##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K







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

For the fiscal year ended December 31, 2007

Commission file number
000-50840





QC HOLDINGS, INC.

(Exact name of
registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Kansas                                                         |  | 48-1209939                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

9401 Indian Creek Parkway, Suite 1500

Overland Park, Kansas 66210

913-234-5000

(Address, including zip code, and telephone number of registrants principal executive offices)





SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which registered
|Common Stock, par value $0.01 per share |  | NASDAQ Global Market                     

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None





Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer   ̈    Accelerated filer  x    Non-accelerated filer   ̈

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

The aggregate market value of the voting and
non-voting common equity held by non-affiliates based on the closing sale price on June 30, 2007 was $66.5 million.

Shares outstanding of the
registrants common stock as of February 29, 2008: 18,857,968

DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III
of Form 10-K is incorporated herein by reference to the registrants definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report.









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##### Table of Contents

QC HOLDINGS, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

For the fiscal year ended December 31, 2007



|         |  |                                                                                                              |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                              |  | Page
|Part I   |  |                                                                                                              |  |     
|Item 1.  |  | Business                                                                                                     |  | 1   
|Item 1A. |  | Risk Factors                                                                                                 |  | 16  
|Item 1B. |  | Unresolved Staff Comments                                                                                    |  | 26  
|Item 2.  |  | Properties                                                                                                   |  | 26  
|Item 3.  |  | Legal Proceedings                                                                                            |  | 27  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 28  
|         |  |                                                                                                             
|Part II  |  |                                                                                                              |  |     
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 28  
|Item 6.  |  | Selected Financial Data                                                                                      |  | 32  
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 35  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 58  
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 58  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 58  
|Item 9A. |  | Controls and Procedures                                                                                      |  | 59  
|Item 9B. |  | Other Information                                                                                            |  | 59  
|         |  |                                                                                                             
|Part III |  |                                                                                                              |  |     
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 60  
|Item 11. |  | Executive Compensation                                                                                       |  | 60  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 60  
|Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 60  
|Item 14. |  | Principal Accounting Fees and Services                                                                       |  | 60  
|         |  |                                                                                                             
|Part IV  |  |                                                                                                              |  |     
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  | 60  
|         |  | Signatures                                                                                                   |  | 61  



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FORWARD-LOOKING STATEMENTS

In this report, in other filings with the Securities and Exchange Commission and in press releases and other public statements by our officers throughout the year, QC Holdings, Inc. makes or will make statements
that plan for or anticipate the future. These forward-looking statements include statements about our future business plans and strategies, and other statements that are not historical in nature. These forward-looking statements are based on our
current expectations and assumptions. Many of these statements are found in theBusinessandManagements Discussion and Analysis of Financial Condition and Results of Operationssections of this report.

Forward-looking statements may be identified by words or phrases such as believe,
expect, anticipate, should, planned, may, estimated, potential, goal, and objective. Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, provide a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, and because forward-looking statements involve
future risks and uncertainties, listed herein are a variety of factors that could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. These factors
include the risks discussed in Item 1A. Risk Factors of this report. We undertake no obligation to update any forward-looking statements contained herein or in future communications to reflect future events or developments.

PART I



|ITEM 1. | Business
|------- | --------

Overview

QC Holdings, Inc. provides short-term consumer loans, known as payday loans. Originally formed in 1984, we were incorporated in 1998 under Kansas laws and
have provided various retail consumer products and services during our 23-year history. As of December 31, 2007, we operated 596 branches, with locations in Alabama, Arizona, California, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky,
Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah, Virginia, Washington and Wisconsin.

In July 2004, we completed an initial public offering of 5,000,000 shares of our common stock at a price of $14.00 per share. In addition, the underwriters of our public offering exercised an option to purchase from
selling stockholders an additional 750,000 shares of our common stock to cover over-allotments in the offering. We did not receive any of the proceeds from the shares of common stock sold by the selling stockholders.

We entered the payday loan industry in 1992, and believe that we were one of the first companies to offer the payday loan product in the United States.
We have served the same customer base since 1984, beginning with a rent-to-own business and continuing with check cashing services in 1988. We sold our rent-to-own branches in 1994.

Since 1998, we have been primarily engaged in the business of providing payday loans, with principal values that typically range from $100 to $500.
Payday loans provide customers with cash in exchange for a promissory note with a maturity of generally two to three weeks and supported by that customers personal check for the aggregate amount of the cash advanced plus a fee. The fee varies
from state to state, based on applicable regulations, and generally ranges from $15 to $20 per $100 borrowed. To repay the cash advance, customers may pay with cash, in which case their personal check is returned to them, or they may allow the check
to be presented to the bank for collection.



1



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We also provide other consumer financial products and services, such as installment loans, check cashing
services, title loans, credit services, money transfers and money orders. Our loans and other services are subject to state regulations, which vary from state to state, as well as to federal and local regulations, where applicable.

During 1999 and 2000, we tripled our size as a result of several acquisitions. These acquisitions were funded in part by internally generated cash flow
and in part by proceeds received from a minority investor in October 1999. From 2001 through June 30, 2004, we focused primarily on de novo growth, using cash flow from operations and borrowings under a revolving credit facility to fund the
expenditures required. In the second half of 2004 and 2005, we initiated an aggressive growth plan and opened 219 de novo branches and acquired 39 branches, which were funded by proceeds from our initial public offering and internally generated cash
flow.

Over the last five years, we have grown from 258 branches to 596 branches through a combination of acquisitions and new branch
openings. During this period, we opened 339 de novo branches, acquired 103 branches and closed 104 branches. The following table sets forth our growth through de novo branch openings and branch acquisitions since January 1, 2003.



|                                    |  |      |   |  |      |   |  |      |   |  |      |   |  |      |  
|----------------------------------- |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                    |  | 2003 |   |  | 2004 |   |  | 2005 |   |  | 2006 |   |  | 2007 |  
|Beginning branch locations          |  | 258  |   |  | 294  |   |  | 371  |   |  | 532  |   |  | 613  |  
|De novo branches opened during year |  | 45   |   |  | 54   |   |  | 174  |   |  | 46   |   |  | 20   |  
|Acquired branches during year       |  |      |   |  | 29   |   |  | 10   |   |  | 51   |   |  | 13   |  
|Branches closed during year         |  | (9   | ) |  | (6   | ) |  | (23  | ) |  | (16  | ) |  | (50  | )
|                                    |  |      |   |  |      |   |  |      |   |  |      |   |  |      |  
|Ending branch locations             |  | 294  |   |  | 371  |   |  | 532  |   |  | 613  |   |  | 596  |  
|                                    |  |      |   |  |      |   |  |      |   |  |      |   |  |      |  

On December 1, 2006, we acquired all the issued and outstanding membership interests in
Express Check Advance of South Carolina, LLC (ECA) for approximately $16.3 million, net of cash acquired. ECA currently operates 50 payday loan branches in South Carolina. As a result of this acquisition, we have established a significant presence
in South Carolina. The acquisition was funded with a draw on our revolving credit facility, which was repaid in first quarter 2007.

During
March and April 2007, we acquired 13 payday and installment loan branches in Illinois and Missouri. Shortly after acquisition, we closed six of the payday loan branches that were located near six of our existing branches and transferred the loans
receivable to those branches. In the future, we anticipate there could be similar opportunities for consolidation-type acquisitions.

In
September 2007, we purchased certain assets from an automotive retailer and finance company focused exclusively in the buy-here/pay-here segment of the used vehicle market in connection with our ongoing efforts to evaluate alternative
products that serve our customer base. As of December 31, 2007, we are operating one buy-here/pay-here location in Missouri.

We
intend to continue our expansion through new branch development and a disciplined acquisition strategy. During 2008, we expect to open approximately 20 de novo branches, as we target states where we believe we can gain market share and we expect to
open one or two additional buy-here/pay-here locations.

Generally, branch closings have been associated with negative changes in the
regulatory environment and acquired branches that overlapped existing locations or that were located in areas where we believed long-term potential was minimal. We review the financial metrics of each branch to determine if trends exist with respect
to declining loan volumes and revenues that might require the closing of the branch. In those instances, we evaluate the need to close the branch based on several factors, including the length of time the branch has been open, geographic location,
competitive environment, proximity to another one of our branches and long-term market potential.



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During 2007, we closed 34 of our lower performing branches in various states (the majority of which were
consolidated into nearby branches), and we terminated the de novo process on eight branches that were never opened. In addition, a new law went into effect in Oregon that caps the interest rate that may be charged on a payday loan to 36% per
annum. As a result of the new law, we closed our eight branches in Oregon during the third quarter 2007.

In October and November 2005, we
closed all our 19 branches in North Carolina. Our decision to close these branches reflected the difficult operating environment in North Carolina associated with our role as a marketing and servicing provider for a Delaware state-chartered bank.
The bank offered payday cash advances in compliance with the revised Payday Lending Guidelines issued by the Federal Deposit Insurance Corporation (FDIC). Prior to the FDIC issuing the revised Payday Lending Guidelines in March 2005, which
significantly limited our North Carolina customers ability to borrow, and our subsequent decision to close our North Carolina branches, our North Carolina operations represented approximately 5% of our total revenue and our total gross profit.

We operate primarily through our wholly-owned subsidiaries, QC Financial Services, Inc, QC Auto Services, Inc., QC Loan Services, Inc. and
QC E-Services, Inc. QC Financial Services, Inc. is the 100% owner of QC Financial Services of California, Inc., Financial Services of North Carolina, Inc., QC Financial Services of Texas, Inc., Express Check Advance of South Carolina, LLC, QC
Advance, Inc., Cash Title Loans, Inc. and QC Properties, LLC.

Industry Background

The payday loan industry began its rapid growth in 1996, when there were an estimated 2,000 payday loan branches in the United States. According to the
Community Financial Services Association of America (CFSA), industry analysts estimate that the industry has grown to approximately 24,000 payday loan branches in the United States and these branches extend approximately $40 billion in short-term
credit to millions of middle-class households that experience cash-flow shortfalls between paydays. The growth of the payday loan industry has followed and continues to be significantly affected by payday lending legislation and regulation in
various states and nationally. We believe that the payday loan industry is fragmented, with the 10 largest companies operating less than one-half (approximately 10,200 branches) of the total industry branches.

Payday loan customers typically are middle-income, middle-educated individuals who are a part of a young family. Research studies by the industry
and academic economists, as well as information from our customer database, have confirmed the following about payday loan customers:



| |  |  | more than half earn between $25,000 and $50,000 annually;
| | - |  | ---------------------------------------------------------



| |  |  | the majority are under 45 years old;
| | - |  | ------------------------------------



| |  |  | more than half have attended college, and one in five has a bachelors degree or higher;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | more than 40% are homeowners, and about half have children in the household; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | all have steady incomes and all have checking accounts.
| | - |  | -------------------------------------------------------

In addition, at least two-thirds of industry customers say they have at least one other alternative to using a payday loan that offers quick access to money, such as overdraft protection, credit cards, credit union
loans or savings accounts. We believe that our customers choose the payday loan product because it is quick, convenient and, in many instances, a lower-cost or more suitable alternative for the customer than the other available alternatives.



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Our Services

Our primary business is offering payday loans through our network of branches. In addition, we continue to offer other consumer financial services, such as installment loans, credit services, check cashing services, title loans, money
transfers and money orders. The following table sets forth the percentage of total revenue for payday loans and the other services we provide.



|                      |  |                         |         |                          |   |         |  |      |         |  |       |   |  |       |   |  |       |  
|--------------------- |  | ----------------------- | ------- | ------------------------ | - | ------- |  | ---- | ------- |  | ----- | - |  | ----- | - |  | ----- | -
|                      |  | Year Ended December 31, |         | Year Ended December 31,  |  
|                      |  | 2005                    |         | 2006                     |   | 2007    |  | 2005 |         |  | 2006  |   |  | 2007  |  
|                      |  | (in thousands)          |         | (percentage of revenues) |  
|Revenues              |  |                         |         |                          |   |         |  |      |         |  |       |   |  |       |   |  |       |  
|Payday loan fees      |  | $                       | 139,103 |                          | $ | 152,354 |  | $    | 182,557 |  | 91.0  | % |  | 88.4  | % |  | 85.5  | %
|Installment loan fees |  |                         |         |                          |   | 2,679   |  |      | 10,127  |  |       |   |  | 1.6   | % |  | 4.7   | %
|Credit service fees   |  |                         | 476     |                          |   | 3,602   |  |      | 7,433   |  | 0.3   | % |  | 2.1   | % |  | 3.5   | %
|Check cashing fees    |  |                         | 6,170   |                          |   | 6,634   |  |      | 6,282   |  | 4.0   | % |  | 3.8   | % |  | 2.9   | %
|Title loan fees       |  |                         | 4,478   |                          |   | 4,756   |  |      | 4,243   |  | 2.9   | % |  | 2.8   | % |  | 2.0   | %
|Other fees            |  |                         | 2,651   |                          |   | 2,257   |  |      | 2,942   |  | 1.8   | % |  | 1.3   | % |  | 1.4   | %
|                      |  |                         |         |                          |   |         |  |      |         |  |       |   |  |       |   |  |       |  
|Total                 |  | $                       | 152,878 |                          | $ | 172,282 |  | $    | 213,584 |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %
|                      |  |                         |         |                          |   |         |  |      |         |  |       |   |  |       |   |  |       |  

Payday Loans

To obtain a payday loan from us, a customer must complete a loan application, provide a valid identification, maintain a personal checking account, have a source of income sufficient to loan some amount to the
customer, and not otherwise be in default on a loan from us. Upon completion of a loan application, the customer signs a promissory note and provides us with a check for the principal loan amount plus a specified fee, which varies by state. State
laws typically limit fees to a range of $15 to $20 per $100 borrowed. Loans generally mature in two to three weeks, on or near the date of a customers next payday. Our agreement with customers provides that we will not cash their check until
the due date of the loan. The customers debt to us is satisfied by:



| |  |  | payment of the full amount owed in cash in exchange for return of the customers check;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | deposit of the customers check with the bank and its successful collection;
| | - |  | ----------------------------------------------------------------------------



| |  |  | automated clearing house (ACH) payment; or
| | - |  | ------------------------------------------



| |  |  | where applicable, renewal of the customers loan after payment of the original loan fee in cash.
| | - |  | ------------------------------------------------------------------------------------------------

We offer renewals only in states that allow them, and, subject to more restrictive requirements under state law, we comply with the recommended best
practices set forth by the CFSA and offer no more than four consecutive renewals per customer after the initial loan. We also require that the customer sign a new promissory note and provide a new check for each payday loan renewal.



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During 2007, approximately 88.4% of our payday loan volume was repaid by the customer returning to the
branch and settling their obligation by either payment in cash of the full amount owed or by renewal of the payday loan through payment of the original loan fee and signing a new promissory note accompanied by a new check. With respect to the
remaining 11.6% of volume, we presented the customers check to the bank for payment of the payday loan. Approximately 39.3% of items presented to the bank were collected and approximately 60.7% were returned to us due to insufficient funds in
the customers account, which equates to gross losses of approximately 7.0% of total loan volume. If a customers check is returned to us for insufficient funds or any other reason, we initiate collection efforts. During 2007, our efforts
resulted in approximately 49.8% collection of the returned items, which includes the sale of older debt for approximately $2.1 million. As a result, our overall provision for loan losses during 2007 was approximately 3.5% of total volume. On
average, our overall provision for loan losses has historically ranged from 2% to 5% of total volume based on market factors, average age of our branch base, and rate of unit branch growth.

In 2007, our customers averaged approximately six two-week payday loans (out of a possible 26 two-week loans). The average term of a loan to our
customers was 16 days for each of the years ended December 31, 2005, 2006 and 2007.

Our business is seasonal due to the fluctuating
demand for payday loans during the year. Historically, we have experienced our highest demand for payday loans in January and in the fourth calendar quarter. As a result of the receipt by customers of their income tax refunds, demand for payday
loans has historically declined in the balance of the first quarter of each calendar year and the first month of the second quarter. Our loss ratio historically fluctuates with these changes in payday loan demand, with a higher loss ratio in the
second and third quarters of each calendar year and a lower loss ratio in the first and fourth quarters of each calendar year.

Other Financial
Services

We also offer other consumer financial services, such as installment loans, check cashing services, title loans, credit
services, money transfers and money orders. Together, these other financial services constituted 9.0%, 11.6% and 14.5% of our revenues for the years ended December 31, 2005, 2006 and 2007, respectively. The increase as a percentage of revenues
reflects new product offerings of credit services in our Texas branches in September 2005 and installments loans in our Illinois branches beginning in the second quarter 2006 and in our New Mexico branches beginning in September 2007.

We currently offer installment loans to customers in 44 branches (located in Illinois and New Mexico). The installment loans are payable in monthly
installments (principal plus accrued interest) with terms ranging from four months to one year, and all loans are pre-payable at any time without penalty. The fee for the installment loan is $30 per $100 borrowed per month. Currently, the maximum
amount that we will advance under an installment loan is $1,000. The average principal amount for installment loans originated during 2007 was approximately $526.

For our locations in Texas, we operate as a credit services organization (CSO) through one of our subsidiaries. As a CSO, we act on behalf of consumers in accordance with Texas laws. We charge the consumer a fee (a
CSO fee) for arranging for an unrelated third-party lender to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers obligation to the third-party lender. We also service the loan
for the lender. The CSO fee is recognized ratably over the term of the loan. We are not involved in the loan approval process or in determining the loan approval procedures or criteria. As a result, loans made by the lender are not included in our
loan receivable balance and are not reflected in the consolidated balance sheet. As noted above, however, we absorb all risk of loss through our guarantee of the consumers loan from the lender.



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Closely related to the payday loan industry is the check cashing industry, a service offered in 355 of
our 596 branches as of December 31, 2007. We primarily cash payroll, government assistance, tax refund, insurance and personal checks. Before cashing a check, we verify the customers identification and the validity of the check. Our fees
for this service averaged 2.9%, 3.0% and 2.8% of the face amount of the check in 2005, 2006 and 2007, respectively. If a check cashed by us is not paid for any reason, we record the full face value of the check as a loss in the period when the check
was returned unpaid. We then contact the customer to initiate the collection process. Check cashing revenues are typically higher in the first quarter due primarily to customers receipt of income tax refund checks.

We also offer title loans, which are short-term consumer loans. Typically, we advance or will loan up to 25% of the estimated value of the underlying
vehicle for a term of 30 days, secured by the customers vehicle. Generally, if a customer has not repaid a loan after 30 days, we charge the receivable to expense and we initiate collection efforts. Occasionally, we hire an agent to initiate
repossession. We offered title loans in 150 branches as of December 31, 2007.

We are also an agent for the transmission and receipt
of wire transfers for Western Union. Through this network, our customers can transfer funds electronically to more than 245,000 locations in more than 200 countries and territories throughout the world. Additionally, our branches offer Western Union
money orders.



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##### Table of Contents

Locations

The following table shows the number of branches by state that were open as of December 31 from 2003 to 2007 and the current fee rate charged to customers within each state for a $100 advance.



|                   |  |         |       |      |     |      |     |      |     |      |     |      |    
|------------------ |  | ------- | ----- | ---- | --- | ---- | --- | ---- | --- | ---- | --- | ---- | ---
|                   |  | Fee (a) |       | 2003 |     | 2004 |     | 2005 |     | 2006 |     | 2007
|Alabama            |  | $       | 17.50 |      |     |      | 7   |      | 13  |      | 13  |      | 12 
|Arizona            |  |         | 17.65 |      | 19  |      | 31  |      | 39  |      | 40  |      | 39 
|California         |  |         | 17.65 |      | 53  |      | 59  |      | 90  |      | 91  |      | 82 
|Colorado           |  |         | 20.00 |      | 8   |      | 8   |      | 9   |      | 11  |      | 11 
|Idaho              |  |         | 20.00 |      | 6   |      | 9   |      | 12  |      | 14  |      | 13 
|Illinois (b)       |  |         | 15.50 |      | 26  |      | 26  |      | 26  |      | 22  |      | 24 
|Indiana            |  |         | 15.00 |      | 7   |      | 6   |      | 8   |      | 7   |      | 1  
|Kansas             |  |         | 15.00 |      | 13  |      | 12  |      | 21  |      | 24  |      | 23 
|Kentucky           |  |         | 17.65 |      | 10  |      | 11  |      | 13  |      | 13  |      | 13 
|Louisiana          |  |         | 20.12 |      | 5   |      | 4   |      | 5   |      | 4   |      | 4  
|Mississippi        |  |         | 21.95 |      | 7   |      | 7   |      | 7   |      | 7   |      | 7  
|Missouri           |  |         | 18.00 |      | 47  |      | 61  |      | 93  |      | 97  |      | 101
|Montana            |  |         | 20.00 |      |     |      |     |      | 2   |      | 3   |      | 3  
|Nebraska           |  |         | 17.65 |      |     |      |     |      | 8   |      | 12  |      | 11 
|Nevada             |  |         | 20.00 |      | 5   |      | 4   |      | 4   |      | 5   |      | 9  
|New Mexico (b)     |  |         | 15.50 |      | 19  |      | 19  |      | 20  |      | 21  |      | 21 
|North Carolina (c) |  |         | 18.00 |      | 20  |      | 21  |      |     |      |     |      |    
|Ohio               |  |         | 15.00 |      |     |      |     |      | 27  |      | 31  |      | 32 
|Oklahoma           |  |         | 15.00 |      |     |      | 25  |      | 25  |      | 24  |      | 23 
|Oregon (d)         |  |         | 13.00 |      | 4   |      | 5   |      | 11  |      | 11  |      |    
|South Carolina     |  |         | 15.00 |      | 3   |      | 8   |      | 11  |      | 62  |      | 62 
|Texas (e)          |  |         | 20.00 |      |     |      |     |      | 18  |      | 26  |      | 27 
|Utah               |  |         | 20.00 |      | 12  |      | 12  |      | 19  |      | 19  |      | 19 
|Virginia           |  |         | 15.00 |      | 15  |      | 17  |      | 20  |      | 23  |      | 23 
|Washington         |  |         | 15.00 |      | 9   |      | 12  |      | 24  |      | 26  |      | 29 
|Wisconsin          |  |         | 22.00 |      | 6   |      | 7   |      | 7   |      | 7   |      | 7  
|                   |  |         |       |      |     |      |     |      |     |      |     |      |    
|Total              |  |         |       |      | 294 |      | 371 |      | 532 |      | 613 |      | 596
|                   |  |         |       |      |     |      |     |      |     |      |     |      |    



|(a) | Represents the payday loan fee for the first $100 advance for 14 days as of December 31, 2007, except for branches in Illinois, North Carolina, New Mexico, Oregon and Texas
 see notes (b), (c), (d) and (e). Some states have lower fees for loans in excess of $100.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | In our branches in Illinois and New Mexico, we provide installment loans to customers. The installment loans are payable in monthly installments (principal plus accrued interest)
with terms ranging from four months to one year. The fee charged for an installment loan is $30 per $100 borrowed per month.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Represents the fee charged by the lending bank. All branches in North Carolina were closed in October and November 2005 and the agreement with the lending bank was terminated.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Represents the fee charged for a $100 advance with a minimum loan term of 31 days. During 2007, a new law went into effect in Oregon that caps the interest rate that may be charged
on a payday loan to 36% per annum. As a result, we closed our eight branches located in Oregon.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Represents the fee charged by our credit services organization subsidiary for arranging for an unrelated third-party to make a loan to the consumer and for providing related
services to the consumer, including a guarantee of the consumers obligation to the third-party lender.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We generally
choose branch locations in high traffic areas providing visible signage and easy access for customers. Branches are generally in small strip-malls or stand-alone buildings. We identify de novo branch locations using a combination of market analysis,
field surveys and our own site-selection experience.



