issued a pronouncement regarding entities choices in to
measuring 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.  The
statement 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 this statement, therefore there was no material effect of the
adoption of this standard on our financial statements.




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.




In April
2009, the FASB issued new accounting guidance on fair value measurements. The
new guidance impacts certain aspects of fair value measurement and related
disclosures. The new guidance was effective beginning in the second quarter of
2009. The impact of adopting this new guidance did not have a material effect on
the Company’s consolidated results of operations or financial position.




In May
2009, the FASB issued new accounting guidance on subsequent events. The
objective of this guidance is to establish 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. This new
accounting guidance was effective for interim and annual periods ending after
June 15, 2009. The impact of adopting this new guidance had no effect on
the accompanying condensed consolidated financial statements.




In June
2009, the FASB issued new accounting guidance entitled, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles – a replacement of FASB Statement No. 162” (“ASC”), which
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP. This new
guidance is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The adoption of this guidance has
changed how we reference various elements of GAAP when preparing our financial
statement disclosures, but did not have an impact on the Company’s financial
position, results of operations or cash flows.




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.


Note 13:
            Subsequent
      Events




We have
diligently sought a credit facility refinancing or other capital infusion, which
would allow us to pay off the ReMark Loan when it matures January 31, 2010, but
the only solution that is currently available in the prevailing market
conditions is a sale of our loan portfolio.


14




On
September 29, 2009, we entered into an Auto Receivables Purchase Agreement
(the “FIFS Purchase Agreement”) with First Investors Financial Services, Inc.
(“FIFS”), an unrelated financial services company.




Pursuant
to the Purchase Agreement, we agreed to sell all or substantially all of our
portfolio of subprime used automobile installment sales contracts and other
consumer receivables to FIFS for a cash purchase price calculated as the sum of
a percentage of the outstanding principal balance of Receivables falling in
different classes based upon their aging on the closing date.




The
Purchase Agreement provided for a $150,000 breakup fee to FIFS if we terminated
the agreement or failed to consummate the Asset Sale.




On
October 19, 2009, we entered into an Auto Receivables Purchase Agreement (the
“ACA Purchase Agreement”) with American Credit Acceptance, LLC, an unrelated
South Carolina limited liability company (“ACA”).  As a result of
entering into the ACA Purchase Agreement, we terminated the Auto Receivables
Purchase Agreement FIFS, Inc.




Pursuant
to the ACA Purchase Agreement, we have agreed to sell our portfolio of subprime
used automobile installment sales contracts to ACA for a cash purchase price
calculated as the sum of a percentage of the outstanding principal balance of
Receivables falling in different classes based upon their aging and
collectability on the closing date (the “ACA Asset Sale”). The aggregate
purchase price payable by ACA for the Receivables is substantially higher than
the price FIFS had agreed to pay under the FIFS Purchase Agreement, even after
considering the breakup fee required by the FIFS Purchase
Agreement.




We
intend to use the proceeds from the ACA Asset Sale primarily to pay off our $15
million secured revolving warehouse line of credit (the “Remark Loan”) with
ReMark Lending Co. (“Lender”), which had a principal balance of approximately
$12 million as of September 30, 2009.




The
projected closing date for the ACA Asset Sale is on or before December 15,
2009.  Consummation of the ACA Asset Sale is subject to fulfillment of
a number of conditions, including approval by our stockholders.  There
can be no assurance the ACA Asset Sale will close.




The ACA
Purchase Agreement provides for a breakup fee of $300,000 to ACA if we elect to
terminate or fail to consummate the ACA Asset Sale, unless we terminate the ACA
Purchase Agreement because we are able to obtain financing that will allow us to
refinance the ReMark Loan.




On
October 20, 2009, we provided written notice to FIFS that we have terminated the
FIFS Purchase Agreement.  We paid a $150,000 breakup fee to FIFS on
termination, as required by the FIFS Purchase Agreement.




On
October 9, 2009, we entered into Amendment No. 2 to our Revolving Loan and
Security Agreement with our Lender.  Since the Purchase Agreement with
FIFS provided for the sale of our receivables at less than the price at which we
can purchase new receivables from our independent dealer network, we announced
on September 23, 2009 that we were suspending the purchase of new auto loan
receivables from our network of independent used automobile
dealerships.




The
Lender has characterized the Asset Sale and our suspension of receivables
purchases as a material adverse change in our business that constitutes an Event
of Default and a Funding Termination Event under the Loan Agreement and that, as
a consequence, the Lender asserts it is entitled to cease making further
advances to us, declare the entire balance of the Remark Loan immediately due
and payable, and enforce the Lender’s security interest in all of our
assets.  We are not in default in the payment of any amount due under
the Loan Agreement.  The Asset Sale and our suspension of purchasing
new auto loan receivables were intended to enable us to pay off the ReMark Loan
by the maturity date.  We were disappointed that the Lender elected to
treat these events as an Event of Default and a Funding Termination Event under
the Loan Agreement.  Nevertheless, we have agreed to the Amendment in
order to avoid an acceleration of the ReMark Loan and the Lender’s sale of all
of our assets that secure the ReMark Loan at this time.  Pursuant to
the Amendment:


15




·
            We
      agree that an uncured Event of Default exists and is continuing under the
      Loan Agreement




·
            The
      Lender has agreed to forbear from exercising certain default remedies
      under the Loan Agreement until November 9,
2009




·
            The
      Lender has the right to appoint a Supervisory Servicer to monitor or take
      over our receivables servicing function at our
  expense




·
            All
      funds coming into the lockbox account, after payment of interest and the
      fees provided under the Loan Agreement (including those of a Supervisory
      Servicer if one is appointed), will be applied by the Lender to reduce the
      principal balance of the ReMark Loan and will not be remitted to us as was
      the practice under the Loan Agreement before the
      Amendment.  This should result in a more rapid paydown of the
      ReMark Loan




·
            The
      Lender will not provide further advances under the ReMark Loan in excess
      of the $12,042,000 current balance.  We had not planned to
      request additional advances under the ReMark
  Loan