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Our branch interiors are designed to provide a pleasant, friendly environment for customers and
employees. Branch hours vary by market based on customer demand, but generally branches are open from 9:00 a.m. to 7:00 p.m., Monday through Friday, with shorter hours on Saturdays. Branches are generally closed on Sundays.

Branches located in the states of Missouri, California, Arizona, South Carolina and Kansas represented approximately 24%, 13%, 8%, 7% and 5%,
respectively, of total revenues for the year ended December 31, 2007. Branches located in the states of Missouri, Arizona, California, Kansas, Illinois, New Mexico, South Carolina and Virginia represented approximately 31%, 13%, 8%, 7%, 6%, 6%,
6% and 5%, respectively, of total branch gross profit for the year ended December 31, 2007.

In March 2007, New Mexico adopted
legislation (effective November 2007) that reduced the maximum fee that may be charged to a customer from $20.00 per $100.00 borrowed to $15.50 per $100.00 borrowed. In addition, the new legislation restricts the total number of loans a customer may
have and prohibits immediate loan renewals. We expect that this legislation will reduce payday loan revenue by approximately $8 to $9 million during 2008. This decline, however, will be substantially offset from revenues from our installment loan
product, which we launched in New Mexico during September 2007.

In June 2005, Illinois adopted legislation (effective December 2005) that
reduced the rate that may be charged to a customer from $20.32 per $100.00 every two weeks to $15.50 per $100.00 every two weeks. In addition, the legislation included restrictions on the number of transactions a customer may have and the amount
that can be borrowed, which adversely affected revenues and gross profit in our Illinois branches in December 2005 and during 2006. Total revenues from our Illinois branches declined from $11.8 million in 2005 to $5.9 million in 2006. During second
quarter 2006, we began offering installment loans in our Illinois branches, which generated $2.7 million of revenues during 2006. In 2007, revenue from our Illinois branches was approximately $10.1 million.

Comparable Branches, De Novo Branch Economics and Acquisitions

We evaluate our branches based on revenue growth and branch gross profit, with consideration given to the length of time a branch has been open. The following table summarizes our revenues and average revenue per
branch per month for the years ended December 31, 2006 and 2007 based on the year that a branch was opened or acquired.



|                     |  |                   |  |                |         |          |                              |         |                |       |      |  |   |    |  |   |   
|-------------------- |  | ----------------- |  | -------------- | ------- | -------- | ---------------------------- | ------- | -------------- | ----- | ---- |  | - | -- |  | - | --
|Year Opened/Acquired |  | Number ofBranches |  | Revenues       |         |          | Average Revenue/Branch/Month
|                     |  | 2006              |  | 2007           |         | % Change |                              |         | 2006           |       | 2007
|                     |  |                   |  | (in thousands) |         |          |                              |         | (in thousands)
|Pre - 1999           |  | 33                |  | $              | 27,993  |          | $                            | 26,794  |                | (4.3  | )%   |  | $ | 71 |  | $ | 68
|1999                 |  | 39                |  |                | 18,548  |          |                              | 19,858  |                | 7.1   | %    |  |   | 40 |  |   | 42
|2000                 |  | 47                |  |                | 19,045  |          |                              | 21,357  |                | 12.1  | %    |  |   | 34 |  |   | 38
|2001                 |  | 31                |  |                | 13,541  |          |                              | 14,359  |                | 6.0   | %    |  |   | 36 |  |   | 39
|2002                 |  | 53                |  |                | 19,863  |          |                              | 22,359  |                | 12.6  | %    |  |   | 31 |  |   | 35
|2003                 |  | 43                |  |                | 16,524  |          |                              | 17,553  |                | 6.2   | %    |  |   | 32 |  |   | 34
|2004                 |  | 69                |  |                | 17,592  |          |                              | 20,827  |                | 18.4  | %    |  |   | 21 |  |   | 25
|2005                 |  | 159               |  |                | 27,878  |          |                              | 42,156  |                | 51.2  | %    |  |   | 15 |  |   | 22
|2006                 |  | 95                |  |                | 4,452   |          |                              | 22,521  |                | 405.9 | %    |  |   | 4  |  |   | 20
|2007                 |  | 27                |  |                |         |          |                              | 3,599   |                |       |      |  |   |    |  |   | 11
|                     |  |                   |  |                |         |          |                              |         |                |       |      |  |   |    |  |   |   
|Sub-total            |  | 596               |  |                | 165,436 |          |                              | 211,383 |                | 27.8  | %    |  | $ | 23 |  | $ | 30
|                     |  |                   |  |                |         |          |                              |         |                |       |      |  |   |    |  |   |   
|Closed branches      |  |                   |  |                | 6,825   |          |                              | 1,818   |                |       |      |  |   |    |  |   |   
|Other                |  |                   |  |                | 21      |          |                              | 383     |                |       |      |  |   |    |  |   |   
|                     |  |                   |  |                |         |          |                              |         |                |       |      |  |   |    |  |   |   
|Total                |  |                   |  | $              | 172,282 |          | $                            | 213,584 |                | 24.0  | %    |  |   |    |  |   |   
|                     |  |                   |  |                |         |          |                              |         |                |       |      |  |   |    |  |   |   



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The following table summarizes our gross profit (loss), gross margin and loss ratio (losses as a
percentage of revenues) of branches for the years ended December 31, 2006 and 2007 based on the year that a branch was opened or acquired.



|                     |  |          |  |                     |        |   |                |   |        |              |  |       |      |  |       |      |  |      |      |  |      |  
|-------------------- |  | -------- |  | ------------------- | ------ | - | -------------- | - | ------ | ------------ |  | ----- | ---- |  | ----- | ---- |  | ---- | ---- |  | ---- | -
|                     |  |          |  | Gross Profit (Loss) |        |   | Gross Margin % |   |        | Loss Ratio % | 
|Year Opened/Acquired |  | Branches |  | 2006                |        |   | 2007           |   |        | 2006         |  |       | 2007 |  |       | 2006 |  |      | 2007 | 
|                     |  |          |  | (in thousands)      |        |   |                |   |        |              |  |       |      |  |       |      | 
|Pre - 1999           |  | 33       |  | $                   | 13,967 |   |                | $ | 12,203 |              |  | 49.9  | %    |  | 45.5  | %    |  | 21.4 | %    |  | 25.2 | %
|1999                 |  | 39       |  |                     | 7,319  |   |                |   | 7,230  |              |  | 39.5  | %    |  | 36.4  | %    |  | 17.7 | %    |  | 24.1 | %
|2000                 |  | 47       |  |                     | 6,968  |   |                |   | 8,140  |              |  | 36.6  | %    |  | 38.1  | %    |  | 22.2 | %    |  | 24.8 | %
|2001                 |  | 31       |  |                     | 5,996  |   |                |   | 6,017  |              |  | 44.3  | %    |  | 41.9  | %    |  | 18.2 | %    |  | 22.5 | %
|2002                 |  | 53       |  |                     | 7,181  |   |                |   | 9,395  |              |  | 36.2  | %    |  | 42.0  | %    |  | 23.2 | %    |  | 22.1 | %
|2003                 |  | 43       |  |                     | 6,864  |   |                |   | 7,008  |              |  | 41.5  | %    |  | 39.9  | %    |  | 18.7 | %    |  | 23.6 | %
|2004                 |  | 69       |  |                     | 4,903  |   |                |   | 6,876  |              |  | 27.9  | %    |  | 33.0  | %    |  | 17.7 | %    |  | 19.4 | %
|2005                 |  | 159      |  |                     | (1,831 | ) |                |   | 5,555  |              |  | (6.6  | )%   |  | 13.2  | %    |  | 30.9 | %    |  | 34.3 | %
|2006                 |  | 95       |  |                     | (1,760 | ) |                |   | 3,162  |              |  | (39.5 | )%   |  | 14.0  | %    |  | 36.7 | %    |  | 35.1 | %
|2007                 |  | 27       |  |                     | (364   | ) |                |   | (854   | )            |  |       |      |  | (23.7 | )%   |  |      |      |  | 53.4 | %
|                     |  |          |  |                     |        |   |                |   |        |              |  |       |      |  |       |      |  |      |      |  |      |  
|Sub-total            |  | 596      |  |                     | 49,243 |   |                |   | 64,732 |              |  | 29.8  | %    |  | 30.6  | %    |  | 22.4 | %    |  | 27.2 | %
|                     |  |          |  |                     |        |   |                |   |        |              |  |       |      |  |       |      |  |      |      |  |      |  
|Closed branches      |  |          |  |                     | (2,449 | ) |                |   | (2,561 | )            |  |       |      |  |       |      |  |      |      |  |      |  
|Other (a)            |  |          |  |                     | 1,360  |   |                |   | 2,383  |              |  |       |      |  |       |      |  |      |      |  |      |  
|                     |  |          |  |                     |        |   |                |   |        |              |  |       |      |  |       |      |  |      |      |  |      |  
|Total                |  |          |  | $                   | 48,154 |   |                | $ | 64,554 |              |  | 28.0  | %    |  | 30.2  | %    |  | 21.5 | %    |  | 25.5 | %
|                     |  |          |  |                     |        |   |                |   |        |              |  |       |      |  |       |      |  |      |      |  |      |  



|(a) | Includes the sale of older debt for approximately $900,000 and $2.1 million for the years ended December 31, 2006 and 2007, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

Comparable Branches

We define comparable
branches as those branches that were open during the full periods for which a comparison is being made. For example, comparable branches for the annual analysis as of December 31, 2007 have been open at least 24 months. We evaluate changes in
comparable branch financial metrics on a routine basis to assess operating efficiency. During 2005, our revenues from comparable branches increased by 11.4%, over the prior year. During 2006, our comparable branches declined by 2.6% primarily due to
a $4.8 million revenue decrease in Illinois as a result of the legislation that reduced the fee and placed restrictions on the customers ability to borrow. Our branches in California also contributed to the decline in 2006 comparable branch
revenues due to increased competition, managements focus on reducing losses and changes to our statewide lending practices. During 2007, our revenues from comparable branches increased by 15.1% primarily due to growth in revenues from branches
added during 2005.

The following table summarizes certain financial information for our comparable branches:



|                                      |  |                  |         |   |      |   |         |  
|------------------------------------- |  | ---------------- | ------- | - | ---- | - | ------- | -
|2006 to 2007:                         |  | 2006             |         |   | 2007 |  
|                                      |  | ($ in thousands) |        
|Total number of comparable branches   |  |                  | 474     |   |      |   | 474     |  
|Total revenues                        |  | $                | 160,985 |   |      | $ | 185,261 |  
|Average revenue per comparable branch |  |                  | 340     |   |      |   | 391     |  
|Total provision for losses            |  |                  | 35,424  |   |      |   | 47,679  |  
|Branch gross profit                   |  |                  | 51,367  |   |      |   | 62,423  |  
|Loss ratio                            |  |                  | 22.0    | % |      |   | 25.7    | %
|Branch gross margin                   |  |                  | 31.9    | % |      |   | 33.7    | %



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De Novo Branches

Since 1998, 64% of our growth has occurred through opening 429 de novo branches. De novo growth allows us to leverage our regional, area and branch managers knowledge of their local markets to identify strong
prospective branch locations and to train managers and employees at the outset on our strategy and procedures. We monitor newer branches for their progress to profitability and loan growth.

The following table summarizes our ramp up of revenues for our de novo branches opened since January 1, 2000, during their initial months of
operation. For additional information on de novo branches, see Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.



|            |  |                   |  |                                                              |    |                |   |                |  |                |     |                |   |                |  |   |       |  |   |      
|----------- |  | ----------------- |  | ------------------------------------------------------------ | -- | -------------- | - | -------------- |  | -------------- | --- | -------------- | - | -------------- |  | - | ----- |  | - | -----
|            |  |                   |  | Average Cumulative Revenues for Initial Months of Operations
|Year Opened |  | Number ofBranches |  | First 6Months                                                |    | First 12Months |   | First 18Months |  | First 24Months |     | First 36Months |   | First 48Months
|            |  |                   |  | (in thousands)                                              
|2000        |  | 7                 |  | $                                                            | 51 |                | $ | 178            |  | $              | 343 |                | $ | 532            |  | $ | 953   |  | $ | 1,463
|2001        |  | 22                |  |                                                              | 68 |                |   | 195            |  |                | 362 |                |   | 550            |  |   | 974   |  |   | 1,460
|2002        |  | 49                |  |                                                              | 75 |                |   | 223            |  |                | 405 |                |   | 611            |  |   | 1,071 |  |   | 1,474
|2003        |  | 43                |  |                                                              | 50 |                |   | 157            |  |                | 303 |                |   | 479            |  |   | 854   |  |   | 1,249
|2004        |  | 43                |  |                                                              | 51 |                |   | 161            |  |                | 291 |                |   | 424            |  |   | 734   |  |   |      
|2005        |  | 149               |  |                                                              | 36 |                |   | 111            |  |                | 209 |                |   | 330            |  |   |       |  |   |      
|2006(a)     |  | 45                |  |                                                              | 42 |                |   | 133            |  |                | 281 |                |   |                |  |   |       |  |   |      
|2007(b)     |  | 20                |  |                                                              | 42 |                |   |                |  |                |     |                |   |                |  |   |       |  |   |      



|(a) | For First 18 Months, calculation is only for the 30 branches that were open for the whole 18 months.
|--- | ----------------------------------------------------------------------------------------------------

|(b) | For First 6 Months, calculation is only for the 16 branches that were open for the whole 6 months.
|--- | --------------------------------------------------------------------------------------------------

The following table summarizes the development of our branches with respect to gross profits for our de novo branches during their initial months of
operation.



|            |  |                   |  |                                                                         |      |   |                |   |     |                |  |   |                |   |  |                |     |                |  |   |     |  |   |    
|----------- |  | ----------------- |  | ----------------------------------------------------------------------- | ---- | - | -------------- | - | --- | -------------- |  | - | -------------- | - |  | -------------- | --- | -------------- |  | - | --- |  | - | ---
|            |  |                   |  | Average Cumulative Gross Profit (Loss) for Initial Months of Operations
|Year Opened |  | Number ofBranches |  | First 6Months                                                           |      |   | First 12Months |   |     | First 18Months |  |   | First 24Months |   |  | First 36Months |     | First 48Months
|            |  |                   |  | (in thousands)                                                         
|2000        |  | 7                 |  | $                                                                       | (20  | ) |                | $ | 13  |                |  | $ | 74             |   |  | $              | 156 |                |  | $ | 326 |  | $ | 556
|2001        |  | 22                |  |                                                                         | (42  | ) |                |   | (19 | )              |  |   | 39             |   |  |                | 115 |                |  |   | 312 |  |   | 537
|2002        |  | 49                |  |                                                                         | (24  | ) |                |   | 17  |                |  |   | 95             |   |  |                | 183 |                |  |   | 377 |  |   | 533
|2003        |  | 43                |  |                                                                         | (43  | ) |                |   | (26 | )              |  |   | 11             |   |  |                | 62  |                |  |   | 197 |  |   | 358
|2004        |  | 43                |  |                                                                         | (46  | ) |                |   | (43 | )              |  |   | (17            | ) |  |                | 20  |                |  |   | 124 |  |   |    
|2005        |  | 149               |  |                                                                         | (54  | ) |                |   | (72 | )              |  |   | (70            | ) |  |                | (58 | )              |  |   |     |  |   |    
|2006(a)     |  | 45                |  |                                                                         | (67  | ) |                |   | (79 | )              |  |   | (44            | ) |  |                |     |                |  |   |     |  |   |    
|2007(b)     |  | 20                |  |                                                                         | (100 | ) |                |   |     |                |  |   |                |   |  |                |     |                |  |   |     |  |   |    



|(a) | For First 18 Months, calculation is only for the 30 branches that were open for the whole 18 months.
|--- | ----------------------------------------------------------------------------------------------------

|(b) | For First 6 Months, calculation is only for the 16 branches that were open for the whole 6 months.
|--- | --------------------------------------------------------------------------------------------------

Acquisitions

From 1998 through 2007, we acquired 240 branches. We review and evaluate
acquisitions as they are presented to us. Because of our position in the industry, potential sellers have offered to sell to us from as few as one branch to groups of 100 branches or more. During 2007, we acquired 13 branches and certain assets for
a total of $3.2 million. In connection with an acquisition of eight branches in Missouri, we closed six of the branches acquired and transferred the receivable balances to our existing locations. Effective December 1, 2006, we acquired all the
issued and outstanding membership interests in ECA for



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approximately $16.3 million, net of cash acquired. ECA operates 50 payday loan branches in South Carolina. We intend to continue to evaluate acquisition
opportunities presented to us for the potential to provide immediate cash flow and market share, to leverage our current field and corporate management structure and to add experienced managers and employees.

Advertising and Marketing

Our advertising and
marketing efforts are designed to build customer loyalty and introduce new customers to our services. Our corporate marketing function is focused on strategically positioning us as a leader in the payday lending marketplace.
Our marketing department oversees direct mail offerings to current, former and prospective customers, as well as engages in building and supervising branch-level marketing programs. Branch-level efforts include
flyers, coupons, special offers, local direct mail, radio, television or outdoor advertising. In conjunction with marketing partners, we develop promotional materials, and maintain a considerable presence in Yellow Page directories throughout
the country. In addition, we expended $1.5 million during 2007 as a part of a national public education and awareness program developed by the CFSA to promote responsible borrowing and lending practices.

Technology

We maintain an integrated system of
applications and platforms for transaction processing. The systems provide customer service, internal control mechanisms, record keeping and reporting. We have one point-of-sale system utilized by all but four of our branches as of December 31,
2007. We work closely with our point-of-sale software vendor to enhance and continually update the application.

Our system provides our
branches with customer information and history to enable our customer service representatives to perform transactions in an efficient manner. The integration of this system allows for the accurate and timely reporting of information for corporate
and field administrative staff. Information is distributed from our point-of-sale system to our corporate accounting systems to provide for daily reconciliation and exception alerts.

On a daily basis, transaction data is collected at our corporate headquarters and integrated into our management information systems. These systems are
designed to provide summary, detailed and exception information to regional, area and branch managers as well as corporate staff. Reporting is separated by areas of operational responsibility and accessible through internet connectivity.

Security

The principal security risks to our
operations are robbery and employee theft. We have put in place extensive security systems, dedicated security personnel and management information systems to address both areas of potential loss.

To protect against robbery, the majority of our branch employees work behind bullet-resistant glass and steel partitions, and the back office, safe and
computer areas are locked and closed to customers. Our security measures in each branch include safes, electronic alarm systems monitored by third parties, control over entry to customer service representative areas, detection of entry through
perimeter openings, walls and ceilings and the tracking of all employee movement in and out of secured areas. Employees use cellular phones to ensure safety and security whenever they are outside the secure customer service representative area.
Additional security measures include identical alarm systems in all branches, remote control over alarm systems, arming/disarming and changing user codes and mechanically and electronically controlled time-delay safes.



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Because we have high volumes of cash and negotiable instruments at our locations, daily monitoring,
unannounced audits and immediate responses to irregularities are critical. We have an internal auditing department that, among other things, performs periodic unannounced branch audits and cash counts at randomly selected locations. We self-insure
for employee theft and dishonesty at the branch level.

Competition

We believe that the primary competitive factors in the payday loan industry are branch location, customer service and marketing offers, such as first loan free or extended loan terms. We face intense competition in an
industry with low barriers to entry, and we believe that the payday lending markets are becoming more competitive as the industry matures and consolidates. We compete with other payday and check cashing branches and financial service entities and
retail businesses that offer payday loans or similar financial services. In addition, we compete with services offered by traditional financial institutions, such as overdraft protection.

Businesses offering loans over the internet have begun to compete with us in the payday loan market. There also has been increasing penetration of
electronic banking services into the check cashing and money transfer industry, including direct deposit of payroll checks, payroll cards and electronic transfer of government benefits.

Regulations

We are subject to regulation by federal, state and local governments, which affects the
products and services we provide. In general, these regulations are designed to protect consumers who deal with us and not to protect our stockholders.

Regulation of Payday Lending

Our payday lending and other consumer lending activities are subject to regulation and
supervision primarily at the state and federal levels. In those jurisdictions where we make consumer loans directly to consumers (currently all states in which we operate other than Texas), we are licensed as a payday lender where required and are
subject to various state regulations regarding the terms of our payday loans and our policies, procedures and operations relating to those loans. In some states, payday lending is referred to as deferred presentment, deferred deposit or consumer
installment loans. Typically, state regulations limit the amount that we may lend to any consumer and, in some cases, the number of loans or transactions that we may make to any consumer at one time or in the course of a year. These state
regulations also typically restrict the amount of finance or service charges or fees that we may assess in connection with any loan or transaction and may limit a customers ability to renew a loan. We must also comply with the disclosure
requirements of the Federal Truth-In-Lending Act and Regulation Z promulgated by the Board of Governors of the Federal Reserve System pursuant to that Act, as well as the disclosure requirements of certain state statutes (which are usually similar
or equivalent to those federal disclosure requirements). The state statutes also often specify minimum and maximum maturity dates for payday loans and, in some cases, specify mandatory cooling-off periods between transactions. Our collection
activities regarding past due loans may also be subject to consumer protection laws and regulations relating to debt collection practices adopted by the various states, and some states restrict the content of advertising regarding our payday loan
activities. Additionally, we are subject to the Equal Credit Opportunity Act, the Gramm-Leach-Bliley Act, and with respect to our credit services agreement with a third-party lender, the Fair Debt Collection Practices Act.