·
            The
      Lender will accrue Default Rate Interest equal to the existing rate plus
      4.5% commencing September 23, 2009.  The existing Note Rate
      of interest will be payable prior to the expiration of the forbearance
      period, and the difference between the Note Rate and the Default Rate
      Interest will be payable after expiration of the forbearance
      period




·
            The
      forbearance period will automatically expire on the earlier of (i)
      November 9, 2009, (ii) any termination of the Asset Sale, (iii) any other
      Event of Default under the Loan Agreement, or (iv) any default in
      performance of the Amendment




On
November 4, 2009, we entered into an Amendment No. 3 to our Revolving Loan
and Security Agreement and Forbearance ("Amendment 3"). The Lender had
determined that our pending Asset Sale and our decision on September 23, 2009 to
suspend the purchase of new receivables represented a change in our business
that constitutes an Event of Default under the Loan and Security Agreement.
Pursuant to Amendment 3 and an accompanying letter agreement, the Lender has
agreed (a) to consent to the Asset Sale to ACA, and (b) to forbear from
exercising its default rights under the Loan Agreement until the earliest of (i)
December 15, 2009, (ii) the date on which the ACA Purchase Agreement is
terminated, and (iii) a breach of any of the conditions expressed in Amendment
3. Assuming the Asset Sale is approved by our stockholders at the special
meeting to be held November 30, 2009, we intend to consummate the Asset Sale and
pay off the ReMark Loan by December 15, 2009. Amendment 3 thus gives us the
ability to close the Asset Sale and pay off the ReMark Loan before the
forbearance period expires, thus avoiding an acceleration of the ReMark Loan and
the foreclosure of our assets.




On
October 6, 2009, our Board of Directors approved a Plan of Dissolution and
Complete Liquidation of the Company (“Plan of Dissolution”).




Pursuant
to the Plan of Dissolution we plan to sell and reduce to cash all or
substantially all of our non-cash assets (including the receivables being sold
in the Asset Sale) and (i) pay or provide for all claims and obligations known
to us (including the ReMark Loan), (ii) provide for any claim which is the
subject of a pending action, suit or proceeding to which we are a party, (iii)
provide for claims that have not been known to us but are likely to arise within
5 years after the Effective Date of our dissolution, (iv) create a contingency
reserve to satisfy claims, obligations and expenses incurred in connection with
the liquidation, and (vi) distribute any remaining funds to our
stockholders.


16




Our
management, Board and financial adviser have tried without success to obtain
alternative financing to refinance the ReMark Loan to support our continued
operations.  To date, however, no such financing has been
obtained.  Following the payoff of the ReMark Loan, without a
substitute credit facility, the Board and management do not believe we will have
sufficient capital and assets to operate profitably.


17




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.


18





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 September
30, 2009, the Company’s loan portfolio consisted of over 98% sub-prime
automobile loans.




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.


19





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.




20




Selected Portfolio
Statistics





The
following table presents selected unaudited portfolio statistics for the three
and nine months ended September 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
                                          September
      30,
                                        
                                        
                                        Nine
      Months Ended
                                          September
      30,2009
                                        
                                        
                                        
                                        2008*
                                        
                                        
                                        2009
                                        
                                        
                                        
                                        2008*Installment
      contracts acquired (total principal amount)
                                        
                                        $
                                        1,979,701
                                        
                                        
                                        $
                                        4,938,542
                                        
                                        
                                        $
                                        8,284,656
                                        
                                        
                                        $
                                        9,568,555Purchase
      price of Installment contracts Acquired
                                        
                                        $
                                        1,834,514
                                        
                                        
                                        $
                                        4,675,904
                                        
                                        
                                        $
                                        7,722,658
                                        
                                        
                                        $
                                        9,066,504Percentage
      of dollar amount paid to principal balance acquired
                                        
                                        
                                        92.67
                                        %
                                        
                                        
                                        94.68
                                        %
                                        
                                        
                                        93.22
                                        %
                                        
                                        
                                        94.75
                                        %Number
      of installment contracts acquired during the quarter
                                        
                                        
                                        193
                                        
                                        
                                        
                                        450
                                        
                                        
                                        
                                        766
                                        
                                        
                                        
                                        870Average
      principal balance acquired
                                        
                                        $
                                        10,258
                                        
                                        
                                        $
                                        10,975
                                        
                                        
                                        $
                                        10,815
                                        
                                        
                                        $
                                        10,998Acquisition
      cost per acquired installment contract (US only)
                                        
                                        $
                                        914
                                        
                                        
                                        $
                                        679
                                        
                                        
                                        $
                                        839
                                        
                                        
                                        $
                                        677Monthly
      servicing cost per installment contract (US only)
                                        
                                        $
                                        9.12
                                        
                                        
                                        $
                                        15.74
                                        
                                        
                                        $
                                        11.31
                                        
                                        
                                        $
                                        21.94


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





Results of
Operations





Interest
Income





Our
interest income totaled $1,074,703 and $3,102,260 for the three months and nine
months ended September 30, 2009, respectively, compared to $789,875 and
$2,062,787 for the three months and nine months ended September 30, 2008. The
increase in interest income for the three and nine months ended September 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.


21





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





For
      the Three Months Ended September 30, 2009 and 20082009
                                              
                                              
                                              2008Average
                                              
                                              
                                              Interest
                                              
                                              
                                              
                                              
                                              
                                              Average
                                              
                                              
                                              InterestBalance
                                              
                                              
                                              Income
                                              
                                              
                                              Yield
                                              
                                              
                                              Balance
                                              
                                              
                                              Income
                                              
                                              
                                              YieldInstallment
      Contracts
                                              
                                              $
                                              18,745,592
                                              
                                              
                                              $
                                              1,074,353
                                              
                                              
                                              
                                              22.92
                                              %
                                              
                                              $
                                              13,138,352
                                              
                                              
                                              $
                                              781,443
                                              
                                              
                                              
                                              23.79
                                              %Cash
      and cash equivalents
                                              
                                              
                                              2,167,234
                                              
                                              
                                              
                                              350
                                              
                                              
                                              
                                              0.06
                                              %
                                              
                                              
                                              1,764,458
                                              
                                              
                                              
                                              8,432
                                              
                                              
                                              
                                              1.91
                                              %Total
                                              
                                              $
                                              20,912,826
                                              
                                              
                                              $
                                              1,074,703
                                              
                                              
                                              
                                              20.56
                                              %
                                              
                                              $
                                              14,902,810
                                              
                                              
                                              $
                                              789,875
                                              
                                              
                                              
                                              21.20
                                              %





For
      the Nine Months Ended September 30, 2009 and 20082009
                                              
                                              
                                              2008Average
                                              
                                              
                                              Interest
                                              
                                              
                                              
                                              
                                              
                                              Average
                                              
                                              
                                              InterestBalance
                                              
                                              
                                              Income
                                              
                                              
                                              Yield
                                              
                                              
                                              Balance
                                              
                                              
                                              Income
                                              
                                              
                                              YieldInstallment
      Contracts
                                              
                                              $
                                              18,100,726
                                              
                                              
                                              $
                                              3,099,476
                                              
                                              
                                              
                                              22.83
                                              %
                                              
                                              $
                                              11,576,767
                                              
                                              
                                              $
                                              2,032,713
                                              
                                              
                                              
                                              23.41
                                              %Cash
      and cash equivalents
                                              
                                              
                                              2,060,729
                                              
                                              
                                              
                                              2,784
                                              
                                              
                                              
                                              0.18
                                              %
                                              
                                              
                                              2,026,838
                                              
                                              
                                              
                                              30,074
                                              
                                              
                                              
                                              1.98
                                              %Total
                                              
                                              $
                                              20,161,455
                                              
                                              
                                              $
                                              3,102,260
                                              
                                              
                                              
                                              20.52
                                              %
                                              
                                              $
                                              13,603,605
                                              
                                              
                                              $
                                              2,062,787
                                              
                                              
                                              
                                              20.22
                                              %





The
decrease in yield on our installment contracts for the three and nine months
ended September 30, 2009, compared to the three and nine months ended September
30, 2008, is primarily the result of an increase in the amortization of deferred
origination costs during 2009, and changes in the mix of our
portfolio.  Amortization of deferred origination costs amounted to
$48,674 and $132,136 for the three and nine months ended September 30, 2009,
respectively, and $29,371 and $45,330 for the three and nine months ended
September 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.





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.


22





For
      the Three Months Ended September 30, 2009
                                  compared
      to the Three Months Ended September 30, 2008Volume
                                
                                
                                Rate
                                
                                
                                TotalIncrease
      (decrease) in interest income:Installment
      Contracts
                                
                                $
                                320,231
                                
                                
                                $
                                (27,321
                                )
                                
                                $
                                292,910Cash
      and cash equivalents
                                
                                
                                2,500
                                
                                
                                
                                (10,582
                                )
                                
                                
                                (8,082
                                )Total
      Interest Income
                                
                                $
                                322,731
                                
                                
                                $
                                (37,903
                                )
                                
                                $
                                284,828





For
      the Nine Months Ended September 30, 2009 compared
                                  to
      the Nine Months Ended September 30, 2008Volume
                                
                                
                                Rate
                                
                                
                                TotalIncrease
      (decrease) in interest income:Installment
      Contracts
                                
                                $
                                1,086,160
                                
                                
                                $
                                (19,397
                                )
                                
                                $
                                1,066,763Cash
      and cash equivalents
                                
                                
                                165
                                
                                
                                
                                (27,455
                                )
                                
                                
                                (27,290
                                )Total
      Interest Income
                                
                                $
                                1,086,325
                                
                                
                                $
                                (46,852
                                )
                                
                                $
                                1,039,473





Interest
Expense





We
incurred interest expense of $331,068, including $72,252 amortization of
deferred financing fees, and $213,585, including $72,252 amortization of
deferred financing fees, during the three months ended September 30, 2009 and
2008, respectively.  We incurred interest expense of $927,876,
including $216,755 amortization of deferred financing fees, and $490,624,
including $194,300 amortization of deferred financing fees, during the nine
months ended September 30, 2009 and 2008, respectively.  Our interest
expense increased primarily because of the increase in the outstanding balance
of our line of credit from September 30, 2008 to September 30,
2009.





Provision
for Credit Losses





Our
provision for credit losses totaled $323,214 and $1,002,819 for the three months
and nine months ended September 30, 2009, respectively, compared to $196,704 and
$337,118 for the three months and nine months ended September 30, 2008,
respectively.  The increase in the provision for the three months and
nine months ended September 30, 2009 compared to the three months and nine
months ended September 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 $328,814 and $888,841 for the
three months and nine months ended September 30, 2009, from $218,504 and
$488,671 for the three months and nine months ended September 30, 2008,
respectively. As a percent of net contracts net charge-offs were 7.02% and 6.39%
for the three months and nine months ended September 30, 2009, respectively,
compared to 6.65% and 5.63% for the three months and nine months ended September
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.


23





Operating
Expenses





Our
operating expenses totaled $614,004 and $1,829,301 for the three months and nine
months ended September 30, 2009, respectively, compared to $644,060 and
$2,068,528 for the three months and nine months ended September 30, 2008,
respectively.  A summary of these expenses follows:





Three
      Months Ended September 30,
                          
                          
                          Nine
      Months Ended September 30,2009
                          
                          
                          2008
                          
                          
                          Percent
                            Change
                          
                          
                          2009
                          
                          
                          2008
                          
                          
                          Percent
                            ChangeSalaries
      and benefits
                          
                          $
                          433,051
                          
                          
                          $
                          394,005
                          
                          
                          
                          9.91
                          %
                          
                          $
                          1,159,899
                          
                          
                          $
                          1,242,949
                          
                          
                          
                          -6.68
                          %Professional
      fees
                          
                          
                          36,967
                          
                          
                          
                          45,730
                          
                          
                          
                          -19.16
                          %
                          
                          
                          175,907
                          
                          
                          