During the last few years, legislation has been introduced in the U.S. Congress and in certain state legislatures, and regulatory authorities have
proposed or publicly addressed the possibility of proposing regulations, that would prohibit or severely restrict payday loans. In 2006, two measures passed that effectively preclude payday loans. In Oregon, a ballot initiative added a provision to
the state constitution



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that placed a 36% cap on payday loans, which went into effect July 1, 2007, effectively banning payday loans in Oregon as of that date. Similarly,
effective October 1, 2007, a new federal law prohibits loans of any type to members of the military and their family with charges in excess of 36% per annum. Again, this federal legislation has the practical effect of banning payday
lending to the military. Similarly, payday loan legislation in Illinois, which took effect in December 2005, had the practical effect of severely limiting payday loans in that state. Likewise, the state of Georgia in 2004 enacted a law banning
payday loans in that state.

We continue, with others in the payday loan industry, to inform and educate legislators and to oppose
legislative or regulatory action that would prohibit or severely restrict payday loans. These types of legislative or regulatory actions have had and in the future could have a material adverse effect on our loan-related activities and revenues.
Moreover, similar action by states where we are not currently conducting business could result in us having fewer opportunities to expand.

Prior to September 30, 2005, we originated payday loans at all of our locations, except for branches in North Carolina and Texas. In North Carolina, prior to the closure of our North Carolina branches during October and November 2005,
we had an arrangement with a Delaware state-chartered bank to originate and service payday loans for that bank in North Carolina. We entered into the arrangement with the bank in April 2003. Under the terms of the agreement, we marketed and serviced
the banks loans in North Carolina, and the bank sold to us a pro rata participation in loans that were made to its borrowers. In September 2005, we terminated the arrangement with the bank.

In February 2005, we entered into a separate arrangement with a different Delaware state-chartered bank to originate and service payday loans for that
bank in Texas. In September 2005, we terminated the arrangement and began operating as a credit services organization in our Texas branches. The two Delaware banks for which we previously acted as a marketing and servicing provider are subject to
supervision and regular examinations by the Delaware Office of the State Bank Commissioner and the FDIC. The decision to close our branches in North Carolina and to terminate our agreement with the Delaware bank offering loans in Texas reflected the
difficult operating environment associated with guidelines issued by the FDIC. In July 2003, the FDIC issued guidelines governing permissible arrangements between a state-chartered bank and a marketing and servicing provider of the banks
payday loans. In March 2005, the FDIC issued revised guidelines. The revised FDIC guidelines also imposed various limitations on bank payday loans, which effectively limited the benefits of the bank agency model in places like North Carolina and
Texas. In February 2006, the FDIC reportedly advised FDIC-insured banks that they could no longer offer payday loans through marketing and servicing agents.

As a result of our prior arrangements with the two Delaware banks, our activities regarding loans made by those banks are also subject to examination by the FDIC and the other regulatory authorities to which the banks
are subject. To the extent an examination involves review of those loans and related processes, the regulatory authority may require us to provide requested information and to grant access to our pertinent locations, personnel and records.

Regulation of Credit Services Organization

We are subject to regulation in Texas with respect to our CSO under Chapter 393 of the Texas Finance Code, which requires the registration of our CSO with the secretary of state. We are required to update our
registration statement on an annual basis. We must also comply with various disclosure requirements, which include providing the consumer with a disclosure statement and contract that detail the services to be performed by the CSO and the total cost
of those services along with various other items. In addition, our CSO is required to obtain a credit service organization bond and a third-party collector bond for each branch in Texas in the amount of $10,000 each from a surety company authorized
to do business in Texas.



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Regulation of Check Cashing

We are subject to regulation in several jurisdictions in which we operate that require the registration or licensing of check cashing companies or regulate the fees that check cashing companies may impose. Some states
require fee schedules to be filed with the state, while others require the conspicuous posting of the fees charged for cashing checks by each branch. In other states, check cashing companies are required to meet minimum bonding or capital
requirements and are subject to record-keeping requirements. We are licensed in each of the states or jurisdictions in which a license is currently required for us to operate as a check cashing company and have filed our schedule of fees with each
of the states or other jurisdictions in which such a filing is required. To the extent those states have adopted ceilings on check cashing fees, the fees we currently charge are at or below the maximum ceiling.

Regulation of Money Transmission and Sale of Money Orders

We are subject to regulation in several jurisdictions in which we operate that (1) require the registration or licensing of money transmission companies or companies that sell money orders and (2) regulate
the fees that such companies may impose. In some states, companies engaged in the money transmission business are required to meet certain minimum bonding and/or capital requirements, are prohibited from commingling the proceeds from the sale of
money orders with other funds and are subject to various record-keeping requirements. We are licensed in each of the states or jurisdictions in which a license is currently required for us to operate as a money transmitter. In some states we act as
agent for Western Union in the sale of money orders. Certain states, including California where we operate 82 branches, have enacted so-called prompt remittance statutes, which specify the maximum time for payment of proceeds from the
sale of money orders to the issuer of the money orders. These statutes limit the number of days, known as the float, that we have use of the money from the sale of a money order.

Currency Reporting Regulation

Regulations
promulgated by the United States Department of the Treasury under the Bank Secrecy Act require reporting of transactions involving currency in an amount greater than $10,000. In general, every financial institution must report each deposit,
withdrawal, exchange of currency or other payment or transfer that involves currency in an amount greater than $10,000. In addition, multiple currency transactions must be treated as a single transaction if the financial institution has knowledge
that the transactions are by, or on behalf of, any one person and result in either cash in or cash out totaling more than $10,000 during any one business day. In addition, the regulations require institutions to maintain information concerning sales
of monetary instruments for cash amounts between $3,000 and $10,000. The records maintained must contain certain information about the purchaser(s), with different requirements for transactions involving customers with deposit accounts and those
without deposit accounts. The rule states that no sale may be completed unless the required information is obtained. We believe that our point-of-sale system and employee training programs support our compliance with these regulatory requirements.

Also, money services businesses are required by the Money Laundering Act of 1994 to register with the United States Department of the
Treasury. Money services businesses include check cashers and sellers of money orders. Money services businesses must renew their registrations every two years, maintain a list of their agents, update the agent list annually and make the agent list
available for examination. In addition, the Bank Secrecy Act requires money services businesses to file a Suspicious Activity Report for any transaction conducted or attempted involving amounts individually or in total equaling $2,000 or greater,
when the money services business knows or suspects that the transaction involves funds derived from an illegal activity, the transaction is designed to evade the requirements of the Bank Secrecy Act or the transaction is considered so unusual that
there appears to be no reasonable explanation for the transaction.



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The USA PATRIOT Act includes a number of anti-money laundering measures designed to prevent the banking
system from being used to launder money and to assist in the identification and seizure of funds that may be used to support terrorist activities. The USA PATRIOT Act includes provisions that directly impacts check cashers and other money services
businesses. Specifically, the USA PATRIOT Act requires all check cashers to establish certain programs to identify accurately the individual conducting the transaction and to detect and report money-laundering activities to law enforcement. We have
established various procedures and continue to monitor and evaluate any such actions and believe we are in compliance with the USA PATRIOT Act.

Privacy Regulation

We are subject to a variety of federal and state laws and regulations restricting the use and
seeking to protect the confidentiality of the customer identity and other personal customer information. We have identified our systems that capture and maintain non-public personal information, as that term is used in the privacy provisions of the
Gramm-Leach-Bliley Act and its implementing federal regulations. We disclose our public information policies to our customers as required by that law. We have systems in place intended to safeguard this information as required by the
Gramm-Leach-Bliley Act.

Zoning and Other Local Regulation

We are also subject to increasing levels of zoning and other local regulations, such as regulations affecting the granting of business licenses. Certain municipalities have used or are attempting to use these types of
regulatory authority to restrict the growth of the payday loan industry. These zoning and similar local regulatory actions can affect our ability to expand in that municipality and may affect a sellers ability to transfer licenses or leases to
us in conjunction with an acquisition.

Employees

On December 31, 2007, we had 2,074 employees, consisting of 1,816 branch personnel, 132 field managers and 126 corporate office employees.

We believe our relationship with our employees is good, and we have not suffered any work stoppages or labor disputes. We do not have any employees that
operate under a collective bargaining agreement.

Available Information

We file annual and quarterly reports, proxy statements, and other information with the United States Securities and Exchange Commission, copies of which
can be obtained from the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

Reports we file electronically with the SEC via the SECs Electronic Data Gathering, Analysis and Retrieval system (EDGAR) may be accessed through
the Internet. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at www.sec.gov. We make available free of charge our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and our proxy statement on our website at www.qcholdings.com as soon as it is reasonably practical after each
filing has been made with, or furnished to, the SEC. The SEC filings and additional information about QC Holdings, Inc. can be obtained under the Investment Center section of our website. The contents of these websites are not
incorporated into this report. Further, our references to the URLs for these websites are intended to be inactive textual references only.



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|ITEM 1A. | Risk Factors
|-------- | ------------

The payday loan industry is highly regulated
under state laws. Changes in state laws and regulations governing lending practices could negatively affect our business.

Our
business is regulated under numerous state laws and regulations, which are subject to change and which may impose significant costs or limitations on the way we conduct or expand our business. As of December 31, 2007, 36 states and the District
of Columbia had legislation permitting or not prohibiting payday loans (the remaining 14 states did not have laws specifically authorizing the payday loan business). During 2007, we made payday loans directly in 25 of these 36 states. Until November
2005, we marketed and serviced payday loans for a lending bank in North Carolina. In November 2005, we ceased marketing those loans and ceased operations in North Carolina. In February 2005, we began doing business in Texas, serving as a marketing
and servicing agent through our new payday loan branches in that state for a second lending bank that made payday loans to its customers in Texas. In September 2005, we discontinued marketing and servicing loans for the third-party bank in Texas and
began doing business in Texas as a credit services organization, assisting our customers in Texas in obtaining loans from an unrelated third-party lender.

During the last few years, legislation has been adopted in some states that prohibits or severely restricts payday loans. For example, in 2006, Oregon passed a ballot initiative that effectively caps interest rates
and origination fees on payday loans at 36%, among other provisions. This ballot initiative became effective July 1, 2007, and effectively bans payday lending in Oregon. Similarly, in May 2004, a new law became effective in Georgia that
effectively prohibits direct payday lending in Georgia. In recent years, including 2007, more than 200 bills have been introduced in state legislatures nationwide, including bills in virtually every state in which we are doing business, to revise
the current law governing payday loans in that state. In certain instances, the bills, if adopted, would effectively prohibit payday loans in that state. In other instances, the bills, if adopted, would amend the payday loan laws in ways that would
adversely affect our revenues and earnings in that state. Some states, including Mississippi and Arizona, which are states in which we operate, have sunset provisions in their payday loan laws (with a sunset of 2009 for the current Mississippi law
and a sunset of 2010 for the current Arizona law) that require renewal of the laws by the state legislatures at periodic intervals. Any of these bills, or future proposed legislation or regulations prohibiting payday loans or making them less
profitable or unprofitable, could be passed in any of these states at any time, or existing payday loan laws could expire or be amended. A wide range of legislative or regulatory actions in any number of states could have a material and adverse
effect on our revenues and earnings.

Statutes authorizing payday loans typically provide state agencies that regulate banks and financial
institutions with significant regulatory powers to administer and enforce the law. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory
requirements in different ways or issue new administrative rules, even if not contained in state statutes, that affect the way we do business and may force us to terminate or modify our operations in particular states. They may also impose rules
that are generally adverse to our industry.

States have generally increased their regulatory and compliance requirements for payday loans
in recent years, and our branches are subject to examination by state regulators in most states. We have taken or been required to take certain corrective actions as a result of self-audits or state audits of our branches and anticipate that the
level of regulation and compliance costs will continue to increase.



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Additionally, in many states, the attorney general has scrutinized or continues to scrutinize the payday
loan statutes and the interpretations of those statutes. For instance, in September 2005, the New Mexico Attorney General promulgated regulations (later withdrawn) that would have had the practical effect of limiting the fees and interest on payday
loans to 54% per annum, thus effectively prohibiting payday lending in New Mexico. Similarly, we and other payday lenders operated and were licensed in Indiana under a state law that was generally interpreted to permit payday loans. In January
2000, the Indiana Attorney General issued an opinion that this statute did not allow payday lending. Following the issuance of this opinion, we were sued in two class action lawsuits alleging violations of this statute as interpreted by the Attorney
General. We settled the lawsuits for an aggregate of approximately $1.0 million in 2001. In addition, we materially reduced operations in Indiana after these developments.

Although we were not a party to the proceeding, the North Carolina Commissioner of Banks issued a Notice of Hearing to Advance America, Cash Advance
Centers of North Carolina, Inc. (Advance America) on February 1, 2005. In December 2005, the Commissioner of Banks issued a ruling in this matter in which the Commission determined that Advance America, which marketed, originated, serviced and
collected payday loans on behalf of a state-chartered bank located in Kentucky, violated the North Carolina Consumer Finance Act and the North Carolina Check Cashers Act and ordered Advance America to cease further operations of its payday loan
stores in North Carolina to the extent they make loans on behalf of a lending bank.

Future interpretations of state law in other
jurisdictions or promulgation of regulations or new interpretations, similar to the prior actions in New Mexico, the prior interpretation by the Indiana Attorney General or the ruling by the North Carolina Commissioner of Banks, could have an
adverse impact on our ability to offer payday loans in those states and an adverse impact on our earnings.

The payday loan industry is regulated
under federal law. Changes in federal laws and regulations governing lending practices could negatively affect our business.

Although states provide the primary regulatory framework under which we offer payday loans, certain federal laws also affect our business. For example, because payday loans are viewed as extensions of credit, we must comply with the federal
Truth-in-Lending Act and Regulation Z adopted under that Act. Additionally, we are subject to the Equal Credit Opportunity Act, the Gramm-Leach-Bliley Act, and with respect to our CSO business in Texas, the Fair Debt Collection Practices Act. These
regulations also apply to any lender with which we do business in Texas through our credit services organization business. Any failure to comply with any of these federal laws and regulations could have a material adverse effect on our business,
results of operations and financial condition.

Additionally, anti-payday loan legislation has been introduced in the U.S. Congress
periodically. These efforts culminated in federal legislation in 2006 that limits the interest rate and fees that may be charged on any loans, including payday loans, to any person in the military to 36% per annum. The military lending
prohibition became effective October 1, 2007 and effectively bans payday lending to members of the military or their families. For the year ended December 31, 2007, revenue from loans to members of the military or their families was not
material to our results of operations. Future federal legislative or regulatory action that restricts or prohibits payday loans could have a material adverse impact on our business, results of operations and financial condition.



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The payday loan industry is subject to various local rules and regulations. Changes in these local regulations
could have a material adverse effect on our business, results of operations and financial condition.

In addition to state and
federal laws and regulations, our business is subject to various local rules and regulations such as local zoning regulations and permit licensing. We have seen increasing efforts by local jurisdictions to restrict payday lending through the use of
local zoning and permitting laws. Those zoning-type actions accelerated in 2007. Any actions taken in the future by local zoning boards or other governing bodies to require special use permits for, or impose other restrictions on payday lenders
could impact our growth strategy and have a material adverse effect on our business, results of operations and financial condition.

Litigation and
regulatory actions directed toward our industry and us could adversely affect our operating results, particularly in certain key states.

During the last few years, our industry has been subject to regulatory proceedings, class action lawsuits and other litigation regarding the offering of payday loans, and we could suffer losses from interpretations of state laws in those
lawsuits or regulatory proceedings, even if we are not a party to those proceedings. For example, the North Carolina Commissioner of Banks issued a ruling in 2005 in which it determined that Advance America, which marketed, originated, serviced and
collected payday loans on behalf of a state-chartered bank located in Kentucky, violated various North Carolina consumer statutes. Although we determined to discontinue our operations in North Carolina prior to the time that decision was issued, the
pendency of that matter, among many other factors, caused us to close our North Carolina operations in 2005.

On February 8, 2005, the
Company, including our subsidiary doing business in North Carolina, and Mr. Don Early, our Chairman of the Board and Chief Executive Officer, were sued in North Carolina state court in a putative class action lawsuit filed by two customers of a
Delaware state-chartered bank, for whom we provided certain services in connection with the banks origination of payday loans in North Carolina, prior to closing our North Carolina branches in fourth quarter 2005. The lawsuit alleges that we
violated various North Carolina laws in connection with payday loans made by the bank to the two plaintiffs through our retail locations in North Carolina. The lawsuit alleges that we made the payday loans to the plaintiffs in violation of various
state statutes, and that if we are not viewed as the actual lenders or makers of the payday loans, our services to the bank that made the loans violated various North Carolina statutes. Although we have discontinued our operations in
North Carolina, that lawsuit is continuing, as discussed below under Legal Proceedings.

We are also subject to litigation in
Missouri in which the plaintiff alleges various violations of the state lending laws, as described below under Item 3 Legal Proceedings. The consequences of an adverse ruling in any of the current cases or future litigation or
proceedings could cause us to have to refund fees or interest collected on payday loans, to refund the principal amount of payday loans, to pay treble or other multiple damages, to pay monetary penalties or to modify or terminate our operations in
particular states. We may also be subject to adverse publicity arising out of current or future litigation. Defense of any lawsuits or proceedings, even if we were successful, could require substantial time and attention of our senior officers and
other management personnel that would otherwise be spent on other aspects of our business and could require the expenditure of significant amounts for legal fees and other related costs. Any of these events could have a material adverse effect on
our business, results of operations and financial condition.



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Additionally, regulatory actions taken with respect to one financial service that we offer could
negatively affect our ability to offer other financial services. For example, if we were the subject of regulatory action related to our check cashing, title loans or other products, that regulatory action could adversely affect our ability to
maintain our licenses for payday lending. Moreover, the suspension or revocation of our license or other authorization in one state could adversely affect our ability to maintain licenses in other states. Accordingly, a violation of a law or
regulation in otherwise unrelated products or jurisdictions could affect other parts of our business and adversely affect our business and operations as a whole.

Our business and results of operations may be adversely affected if we are unable to manage our growth effectively.

In the second half of 2004 and all of 2005, we grew our business dramatically, primarily through the opening of 219 de novo branches during that 18-month time period. The dramatic growth in new branches created numerous operating challenges
for us in 2005, including particularly high loan losses in the second and third quarters in 2005, compared to the same quarters in 2004. We believe that the higher loan losses were attributable in part to the challenges of managing that growth.

Managing growth requires a number of key support functions, including the ability to hire, train and retain an adequate number of
experienced managers and employees, the ability to effectively communicate our branch-level policies, procedures and practices to new managers and employees, the ability to identify good branch locations, the ability to obtain government permits and
licenses for new branches and other factors that are beyond our control. Expansion beyond the geographic areas where our branches are presently located will continue to place time demands on management and divert their attention, which could have an
adverse impact on our business and financial results.

While we have completed only one larger acquisition since our initial public
offering in July 2004, we continue to evaluate acquisition opportunities as a regular part of our business. Acquisitions may entail numerous integration risks and impose costs on us, including:



| |  |  | difficulties integrating a workforce that understands and implements our vision of customer service;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | difficulties associated with expanding into new or related businesses as part of acquisitions;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | difficulties integrating acquired operations or services;
| | - |  | ---------------------------------------------------------



| |  |  | the risk of the loss of key employees from acquired businesses;
| | - |  | ---------------------------------------------------------------



| |  |  | diversion of managements attention from our core business;
| | - |  | -----------------------------------------------------------



| |  |  | dilutive issuances of our equity securities (to the extent used to finance acquisitions);
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | incurrence of indebtedness (to the extent used to finance acquisitions);
| | - |  | ------------------------------------------------------------------------



| |  |  | assumption of known and unknown contingent liabilities;
| | - |  | -------------------------------------------------------



| |  |  | the potential impairment of acquired assets; and
| | - |  | ------------------------------------------------



| |  |  | incurrence of significant immediate write-offs.
| | - |  | -----------------------------------------------

In addition, we may not be successful in identifying attractive acquisitions or completing acquisitions on favorable terms. Our failure to identify, close and integrate acquired branches could adversely affect our
business.



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Any disruption in the availability of our information systems could adversely affect operations at our branches.

We rely upon our information systems to manage and operate our branches and business. Each branch is part of an information network
that permits us to maintain adequate cash inventory, reconcile cash balances daily, report revenues and loan losses timely and, in Texas, to access the third-party lenders loan approval system. Our security measures could fail to prevent a
disruption in the availability of our information systems and/or our back-up systems could fail to operate properly. Any disruption in the availability of our information systems could adversely affect our operations and our results of operations.

Our headquarters is currently located at a single location in Overland Park, Kansas. Our information systems and administrative and
management processes are primarily provided to our regions and branches from this location, which could be disrupted if a catastrophic event, such as a tornado, power outage or act of terror, destroyed or severely damaged the headquarters. While we
maintain redundant facilities in Texas with a third-party vendor, any of these catastrophic events could nonetheless adversely affect our operations and our results of operations.

The concentration of our revenues and gross profits in certain states could adversely affect us.

Our branches operate in 24 states. For the year ended December 31, 2007, revenues from our branches located in Missouri, California, Arizona, South Carolina and Kansas represented approximately 57% of our total revenues. Revenues from
Missouri and California represented 24% and 13%, respectively, of our total revenues for the year ended December 31, 2007. For the year ended December 31, 2007, gross profit from our branches located in Missouri, Arizona, California,
Kansas, Illinois, New Mexico, South Carolina and Virginia represented approximately 82% of our total branch gross profit. Gross profit from Missouri and Arizona represented 31% and 13%, respectively, of our total branch gross profit for the year
ended December 31, 2007. While we believe we have a diverse geographic presence, for the near term we expect that significant revenues and gross profit will continue to be generated by certain states, largely due to the currently prevailing
economic, demographic, regulatory, competitive and other conditions in those states. Changes to prevailing economic, demographic, regulatory or any other conditions, including the legislative, regulatory or litigation risks discussed above, in the
markets in which we operate could lead to a reduction in demand for our payday loans, a decline in our revenues or an increase in our provision for doubtful accounts, any of which could result in a deterioration of our financial condition.

The financial performance of our branches in our leading states has been affected from time to time by changes in laws or regulations in
those states. A state may drop from our top five revenue or gross profit states merely as a result of changes in state laws or regulations and without a significant change in the number of branches in a state. This has previously occurred with
Illinois and New Mexico, as described above under Business  Locations.