                          207,689
                          
                          
                          
                          -15.30
                          %Information
      services
                          
                          
                          42,568
                          
                          
                          
                          109,065
                          
                          
                          
                          -60.97
                          %
                          
                          
                          168,743
                          
                          
                          
                          178,767
                          
                          
                          
                          -5.61
                          %Insurance
                          
                          
                          40,071
                          
                          
                          
                          42,073
                          
                          
                          
                          -4.76
                          %
                          
                          
                          123,146
                          
                          
                          
                          129,102
                          
                          
                          
                          -4.61
                          %Supplies
      and postage
                          
                          
                          19,401
                          
                          
                          
                          27,846
                          
                          
                          
                          -30.33
                          %
                          
                          
                          75,672
                          
                          
                          
                          78,748
                          
                          
                          
                          -3.91
                          %Stockholder
      relations
                          
                          
                          7,735
                          
                          
                          
                          5,305
                          
                          
                          
                          45.81
                          %
                          
                          
                          31,672
                          
                          
                          
                          69,037
                          
                          
                          
                          -54.12
                          %Other
                          
                          
                          76,522
                          
                          
                          
                          103,200
                          
                          
                          
                          -25.85
                          %
                          
                          
                          257,724
                          
                          
                          
                          309,617
                          
                          
                          
                          -16.76
                          %Deferral
      of origination costs
                          
                          
                          (42,311
                          )
                          
                          
                          (83,164
                          )
                          
                          
                          -49.12
                          %
                          
                          
                          (163,462
                          )
                          
                          
                          (147,380
                          )
                          
                          
                          10.91
                          %Total
                          
                          $
                          614,004
                          
                          
                          $
                          644,060
                          
                          
                          
                          -4.67
                          %
                          
                          $
                          1,829,301
                          
                          
                          $
                          2,068,529
                          
                          
                          
                          -11.57
                          %





Salaries
and benefits increased for the three months ended September 30, 2009 as compared
to 2008 because of severance costs associated with the dismissal of our loan
marketing and underwriting staff in September, 2009, offset by a decrease in
employee costs resulting from fewer individuals being employed by the Company in
2009 as compared to the prior year. Salaries and benefits decreased for the nine
months ended September 30, 2009, as compared to 2008 because of fewer
individuals employed by the Company in 2009 as compared to 2008, 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.  Professional fees decreased during the three and nine months
ended September 30, 2009 compared to the three and nine months ended September
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 nine month period
ended September 30, 2009. Information services decreased for the three and nine
month periods ended September 30, 2009 as compared to 2008, as a result of lower
loan origination and underwriting system usage fees incurred because of the
decrease in origination volume experienced during these periods. Stockholder
relations decreased for the nine month period ended September 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 decreased during the three month period ended
September 30, 2009 as compared to 2008, because of the decrease in volume of
installment contracts purchased during the period. Deferred Origination Costs
decreased as a result of a decrease in the number of loans acquired during the
three month period ended September 30, 2009, as compared to the three month
period ended September 30, 2008. Deferred Origination Costs increased however,
during the nine month period ended September 30, 2009, as compared to the nine
month period ended September 30, 2008 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.


24





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 nine month
periods ended September 30, 2009 was approximately $914 and $839, respectively,
per contract as compared to $679 and $677 for the three month and nine month
periods ended September 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 lower loan acquisition volume
experienced in 2009 compared to 2008. These increases have been offset by an
improvement in the Company’s book to look ratio during the three and nine month
period ended September 30, 2009. For the three month and nine month periods
ended September 30, 2009, the Company’s book to look ratio was 5.24% and 4.87%,
respectively, compared to 4.43% and 4.19% for the three month and nine month
periods ended September 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 nine month periods ended
September 30, 2009 was $9.12 and $11.31, respectively, per serviced contract, as
compared to $15.74 and $21.94 during the three month and nine month periods
ended September 30, 2008, respectively.  The decrease for the quarter
ended September 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.





Financial
Condition





Installment
Contracts Portfolio





The
Company acquired Installment Contracts with outstanding principal balances
totaling $1,979,701 and $8,284,656, respectively, during the three months and
nine months ended September 30, 2009.  We invested cash of approximately
$1,834,514 and $7,722,658, 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 $17,894,729, net of an allowance for credit losses of $763,541, at
September 30, 2009.


25





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 September 30, 2009 and December 31,
2008 follows:





September
      30, 2009
                                          
                                          
                                          December
      31, 2008United
      States
                                          
                                          
                                          Canada
                                          
                                          
                                          Total
                                          
                                          
                                          United
      States
                                          
                                          
                                          Canada
                                          
                                          
                                          TotalAutomobiles
                                          
                                          $
                                          19,061,077
                                          
                                          
                                          $
                                          275,285
                                          
                                          
                                          $
                                          19,336,362
                                          
                                          
                                          $
                                          16,327,262
                                          
                                          
                                          $
                                          514,603
                                          
                                          
                                          $
                                          16,841,865Other
                                          
                                          
                                          -
                                          
                                          
                                          
                                          231,731
                                          
                                          
                                          
                                          231,731
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          466,626
                                          
                                          
                                          
                                          466,626Total
                                          
                                          
                                          19,061,077
                                          
                                          
                                          
                                          507,016
                                          
                                          
                                          
                                          19,568,093
                                          
                                          
                                          
                                          16,327,262
                                          
                                          
                                          
                                          981,229
                                          
                                          
                                          
                                          17,308,491LessUnearned
      discount
                                          
                                          
                                          905,174
                                          
                                          
                                          
                                          4,649
                                          
                                          
                                          
                                          909,823
                                          
                                          
                                          
                                          718,717
                                          
                                          
                                          
                                          11,614
                                          
                                          
                                          
                                          730,331Allowance
      forcredit
      losses
                                          
                                          
                                          686,826
                                          
                                          
                                          
                                          76,715
                                          
                                          
                                          
                                          763,541
                                          
                                          
                                          
                                          569,794
                                          
                                          
                                          
                                          70,005
                                          
                                          
                                          
                                          639,799Net
                                          
                                          $
                                          17,469,077
                                          
                                          
                                          $
                                          425,652
                                          
                                          
                                          $
                                          17,894,729
                                          
                                          
                                          $
                                          15,038,751
                                          
                                          
                                          $
                                          899,610
                                          
                                          
                                          $
                                          15,938,361





Asset
Quality





Substantially
all of the installment contracts we have acquired 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 September 30,
2009 and December 31, 2008, respectively:


26





September
      30, 2009United
      States
                              
                              
                              Canada
                              
                              
                              TotalAmount
                              
                              
                              Pct.
                              