We currently have a purported class action
lawsuit pending against us in Missouri. See the additional discussion in Item 3 Legal Proceedings of this report. An adverse outcome in this matter could materially and adversely affect our financial condition and results of
operations.

Our quarterly results have fluctuated in the past and may fluctuate in the future. If they fluctuate in the future, the market price of
our common stock could also fluctuate significantly.

Our quarterly results have fluctuated in the past and are likely to continue
to fluctuate in the future. If they do so, our quarterly revenues and operating results may be difficult to forecast. It is possible that our future quarterly results of operations will not meet the expectations of securities analysts or investors.
This could cause a material drop in the market price of our common stock.



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Our business will continue to be affected by a number of factors, including the various risk factors set
forth in this section, any one of which could substantially affect our results of operations for a particular fiscal quarter. Our quarterly results of operations can vary due to:



| |  |  | fluctuations in payday loan demand;
| | - |  | -----------------------------------



| |  |  | fluctuations in our loan loss experience;
| | - |  | -----------------------------------------



| |  |  | acceleration or deceleration of our branch growth rate;
| | - |  | -------------------------------------------------------



| |  |  | fluctuations in our revenue growth;
| | - |  | -----------------------------------



| |  |  | changes in broad economic factors, such as energy prices, average hourly wage rates, inflation or bankruptcy; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | regulatory and legislative activity restricting our business.
| | - |  | -------------------------------------------------------------

Media reports and public perception of payday loans as being predatory or abusive could adversely affect our business.

Over the past few years, consumer advocacy groups and certain media reports have advocated governmental action to prohibit or severely restrict payday loans. The consumer groups and media reports typically focus on
the cost to a consumer for this type of loan, which is higher than the interest typically charged by credit card issuers. This difference in credit cost is more significant if a consumer does not promptly repay the loan, but renews, or rolls over,
that loan for one or more additional short-term periods. The consumer groups and media reports typically characterize these payday loans as predatory or abusive toward consumers. If this negative characterization of our payday loans becomes widely
accepted by consumers, demand for our payday loans could significantly decrease, which could adversely affect our results of operations and financial condition. Negative perception of our payday loans or other activities could also result in our
industry being subject to more restrictive laws and regulations and greater exposure to litigation.

If we lose key managers or are unable to attract
and retain the talent required for our business, our operating results could suffer.

Our future success depends to a significant
degree upon the members of our senior management, particularly Don Early, our Chairman of the Board and Chief Executive Officer, Mary Lou Andersen, our Vice Chairman of the Board and Secretary, and Darrin J. Andersen, our President and Chief
Operating Officer. We believe that our corporate culture and success are tied directly to the influence of Mr. Early and Ms. Andersen. Mr. Andersen has also been critical to our growth through acquisitions and new branch openings.
Accordingly, we believe that the loss of the services of any of these individuals could adversely affect our business. Our continued growth will also depend upon our ability to attract and retain additional skilled management personnel. Competition
for highly skilled and experienced management is intense and likely to continue and increase. To the extent that we are unable to attract and retain the talent required for our business, our operating results could suffer.



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We lack product and business diversification. Accordingly, our future revenues and earnings are more susceptible to
fluctuations than a more diversified company.

Our primary business activity is offering and servicing payday loans. We also provide
certain related services, such as check cashing, title loans, installment loans, credit services, money transfers and money orders, which accounted for approximately 14.5% of our revenues in 2007. If we are unable to maintain and grow the operating
revenues from our payday loan business, our future revenues and earnings are not likely to grow and could decline. Our lack of product and business diversification could inhibit the opportunities for growth of our business, revenues and profits.

Competition in the retail financial services industry is intense and could cause us to lose market share and revenues.

We believe that the primary competitive factors in the payday loan industry are branch location and customer service. We face intense competition in the
payday loan industry, and we believe that the payday lending market is becoming more competitive as this industry matures and begins to consolidate. The payday loan industry has low barriers to entry, and new competitors may enter the market easily.
We currently compete with services, such as overdraft protection offered by traditional financial institutions, and with other payday loan and check cashing branches and other financial service entities and retail businesses that offer payday loans
or other similar financial services, as well as a rapidly growing internet-based payday loan segment. Some of our competitors have larger and more established customer bases and substantially greater financial, marketing and other resources than we
have. As a result, we could lose market share and our revenues could decline, thereby affecting our earnings and potential for growth.

General
economic conditions affect our loan losses, and accordingly, our results of operations could be adversely affected by a general economic slowdown.

Provision for losses is one of our largest operating expenses, constituting 25.5% of total revenues for the year ended December 31, 2007, with payday loan losses constituting most of the losses. During each
period, if a customer does not repay a payday loan when due and the check we present for payment is returned, all accrued fees, interest and outstanding principal are charged off as uncollectible. Any changes in economic factors that adversely
affect our customers could result in a higher loan loss experience than anticipated, which could adversely affect our loan charge-offs and operating results. For example, we believe our loan losses increased during the second half of 2007 as a
result of the turmoil in the sub-prime lending markets and its ripple effect throughout the United States economy. As another example, we believe that our loan loss experience in third quarter 2005 was adversely affected as a result of an increase
in customer bankruptcies prior to a significant change in the bankruptcy laws in October 2005. Similar difficult financial and economic markets and conditions could increase our loan losses and adversely affect our results of operations and
financial condition.

If estimates of our loan losses are not adequate to absorb actual losses, our financial condition and results of operations may
be adversely affected.

We maintain an allowance for loan losses at levels to cover the estimated incurred losses in the collection
of our loan portfolio outstanding at the end of each applicable period. Our methodology for estimating the allowance for loan loses utilizes a four-step approach, which reflects the short-term nature of the loan portfolio at each period-end, the
historical collection experience in the month following each reporting period-end and any fluctuations in recent general economic conditions. Our allowance for loan losses was $4.4 million on December 31, 2007. Our allowance for loan losses is
an estimate, and if actual loan losses are materially greater than our allowance for losses, our financial condition and results of operations could be adversely affected.



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Because we maintain a significant supply of cash in our branches, we may experience losses due to employee error
and theft.

Because our business requires us to maintain a significant supply of cash in our branches, we are subject to the risk of
cash shortages resulting from employee error and theft. We periodically experience employee error and theft in branches, which can significantly increase the operating losses of those branches for the period in which the employee error or theft is
discovered. We self-insure for employee error or theft at the branch level. If our controls to limit our exposure to employee error and theft at the branch level and at our corporate headquarters do not operate effectively or are structured
ineffectively, our financial condition and results of operations could be adversely affected.

We depend on loans and cash management services from
banks to operate our business. If banks decide to stop making loans or providing cash management services to us, it could have a material adverse affect on our business, results of operations and financial condition.

We depend on borrowings under our revolving credit facility to fund loans, capital expenditures and other needs. If our current or potential credit banks
decide not to lend money to companies in our industry, our ability to borrow at competitive interest rates, our ability to grow our business and our cash availability could be adversely affected. Certain banks have notified us and other companies in
the payday loan and check-cashing industries that they will no longer maintain bank accounts for these companies due to reputation risks and increased compliance costs of servicing money services businesses and other cash intensive industries. While
none of our primary depository banks has requested that we close our bank accounts or placed other restrictions on how we use their services, if any of our larger current or future depository banks were to take such actions, we could face higher
costs of managing our cash and limitations on our ability to grow our business, both of which could have a material adverse effect on our business, results of operations and financial condition.

Regular turnover among our branch managers and branch-level employees makes it more difficult for us to operate our branches and increases our costs of operation.

We experience high turnover among our branch managers and our branch-level employees. In 2007, we sustained approximately 42%
turnover among our branch managers and approximately 153% turnover among our branch-level employees. Turnover interferes with implementation of branch operating strategies. High turnover in the future would perpetuate these operating pressures and
increase our operating costs and could restrict our ability to grow.

Additionally, high turnover creates challenges for us in maintaining
high levels of employee awareness of and compliance with our internal procedures and external regulatory compliance requirements.

From time to time,
we utilize borrowings under our credit facility to fund our liquidity and capital needs, and these borrowings, which increase our leverage and reduce our financial flexibility, are subject to various restrictions and covenants.

On December 7, 2007, we entered into an amended and restated credit agreement with a syndicate of banks, which provides for a term loan of $50
million and a revolving line of credit in the aggregate principal amount of up to $45 million. The maximum borrowings under the amended credit facility may be increased to $120 million pursuant to bank approval in accordance with the terms set forth
in the first amendment to the credit facility as of March 7, 2008. The terms of our amended and restated credit agreement include provisions that directly or indirectly affect our ability to repurchase our common stock on the open market or in
negotiated transactions, our ability to pay cash dividends on our common stock, and our ability to pursue acquisitions or other strategic ventures that would require us to borrow additional amounts.



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The borrowings under the term loan were used to fund a $48.5 million special cash dividend to
stockholders on December 27, 2007, which increased our leverage and reduced our financial flexibility. Because we typically use substantially all of our available cash generated from our operations to repay borrowings on our revolving credit
facility on a current basis and to fund the scheduled amortization repayments under the term loan, we have limited cash balances and we expect that a substantial portion of our liquidity needs, including any amounts to pay any future cash dividends
on our common stock, will be funded primarily from borrowings under our revolving credit facility. As of December 31, 2007, we had approximately $20.5 million available for future borrowings under this facility. Due to the seasonal nature
of our business, our borrowings are historically the lowest during the first calendar quarter and increase during the remainder of the year. If our existing sources of liquidity are insufficient to satisfy our financial needs, we may need to raise
additional debt or equity in the future. If we are unable to do so, our ability to finance our current operations or future growth may be adversely affected.

Our revolving credit facility contains restrictions and limitations that could significantly affect our ability to operate our business.

Our revolving credit facility contains a number of significant covenants that could adversely affect our business. These covenants restrict our ability, and the ability of our subsidiaries to, among other things:



| |  |  | incur additional debt;
| | - |  | ----------------------



| |  |  | create liens;
| | - |  | -------------



| |  |  | effect mergers or consolidations;
| | - |  | ---------------------------------



| |  |  | make investments, acquisitions or dispositions;
| | - |  | -----------------------------------------------



| |  |  | pay dividends, repurchase stock or make other payments;
| | - |  | -------------------------------------------------------



| |  |  | enter into certain sale and leaseback transactions; and
| | - |  | -------------------------------------------------------



| |  |  | become subject to further restrictions on the creation of liens.
| | - |  | ----------------------------------------------------------------

The breach of any covenant or obligation in our revolving credit facility will result in a default. If there is an event of default under our revolving credit facility, the lenders under the revolving credit facility
could cause all amounts outstanding thereunder to be due and payable, subject to applicable grace periods. This could trigger cross-defaults under our other existing or future debt instruments. As a result, our ability to respond to changing
business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might further our growth strategy. If we are unable to repay, refinance or
restructure our indebtedness under our revolving credit facility, the lenders under that facility could proceed against the collateral securing that indebtedness. Our obligations under the revolving credit facility are guaranteed by each of our
existing and future domestic subsidiaries. The borrowings under the revolving credit facility are secured by substantially all of our assets and the assets of the subsidiary guarantors. In addition, borrowings under the revolving credit facility are
secured by a pledge of substantially all of the capital stock, or similar equity interests, of the subsidiary guarantors. In the event of our insolvency, liquidation, dissolution or reorganization, the lenders under our revolving credit facility and
any other existing or future debt of ours would be entitled to payment in full from our assets before distributions, if any, were made to our stockholders.



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##### Table of Contents

Our executive officers, directors and principal stockholders may be able to exert significant control over our
strategic direction.

Our directors and executive officers own or have the power to vote in excess of 62% of our outstanding common
stock as of December 31, 2007. Don Early, our Chairman of the Board and Chief Executive Officer, owned approximately 41.1% directly and 1.3% indirectly of our outstanding common stock as of December 31, 2007. The election of each director
requires a plurality of the shares voting for directors at a meeting of stockholders at which a quorum is present. Approval of a significant corporate transaction, such as a merger or consolidation of the company, a sale of all or substantially all
of its assets or a dissolution of the company, requires the affirmative vote of a majority of the outstanding shares of our common stock. Other actions requiring stockholder approval require the affirmative vote of a majority of the shares of common
stock voting on the matter, provided that a quorum is present. A quorum requires the presence of a majority of the shares outstanding. As a result, one or more stockholders owning a relatively low percentage of the outstanding shares of our common
stock could, acting together with Mr. Early, control all matters requiring our stockholders approval, including the election of directors and approval of significant corporate transactions. As a result, this concentration of ownership may
delay, prevent or deter a change in control or change in board composition, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the company or its assets and might reduce the market price
of our common stock.

Future sales of shares of our common stock in the public market could depress our stock price.

As of December 31, 2007, our officers and directors held approximately 11.7 million shares of common stock, substantially all of which are
restricted securities under the Securities Act and are eligible for future sale in the public market at prescribed times pursuant to Rule 144 under the Securities Act, or otherwise. In addition, two of our largest stockholders, who own
more than 50% of our outstanding shares, have demand registration rights, which permit them to require the company to register all or any part of those shares for resale by those stockholders. Sales of a significant number of these shares of common
stock in the public market could reduce the market price of our common stock. The daily trading volume in our stock, since our initial public offering in July 2004, has been low, and is frequently under 50,000 shares traded in a day. Accordingly,
the sale of even a relatively small number of shares by our officers or directors could reduce the market price of our common stock.

The use of our
common stock to fund acquisitions or to refinance debt incurred for acquisitions could dilute existing shares.

We intend to
consider opportunities to acquire payday loan companies or other businesses. We expect that future acquisitions, if any, could provide for consideration to be paid in cash, shares of our common stock, or a combination of cash and shares. If the
consideration for an acquisition is paid in common stock, existing stockholders investments could be diluted. Furthermore, we may decide to incur debt to fund all or part of the costs of an acquisition. For example, we borrowed $16.3 million
on our revolving credit facility to finance the acquisition of 51 branches in December 2006. We may issue shares of common stock to reduce acquisition-related debt or to provide funds for future acquisitions. The issuance of additional shares of
common stock for those purposes would also dilute our existing stockholders investments.



25



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##### Table of Contents

Our anti-takeover provisions could prevent or delay a change in control of our company even if the change of
control would be beneficial to our stockholders.

Provisions of our articles of incorporation and bylaws as well as provisions of
Kansass law could discourage, delay or prevent a merger, acquisition or other change in control of our company, even if the change in control would be beneficial to our stockholders. These provisions include:



| |  |  | authorizing the issuance of blank check preferred stock that could be issued by our board of directors without a stockholder vote to increase the number
of outstanding shares and thwart a takeover attempt;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limitations on the ability of stockholders to call special meetings of stockholders; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at
stockholder meetings.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We can redeem common stock from a stockholder who is or becomes a disqualified person.

Federal and state laws and regulations applicable to providers of payday loans may now, or in the future, restrict direct or indirect ownership or
control of providers of payday loan services by disqualified persons (such as convicted felons). Our articles of incorporation provide that we may redeem shares of our common stock to the extent deemed necessary or advisable, in the judgment of our
board of directors, to prevent the loss, or to secure the reinstatement or renewal, of any license or permit from any governmental agency that is conditioned upon some or all of the holders of our common stock possessing prescribed qualifications or
not possessing prescribed disqualifications. The redemption price will be the average of the daily closing sale prices per share of our common stock for the 30 consecutive trading days immediately prior to the redemption date fixed by our board of
directors. At the discretion of our board of directors, the redemption price may be paid in cash, debt or equity securities or a combination of cash and debt or equity securities.



|ITEM 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



|ITEM 2. | Properties
|------- | ----------

In February 2005, we entered into a
seven-year lease for new corporate headquarters in Overland Park, Kansas, where we lease approximately 39,000 square feet. In the opinion of management, the corporate office space leased is adequate for existing and foreseeable future operating
needs. Prior to April 2005, our corporate headquarters were located in a 10,000 square foot company-owned building located in Kansas City, Kansas, which is presently leased to an unrelated tenant. In addition, we own three branch locations, in St.
Louis, Missouri, Grandview, Missouri and Jackson, Mississippi. All our other branch locations are leased. Our average branch size is approximately 1,600 square feet with average rent of approximately $2,000 per month. Leases are generally executed
with a minimum initial term of between three to five years with multiple renewal options. We complete all necessary leasehold improvements and required maintenance.



26



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##### Table of Contents

|ITEM 3. | Legal Proceedings
|------- | -----------------

Missouri.On
October 13, 2006, one of the Companys Missouri customers sued the Company in the Circuit Court of St. Louis County, Missouri in a purported class action. The lawsuit alleges violations of the Missouri statute pertaining to unsecured loans
under $500 and the Missouri Merchandising Practices Act. The lawsuit seeks monetary damages and a declaratory judgment that the arbitration agreement with the plaintiff is not enforceable on a variety of theories. The Company has not filed an
answer, but has moved to compel arbitration of this matter. Plaintiff secured the right to have discovery regarding the Companys arbitration provision, however, prior to the courts ruling on the Companys motion. The court heard
oral arguments on the Companys motion in June 2007. On December 31, 2007, the court entered an order striking the class action waiver provision in our customer arbitration agreement, ordered the case to arbitration and dismissed the
lawsuit filed in Circuit Court. In February 2008, we appealed the portion of the courts order striking the class action waiver provision in the arbitration agreement with our customer.

North Carolina. On February 8, 2005, the Company, two of its subsidiaries, including its subsidiary doing business in North Carolina, and
Mr. Don Early, the Companys Chairman of the Board and Chief Executive Officer, were sued in Superior Court of New Hanover County, North Carolina in a putative class action lawsuit filed by James B. Torrence, Sr. and Ben Hubert Cline, who
were customers of a Delaware state-chartered bank for whom the Company provided certain services in connection with the banks origination of payday loans in North Carolina, prior to the closing of the Companys North Carolina branches in
fourth quarter 2005. The lawsuit alleges that the Company violated various North Carolina laws, including the North Carolina Consumer Finance Act, the North Carolina Check Cashers Act, the North Carolina Loan Brokers Act, the state unfair trade
practices statute and the state usury statute, in connection with payday loans made by the bank to the two plaintiffs through the Companys retail locations in North Carolina. The lawsuit alleges that the Company made the payday loans to the
plaintiffs in violation of various state statutes, and that if the Company is not viewed as the actual lenders or makers of the payday loans, its services to the bank that made the loans violated various North Carolina statutes.
Plaintiffs are seeking certification as a class, unspecified monetary damages, and treble damages and attorneys fees under specified North Carolina statutes. Plaintiffs have not sued the bank in this matter and have specifically stated in the
complaint that plaintiffs do not challenge the right of out-of-state banks to enter into loans with North Carolina residents at such rates as the banks home state may permit, all as authorized by North Carolina and federal law. This case is in
the preliminary stages.

There are three similar purported class action lawsuits filed in North Carolina against three other companies
unrelated to the Company. In December 2005, the judge in those three cases (1) granted the defendants motions to stay the purported class action lawsuits and to compel arbitration in accordance with the terms of the arbitration provisions
contained in the consumer loan contracts, (2) ruled that the class action waivers in those consumer loan contracts are valid, and (3) denied plaintiffs motions for class certifications. The plaintiffs in those three cases, who are
represented by the same law firms as the plaintiffs in the case filed against the Company, have appealed that ruling. The judge handling the lawsuit against the Company in North Carolina is the same judge who issued these three orders in December
2005. The Company has not had a ruling on the similar pending motions by the plaintiffs and the Company in its North Carolina case. There is a stay in the North Carolina lawsuit, pending the outcome of the appeal in the other three North Carolina
cases concerning the enforceability of the arbitration provision in the consumer contracts. Accordingly, there will be no ruling on the Companys motion to enforce arbitration in North Carolina during the pendency of that appeal. In January
2007, the North Carolina Court of Appeals heard the appeal in the three companion cases, although it is unknown when the court will issue its ruling.

Other Matters.We are also currently involved in ordinary, routine litigation and administrative proceedings incidental to our business, including customer bankruptcy and employment-related
matters. We believe the likely outcome of these other cases and proceedings will not be material to our business or our financial condition.



27



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##### Table of Contents

|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

No matter was submitted to a vote of our stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of 2007.

PART II



|ITEM 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

Market Information

We completed the public offering
of our common stock on July 21, 2004 at an initial offering price of $14.00 per share. Our common stock is traded on the NASDAQ Global Market (previously NASDAQ National Market) under the ticker symbol QCCO. The following table sets
forth the high and low adjusted closing prices (retroactively adjusted for the special dividend paid on 12/27/2007) for each of the completed quarters since January 1, 2006:



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|2007           |  | High |       | Low
|First quarter  |  | $    | 13.83 |     | $ | 10.54
|Second quarter |  |      | 13.23 |     |   | 10.43
|Third quarter  |  |      | 13.05 |     |   | 10.52
|Fourth quarter |  |      | 13.15 |     |   | 9.63 
|               |  |     
|2006           |  | High |       | Low
|First quarter  |  | $    | 10.47 |     | $ | 9.04 
|Second quarter |  |      | 12.51 |     |   | 10.17
|Third quarter  |  |      | 12.27 |     |   | 9.61 
|Fourth quarter |  |      | 12.89 |     |   | 9.01 

The year-end closing prices of our common stock for 2007 and 2006 were $11.25 and $15.96,
respectively.

Holders

As of
March 5, 2008 there were approximately 1,290 holders of record and beneficial owners of our common stock.

Dividends

In December 2007, our board of directors approved a special cash dividend of $2.50 per share of common stock in conjunction with the recapitalization of
our balance sheet. The special dividend totaled approximately $48.5 million and was paid on December 27, 2007 to stockholders of record at the close of business on December 18, 2007. In addition, we paid dividends in each quarter of 2007
at a rate of $.10 per share. For the year ended December 31, 2007, we paid $56.4 million in dividends to our stockholders.



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##### Table of Contents

Our board of directors did not approve a cash dividend for the first quarter of 2008 and has not
determined whether to pay any quarterly or an annual cash dividend for 2008. The declaration of dividends is subject to the discretion of our board of directors. The future determination as to the payment of cash dividends will depend on our
operating results, financial condition, cash and capital requirements and other factors as the board of directors deems relevant.