                              
                              Amount
                              
                              
                              Pct.
                              
                              
                              Amount
                              
                              
                              Pct.Installment
      Contracts
                              
                              
                              19,061,077
                              
                              
                              
                              100
                              %
                              
                              
                              507,016
                              
                              
                              
                              100
                              %
                              
                              
                              19,568,093
                              
                              
                              
                              100
                              %Period
      of delinquency:31
      - 60 days
                              
                              
                              386,723
                              
                              
                              
                              2.03
                              %
                              
                              
                              44,068
                              
                              
                              
                              8.69
                              %
                              
                              
                              430,791
                              
                              
                              
                              2.20
                              %61
      - 90 days
                              
                              
                              239,490
                              
                              
                              
                              1.26
                              %
                              
                              
                              11,046
                              
                              
                              
                              2.18
                              %
                              
                              
                              250,536
                              
                              
                              
                              1.28
                              %91
      – 120 days
                              
                              
                              116,511
                              
                              
                              
                              0.61
                              %
                              
                              
                              678
                              
                              
                              
                              0.13
                              %
                              
                              
                              117,189
                              
                              
                              
                              0.60
                              %121+
      days
                              
                              
                              68,179
                              
                              
                              
                              0.36
                              %
                              
                              
                              -
                              
                              
                              
                              0.00
                              %
                              
                              
                              68,179
                              
                              
                              
                              0.35
                              %Total
                              
                              
                              810,903
                              
                              
                              
                              4.24
                              %
                              
                              
                              55,792
                              
                              
                              
                              11.01
                              %
                              
                              
                              866,695
                              
                              
                              
                              4.43
                              %





December
      31, 2008United
      States
                            
                            
                            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 September 30, 2009 to 4.43%
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.




27




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





Three
      Months Ended September 30,2009
                                            
                                            
                                            2008United
      States
                                            
                                            
                                            Canada
                                            
                                            
                                            Total
                                            
                                            
                                            United
      States
                                            
                                            
                                            Canada
                                            
                                            
                                            TotalInstallment
      Contracts, net of unearned discounts, end of period
                                            
                                            $
                                            18,155,903
                                            
                                            
                                            $
                                            502,367
                                            
                                            
                                            $
                                            18,658,270
                                            
                                            
                                            $
                                            13,281,120
                                            
                                            
                                            $
                                            1,404,854
                                            
                                            
                                            $
                                            14,685,974Installment
      Contracts, net of unearned discounts, average during the period
      (1)
                                            
                                            
                                            18,202,108
                                            
                                            
                                            
                                            543,484
                                            
                                            
                                            
                                            18,745,592
                                            
                                            
                                            
                                            11,510,460
                                            
                                            
                                            
                                            1,627,893
                                            
                                            
                                            
                                            13,138,353Gross
      charge-offs
                                            
                                            
                                            532,243
                                            
                                            
                                            
                                            14,383
                                            
                                            
                                            
                                            546,626
                                            
                                            
                                            
                                            330,190
                                            
                                            
                                            
                                            54,409
                                            
                                            
                                            
                                            384,599Recoveries
                                            
                                            
                                            213,804
                                            
                                            
                                            
                                            4,008
                                            
                                            
                                            
                                            217,812
                                            
                                            
                                            
                                            162,787
                                            
                                            
                                            
                                            3,308
                                            
                                            
                                            
                                            166,095Net
      charge-offs
                                            
                                            
                                            318,439
                                            
                                            
                                            
                                            10,375
                                            
                                            
                                            
                                            328,814
                                            
                                            
                                            
                                            167,403
                                            
                                            
                                            
                                            51,101
                                            
                                            
                                            
                                            218,504Net
      charge-offs as a % of avg. contracts during the period
      (annualized)
                                            
                                            
                                            7.00
                                            %
                                            
                                            
                                            7.64
                                            %
                                            
                                            
                                            7.02
                                            %
                                            
                                            
                                            5.82
                                            %
                                            
                                            
                                            12.56
                                            %
                                            
                                            
                                            6.65
                                            %(1)
      - Average is based on month-end balances





Nine
      Months Ended September 30,2009
                                          
                                          
                                          2008United
      States
                                          
                                          
                                          Canada
                                          
                                          
                                          Total
                                          
                                          
                                          United
      States
                                          
                                          
                                          Canada
                                          
                                          
                                          TotalInstallment
      Contracts, net of unearned discounts, end of period
                                          
                                          $
                                          18,155,903
                                          
                                          
                                          $
                                          502,367
                                          
                                          
                                          $
                                          18,658,270
                                          
                                          
                                          $
                                          13,281,120
                                          
                                          
                                          $
                                          1,404,854
                                          
                                          
                                          $
                                          14,685,974Installment
      Contracts, net of unearned discounts, average during the period
      (1)
                                          
                                          
                                          17,931,267
                                          
                                          
                                          
                                          615,022
                                          
                                          
                                          
                                          18,546,289
                                          
                                          
                                          
                                          9,569,122
                                          
                                          
                                          
                                          2,007,645
                                          
                                          
                                          
                                          11,576,767Gross
      charge-offs
                                          
                                          
                                          1,549,278
                                          
                                          
                                          
                                          63,797
                                          
                                          
                                          
                                          1,613,075
                                          
                                          
                                          
                                          1,053,030
                                          
                                          
                                          
                                          132,607
                                          
                                          
                                          