Our
credit agreement requires us to maintain a Fixed Charge Coverage Ratio (computed in accordance with the credit agreement) of not less than 1.20 to 1.00 for the first three calendar quarters of 2008 and not less than 1.25 to 1.00 for the fourth
calendar quarter of 2008. Under our credit agreement, we are required to subtract any cash dividends paid on our common stock from our Operating Cash Flow amount used in computing our Fixed Charge Coverage Ratio. Thus, our credit agreement may
restrict our ability to pay cash dividends in the future.

Securities Authorized For Issuance Under Equity Compensation Plans

The following table sets forth certain information about our securities authorized for issuance under our equity compensation plans as of
December 31, 2007.



|                                                           |  |                                                                                           |  |                                                                          |       |                                                                                                                                       |        
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ----- | ------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                              |  | ANumber of securitiesto be issued upon exerciseof outstanding options,warrants and rights |  | BWeighted averageexercise price
ofoutstandingoptions, warrantsand rights |       | CNumber of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in column A)
|Equity compensation plans approved by security holders     |  | 2,436,910                                                                                 |  | $                                                                        | 10.32 |                                                                                                                                       | 586,519
|Equity compensation plans not approved by security holders |  | N/A                                                                                       |  |                                                                          | N/A   |                                                                                                                                       | N/A    
|                                                           |  |                                                                                           |  |                                                                          |       |                                                                                                                                       |        
|Total                                                      |  | 2,436,910                                                                                 |  | $                                                                        | 10.32 |                                                                                                                                       | 586,519
|                                                           |  |                                                                                           |  |                                                                          |       |                                                                                                                                       |        

As of December 31, 2007, equity compensation plans approved by security holders include our
1999 Stock Option Plan, our 2004 Equity Incentive Plan and an option to purchase 200,000 shares of common stock granted to Mr. Robert L. Albin, an officer of the company. The stock options granted to Mr. Albin were pursuant to a prior
consulting agreement with us. Securities remaining available for future issuance under equity compensation plans approved by security holders consist solely of shares available under the 2004 Equity Incentive Plan. Securities remaining available for
future issuance under our 2004 Equity Incentive Plan may be issued, in any combination, as incentive stock options, non-qualified stock options, stock appreciation rights, performance share awards, restricted stock or other incentive awards of, or
based on, our common stock.

We do not have any equity compensation plans other than the plans approved by our security stockholders.



29



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##### Table of Contents

Recent Sales of Unregistered Securities

Since July 21, 2004, the date of our public offering, we have not made any unregistered sales of securities.

Stock Repurchases

The board of directors has
authorized us to repurchase our common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in our stock-based compensation programs.

On July 31, 2007, our board of directors increased our $30 million common stock repurchase program to $40 million. During 2007, we repurchased
1.3 million shares for approximately $18.2 million. As of December 31, 2007, we have repurchased a total of 3.0 million shares at a total cost of approximately $38.3 million, which leaves approximately $1.7 million that may yet be
purchased under the current program.

The following table sets forth certain information about the shares of common stock we repurchased
during the fourth quarter of 2007.



|                             |  |                               |  |                            |       |                                                                   |         |                                                                                  |   |          
|---------------------------- |  | ----------------------------- |  | -------------------------- | ----- | ----------------------------------------------------------------- | ------- | -------------------------------------------------------------------------------- | - | ---------
|Period                       |  | TotalNumber ofSharesPurchased |  | AveragePrice PaidPer Share |       | Total Number ofSharesPurchased asPart of PubliclyAnnouncedProgram |         | MaximumApproximateDollar Value ofShares that MayYet
BePurchased Underthe Program
|October 1  October 31(a)    |  | 139                           |  | $                          | 15.71 |                                                                   |        |                                                                                  | $ | 7,873,159
|November 1  November 30     |  |                              |  |                            |      |                                                                   |        |                                                                                  |   | 7,873,159
|December 1  December 31 (a) |  | 512,154                       |  | $                          | 12.17 |                                                                   | 508,925 |                                                                                  |   | 1,678,790



|(a) | Stock repurchases of 139 shares in October 2007 and 3,229 shares in December 2007 were made in connection with the funding of employee income tax withholding obligations arising
from the vesting of restricted shares.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On March 11, 2008, our board of directors increased the authorization limit of
our common stock repurchase program to $60 million and extended the program through June 30, 2009.



30



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##### Table of Contents

Performance Graph

The following Performance Graph and related information shall not be deemed soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

The following table compares total stockholder returns for the company since our initial public offering in July 2004 to the NASDAQ U.S. Index and our
peer group assuming a $100 investment made on July 16, 2004 and assumes that all dividends are reinvested. The stock performance shown on the graph below is not necessarily indicative of future price performance. Our peer group consists of
Advance America, Cash Advance Centers, Inc., Cash America International, Inc., Dollar Financial Corp., EZCORP, Inc. and First Cash Financial Services, Inc.

LOGO



|                   |  |           |        |            |   |            |  |            |        |            |   |        |  |   |       
|------------------ |  | --------- | ------ | ---------- | - | ---------- |  | ---------- | ------ | ---------- | - | ------ |  | - | ------
|Company Name/Index |  | 7/16/2004 |        | 12/31/2004 |   | 12/31/2005 |  | 12/31/2006 |        | 12/31/2007
|QC Holdings, Inc.  |  | $         | 100.00 |            | $ | 136.86     |  | $          | 82.36  |            | $ | 114.00 |  | $ | 100.86
|NASDAQ U.S. Index  |  |           | 100.00 |            |   | 115.66     |  |            | 118.20 |            |   | 130.34 |  |   | 143.27
|Peer Group         |  |           | 100.00 |            |   | 139.16     |  |            | 97.75  |            |   | 172.69 |  |   | 127.01



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##### Table of Contents

|ITEM 6. | Selected Financial Data
|------- | -----------------------

The following table sets
forth our selected consolidated financial data at the dates and for the periods indicated. Selected financial data should be read in conjunction with, and is qualified in its entirety by, Managements Discussion and Analysis of Financial
Condition and Results of Operations and our Consolidated Financial Statements and the Notes thereto appearing elsewhere in this report. All share and per share information has been restated to reflect the 10 for 1 stock split in the form of a
stock dividend that the board of directors approved on June 9, 2004.



|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|--------------------------------------------------------- | ----------------------------------------------- | ----------------------- | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - | ---- | - | ---------- | - |  | - | ----------
|                                                          |                                                 | Year Ended December 31,
|                                                          | 2003                                            |                         |            | 2004 |  |   | 2005       |   |  | 2006 |            |   | 2007
|                                                          | (in thousands, except share and per share data)
|Revenues:                                                 |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Payday loan fees                                          |                                                 | $                       | 81,195     |      |  | $ | 106,648    |   |  | $    | 139,103    |   |      | $ | 152,354    |   |  | $ | 182,557   
|Other                                                     |                                                 |                         | 11,720     |      |  |   | 11,562     |   |  |      | 13,775     |   |      |   | 19,928     |   |  |   | 31,027    
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Total revenues                                            |                                                 |                         | 92,915     |      |  |   | 118,210    |   |  |      | 152,878    |   |      |   | 172,282    |   |  |   | 213,584   
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Branch expenses:                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Salaries and benefits                                     |                                                 |                         | 19,605     |      |  |   | 25,043     |   |  |      | 38,073     |   |      |   | 44,027     |   |  |   | 47,046    
|Provision for losses                                      |                                                 |                         | 19,908     |      |  |   | 24,422     |   |  |      | 41,417     |   |      |   | 37,027     |   |  |   | 54,440    
|Occupancy                                                 |                                                 |                         | 10,020     |      |  |   | 11,731     |   |  |      | 19,062     |   |      |   | 22,686     |   |  |   | 27,181    
|Depreciation and amortization                             |                                                 |                         | 1,346      |      |  |   | 1,617      |   |  |      | 3,890      |   |      |   | 4,918      |   |  |   | 4,803     
|Other                                                     |                                                 |                         | 6,848      |      |  |   | 9,499      |   |  |      | 13,521     |   |      |   | 15,470     |   |  |   | 15,560    
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Total branch expenses                                     |                                                 |                         | 57,727     |      |  |   | 72,312     |   |  |      | 115,963    |   |      |   | 124,128    |   |  |   | 149,030   
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Branch gross profit                                       |                                                 |                         | 35,188     |      |  |   | 45,898     |   |  |      | 36,915     |   |      |   | 48,154     |   |  |   | 64,554    
|Regional expenses                                         |                                                 |                         | 5,151      |      |  |   | 6,915      |   |  |      | 9,364      |   |      |   | 11,941     |   |  |   | 12,614    
|Corporate expenses                                        |                                                 |                         | 6,286      |      |  |   | 9,743      |   |  |      | 16,221     |   |      |   | 19,514     |   |  |   | 22,813    
|Depreciation and amortization                             |                                                 |                         | 537        |      |  |   | 753        |   |  |      | 856        |   |      |   | 1,379      |   |  |   | 2,399     
|Interest expense (income), net                            |                                                 |                         | 878        |      |  |   | 451        |   |  |      | (476       | ) |      |   | (317       | ) |  |   | 667       
|Other expense (income), net                               |                                                 |                         | (11        | )    |  |   | (291       | ) |  |      | 715        |   |      |   | 338        |   |  |   | 2,001     
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Income from continuing operations before income taxes     |                                                 |                         | 22,347     |      |  |   | 28,327     |   |  |      | 10,235     |   |      |   | 15,299     |   |  |   | 24,060    
|Provision for income taxes                                |                                                 |                         | 8,605      |      |  |   | 10,790     |   |  |      | 3,912      |   |      |   | 6,090      |   |  |   | 9,458     
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Income from continuing operations                         |                                                 |                         | 13,742     |      |  |   | 17,537     |   |  |      | 6,323      |   |      |   | 9,209      |   |  |   | 14,602    
|Discontinued operations, net of income tax                |                                                 |                         | 182        |      |  |   | 942        |   |  |      | (944       | ) |      |   |            |   |  |   |           
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Net income                                                |                                                 | $                       | 13,924     |      |  | $ | 18,479     |   |  | $    | 5,379      |   |      | $ | 9,209      |   |  | $ | 14,602    
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Earnings (loss) per share (a):                            |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Basic                                                     |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Continuing operations                                     |                                                 | $                       | 0.40       |      |  | $ | 0.98       |   |  | $    | 0.31       |   |      | $ | 0.46       |   |  | $ | 0.76      
|Discontinued operations                                   |                                                 |                         | 0.01       |      |  |   | 0.05       |   |  |      | (0.05      | ) |      |   |            |   |  |   |           
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Net income                                                |                                                 | $                       | 0.41       |      |  | $ | 1.03       |   |  | $    | 0.26       |   |      | $ | 0.46       |   |  | $ | 0.76      
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Diluted                                                   |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Continuing operations                                     |                                                 | $                       | 0.38       |      |  | $ | 0.91       |   |  | $    | 0.29       |   |      | $ | 0.45       |   |  | $ | 0.75      
|Discontinued operations                                   |                                                 |                         | 0.01       |      |  |   | 0.05       |   |  |      | (0.04      | ) |      |   |            |   |  |   |           
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Net income                                                |                                                 | $                       | 0.39       |      |  | $ | 0.96       |   |  | $    | 0.25       |   |      | $ | 0.45       |   |  | $ | 0.75      
|                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Weighted average number of common shares outstanding (a): |                                                 |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |           
|Basic                                                     |                                                 |                         | 15,934,673 |      |  |   | 15,863,948 |   |  |      | 20,507,975 |   |      |   | 19,980,884 |   |  |   | 19,282,859
|Diluted                                                   |                                                 |                         | 16,436,429 |      |  |   | 16,970,374 |   |  |      | 21,447,644 |   |      |   | 20,627,105 |   |  |   | 19,578,285
|                                                          |                                                 |                         |            |      | 
|Cash dividends declared per share                         |                                                 | $                       | 0.03       |      |  | $ | 0.20       |   |  |      |            |   |      | $ | 0.10       |   |  | $ | 2.80      



32



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|                                                                    |                |                         |         |      |  |   |         |   |  |      |         |   |      |   |           |    |  |   |           |  
|------------------------------------------------------------------- | -------------- | ----------------------- | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---- | - | --------- | -- |  | - | --------- | -
|                                                                    |                | Year Ended December 31, |        
|                                                                    | 2003           |                         |         | 2004 |  |   | 2005    |   |  | 2006 |         |   | 2007 |  
|Operating Data:                                                     |                |                         |         |      |  |   |         |   |  |      |         |   |      |   |           |    |  |   |           |  
|Branches (at end of period)                                         |                |                         | 294     |      |  |   | 371     |   |  |      | 532     |   |      |   | 613       |    |  |   | 596       |  
|Percentage change in comparable branch revenues from prior year (b) |                |                         | 13.6    | %    |  |   | 17.1    | % |  |      | 11.4    | % |      |   | (2.6      | )% |  |   | 15.1      | %
|                                                                    |                |                         |         |      | 
|Payday loans:                                                       |                |                         |         |      |  |   |         |   |  |      |         |   |      |   |           |    |  |   |           |  
|Loan volume (in thousands)                                          |                | $                       | 558,503 |      |  | $ | 743,811 |   |  | $    | 985,219 |   |      | $ | 1,051,961 |    |  | $ | 1,265,260 |  
|Average loan (principal plus fee)                                   |                |                         | 314.14  |      |  |   | 337.97  |   |  |      | 361.79  |   |      |   | 363.42    |    |  |   | 366.00    |  
|Average fee                                                         |                |                         | 47.76   |      |  |   | 50.99   |   |  |      | 53.83   |   |      |   | 53.08     |    |  |   | 52.85     |  
|                                                                    |               
|                                                                    |                | As of December 31,      |        
|                                                                    | 2003           |                         |         | 2004 |  |   | 2005    |   |  | 2006 |         |   | 2007 |  
|                                                                    | (in thousands) |                        
|Balance Sheet Data:                                                 |                |                         |         |      |  |   |         |   |  |      |         |   |      |   |           |    |  |   |           |  
|Cash and cash equivalents                                           |                | $                       | 9,497   |      |  | $ | 16,526  |   |  | $    | 31,640  |   |      | $ | 23,446    |    |  | $ | 24,145    |  
|Loans receivable, less allowance for losses                         |                |                         | 35,933  |      |  |   | 49,385  |   |  |      | 52,778  |   |      |   | 66,018    |    |  |   | 72,903    |  
|Total assets                                                        |                |                         | 64,929  |      |  |   | 118,436 |   |  |      | 128,139 |   |      |   | 142,947   |    |  |   | 149,580   |  
|                                                                    |                |                         |         |      | 
|Current debt                                                        |                |                         | 10,974  |      |  |   |         |   |  |      |         |   |      |   | 16,300    |    |  |   | 28,500    |  
|Liability for mandatory stock redemption                            |                |                         | 17,000  |      |  |   |         |   |  |      |         |   |      |   |           |    |  |   |           |  
|Long-term debt                                                      |                |                         | 18,880  |      |  |   |         |   |  |      |         |   |      |   |           |    |  |   | 46,000    |  
|Stockholders equity                                                |                |                         | 9,333   |      |  |   | 106,292 |   |  |      | 110,816 |   |      |   | 104,788   |    |  |   | 52,226    |  



|(a) | Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted
earnings per share is computed giving effect to all dilutive potential common shares that were outstanding during the year. The effect of stock options and restricted stock represent the only differences between the weighted average shares used for
the basic earnings per share computation compared to the diluted earnings per share computation. During 2003 and through June 30, 2004, we used the two-class method for computing basic and diluted earnings per share to consider the effect of
the mandatory stock redemption under a stockholders agreement between the Company and two principal stockholders.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
following table presents the computations of basic and diluted earnings per share for the periods presented.



|                                                                                         |                                                 |                         |        |      |  |   |        |   |      |   |       |  |   |       |  |   |       
|---------------------------------------------------------------------------------------- | ----------------------------------------------- | ----------------------- | ------ | ---- |  | - | ------ | - | ---- | - | ----- |  | - | ----- |  | - | ------
|                                                                                         |                                                 | Year Ended December 31,
|                                                                                         | 2003                                            |                         |        | 2004 |  |   | 2005   |   | 2006 |   | 2007 
|                                                                                         | (in thousands, except share and per share data)
|Income from continuing operations                                                        |                                                 | $                       | 13,742 |      |  | $ | 17,537 |   |      | $ | 6,323 |  | $ | 9,209 |  | $ | 14,602
|Less: reduction to retained earnings in connection with shares subject to redemption (i) |                                                 |                         | (5,296 | )    |  |   |        |   |      |   |       |  |   |       |  |   |       
|Less: dividend and participation rights associated with mandatory stock redemption (ii)  |                                                 |                         | (2,095 | )    |  |   | (2,025 | ) |      |   |       |  |   |       |  |   |       
|                                                                                         |                                                 |                         |        |      |  |   |        |   |      |   |       |  |   |       |  |   |       
|Income from continuing operations available to common stockholders                       |                                                 | $                       | 6,351  |      |  | $ | 15,512 |   |      | $ | 6,323 |  | $ | 9,209 |  | $ | 14,602
|                                                                                         |                                                 |                         |        |      |  |   |        |   |      |   |       |  |   |       |  |   |       



33



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|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|----------------------------------------------------------------------------------------- | ----------------------------------------------- | ----------------------- | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | ---- |  | - | ---------- |  | - | ----------
|                                                                                          |                                                 | Year Ended December 31,
|                                                                                          | 2003                                            |                         |            | 2004 |  |   | 2005       |   |  | 2006 |            | 2007
|                                                                                          | (in thousands, except share and per share data)
|Discontinued operations, net of income tax                                                |                                                 | $                       | 182        |      |  | $ | 942        |   |  | $    | (944       | )    |  |   |            |  |   |           
|Less: dividend and participation rights associated with mandatory stock redemption (ii)   |                                                 |                         | (67        | )    |  |   | (110       | ) |  |      |            |      |  |   |            |  |   |           
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Income (loss) from discontinued operations available to common stockholders               |                                                 | $                       | 115        |      |  | $ | 832        |   |  | $    | (944       | )    |  |   |            |  |   |           
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Income available to common stockholders                                                   |                                                 | $                       | 6,466      |      |  | $ | 16,344     |   |  | $    | 5,379      |      |  | $ | 9,209      |  | $ | 14,602    
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|                                                                                          |                                                
|                                                                                          |                                                 | Year Ended December 31,
|                                                                                          | 2003                                            |                         |            | 2004 |  |   | 2005       |   |  | 2006 |            | 2007
|Weighted average number of actual common shares outstanding                               |                                                 |                         | 18,137,718 |      |  |   | 17,664,107 |   |  |      | 20,507,975 |      |  |   | 19,980,884 |  |   | 19,282,859
|Less: weighted average number of shares from mandatory stock redemption (ii)              |                                                 |                         | (2,203,045 | )    |  |   | (1,800,159 | ) |  |      |            |      |  |   |            |  |   |           
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Weighted average basic common shares outstanding                                          |                                                 |                         | 15,934,673 |      |  |   | 15,863,948 |   |  |      | 20,507,975 |      |  |   | 19,980,884 |  |   | 19,282,859
|Incremental shares from assumed conversion of stock options and unvested restricted stock |                                                 |                         | 501,756    |      |  |   | 1,106,426  |   |  |      | 939,669    |      |  |   | 646,221    |  |   | 295,426   
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Weighted average diluted common shares outstanding                                        |                                                 |                         | 16,436,429 |      |  |   | 16,970,374 |   |  |      | 21,447,644 |      |  |   | 20,627,105 |  |   | 19,578,285
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Earnings (loss) per share                                                                 |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Basic                                                                                     |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Continuing operations                                                                     |                                                 | $                       | 0.40       |      |  | $ | 0.98       |   |  | $    | 0.31       |      |  | $ | 0.46       |  | $ | 0.76      
|Discontinued operations                                                                   |                                                 |                         | 0.01       |      |  |   | 0.05       |   |  |      | (0.05      | )    |  |   |            |  |   |           
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Net income                                                                                |                                                 | $                       | 0.41       |      |  | $ | 1.03       |   |  | $    | 0.26       |      |  | $ | 0.46       |  | $ | 0.76      
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Diluted                                                                                   |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Continuing operations                                                                     |                                                 | $                       | 0.38       |      |  | $ | 0.91       |   |  | $    | 0.29       |      |  | $ | 0.45       |  | $ | 0.75      
|Discontinued operations                                                                   |                                                 |                         | 0.01       |      |  |   | 0.05       |   |  |      | (0.04      | )    |  |   |            |  |   |           
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           
|Net income                                                                                |                                                 | $                       | 0.39       |      |  | $ | 0.96       |   |  | $    | 0.25       |      |  | $ | 0.45       |  | $ | 0.75      
|                                                                                          |                                                 |                         |            |      |  |   |            |   |  |      |            |      |  |   |            |  |   |           



|(i) | With respect to the year ended December 31, 2003, income available to common stockholders is adjusted to reflect the shares subject to redemption as set forth in Emerging
Issues Task Force Topic D-98 (EITF Topic D-98), Classification and Measurement of Redeemable Securities. In January 2003, the Stockholders Agreement was amended to increase our obligation to repurchase shares to $17.0 million from $11.0
million as of December 31, 2002. The amount of increase in the carrying amount of the shares subject to redemption associated with this obligation that was charged directly to retained earnings is included as a reduction to income available to
common stockholders.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) | As set forth in Statement of Financial Accounting Standards No. 150 (SFAS 150), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity, which we adopted on July 1, 2003, the shares considered to be subject to redemption under the Stockholders Agreement for which a liability had been recorded through June 30, 2004 are excluded from weighted average shares for
purposes of computing basic and diluted earnings per share. Further, SFAS 150 requires that the portion of net income representing dividend and participation rights associated with the mandatory stock redemption be removed from income available to
common stockholders pursuant to the two-class method set forth by Statement of Financial Accounting Standards No. 128, Earnings per Share. The Stockholders Agreement was terminated effective June 30, 2004 and the computations for
earnings per share no longer require ongoing adjustments.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Comparable branches are branches that were open during the full periods for which a comparison is being made. For the annual analysis as of December 31, 2007, comparable
branches are those that were open for at least 24 months on that date.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following should be read in conjunction with Item 6 Selected Financial Data and our Consolidated Financial Statements and Notes
included as Item 8 of this report.

EXECUTIVE SUMMARY

We operate primarily through our wholly-owned subsidiaries, QC Financial Services, Inc., QC Auto Services, Inc., QC Loan Services, Inc. and QC E-Services, Inc. QC Financial Services, Inc. is the 100% owner of QC
Financial Services of California, Inc., Financial Services of North Carolina, Inc., QC Financial Services of Texas, Inc., Express Check Advance of South Carolina, LLC, QC Advance, Inc., Cash Title Loans, Inc. and QC Properties, LLC.