                                          1,185,637Recoveries
                                          
                                          
                                          701,817
                                          
                                          
                                          
                                          22,417
                                          
                                          
                                          
                                          724,234
                                          
                                          
                                          
                                          663,341
                                          
                                          
                                          
                                          33,625
                                          
                                          
                                          
                                          696,966Net
      charge-offs
                                          
                                          
                                          847,461
                                          
                                          
                                          
                                          41,380
                                          
                                          
                                          
                                          888,841
                                          
                                          
                                          
                                          389,689
                                          
                                          
                                          
                                          98,982
                                          
                                          
                                          
                                          488,671Net
      charge-offs as a % of avg. contracts during the period
      (annualized)
                                          
                                          
                                          6.30
                                          %
                                          
                                          
                                          8.97
                                          %
                                          
                                          
                                          6.39
                                          %
                                          
                                          
                                          5.43
                                          %
                                          
                                          
                                          6.57
                                          %
                                          
                                          
                                          5.63
                                          %(1)
      - Average is based on month-end balances


28





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 $763,541 at September 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 4.09% at September
30, 2009 and 3.86% at December 31, 2008. The allowance for credit losses was
13.82% and 18.42% of past due accounts and 88.10% and 107.92% of accounts
considered delinquent as of September 30, 2009 and 2008
respectively.





During
the nine months ended September 30, 2009, our net Installment Contracts
increased $2,080,110.  This increase was the result of a $2,310,393
increase in automobile-secured contracts offset by a $230,283 decrease in all
other Installment Contracts.  The $2,310,393 increase in
automobile-secured Installment Contracts was comprised of a $2,556,884 increase
in Installment Contracts acquired through our U.S. point-of-sale program offset
by a $236,964 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 nine months ended September 30, 2009, we experienced net charge-offs of
$888,841, which represented 6.39% 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 September 30, 2009 of $763,541 is 4.09% 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 September 30, 2009.





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




29




Three
      Months Ended September 30,2009
                              
                              
                              2008United
      States
                              
                              
                              Canada
                              
                              
                              Total
                              
                              
                              United
                                States
                              
                              
                              Canada
                              
                              
                              TotalBalance
      at beginning of period
                              
                              $
                              682,051
                              
                              
                              $
                              80,320
                              
                              
                              $
                              762,371
                              
                              
                              $
                              569,794
                              
                              
                              $
                              106,146
                              
                              
                              $
                              675,940Charge-offs
                              
                              
                              (532,243
                              )
                              
                              
                              (14,383
                              )
                              
                              
                              (546,626
                              )
                              
                              
                              (330,190
                              )
                              
                              
                              (54,409
                              )
                              
                              
                              (384,599
                              )Recoveries
                              
                              
                              213,804
                              
                              
                              
                              4,008
                              
                              
                              
                              217,812
                              
                              
                              
                              162,787
                              
                              
                              
                              3,308
                              
                              
                              
                              166,095Net
      charge-offs
                              
                              
                              (318,439
                              )
                              
                              
                              (10,375
                              )
                              
                              
                              (328,814
                              )
                              
                              
                              (167,403
                              )
                              
                              
                              (51,101
                              )
                              
                              
                              (218,504
                              )Provision
      for credit losses
                              
                              
                              323,214
                              
                              
                              
                              -
                              
                              
                              
                              323,214
                              
                              
                              
                              167,403
                              
                              
                              
                              29,301
                              
                              
                              
                              196,704Effect
      of foreign currency translation
                              
                              
                              -
                              
                              
                              
                              6,770
                              
                              
                              
                              6,770
                              
                              
                              
                              -
                              
                              
                              
                              (4,281
                              )
                              
                              
                              (4,281
                              )Balance
      at end of period
                              
                              $
                              686,826
                              
                              
                              $
                              76,715
                              
                              
                              $
                              763,541
                              
                              
                              $
                              569,794
                              
                              
                              $
                              80,065
                              
                              
                              $
                              649,859





Nine
      Months Ended September 30,2009
                              
                              
                              2008United
      States
                              
                              
                              Canada
                              
                              
                              Total
                              
                              
                              United
                                States
                              
                              
                              Canada
                              
                              
                              TotalBalance
      at beginning of period
                              
                              $
                              569,794
                              
                              
                              $
                              70,005
                              
                              
                              $
                              639,799
                              
                              
                              $
                              670,222
                              
                              
                              $
                              141,154
                              
                              
                              $
                              811,376Charge-offs
                              
                              
                              (1,549,278
                              )
                              
                              
                              (63,797
                              )
                              
                              
                              (1,613,075
                              )
                              
                              
                              (1,053,030
                              )
                              
                              
                              (132,607
                              )
                              
                              
                              (1,185,637
                              )Recoveries
                              
                              
                              701,817
                              
                              
                              
                              22,417
                              
                              
                              
                              724,234
                              
                              
                              
                              663,341
                              
                              
                              
                              33,625
                              
                              
                              
                              696,966Net
      charge-offs
                              
                              
                              (847,461
                              )
                              
                              
                              (41,380
                              )
                              
                              
                              (888,841
                              )
                              
                              
                              (389,689
                              )
                              
                              
                              (98,982
                              )
                              
                              
                              (488,671
                              )Provision
      for credit losses
                              
                              
                              964,493
                              
                              
                              
                              38,326
                              
                              
                              
                              1,002,819
                              
                              
                              
                              289,261
                              
                              
                              
                              47,857
                              
                              
                              
                              337,118Effect
      of foreign currency translation
                              
                              
                              -
                              
                              
                              
                              9,764
                              
                              
                              
                              9,764
                              
                              
                              
                              -
                              
                              
                              
                              (9,964
                              )
                              
                              
                              (9,964
                              )Balance
      at end of period
                              
                              $
                              686,826
                              
                              
                              $
                              76,715
                              
                              
                              $
                              763,541
                              
                              
                              $
                              569,794
                              
                              
                              $
                              80,065
                              
                              
                              $
                              649,859





Liquidity and Capital
Resources





The
Company received notice in June 2009 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.  As a
result of the current economic conditions and tight credit markets, we have been
unable to refinance our bank line of credit. If an outstanding balance remains
on the credit facility on the maturity date, 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. To
date, we have not been able to secure additional financing with terms acceptable
to us.