We derive our revenues primarily by providing short-term consumer loans, known as payday loans, which represents approximately 85.5% of our total
revenues for the year ended December 31, 2007. We also earn fees for various other financial services, such as installment loans, credit services, check cashing services, title loans, money transfers and money orders. We operated 596 branches
in 24 states at December 31, 2007. In all but one of these states, Texas, we fund our payday loans directly to the customer and receive a fee. Fees charged to customers vary from state to state, generally ranging from $15 to $20 per $100
borrowed, and in most cases, are limited by state law.

In Texas, through one of our subsidiaries, we operate as a CSO on behalf of
consumers in accordance with Texas laws. We charge the consumer a CSO fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers
obligation to the third-party lender. In Illinois and New Mexico, we offer an installment loan product, which is an amortizing loan generally over 4 to 12 months with principal amounts ranging between $300 and $1,000.

In September 2007, we purchased certain assets from an automotive retailer and finance company focused exclusively in the buy-here/pay-here
segment of the used vehicle market in connection with our ongoing efforts to evaluate alternative products that serve our customer base. As of December 31, 2007, we are operating one buy-here/pay-here car lot, which is located in Missouri.

Our expenses primarily relate to the operations of our branch network. The most significant expenses include salaries and benefits for our
branch employees, provisions for losses and occupancy expense for our leased real estate. Regional and corporate expenses, which include compensation of employees, professional fees and equity award charges, are our other primary costs.

We evaluate our branches based on revenue growth, gross profit contributions and loss ratio (which is losses as a percentage of revenues), with
consideration given to the length of time the branch has been open and its geographic location. We evaluate changes in comparable branch metrics on a routine basis to assess operating efficiency. We define comparable branches as those branches that
are open during the full periods for which a comparison is being made. For example, comparable branches for the annual analysis as of December 31, 2007 have been open at least 24 months on that date. We monitor newer branches for their progress
to profitability and rate of loan growth.



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##### Table of Contents

With respect to our cost structure, salaries and benefits are one of our largest costs and are driven
primarily by the addition of branches throughout the year and growth in loan volumes. Our provision for losses is also a significant expense. If a customers check is returned by the bank as uncollected, we make an immediate charge-off to the
provision for losses for the amount of the customers loan, which includes accrued fees and interest. Any recoveries on amounts previously charged off are recorded as a reduction to the provision for losses in the period recovered. We have
experienced seasonality in our operations, with the first and fourth quarters typically being our strongest periods as a result of broader economic factors, such as holiday spending habits at the end of each year and income tax refunds during the
first quarter.

According to the Community Financial Services Association of America (CFSA), industry analysts estimate that the industry
has grown to approximately 22,000 payday loan branches in the United States and these branches extend approximately $40 billion in short-term credit to millions of middle-class households that experience cash-flow shortfalls between paydays. We
believe our industry is highly fragmented as 10 companies operate approximately 10,200 branches in the United States.

The growth of the
payday loan industry has followed, and continues to be significantly affected by, payday lending legislation and regulation in the various states and nationally. We actively monitor and evaluate legislative and regulatory initiatives in each of the
states and nationally, and are closely involved with the efforts of the CFSA. To the extent that states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business
could be adversely affected.

With this fragmentation and industry growth, we believe there are opportunities to expand through
acquisitions and new branch openings. We are actively identifying possible branch locations in numerous states in which we currently operate and evaluating the regulatory environment and market potential in the various states in which we currently
do not have branches. As we consider acquisitions and open new branches, there are various execution risks associated with any such transactions. In the last five years, we have opened 339 new branches, acquired 103 branches and closed 104 branches.

KEY DEVELOPMENTS

Recapitalization
of Balance Sheet.In December 2007, we completed a $95 million recapitalization of our balance sheet designed to return immediate value to our stockholders while preserving financial flexibility to support the companys strategic growth
plan. We restated and amended our prior credit facility to provide a borrowing capacity of $95 million through a $50 million term loan and a $45 million revolving credit facility. The maximum borrowings under the overall credit facility may be
increased to $120 million pursuant to bank approval in accordance with the terms set forth in the first amendment to the credit facility as of March 7, 2008.

Special Dividend.Concurrent with the recapitalization of the balance sheet, our board of directors declared a $2.50 per share special cash dividend that was paid on December 27, 2007 to common
stockholders of record at the close of business on December 18, 2007. The company utilized the $50 million term loan to fund the special cash dividend and related costs.

Closure of Branches. In July 2007, a new law went into effect in Oregon that caps the interest rate that may be charged on a payday loan to
36% per annum. As a result of the new regulation, we closed our eight branches in Oregon during the third quarter 2007. In addition, we closed 34 of our lower performing branches in various states during 2007 (the majority of which were
consolidated into nearby branches) and we terminated the de novo process on eight branches that were never opened. As a result of these closings, we recorded approximately $3.7 million in pre-tax charges for the year ended December 31, 2007.
Summarized financial information for the closed branches is presented below:



|                      |                |                         |        |      |  |   |        |  
|--------------------- | -------------- | ----------------------- | ------ | ---- |  | - | ------ | -
|                      |                | Year Ended December 31, |       
|                      | 2006           |                         |        | 2007 | 
|                      | (in thousands) |                        
|Revenues              |                | $                       | 5,394  |      |  | $ | 1,818  |  
|Provision for losses  |                |                         | 1,296  |      |  |   | 449    |  
|Total branch expenses |                |                         | 6,920  |      |  |   | 3,621  |  
|Branch gross loss     |                | $                       | (1,526 | )    |  | $ | (1,803 | )



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##### Table of Contents

Acquisition of Express Check Advance of South Carolina, LLC. On December 1, 2006, we acquired
all the issued and outstanding membership interests in Express Check Advance of South Carolina, LLC (ECA) for approximately $16.3 million, net of cash acquired. ECA operates 50 payday loan branches in South Carolina. As a result of the acquisition,
we have established a significant presence in South Carolina. The acquisition was funded with a draw on our revolving credit facility.

Introduction of installment loan product. In June 2005, Illinois adopted legislation (effective December 2005) that reduced the rate that may be charged to a customer from $20.32 per $100.00 every two weeks to $15.50 per $100.00
every two weeks. In addition, the legislation included restrictions on the number of transactions a customer may have and the amount that can be borrowed, which adversely affected revenues and gross profit in our Illinois branches in December 2005
and during 2006. Total revenues from our Illinois branches declined from $11.8 million during 2005 to $5.9 million during 2006. Beginning in second quarter 2006, we started providing installment loans to our customers in our Illinois branches, which
generated $2.7 million of revenues during 2006. For the year ended December 31, 2007, revenues from our Illinois branches totaled $10.1 million.

In March 2007, New Mexico adopted legislation (effective November 2007) that reduced the maximum fee that may be charged to a customer from $20.00 per $100.00 borrowed to $15.50 per $100.00 borrowed. In addition, the
new legislation restricts the total number of loans a customer may have and prohibits immediate loan renewals. We expect that this legislation will reduce our payday loan revenue in New Mexico by approximately $8 to $9 million during 2008. This
decline, however, will be substantially offset from revenues from our installment loan product, which we launched in New Mexico during September 2007.

Our installment loans are payable in monthly installments with terms of four to twelve months, and all loans are pre-payable at any time without penalty. The fee for the installment loan is $30 per $100 borrowed per
month. Currently, the maximum amount that we will advance under an installment loan is $1,000. The average principal amount for installment loans originated during 2007 was approximately $526.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

Our
consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America applied on a consistent basis. The preparation of these financial statements
requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis. We base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under
the circumstances. Actual results could vary materially from these estimates under different assumptions or conditions.

We believe that
the following critical accounting policies affect the more significant estimates and assumptions used in the preparation of our financial statements.



37



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##### Table of Contents

Revenue Recognition

We record revenue from payday loans and title loans upon issuance. The term of a loan is generally two to three weeks for a payday loan and 30 days for a title loan. At the end of each month, we record an estimate of
the unearned revenue, which results in revenues being recognized on a constant-yield basis ratably over the term of each loan.

We record
revenues from installment loans using the simple interest method. With respect to our CSO services in Texas, we earn a CSO fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the
consumer, including a guarantee of the consumers obligation to the third-party lender. We also service the loan for the lender. The CSO fee is recognized ratably over the term of the loan.

Generally, we recognize revenue for our other consumer financial products and services, which includes check cashing, money transfers and money orders,
at the time those services are rendered to the customer, which is generally at the point of sale. We recognize revenue from the sale of automobiles at the time the vehicle is delivered to the customer and title has passed. In cases where we finance
the vehicles, the interest is recognized over the term of the loan, which averages 2.5 years, based on the principal outstanding at the time.

Provision
for Losses and Returned Item Policy

We record a provision for losses associated with loans made to customers when checks presented to
the bank for payment are returned as uncollected. On the date we receive a returned check, all accrued fees, interest and outstanding principal are charged off, generally within 16 days after the due date of the loan. Accordingly, the loans included
in our loans receivable balance at any given point in time are typically not older than 30 days. These charge-offs are recorded as expense through the provision for losses. Any recoveries on losses previously charged to expense are recorded as a
reduction to the provision for losses in the period recovered.

To obtain a payday loan from us, a customer must complete a loan
application, provide a valid identification, maintain a personal checking account, have a source of income sufficient to loan some amount to the customer, and not otherwise be in default on a loan from us. We may also require additional information,
such as a pay stub or verification against a statewide database.

During late 2005 and early 2006, we began to require our branch personnel
to perform (at a minimum) two additional origination-based procedures:



| |  |  | calling the bank on which the check from the customer was written to verify the account was open (so that we were not being defrauded at the outset of the
transaction); and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | calling at least one phone number provided by the customer to verify that we had a working number to reach the customer.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

We believe the addition of these two steps produced a meaningful decline in loan defaults in 2006. While we continued to generally follow these loan
origination procedures, in addition to our customary loan procedures, in 2007, these processes were not sufficient to overcome the more challenging credit, financial and economic environment for our customers in 2007. We have tested, and will
continue to test, additional underwriting-type procedures in our branches to assess the potential impact of these procedures on our loan loss experience.



38



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##### Table of Contents

With respect to the loans receivable at the end of each reporting period, we maintain an aggregate
allowance for loan losses (including fees and interest) for payday loans, title loans and installment loans at levels estimated to be adequate to absorb estimated incurred losses in the respective outstanding loan portfolios. We do not specifically
reserve for any individual loan. We aggregate payday loans, title loans and installment loans for purposes of computing the loss allowance based on very similar historical averages of uncollectible amounts as a percentage of volume for each type of
loan (generally ranging from 2% to 5% of the total volume). For purposes of the allowance calculation, installment loans are included with payday loans and title loans based on the expectation that the loss experience for installment loans will be
similar to payday loans and title loans. Beginning in fiscal year 2008, with approximately 18 full months of data available for installment loans, we intend to begin calculating a separate component of the allowance for installment loans. This
component will be added to the payday and title loan allowance total to determine the aggregate allowance for the company. The allowance represents our best estimate of probable losses inherent in the outstanding loan portfolios at the end of each
year.

The methodology for estimating the allowance for loan losses utilizes a four-step approach, which reflects the short-term nature of
the loan portfolio at each period-end, the historical collection experience in the month following each reporting period-end and any fluctuations in recent general economic conditions. First, we compute the loss/volume ratio for the last month of
each reporting period. The loss/volume ratio represents the percentage of aggregate net payday, installment and title loan losses to total payday, installment and title loan volumes during a given period. Second, we compute an adjustment to this
percentage to reflect the collections experience in the month immediately following the reporting period-end. To estimate collections experience, we compute an average of the change in the loss/volume ratio from the last month of each reporting
period to the immediate subsequent month-end for each of the last three years (excluding the current year). This change is then added to, or subtracted from, the loss/volume ratio computed for the last month of the current reporting period to derive
an experience-adjusted loss/volume ratio. Third, the period-end gross payday, installment and title loans receivable balance is multiplied by the experience-adjusted loss/volume ratio to determine the initial estimate of the allowance for loan
losses. Fourth, we review and evaluate various qualitative factors that may or may not affect the computed initial estimate of the allowance for loan losses, including, among others, known changes in state regulations or laws, changes to our
business and operating structure, and geographic or demographic developments. As of December 31, 2007, we determined that no qualitative adjustment to the allowance for loan losses was necessary. As of December 31, 2006, we recorded a
qualitative adjustment of $315,000 to increase the allowance for loan losses as a result of higher than expected loss experience during January 2007 for loans that were outstanding as of December 31, 2006.

Using this information, we record an adjustment to the allowance for loan losses through the provision for losses.

In periods prior to July 1, 2005, the allowance for loan losses was determined by evaluating the aggregate payday and title loan portfolio based on
the historical level of loans charged to expense, and our collections experience over the three months as of March 31, six months as of June 30, nine months as of September 30, and twelve months as of December 31 each year.

We aggregate payday loans, title loans and installment loans for purposes of computing the loss allowance. We believe that aggregation is
appropriate based on very similar historical averages of uncollectible amounts as a percentage of volume for each type of loan (generally ranging between 2% and 5% of total loan volume). Our experience has been that a separate calculation of our
payday, title and installment loan loss allowances would yield a substantially similar result to the combined calculation. If the allowance for loan losses were at the high end of this percentage range, when applied to accounts receivable as of
December 31, 2006 and December 31, 2007 the allowance for loan losses would have increased by approximately $400,000 and $60,000, respectively.



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##### Table of Contents

The following table summarizes the activity in the allowance for loan losses and the provision for losses
during the years ended December 31, 2005, 2006 and 2007:



|                                                                                                                      |                |                         |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------- | -------------- | ----------------------- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                      |                | Year Ended December 31, |        
|                                                                                                                      | 2005           |                         |         | 2006 |  |   | 2007    |  
|                                                                                                                      | (in thousands) |                        
|Allowance for loan losses                                                                                             |                |                         |         |      |  |   |         |   |  |   |         |  
|Balance, beginning of year                                                                                            |                | $                       | 1,520   |      |  | $ | 1,705   |   |  | $ | 2,982   |  
|Adjustments to provision for losses based on evaluation of outstanding receivables at year end (a)                    |                |                         | 185     |      |  |   | 1,277   |   |  |   | 1,460   |  
|                                                                                                                      |                |                         |         |      |  |   |         |   |  |   |         |  
|Balance, end of year                                                                                                  |                | $                       | 1,705   |      |  | $ | 2,982   |   |  | $ | 4,442   |  
|                                                                                                                      |                |                         |         |      |  |   |         |   |  |   |         |  
|Provision for losses                                                                                                  |                |                         |         |      |  |   |         |   |  |   |         |  
|Charge-offs to expense                                                                                                |                | $                       | 74,237  |      |  | $ | 76,232  |   |  | $ | 101,442 |  
|Recoveries                                                                                                            |                |                         | (33,195 | )    |  |   | (40,472 | ) |  |   | (48,522 | )
|Adjustments to provision for losses based on evaluation of outstanding receivables and CSO obligation at year end (a) |                |                         | 375     |      |  |   | 1,267   |   |  |   | 1,520   |  
|                                                                                                                      |                |                         |         |      |  |   |         |   |  |   |         |  
|Total provision for losses                                                                                            |                | $                       | 41,417  |      |  | $ | 37,027  |   |  | $ | 54,440  |  
|                                                                                                                      |                |                         |         |      |  |   |         |   |  |   |         |  



|(a) | Amounts differ in 2005 due to the exclusion of the North Carolina operations in the provision for losses table and differ in 2005, 2006 and 2007 due to the inclusion of changes in
the credit services organization liability in the provision for losses table.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our business is seasonal due to the
fluctuating demand for payday loans throughout the year, with historically higher demand in the month of January and in the fourth quarter of each year. For a typical branch, the loss ratio is typically lower in the first quarter of the year due to
improved collection experience associated with our customers receipt of income tax refunds. The loss ratios for the second and third quarters of each year generally trend higher due to moderate volume activity, and the fourth quarter typically
finishes somewhere in between the other quarters as a result of holiday driven loan volumes.

Accounting for Leasehold Improvements

Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life including reasonably assured lease
renewals. The lease life plus reasonably assured renewals have generally ranged from 1 to 15 years with an average of 7 years. For leases with renewal periods at our option, which are included in substantially all of our operating leases for our
branches, we believe that most of the renewal options are reasonably assured of being exercised due to the following factors: i) the importance of the branch location to the ultimate success of the branch, ii) the significance of the property to the
continuation of service to our customers and to our development of a viable customer-base and iii) the existence of leasehold improvements whose value would be impaired if we vacated or discontinued the use of such property.

Income Taxes

In connection with the preparation of
our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating current tax liability, together with assessing the differences between the
financial statement and tax bases of assets and liabilities as measured by the tax rates that will be in effect when these differences reverse. These differences result in deferred tax assets and liabilities, which are included in the consolidated
balance sheets. As of December 31, 2006 and December 31, 2007, we reported a net deferred tax liability in the consolidated balance sheets.



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Share-Based Compensation

In December 2004, the Financial Accounting Standards Board issued SFAS 123R (SFAS 123R), Share-Based Payment, which we adopted effective January 1, 2006. The revised standard eliminated the intrinsic value
method of accounting required under Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employeesand its related Interpretations and requires entities to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value of the award. We adopted SFAS 123R using the modified prospective transition method of adoption, which does not require restatement of prior periods. Under that
transition method, compensation expense recognized, for all share-based payments granted subsequent to December 31, 2005, is based on the grant date fair value of the stock grants less estimated forfeitures.

Under the fair value recognition provisions of this statement, our share-based compensation cost is measured at the grant date based on the value of the
award and is recognized as expense based on the applicable vesting schedule. Determining the fair value of share-based awards at grant date requires judgment, which includes estimating the amount of share-based awards expected to be forfeited. The
Black-Scholes option pricing model is used to measure fair value for stock option grants, which is the same method used in prior years for disclosure purposes.

In December 2007, we recapitalized our balance sheet and the board of directors declared a special dividend of $2.50 per share that was paid on December 27, 2007. In accordance with certain anti-dilution
provisions in our long-term incentive stock plans, the number and exercise price of all stock options outstanding at the time of the special cash dividend were proportionately adjusted for 94 employees, five non-employee directors and one former
director to maintain the aggregate fair value before and after the special cash dividend. Pursuant to SFAS 123R, these adjustments were accounted for as modifications as a result of an equity restructuring. Based on the anti-dilution provisions in
the long-term incentive plans, we did not record any additional compensation expense for the adjustment to the number and exercise price of the outstanding options.

During 2007, we granted 84,474 shares of restricted stock to certain employees and non-employee directors under the 2004 Equity Incentive Plan. The grants consisted of 71,974 shares to employees that vest ratably over
four years beginning one year from the date of grant and 12,500 shares to non-employee directors that vested immediately upon grant. We estimated that the fair market value of these restricted grants totaled $1.3 million.

During 2006, we granted 675,000 options to certain employees and directors under the 2004 Plan. The options consisted of 627,500 options that vest
ratably over four years beginning one year from the date of grant and 47,500 options that vested immediately upon grant. We estimated that the fair value of these option grants (using the Black-Scholes option valuation model) was approximately $3.4
million. With respect to the 47,500 options that vested immediately, we recorded $236,000 in expense for non-employee director stock-based compensation during the year ended December 31, 2006. All options expire 10 years from the date of grant.
In addition, we granted 106,290 shares of restricted stock to various employees pursuant to restricted stock agreements. These restricted shares vest equally over four years beginning one year from the date of grant. The fair market value of the
restricted shares under these grants was approximately $1.4 million. We also granted 42,000 shares of performance-based share awards during 2006 to four executive employees pursuant to performance-based share award agreements. The vesting of the
performance-based share awards is based on our meeting certain performance goals for the year ended December 31, 2007. The fair market value of these grants was approximately $629,000.



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##### Table of Contents

The following table summarizes the stock-based compensation expense reported in net income for the years
ended December 31, 2006 and 2007:



|                                                |                |                         |       |  |   |      
|----------------------------------------------- | -------------- | ----------------------- | ----- |  | - | -----
|                                                |                | Year Ended December 31,
|                                                | 2006           |                         | 2007 
|                                                | (in thousands)
|Employee stock-based compensation:              |                |                         |       |  |   |      
|Stock options                                   |                | $                       | 795   |  | $ | 795  
|Restricted stock awards                         |                |                         | 177   |  |   | 541  
|Performance-based shares                        |                |                         | 26    |  |   | 603  
|                                                |                |                         |       |  |   |      
|                                                |                |                         | 998   |  |   | 1,939
|Non-employee director stock-based compensation: |                |                         |       |  |   |      
|Stock options                                   |                |                         | 236   |  |   |      
|Restricted stock awards                         |                |                         |       |  |   | 200  
|                                                |                |                         |       |  |   |      
|Total stock-based compensation                  |                | $                       | 1,234 |  | $ | 2,139
|                                                |                |                         |       |  |   |      

As of December 31, 2007, there was $1.8 million of total unrecognized compensation related to
stock options that will be amortized over a period of 2.0 years. In addition, there was $1.5 million of total unrecognized compensation costs related to the restricted stock grants that will be amortized over a weighted average period of 2.5 years.
See the Notes to the Consolidated Financial Statements, Note 12 Stock-Based Compensation for additional information.

Prior to
January 1, 2006,we used the intrinsic value method as described in Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employeesand its related Interpretations, to measure employee
stock-based compensation as permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation.Under this method, compensation expense was measured as the difference between the current
value of the shares involved and the price the employee is required to pay on grant date, if any. Compensation expense was generally measured on the date the awards were granted and recognized over the vesting period, which approximates the
anticipated service period.

The reported net income for the year ended December 31, 2005, does not include any stock-based employee
compensation expense because all stock options granted under our equity compensation plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant. If we had applied the fair value provisions set
forth in SFAS 123 to stock option grants to employees, compensation expense would have been higher than is reported in the consolidated financial statements by approximately $7.1 million for the year ended December 31, 2005.

On May 9, 2005, the compensation committee of our board of directors approved the acceleration of vesting of all unvested options to purchase our
common stock that had an exercise price that was greater than the market price on that date. This action resulted in the accelerated vesting of options to purchase 964,000 shares of our common stock. The weighted average exercise price of the
accelerated options was $15.97 per share. The closing price of our common stock on May 9, 2005 was $13.50 per share.