30





On
October 19, 2009, we entered into an Auto Receivables Purchase Agreement,
pursuant to which we will, subject to certain terms and conditions, including
approval by the stockholders at a Special Meeting of stockholders to be held
November 30, 2009, sell substantially all of our retail installment contracts to
the third party.  As consideration for this sale, we will receive an
amount for such retail installment contracts calculated by a formula applying
certain percentages to the outstanding principal amount of receivables of
differing credit categories.  Based on the balance of the various
categories estimated as of the projected sale date, the estimated purchase price
would be approximately $15.0million.  The
amount will vary due to principal payments and the credit quality of the
portfolio at the time of the sale.


In
anticipation of the Company entering into an agreement to sell its portfolio of
retail installment contracts, on September 23, 2009, the Company suspended
purchasing retail installment contracts and dismissed its entire marketing and
underwriting staff.





On
October 9, 2009, we entered into an amendment to our loan agreement with
our Lender.  Under this amendment, all funds coming into the lockbox
account, after payment of interest and the fees provided under the loan
agreement will be applied by the Lender to reduce the principal balance of the
ReMark loan and will not be remitted to us as was the practice under the loan
agreement before the amendment.  In addition, the Lender will not
provide further advances under loan in excess of the $12,042,000 current
balance.  We believe that we have sufficient cash available for operations
until the asset sale takes place.


The
Company began 2009 with $2,145,436 cash on hand and had cash on hand of
$2,192,134 at September 30, 2009.  Operating activities provided cash
of $1,023,917 during the nine month period ended September 30,
2009.





We
invested cash of approximately $7,722,000 to acquire installment contracts
during the nine month period ended September 30, 2009.  We collected
principal payments on our installment contracts of approximately $4,457,000
during the nine month period ended September 30, 2009.





During
the nine months ended September 30, 2009 the Company received net advances on
its bank line of credit totaling $2,050,000, to partially fund the acquisition
of Installment Contracts.  Total advances outstanding under the line
of credit agreement as of September 30, 2009 totaled approximately
$12,042,000.





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 nine month period ended September 30, 2009 amounted to
$216,756.





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 loan transaction with a
lender or other party that the investment banking firm introduces to the
Company. If the transaction were to be consummated as a sale of all or a portion
of the Company’s receivables, the fee would be 2.5% multiplied by the amount of
consideration received by the Company for the sale. As of September 30, 2009,
the Company had paid fees amounting to $65,000 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 September 30, 2009.


31





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
September 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.





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 $328,400 as of September
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 September 30, 2009
are as follows:




2009
                      
                      
                      12,6862010
                      
                      
                      50,7402011
                      
                      
                      50,7402012
                      
                      
                      50,7402013
                      
                      
                      29,599Total
                      
                      $
                      194,505




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 loan transaction with a
lender or other party that the investment banking firm introduces to the
Company. If the transaction were to be consummated as a sale of all or a portion
of the Company’s receivables, the fee would be 2.5% multiplied by the amount of
consideration received by the Company for the sale. As of September 30, 2009,
the Company had paid fees amounting to $65,000 to the investment banking
firm.





As of
September 30, 2009, the Company had entered into an agreement to sell
substantially all of its consumer loan portfolio to an unrelated third
party.  The purchase agreement for the transaction provided for a
$150,000 breakage fee if the Company elected to terminate or failed to
consummate the sale.  On October 19, 2009, the Company entered into a
new purchase agreement with a different unrelated third party at a substantially
higher sale price and terminated the first purchase agreement and on October 20,
2009, paid the $150,000 breakage fee.  The second purchase agreement
provides for a $300,000 breakup fee if the Company elects to terminate the
agreement.


32





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





Recent
Developments





We have
diligently sought a credit facility refinancing or other capital infusion, which
would allow us to pay off the ReMark Loan when it matures January 31, 2010, but
the only solution that is currently available in the prevailing market
conditions is a sale of our loan portfolio.




On
September 29, 2009, we entered into an Auto Receivables Purchase Agreement
(the “FIFS Purchase Agreement”) with First Investors Financial Services, Inc.
(“FIFS”), an unrelated financial services company.




Pursuant
to the Purchase Agreement, we agreed to sell all or substantially all of our
portfolio of subprime used automobile installment sales contracts and other
consumer receivables to FIFS for a cash purchase price calculated as the sum of
a percentage of the outstanding principal balance of Receivables falling in
different classes based upon their aging on the closing date.




The
Purchase Agreement provided for a $150,000 breakup fee to FIFS if we terminated
the agreement or failed to consummate the Asset Sale.




On
October 19, 2009, we entered into an Auto Receivables Purchase Agreement (the
“ACA Purchase Agreement”) with American Credit Acceptance, LLC, an unrelated
South Carolina limited liability company (“ACA”).  As a result of
entering into the ACA Purchase Agreement, we terminated the Auto Receivables
Purchase Agreement FIFS, Inc.




Pursuant
to the ACA Purchase Agreement, we have agreed to sell our portfolio of subprime
used automobile installment sales contracts to ACA for a cash purchase price
calculated as the sum of a percentage of the outstanding principal balance of
Receivables falling in different classes based upon their aging and
collectability on the closing date (the “ACA Asset Sale”). The aggregate
purchase price payable by ACA for the Receivables is substantially higher than
the price FIFS had agreed to pay under the FIFS Purchase Agreement, even after
considering the breakup fee required by the FIFS Purchase
Agreement.




We
intend to use the proceeds from the ACA Asset Sale primarily to pay off our $15
million secured revolving warehouse line of credit (the “Remark Loan”) with
ReMark Lending Co. (“Lender”), which had a principal balance of approximately
$12 million as of September 30, 2009.




The
projected closing date for the ACA Asset Sale is on or before December 15,
2009.  Consummation of the ACA Asset Sale is subject to fulfillment of
a number of conditions, including approval by our stockholders.  There
can be no assurance the ACA Asset Sale will close.




The ACA
Purchase Agreement provides for a breakup fee of $300,000 to ACA if we elect to
terminate or fail to consummate the ACA Asset Sale, unless we terminate the ACA
Purchase Agreement because we are able to obtain financing that will allow us to
refinance the ReMark Loan.




On
October 20, 2009, we provided written notice to FIFS that we have terminated the
FIFS Purchase Agreement.  We paid a $150,000 breakup fee to FIFS on
termination, as required by the FIFS Purchase Agreement.




On
October 9, 2009, we entered into an Amendment to our Revolving Loan and
Security Agreement our Lender.  Since the Purchase Agreement with FIFS
provided for the sale of our receivables at less than the price at which we can
purchase new receivables from our independent dealer network, we announced on
September 23, 2009 that we were suspending the purchase of new auto loan
receivables from our network of independent used automobile
dealerships.


33




The
Lender has characterized the Asset Sale and our suspension of receivables
purchases as a material adverse change in our business that constitutes an Event
of Default and a Funding Termination Event under the Loan Agreement and that, as
a consequence, the Lender asserts it is entitled to cease making further
advances to us, declare the entire balance of the Remark Loan immediately due
and payable, and enforce the Lender’s security interest in all of our
assets.  We are not in default in the payment of any amount due under
the Loan Agreement.  The Asset Sale and our suspension of purchasing
new auto loan receivables were intended to enable us to pay off the ReMark Loan
by the maturity date.  We were disappointed that the Lender elected to
treat these events as an Event of Default and a Funding Termination Event under
the Loan Agreement.  Nevertheless, we have agreed to the Amendment in
order to avoid an acceleration of the ReMark Loan and the Lender’s sale of all
of our assets that secure the ReMark Loan at this time.  Pursuant to
the Amendment:




· We agree
that an uncured Event of Default exists and is continuing under the Loan
Agreement




· The Lender has
agreed to forbear from exercising certain default remedies under the Loan
Agreement until November 9, 2009




· The Lender has
the right to appoint a Supervisory Servicer to monitor or take over our
receivables servicing function at our expense




· All funds
coming into the lockbox account, after payment of interest and the fees provided
under the Loan Agreement (including those of a Supervisory Servicer if one is
appointed), will be applied by the Lender to reduce the principal balance of the
ReMark Loan and will not be remitted to us as was the practice under the Loan
Agreement before the Amendment.  This should result in a more rapid
paydown of the ReMark Loan




· The Lender
will not provide further advances under the ReMark Loan in excess of the
$12,042,000 current balance.  We had not planned to request additional
advances under the ReMark Loan




· The Lender
will accrue Default Rate Interest equal to the existing rate plus 4.5%
commencing September 23, 2009.  The existing Note Rate of
interest will be payable prior to the expiration of the forbearance period, and
the difference between the Note Rate and the Default Rate Interest will be
payable after expiration of the forbearance period




· The
forbearance period will automatically expire on the earlier of (i) November 9,
2009, (ii) any termination of the Asset Sale, (iii) any other Event of Default
under the Loan Agreement, or (iv) any default in performance of the
Amendment




On
November 4, 2009, we entered into an Amendment No. 3 to our Revolving Loan
and Security Agreement and Forbearance ("Amendment 3"). The Lender had
determined that our pending Asset Sale and our decision on September 23, 2009 to
suspend the purchase of new receivables represented a change in our business
that constitutes an Event of Default under the Loan and Security Agreement.
Pursuant to Amendment 3 and an accompanying letter agreement, the Lender has
agreed (a) to consent to the Asset Sale to ACA, and (b) to forbear from
exercising its default rights under the Loan Agreement until the earliest of (i)
December 15, 2009, (ii) the date on which the ACA Purchase Agreement is
terminated, and (iii) a breach of any of the conditions expressed in Amendment
3. Assuming the Asset Sale is approved by our stockholders at the special
meeting to be held November 30, 2009, we intend to consummate the Asset Sale and
pay off the ReMark Loan by December 15, 2009. Amendment 3 thus gives us the
ability to close the Asset Sale and pay off the ReMark Loan before the
forbearance period expires, thus avoiding an acceleration of the ReMark Loan and
the foreclosure of our assets.


34





On
October 6, 2009, our Board of Directors approved a Plan of Dissolution and
Complete Liquidation of the Company (“Plan of Dissolution”).




Pursuant
to the Plan of Dissolution we plan to sell and reduce to cash all or
substantially all of our non-cash assets (including the receivables being sold
in the Asset Sale) and (i) pay or provide for all claims and obligations known
to us (including the ReMark Loan), (ii) provide for any claim which is the
subject of a pending action, suit or proceeding to which we are a party, (iii)
provide for claims that have not been known to us but are likely to arise within
5 years after the Effective Date of our dissolution, (iv) create a contingency
reserve to satisfy claims, obligations and expenses incurred in connection with
the liquidation, and (vi) distribute any remaining funds to our
stockholders.




Our
management, Board and financial adviser have tried without success to obtain
alternative financing to refinance the ReMark Loan to support our continued
operations.  To date, however, no such financing has been
obtained.  Following the payoff of the ReMark Loan, without a
substitute credit facility, the Board and management do not believe we will have
sufficient capital and assets to operate profitably.





ITEM
3.          Quantitative and
Qualitative Disclosures About Market Risk





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





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 September 30, 2009.





There
have been no changes in the Company’s internal control over financial reporting
during the quarter ended September 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.


35


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.


36





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:
                                              November
      9, 2009
                                              
                                              By:
                                              /s/
      Jerald L. FenstermakerJerald
      L. FenstermakerPresident
      and Chief Executive Officer(Principal
      Executive Officer)Date:
                                              November
      9, 2009
                                              
                                              By:
                                              /s/
      J. Kevin MaxwellJ.
      Kevin MaxwellTreasurer
      and Chief Financial Officer(Principal Financial
      Officer)


37