We accelerated
the vesting of these options because we believed it was in the best interest of our stockholders to reduce future compensation expense that we would otherwise have been required to report in our income statement upon the adoption of SFAS 123R. We
did not accelerate the vesting requirements for unvested options granted to employees with an exercise price that was less than the market price on May 9, 2005, however, these options were scheduled to vest prior to the adoption of SFAS 123R.
As a result, all employee options outstanding as of January 1, 2006 had vested prior to the adoption of SFAS 123R.



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Valuation of Long-Lived Assets

We regularly review the carrying value of our long-lived assets with respect to any events or circumstances that indicate impairment or an adjustment to the amortization period is necessary. If circumstances suggest
the recorded amounts cannot be recovered, which is calculated based upon future undiscounted cash flows estimated to be generated by those assets, the carrying values of these assets are reduced to fair value.

Accounting for Goodwill and Intangible Assets

As of
December 31, 2007, our goodwill and intangible assets totaled $21.0 million. Goodwill and intangible assets require significant management estimates and judgment, including the valuation and life determination in connection with the initial
purchase price allocation and the ongoing evaluation for impairment.

In connection with the purchase price allocations of acquisitions, we
rely on in-house financial expertise or utilize a third-party expert, if considered necessary. The purchase price allocation process requires management estimates and judgment as to expectations for the acquisition. For example, certain growth rates
and operating margins were assumed for different acquisitions. If actual growth rates or operating margins, among other assumptions, differ from the estimates and judgments used in the purchase price allocation, the amounts recorded in the financial
statements for goodwill and intangible assets could be subject to charges for impairment in the future.

We review the recoverability of
goodwill and other intangible assets having indefinite useful lives using a fair-value based approach on an annual basis, or more frequently whenever events occur or circumstances indicate that the asset might be impaired. The approach for the
review of goodwill has two steps: the first being to identify a potential impairment and the second to measure the amount of the impairment loss, if any. Intangible assets with indefinite lives are tested for impairment annually using a one-step
approach that compares the fair value to the carrying amount of the asset.

Factors that are considered important in determining whether an
impairment of goodwill or intangible assets might exist include significant continued underperformance compared to peers, significant changes in our business and products, material and ongoing negative industry or economic trends, or other factors
specific to each asset being evaluated. Any changes in key assumptions about our business and our prospects, or changes in market conditions or other externalities, could result in an impairment charge and such a charge could have a material adverse
effect on our financial condition and results of operations. A detailed evaluation was performed as of December 31, 2007. As a result of this evaluation, it was determined that no impairment of goodwill or intangibles existed as of
December 31, 2007.

In connection with our decision to close our branches in North Carolina during October and November 2005, we
reviewed all goodwill associated with the North Carolina branches. We determined the estimated fair value of branches in North Carolina was minimal as we abandoned the branch locations by terminating all operating leases. As a result, we recorded a
charge of $662,000 during the third quarter 2005 to reflect the impairment of goodwill associated with six of the branches in North Carolina that were purchased in 1998.



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SUMMARY OF FINANCIAL INFORMATION

The following tables set forth our results of operations for the years ended December 31, 2005, 2006 and 2007:



|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|----------------------------------------------------- | -------------- | ----------------------- | ------------------------ | ----------------------- |  | - | ------- | - | ---- | - | ------- | ---- | ----- | -- | ---- | ----- | -- |  | ----- | -
|                                                      |                | Year Ended December 31, |                          | Year Ended December 31, | 
|                                                      | 2005           |                         |                          | 2006                    |  |   | 2007    |   | 2005 |   |         | 2006 |       |    | 2007 |      
|                                                      | (in thousands) |                         | (percentage of revenues) |                        
|Revenues                                              |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Payday loan fees                                      |                | $                       | 139,103                  |                         |  | $ | 152,354 |   |      | $ | 182,557 |      | 91.0  | %  |      | 88.4  | %  |  | 85.5  | %
|Other                                                 |                |                         | 13,775                   |                         |  |   | 19,928  |   |      |   | 31,027  |      | 9.0   | %  |      | 11.6  | %  |  | 14.5  | %
|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Total revenues                                        |                |                         | 152,878                  |                         |  |   | 172,282 |   |      |   | 213,584 |      | 100.0 | %  |      | 100.0 | %  |  | 100.0 | %
|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Branch expenses                                       |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Salaries and benefits                                 |                |                         | 38,073                   |                         |  |   | 44,027  |   |      |   | 47,046  |      | 24.9  | %  |      | 25.5  | %  |  | 22.0  | %
|Provision for losses                                  |                |                         | 41,417                   |                         |  |   | 37,027  |   |      |   | 54,440  |      | 27.1  | %  |      | 21.5  | %  |  | 25.5  | %
|Occupancy                                             |                |                         | 19,062                   |                         |  |   | 22,686  |   |      |   | 27,181  |      | 12.5  | %  |      | 13.2  | %  |  | 12.7  | %
|Depreciation and amortization                         |                |                         | 3,890                    |                         |  |   | 4,918   |   |      |   | 4,803   |      | 2.5   | %  |      | 2.8   | %  |  | 2.2   | %
|Other                                                 |                |                         | 13,521                   |                         |  |   | 15,470  |   |      |   | 15,560  |      | 8.9   | %  |      | 9.0   | %  |  | 7.4   | %
|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Total branch expenses                                 |                |                         | 115,963                  |                         |  |   | 124,128 |   |      |   | 149,030 |      | 75.9  | %  |      | 72.0  | %  |  | 69.8  | %
|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Branch gross profit                                   |                |                         | 36,915                   |                         |  |   | 48,154  |   |      |   | 64,554  |      | 24.1  | %  |      | 28.0  | %  |  | 30.2  | %
|                                                      |                |                         |                          |                         |  |  
|Regional expenses                                     |                |                         | 9,364                    |                         |  |   | 11,941  |   |      |   | 12,614  |      | 6.1   | %  |      | 7.0   | %  |  | 5.9   | %
|Corporate expenses                                    |                |                         | 16,221                   |                         |  |   | 19,514  |   |      |   | 22,813  |      | 10.6  | %  |      | 11.3  | %  |  | 10.7  | %
|Depreciation and amortization                         |                |                         | 856                      |                         |  |   | 1,379   |   |      |   | 2,399   |      | 0.6   | %  |      | 0.8   | %  |  | 1.1   | %
|Interest expense (income), net                        |                |                         | (476                     | )                       |  |   | (317    | ) |      |   | 667     |      | (0.3  | )% |      | (0.2  | )% |  | 0.3   | %
|Other expense, net                                    |                |                         | 715                      |                         |  |   | 338     |   |      |   | 2,001   |      | 0.4   | %  |      | 0.2   | %  |  | 1.0   | %
|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Income from continuing operations before income taxes |                |                         | 10,235                   |                         |  |   | 15,299  |   |      |   | 24,060  |      | 6.7   | %  |      | 8.9   | %  |  | 11.2  | %
|Provision for income taxes                            |                |                         | 3,912                    |                         |  |   | 6,090   |   |      |   | 9,458   |      | 2.6   | %  |      | 3.6   | %  |  | 4.4   | %
|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Income from continuing operations                     |                |                         | 6,323                    |                         |  |   | 9,209   |   |      |   | 14,602  |      | 4.1   | %  |      | 5.3   | %  |  | 6.8   | %
|Discontinued operations, net of income tax            |                |                         | (944                     | )                       |  |   |         |   |      |   |         |      | (0.6  | )% |      |       |    |  |       |  
|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  
|Net Income                                            |                | $                       | 5,379                    |                         |  | $ | 9,209   |   |      | $ | 14,602  |      | 3.5   | %  |      | 5.3   | %  |  | 6.8   | %
|                                                      |                |                         |                          |                         |  |   |         |   |      |   |         |      |       |    |      |       |    |  |       |  

Comparable Branch Data:



|                                                                   |  |      |         |      |   |        
|------------------------------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                                                   |  | 2006 |         | 2007
|2006 to 2007:                                                      |  |      |         |      |   |        
|Total revenues generated by all comparable branches (in thousands) |  | $    | 160,985 |      | $ | 185,261
|Total number of comparable branches                                |  |      | 474     |      |   | 474    
|Average revenue per comparable branch (in thousands)               |  | $    | 340     |      | $ | 391    
|                                                                   |  |     
|                                                                   |  | 2005 |         | 2006
|2005 to 2006:                                                      |  |      |         |      |   |        
|Total revenues generated by all comparable branches (in thousands) |  | $    | 139,702 |      | $ | 136,136
|Total number of comparable branches                                |  |      | 335     |      |   | 335    
|Average revenue per comparable branch (in thousands)               |  | $    | 417     |      | $ | 406    



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SUMMARY OF OPERATING INFORMATION

The following tables set forth our branch information and other operating information for the years ended December 31, 2005, 2006 and 2007:



|                                                                                                     |      |                         |   |      |     |   |      |     |  
|---------------------------------------------------------------------------------------------------- | ---- | ----------------------- | - | ---- | --- | - | ---- | --- | -
|                                                                                                     |      | Year Ended December 31, |  
|                                                                                                     | 2005 |                         |   | 2006 |     |   | 2007 |    
|Branch Information:                                                                                  |      |                         |   |      |     |   |      |     |  
|Number of branches, beginning of year                                                                |      | 371                     |   |      | 532 |   |      | 613 |  
|De novo opened                                                                                       |      | 174                     |   |      | 46  |   |      | 20  |  
|Acquired                                                                                             |      | 10                      |   |      | 51  |   |      | 13  |  
|Closed                                                                                               |      | (23                     | ) |      | (16 | ) |      | (50 | )
|                                                                                                     |      |                         |   |      |     |   |      |     |  
|Number of branches, end of year                                                                      |      | 532                     |   |      | 613 |   |      | 596 |  
|                                                                                                     |      |                         |   |      |     |   |      |     |  
|Average number of branches open during year                                                          |      | 458                     |   |      | 556 |   |      | 597 |  
|                                                                                                     |      |                         |   |      |     |   |      |     |  
|Average number of branches open during year (excluding North Carolina branches with respect to 2005) |      | 441                     |   |      | 556 |   |      | 597 |  
|                                                                                                     |      |                         |   |      |     |   |      |     |  



|                                          |  |                         |         |      |   |           |  |   |          
|----------------------------------------- |  | ----------------------- | ------- | ---- | - | --------- |  | - | ---------
|                                          |  | Year Ended December 31,
|                                          |  | 2005                    |         | 2006 |   | 2007     
|Other Information:                        |  |                         |         |      |   |           |  |   |          
|Payday loan volume (in thousands)         |  | $                       | 985,219 |      | $ | 1,051,961 |  | $ | 1,265,260
|Average revenue per branch (in thousands) |  |                         | 347     |      |   | 310       |  |   | 358      
|                                          |  |                         |        
|Average loan size (principal plus fee)    |  | $                       | 361.79  |      | $ | 363.42    |  | $ | 366.00   
|Average fees per loan                     |  |                         | 53.83   |      |   | 53.08     |  |   | 52.85    

Results of Operations  2007 Compared to 2006

Income from Continuing Operations

For the year ended
December 31, 2007, income from continuing operations was $14.6 million compared to $9.2 million in 2006. A discussion of the various components of income from continuing operations follows.

Revenues

Revenues totaled $213.6 million in 2007
compared to $172.3 million in 2006, an increase of $41.3 million or 24.0%. The increase in revenues was primarily a result of higher payday loan volumes, which reflects increases in the number of branches, the number of customer transactions and
average loan size. We originated approximately $1.3 billion through payday loans during 2007 compared to $1.1 billion during the prior year. The average loan (including fee) totaled $366.00 in 2007 versus $363.42 in the prior year. Average fees
received from customers per loan declined from $53.08 in 2006 to $52.85 in 2007 due to legislative and regulatory changes affecting rates and to a decline in the fee rate as loan volumes increase in newer branches located in states that have lower
fee structures, partially offset by a higher average loan principal. Our average fee rate per $100.00 for 2007 was $16.88 compared to $17.10 in 2006.

We anticipate that our average fee rate may decline in 2008 as rates are modified based on changing legislation or regulation and as we enter into or expand in states that have lower fee structures. In March 2007, New
Mexico adopted legislation (effective November 2007) that reduces the maximum fee that may be charged to a customer from $20.00 per $100.00 borrowed to $15.50 per $100.00 borrowed. In addition, the



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new legislation restricts the total number of loans a customer may have and prohibits immediate loan renewals. We expect that this legislation will reduce
our payday loan revenue in New Mexico by approximately $8 to $9 million during 2008. This decline, however, will be substantially offset from revenues from our installment loan product, which we launched in New Mexico during September 2007.

One manner by which we evaluate our branches is revenue growth, with consideration given to the length of time the branch has been open
and geographic location. We define comparable branches as those branches that are open during the full periods for which a comparison is being made. The following table provides a summary of our revenues by comparable branches and new branches:



|                       |                |                         |         |  |   |        
|---------------------- | -------------- | ----------------------- | ------- |  | - | -------
|                       |                | Year Ended December 31,
|                       | 2006           |                         | 2007   
|                       | (in thousands)
|Comparable branches    |                | $                       | 160,985 |  | $ | 185,261
|Branches added in 2006 |                |                         | 4,452   |  |   | 22,521 
|Branches added in 2007 |                |                         |         |  |   | 3,599  
|Other (a)              |                |                         | 6,845   |  |   | 2,203  
|                       |                |                         |         |  |   |        
|Total                  |                | $                       | 172,282 |  | $ | 213,584
|                       |                |                         |         |  |   |        



|(a) | represents primarily closed branches
|--- | ------------------------------------

Our revenues from
comparable branches increased by $24.3 million, or 15.1%, from $161.0 million in 2006 to $185.3 million in 2007. This increase is primarily attributable to the benefits resulting from the continuing development of our branches opened in 2005 and to
growth in the installment loan product in our Illinois branches. Revenues from our branches opened during 2005 improved 51.3% to $42.2 million for the year ended December 31, 2007 compared to $27.9 million for the year ended December 31,
2006. Revenues from branches added during 2006, including the 50 branches acquired in South Carolina, totaled $22.5 million during 2007 compared to $4.5 million during 2006.

Revenues from installment loans, credit service fees, check cashing, title loans, and other sources totaled $19.9 million and $31.0 million for the years
ended December 31, 2006 and 2007, respectively. The following table summarizes other revenues:



|                      |                |                         |                          |                         |      |        |  |      |   |  |      |  
|--------------------- | -------------- | ----------------------- | ------------------------ | ----------------------- | ---- | ------ |  | ---- | - |  | ---- | -
|                      |                | Year Ended December 31, |                          | Year Ended December 31, |     
|                      | 2006           |                         | 2007                     |                         | 2006 |        |  | 2007 |  
|                      | (in thousands) |                         | (percentage of revenues) |                        
|Installment loan fees |                | $                       | 2,679                    |                         | $    | 10,127 |  | 1.6  | % |  | 4.7  | %
|Credit service fees   |                |                         | 3,602                    |                         |      | 7,433  |  | 2.1  | % |  | 3.5  | %
|Check cashing fees    |                |                         | 6,634                    |                         |      | 6,282  |  | 3.8  | % |  | 2.9  | %
|Title loan fees       |                |                         | 4,756                    |                         |      | 4,243  |  | 2.8  | % |  | 2.0  | %
|Other fees            |                |                         | 2,257                    |                         |      | 2,942  |  | 1.3  | % |  | 1.4  | %
|                      |                |                         |                          |                         |      |        |  |      |   |  |      |  
|Total                 |                | $                       | 19,928                   |                         | $    | 31,027 |  | 11.6 | % |  | 14.5 | %
|                      |                |                         |                          |                         |      |        |  |      |   |  |      |  

The decline in check cashing fees as a percentage of revenues is due primarily to a higher rate of
growth in payday and installment loan revenues. The revenue increases in credit services fees and installment loans reflects the addition of new product offerings as credit services were offered in our Texas branches beginning in September 2005 and
installment loans were offered in our Illinois branches beginning in second quarter 2006 and in our New Mexico branches beginning in September 2007.



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Branch Expense

Total branch expenses were $149.0 million during 2007 compared to $124.1 million in 2006, an increase of $24.9 million, or 20.1%.Branch-level salaries and benefits increased by $3.0 million to $47.0 million in 2007 versus
$44.0 million in 2006, due to an increase in field personnel associated with our new branches. The total number of field personnel averaged 1,866 for year ended December 31, 2007 compared to 1,729 in the prior year.

Our provision for losses increased from $37.0 million for the year ended December 31, 2006 to $54.4 million for the year ended December 31,
2007. Our loss ratio was 25.5% during 2007 versus 21.5% during 2006. The less favorable loss experience in 2007 reflects a higher level of charge-offs (partially due to our year-long focus on increasing loan volumes) and a more challenging
collection environment as customers manage through the difficult credit, financial and economic environment. Our charge-offs as a percentage of revenue were 47.5% during 2007 compared to 44.4% during 2006. Our collection rate was 47.8% in 2007
versus 53.1% in 2006. During 2007, we received approximately $2.1 million from the sale of certain payday loan receivables compared to $900,000 in 2006.

Comparable branches totaled $47.7 million in loan losses for 2007 compared to $35.4 million in loan losses during 2006. In our comparable branches, the loss ratio was 25.7% during 2007 compared to 22.0% for the same
branches during 2006.

Occupancy costs were $27.2 million during 2007, compared to $22.7 million in 2006, an increase of $4.5 million, or
19.8%. Occupancy costs as a percentage of revenues decreased from 13.2% in 2006 to 12.7% in 2007. During 2007, we recorded approximately $1.6 million in occupancy costs to reflect lease termination costs and other occupancy related costs in
connection with the closure of 34 branches (the majority of which were consolidated into nearby branches), the termination of the de novo process on eight branches that never opened and the decision to close our Oregon branches,.

Branch Gross Profit

Branch gross profit increased by
$16.4 million, or 34.0%, from $48.2 million in 2006 to $64.6 million in 2007. Branch gross margin, which is branch gross profit as a percentage of revenues, increased from 28.0% in 2006 to 30.2% in 2007. The following table summarizes our branch
gross profit by comparable branches and new branches:



|                       |                |                         |        |      |  |   |        |  
|---------------------- | -------------- | ----------------------- | ------ | ---- |  | - | ------ | -
|                       |                | Year Ended December 31, |       
|                       | 2006           |                         |        | 2007 | 
|                       | (in thousands) |                        
|Comparable branches    |                | $                       | 51,367 |      |  | $ | 62,423 |  
|Branches added in 2006 |                |                         | (1,760 | )    |  |   | 3,162  |  
|Branches added in 2007 |                |                         |        |      |  |   | (854   | )
|Other (a)              |                |                         | (1,453 | )    |  |   | (177   | )
|                       |                |                         |        |      |  |   |        |  
|Total                  |                | $                       | 48,154 |      |  | $ | 64,554 |  
|                       |                |                         |        |      |  |   |        |  



|(a) | represents primarily closed branches
|--- | ------------------------------------

The gross margin
for comparable branches in 2006 was 31.9% compared to 33.7% in 2007, with the improvements resulting from stronger results in the majority of states. The 95 branches added during 2006 reported a gross profit of $3.2 million, the majority of which
was attributable to the 50 branches acquired in December 2006.



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##### Table of Contents

Regional and Corporate Expenses

Regional and corporate expenses increased $4.0 million, from $31.4 million for the year ended December 31, 2006 to $35.4 million for the year ended December 31, 2007. Together, regional and corporate
expenses were approximately 18.3% of revenues in 2006 compared to 16.6% of revenues in 2007. Approximately 84.2% of regional and 55.9% of corporate expenses consisted of salaries and benefits during 2007. The higher level of expenses in 2007 is
attributable to equity award compensation, salaries associated with a 5.5% increase in the average number of home office and regional personnel in 2007 compared to 2006 and a $750,000 increase in public education and awareness expenditures
year-to-year.

Interest and Other Expenses

Net interest expense totaled $667,000 for the year ended December 31, 2007 compared to interest income of $317,000 in 2006. The net interest expense during 2007 reflects borrowings to fund operations and the special dividend. During
2006, we had net interest income due to certain investments of cash. Other expenses were higher during 2007 compared to 2006 as a result of $2.0 million in losses on the disposal of assets during 2007 related to the closure of branches.

Income Tax Provision

The effective income tax rate
for the year ended December 31, 2007 was 39.3% compared to 39.8% in the prior year.

Results of Operations  2006 Compared to 2005

Income from Continuing Operations

For the year ended December 31, 2006, income from continuing operations was $9.2 million compared to $6.3 million in 2005. A discussion of the various components of income from continuing operations follows.

Revenues

Revenues totaled $172.3 million in 2006
compared to $152.9 million in 2005, an increase of $19.4 million or 12.7%. The increase in revenues was primarily a result of higher payday loan volumes, which reflects increases in the number of branches, the number of customer transactions and
average loan size. We originated approximately $1.1 billion through payday loans during 2006 compared to $985.2 million during the prior year. The average loan (including fee) totaled $363.42 in 2006 versus $361.79 in the prior year. Average fees
received from customers per loan declined from $53.83 in 2005 to $53.08 in 2006 due to a decline in the fee rate as we expanded in states that have lower fee structures or as states have revised statutes or regulations to lower rates, partially
offset by a higher average loan size. Our average fee rate for 2006 was $17.10 compared to $17.48 in 2005.

As discussed above, Illinois
adopted legislation (effective December 2005) that reduced the rate that may be charged to a customer from $20.32 per $100.00 every two weeks to $15.50 per $100.00 every two weeks and the legislation included restrictions on the number of
transactions a customer may have and the amount that can be borrowed, which adversely affected revenues and gross profit in our Illinois branches in December 2005 and during 2006. Revenues from our Illinois branches declined from $11.8 million
during 2005 to $5.9 million during 2006.



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As another example, effective July 1, 2005, Kansas changed its law regarding payday lending to
provide for a fee of $15 per $100 up to a maximum loan of $500 per customer every two weeks. Previously, the fee allowed in Kansas was $15 for the first $100 borrowed and less than $10 for each incremental $100 borrowed thereafter. Payday loan
volumes in Kansas during 2006 were 79% higher than comparable 2005. The growth of volumes in Kansas, at $15 per $100, had the effect of reducing our blended fee rate during 2006.

One manner by which we evaluate our branches is revenue growth, with consideration given to the length of time the branch has been open and geographic
location. We define comparable branches as those branches that are open during the full periods for which a comparison is being made. The following table provides a summary of our revenues by comparable branches and new branches:



|                       |                |                         |         |  |   |        
|---------------------- | -------------- | ----------------------- | ------- |  | - | -------
|                       |                | Year Ended December 31,
|                       | 2005           |                         | 2006   
|                       | (in thousands)
|Comparable branches    |                | $                       | 139,702 |  | $ | 136,136
|Branches added in 2005 |                |                         | 9,203   |  |   | 30,186 
|Branches added in 2006 |                |                         |         |  |   | 4,509  
|Other (a)              |                |                         | 3,973   |  |   | 1,451  
|                       |                |                         |         |  |   |        
|Total                  |                | $                       | 152,878 |  | $ | 172,282
|                       |                |                         |         |  |   |        



|(a) | represents primarily closed branches
|--- | ------------------------------------

Our revenues from
comparable branches declined by $3.6 million, or 2.6%, from $139.7 million in 2005 to $136.1 million in 2006. This decline is primarily attributable to the $4.8 million revenue decrease experienced in our Illinois comparable branches due to the
reduced fee and the restrictions that the legislation placed on the customers ability to borrow. The decline was greater than expected during the initial months after the change in regulations because our branches operated at a competitive
disadvantage as we sought to strengthen relationships with state regulators in Illinois. In May 2006, we began to offer installment loans to our customers in Illinois. During 2006, revenue from installment loans in Illinois was approximately $2.7
million.

Our California branches also contributed to the revenue decline year-to-year for comparable branches as a result of increased
competition, managements focus on reducing losses and changes to our statewide lending practices. Partially offsetting these declines was the positive effect of changes to Kansass legislation that increased loan limits beginning on
July 1, 2005.

Revenues from check cashing, title loans, CSO fees, installment loans and other sources totaled $13.8 million and $19.9
million for the year ended December 31, 2005 and 2006, respectively. The following table summarizes other revenues:



|                      |                |                         |                          |                         |      |        |  |      |   |  |      |  
|--------------------- | -------------- | ----------------------- | ------------------------ | ----------------------- | ---- | ------ |  | ---- | - |  | ---- | -
|                      |                | Year Ended December 31, |                          | Year Ended December 31, |     
|                      | 2005           |                         | 2006                     |                         | 2005 |        |  | 2006 |  
|                      | (in thousands) |                         | (percentage of revenues) |                        
|Check cashing fees    |                | $                       | 6,170                    |                         | $    | 6,634  |  | 4.0  | % |  | 3.8  | %
|Title loan fees       |                |                         | 4,478                    |                         |      | 4,756  |  | 2.9  | % |  | 2.8  | %
|Credit service fees   |                |                         | 476                      |                         |      | 3,602  |  | 0.3  | % |  | 2.1  | %
|Installment loan fees |                |                         |                          |                         |      | 2,679  |  |      |   |  | 1.6  | %
|Other fees            |                |                         | 2,651                    |                         |      | 2,257  |  | 1.8  | % |  | 1.3  | %
|                      |                |                         |                          |                         |      |        |  |      |   |  |      |  
|Total                 |                | $                       | 13,775                   |                         | $    | 19,928 |  | 9.0  | % |  | 11.6 | %
|                      |                |                         |                          |                         |      |        |  |      |   |  |      |  



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##### Table of Contents

The revenue increase reflects the new product offerings of credit services in our Texas branches
beginning in September 2005 and installment loans in our Illinois branches beginning in second quarter 2006.

Branch Expense

Total branch expenses were $124.1 million during 2006 compared to $116.0 million in 2005, an increase of $8.1 million, or 7.0%.Branch-level
salaries and benefits increased by $5.9 million to $44.0 million in 2006 versus $38.1 million in 2005, due to an increase in field personnel associated with our new branches. The total number of field personnel averaged 1,729 for year ended
December 31, 2006 compared to 1,514 in the prior year.

Our provision for losses for the year ended December 31, 2006 totaled
$37.0 million, a 10.6% decline from 2005. Comparable branches totaled $27.4 million in loan losses for 2006 compared to $36.3 million in loan losses during 2005. Our loss ratio was 21.5% during 2006 versus 27.1% during 2005. In our comparable
branches, the loss ratio was 20.1% during 2006 compared to 26.0% for the same branches during 2005. The favorable loss experience reflected reduced charge-offs as a result of the ongoing benefits of our loan origination-based verification
procedures, as well as improved collections, partially due to the sale of older debt for approximately $900,000. Our collections as a percentage of charge-offs improved to 53.1% during 2006 versus 44.7% during 2005.

Occupancy costs were $22.7 million during 2006, compared to $19.1 million in 2005, an increase of $3.6 million, or 18.8%, due to the addition of branches
during 2005. Occupancy costs as a percentage of revenues increased from 12.5% in 2005 to 13.2% in 2006, primarily due to the high number of branches at early stages in the branch lifecycles. Depreciation and amortization increased by $1.0 million
due to depreciation associated with capital expenditures for de novo branches. Other expenses increased $2.0 million, primarily due to growth in branches and to a $1.4 million increase in advertising costs during 2006 versus 2005.

Branch Gross Profit

Branch gross profit increased by
$11.3 million, or 30.6%, from $36.9 million in 2005 to $48.2 million in 2006. Branch gross margin, which is branch gross profit as a percentage of revenues, improved to 28.0% in 2006 compared to 24.1% in 2005. The following table summarizes our
branch gross profit by comparable branches and new branches:



|                       |                |                         |        |      |  |   |        |  
|---------------------- | -------------- | ----------------------- | ------ | ---- |  | - | ------ | -
|                       |                | Year Ended December 31, |       
|                       | 2005           |                         |        | 2006 | 
|                       | (in thousands) |                        
|Comparable branches    |                | $                       | 46,908 |      |  | $ | 52,909 |  
|Branches added in 2005 |                |                         | (9,032 | )    |  |   | (2,957 | )
|Branches added in 2006 |                |                         |        |      |  |   | (1,872 | )
|Other (a)              |                |                         | (961   | )    |  |   | 74     |  
|                       |                |                         |        |      |  |   |        |  
|Total                  |                | $                       | 36,915 |      |  | $ | 48,154 |  
|                       |                |                         |        |      |  |   |        |  



|(a) | 2006 includes approximately $900,000 related to the sale of older debt.
|--- | -----------------------------------------------------------------------

The gross margin for comparable branches in 2005 was 33.6% compared to 38.9% in 2006, with the improvements resulting from stronger results in the majority of states and the favorable change in Kansas being partially
offset by reduced gross profit due to the challenges in Illinois discussed above. The 181 branches added during 2005 and the 97 branches added during 2006 reported net losses of $3.0 million and $1.9 million, respectively.



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##### Table of Contents

Regional and Corporate Expenses

Regional and corporate expenses increased $5.8 million, from $25.6 million for the year ended December 31, 2005 to $31.4 million for the year ended December 31, 2006. Together, regional and corporate
expenses were approximately 18.3% of revenues in 2006 compared to 16.7% of revenues in 2005. Approximately 81.5% of regional and 51.6% of corporate expenses comprised salaries and benefits during 2006. The higher level of expenses in 2006 is
attributable to $1.2 million of equity award compensation (which we began to expense on January 1, 2006 in connection with the required adoption of SFAS 123R), salaries associated with a 16% increase in the average number of home office and
regional personnel in 2006 compared to 2005, higher rent expense in 2006 (due to our move to a new corporate office in April 2005), professional fees and other costs associated with our efforts to pursue a potential acquisition and approximately
$750,000 in advertising and public awareness expenditures during the fourth quarter 2006.

Interest

Interest income totaled $317,000 for the year ended December 31, 2006 compared to interest income of $476,000 in 2005. This decline was due to lower
balances in cash and cash equivalents and short-term investments during 2006 compared to 2005 and interest expense associated with borrowings to fund the ECA acquisition in December 2006.

Income Tax Provision

The effective income tax rate
for the year ended December 31, 2006 increased to 39.8% from 38.2% in the prior year due to a proportionally larger increase in non-deductible expenses relative to the increase in pre-tax income year to year.

Discontinued Operations

In October and November of
2005, we closed all our 19 branches in North Carolina. Our decision to close our North Carolina branches reflected the difficult operating environment in North Carolina associated with our role as a marketing and servicing provider for a lending
bank that was offering payday cash advances in compliance with the revised Payday Lending Guidelines issued by the Federal Deposit Insurance Corporation (FDIC) in March 2005. Our North Carolina operations are reported as discontinued operations in
accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144)  Accounting for the Impairment or Disposal of Long-Lived Assets.

Summarized financial information for discontinued operations is presented below:



|                                  |  |                             |        |  
|--------------------------------- |  | --------------------------- | ------ | -
|                                  |  | Year EndedDecember 31, 2005 |       
|                                  |  | (in thousands)              |       
|Total revenues                    |  | $                           | 4,262  |  
|Provision for losses              |  |                             | 910    |  
|Total branch expenses             |  |                             | 5,132  |  
|Branch gross loss                 |  |                             | (870   | )
|Loss before income taxes          |  |                             | (1,556 | )
|Benefit for income taxes          |  |                             | (612   | )
|Loss from discontinued operations |  | $                           | (944   | )



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As a result of the North Carolina closings, we recorded approximately $1.7 million in pre-tax charges
during 2005 to our discontinued operations. The charges recorded included $662,000 for the impairment of goodwill, $185,000 in severance and benefit costs, $540,000 in accelerated depreciation, $100,000 in loan losses, $83,000 for lease terminations
and $79,000 for other costs including storage, moving and cleaning costs.

Liquidity and Capital Resources

Summary cash flow data is as follows:



|                                                     |                |                         |        |      |  |   |         |   |  |   |         |  
|---------------------------------------------------- | -------------- | ----------------------- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                     |                | Year Ended December 31, |       
|                                                     | 2005           |                         |        | 2006 |  |   | 2007    |  
|                                                     | (in thousands) |                        
|Cash flows provided by (used for):                   |                |                         |        |      |  |   |         |   |  |   |         |  
|Operating activities                                 |                | $                       | 15,813 |      |  | $ | 12,064  |   |  | $ | 20,603  |  
|Investing activities                                 |                |                         | 2,168  |      |  |   | (21,625 | ) |  |   | (6,826  | )
|Financing activities                                 |                |                         | (2,867 | )    |  |   | 1,367   |   |  |   | (13,078 | )
|                                                     |                |                         |        |      |  |   |         |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents |                |                         | 15,114 |      |  |   | (8,194  | ) |  |   | 699     |  
|Cash and cash equivalents, beginning of year         |                |                         | 16,526 |      |  |   | 31,640  |   |  |   | 23,446  |  
|                                                     |                |                         |        |      |  |   |         |   |  |   |         |  
|Cash and cash equivalents, end of year               |                | $                       | 31,640 |      |  | $ | 23,446  |   |  | $ | 24,145  |  
|                                                     |                |                         |        |      |  |   |         |   |  |   |         |  

Cash Flow Discussion

Net cash provided by operating activities was $15.8 million in 2005, $12.1 million in 2006 and $20.6 million in 2007. The increase in operating cash flows from 2006 to 2007 is primarily attributable to higher net
income, plus certain non-cash charges associated with the branch closings during 2007. The decline in operating cash flows from 2005 to 2006 was primarily attributable to the 2005 tax benefits associated with the exercise of stock options, an
allowance from the landlord for our corporate office for leasehold improvements during 2005 and a larger growth in receivables during 2006 compared to 2005, partially offset by higher net income in 2006.

Net cash used by investing activities for the year ended December 31, 2007, was $6.8 million, which primarily consisted of approximately $3.3
million for capital expenditures and approximately $3.6 million in acquisition costs. The capital expenditures included $482,000 to open de novo branches in 2007, $1.3 million for renovations to existing and acquired branches, $985,000 for
technology and other furnishings at the corporate office, and approximately $544,000 for other expenditures. Net cash used by investing activities was $21.6 million in 2006, which consisted of the acquisition of ECA for approximately $16.3 million
(net of cash acquired) and capital expenditures during the year of approximately $5.4 million. The capital expenditures primarily consisted of $1.8 million to open 46 de novo branches in 2006, $2.2 million for renovations to existing branches and
$1.0 million tenant improvements, furnishings and technology for the corporate office. Net cash provided by investing activities was $2.2 million in 2005, which consisted of $28.0 million in proceeds from the sale of investments, partially offset by
the purchase of investments of $4.0 million and capital expenditures of $21.0 million. The capital expenditures included $11.4 million to open 174 de novo branches in 2005, $4.2 million for renovations to existing and acquired branches, $4.0 million
for tenant improvements (including cash received as an allowance from the landlord of our corporate headquarters for tenant improvements), furnishings and technology for the new corporate office space and $1.4 million for branches not yet open as of
December 31, 2005 and other expenditures.



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Net cash provided by (used for) financing activities was $(2.9) million in 2005, $1.4 million in 2006 and
$(13.1) million in 2007. The use of cash for financing activities in 2007 primarily consisted of dividend payments to stockholders totaling $56.4 million (including the special dividend of $2.50 per share in December 2007), repayments of
indebtedness under our credit facility totaling $31.8 million and share repurchases of approximately 1.3 million shares of our common stock for $18.2 million. These items were partially offset by proceeds received from borrowings totaling $50
million under a term loan (to fund the special dividend) and $40 million under our credit facility. The proceeds from the credit facility were used to fund operations during 2007. In addition, we also received $1.4 million in proceeds from the
exercise of stock options by employees. The inflows in 2006 included $16.3 million in proceeds from borrowing on our credit facility in order to fund the acquisition of ECA, $1.2 million in excess tax benefits from stock-based payment arrangements
and $826,000 in proceeds from the exercise of stock options by our employees. These items were substantially offset by the repurchase of 1.3 million shares of our common stock for $16.5 million. The use of cash for financing activities in 2005
consisted of the repurchase of our common stock totaling $3.7 million, partially offset by $842,000 in proceeds from the exercise of stock options by employees.

Cash Flows from Discontinued Operations

In our statement of cash flows, the cash flows from discontinued operations are
combined with the cash flows from continuing operations. For the year ending December 31, 2005, cash flows used by discontinued operations were $1.0 million, which primarily consisted of the expenditures associated with closing our North
Carolina operations. During 2006 and 2007, the absence of cash flows from discontinued operations did not have a material effect on our liquidity and capital resource needs.

Liquidity and Capital Resource Discussion

Credit Facility.On December 7, 2007, we
entered into an amended and restated credit agreement with a syndicate of banks, which provides for a term loan of $50 million and a revolving line of credit (including provisions permitting the issuance of letters of credit and swingline loans) in
the aggregate principal amount of up to $45 million. The maximum borrowings under the amended credit facility may be increased to $120 million pursuant to bank approval in accordance with the terms set forth in the first amendment to the credit
facility as of March 7, 2008.

The amended credit agreement contains financial covenants related to EBITDA (earnings before interest,
provision for income taxes, depreciation and amortization, non-cash equity charges and non-cash gains or losses on disposals of fixed assets), fixed charges, leverage, total indebtedness, current assets to consolidated indebtedness and maximum loss
ratio. Our obligations under the amended credit agreement are guaranteed by all of our operating subsidiaries, and are secured by liens on substantially all of our personal property and the personal property of our operating subsidiaries. The
lenders may accelerate our obligations under the amended credit agreement if there is a change in control of the company, including an acquisition of 25% or more of our equity securities by any person or group. The credit facility matures on
December 6, 2012. In addition to scheduled repayments, the term loan contains mandatory prepayment provisions whereby we are required to reduce the outstanding principal amounts of the term loan based on our excess cash flow (as defined in the
agreement) and our leverage ratio as of the most recent completed fiscal year.

Borrowings under the credit agreement are available based
on two types of loans, Base Rate loans or LIBOR Rate loans. Base Rate loans bear interest at the higher of the Prime Rate or the Federal Funds Rate plus one-half of one percent (0.50%). LIBOR Rate loans bear interest at rates based on the LIBOR rate
for the applicable loan period. The loan period for a LIBOR Rate loan may be one month, two months, three months or six months and the loan may be renewed upon notice to the agent provided that no default has occurred. The credit facility has a grid
that adjusts the borrowing rates for both Base Rate loans and LIBOR Rate loans based upon our leverage ratio. Leverage ratio is defined as the ratio of total debt to EBITDA.



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The credit facility also includes a non-use fee ranging from 0.25% to 0.375%, which is based upon our leverage ratio. The
credit facility improves our flexibility with respect to managing working capital, growth and investment needs. The maximum amount available under the credit facility for future borrowings was $20.5 million at December 31, 2007.

On March 7, 2008, we entered into an amendment of our credit agreement, which modified the interest margin on the loans based on various leverage
ratios, amended certain definitions and financial covenants and added a covenant regarding the minimum ratio of consolidated current assets to total consolidated debt. The amendment also reduced the accordion feature of the Credit Agreement to $25
million from $50 million. As a result, borrowings under the amended credit facility may be increased to a maximum of $120 million subject to the terms and conditions set forth therein.

Short-term Liquidity and Capital Requirements. We believe that our available cash, expected cash flows from operations, and borrowings available
under our credit facility will be sufficient to fund our liquidity and capital expenditure requirements during 2008. Expected short-term uses of cash include funding of anticipated increases in payday loans, debt repayments, interest payments on
outstanding debt, dividend payments, to the extent approved by the Board of Directors, financing of new branch expansion and acquisitions.

Our credit agreement requires us to maintain a fixed charge coverage ratio (computed in accordance with the credit agreement) of not less than 1.20 to 1.00 for the first three calendar quarters of 2008 and not less than 1.25 to 1.00 for the
fourth calendar quarter of 2008. Under our credit agreement, we are required to subtract any cash dividends paid on our common stock from our operating cash flow (as defined in the agreement) amount used in computing our fixed charge coverage ratio.
Thus, our credit agreement may restrict our ability to pay cash dividends in the future.

Long-term Liquidity and Capital
Requirements. The following table summarizes our expected long-term capital requirements as of December 31, 2007. The future capital requirements include payments required for the initial non-cancelable term of our operating leases, any
payments for periods of expected renewals provided for in a lease that we consider to be reasonably assured of exercising and indebtedness.



|                                                |                |       |         |                 |   |           |  |           |        |                  |   |        |  |   |       
|----------------------------------------------- | -------------- | ----- | ------- | --------------- | - | --------- |  | --------- | ------ | ---------------- | - | ------ |  | - | ------
|                                                |                | Total |         | Less than1 year |   | 2-3 years |  | 4-5 years |        | More than5 years
|                                                | (in thousands)
|Non-cancelable operating lease commitments      |                | $     | 36,170  |                 | $ | 13,496    |  | $         | 17,294 |                  | $ | 4,903  |  | $ | 477   
|Reasonably assured renewals of operating leases |                |       | 81,310  |                 |   | 922       |  |           | 10,526 |                  |   | 20,215 |  |   | 49,647
|Debt                                            |                |       | 74,500  |                 |   | 28,500    |  |           | 11,000 |                  |   | 35,000 |  |   |       
|                                                |                |       |         |                 |   |           |  |           |        |                  |   |        |  |   |       
|Total                                           |                | $     | 191,980 |                 | $ | 42,918    |  | $         | 38,820 |                  | $ | 60,118 |  | $ | 50,124
|                                                |                |       |         |                 |   |           |  |           |        |                  |   |        |  |   |       

In February 2005, we entered into a seven-year lease agreement to relocate our corporate
headquarters to office space in Overland Park, Kansas. We moved into the new location in the second quarter of 2005. Rent expense associated with the lease is approximately $675,000 per year.

As part of our business strategy, we intend to open de novo branches and consider acquisitions in existing and new markets. During 2005, 2006 and 2007,
we were able to achieve de novo unit branch growth of 46.9%, 8.6% and 3.3%, respectively. In addition, we acquired 10 branches in 2005, 51 branches in 2006 and 13 branches in 2007. We expect to open approximately 20 branches in 2008. We believe our
current cash position, availability under the credit facility and our expected cash flow from operations should provide the capital needed to fund this level of growth, assuming no material acquisitions in 2008.



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The capital costs of opening a de novo branch include leasehold improvements, signage, computer equipment
and security systems, and the costs vary depending on the branch size, location and the services being offered. During 2006 and 2007, we opened 66 de novo branches. The average cost of capital expenditures for these new branches was approximately
$56,000 per branch.

For de novo branches opened during 2005 and 2006, loans receivable balances averaged approximately $58,287 at the end
of the first year of operations. For branches opened in 2003, 2004 and 2005, loans receivable balances averaged approximately $91,774 at the end of the second year.

With respect to losses, a first-year branch will incur higher losses as a percentage of revenues than older branches because the new branch is establishing itself in the community and collecting information about the
customer base. For example, for de novo branches opened during 2005 and 2006, branch loss ratios averaged approximately 44.4% after the first twelve months of operations.

We monitor the development of our new branches, particularly with respect to revenue growth, loss experience and gross profit. In evaluating the progress of our de novo branches opened in 2006 (average age of 16
months at December 31, 2007) and 2007 (average age of 7 months at December 31, 2007), the following items are of note:

With
respect to our 2006 de novo branches 



| |  |  | After nine and twelve months of operations, average revenue was approximately $83,851 and $133,288, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | After nine and twelve months of operations, the average loss ratio was 47.3% and 46.3%, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | After nine and twelve months of operations, average branch gross losses totaled $74,700 and $78,736, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------

With respect to our 2007 de novo branches (for seven branches that had operations for at least nine months during 2007) 



| |  |  | After nine months of operations, average revenue was approximately $76,408.
| | - |  | ---------------------------------------------------------------------------



| |  |  | After nine months of operations, the average loss ratio was 91.7%.
| | - |  | ------------------------------------------------------------------



| |  |  | After nine months of operations, average branch gross losses totaled $122,375.
| | - |  | ------------------------------------------------------------------------------

In general, the development of the 2005 through 2007 de novo branches is slower than the development of the de novo branches we opened in 2000 through
2004. For example, in averaging all of the de novo branches opened for the years 2000 through 2004, revenue after nine and twelve months totaled $116,309 and $183,667, respectively. The loss ratio for the 2000 through 2004 branches totaled 36.1% and
33.7% after nine and twelve months and branch gross losses were $29,616 and $15,208 after nine and twelve months, respectively.

The slower
development of the 2005 through 2007 branches reflects a number of factors, including increased competition in the payday loan industry, our movement into lower fee states and more challenging loss environments in late 2005 (which we believe was
partly attributable to higher energy prices and changes in bankruptcy laws) and the second half of 2007 (which we believe was partly attributable to the turmoil in the sub-prime lending, financial and economic markets).



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The growth curve with respect to revenues for the newer branches continues to follow historical trends,
such that revenues typically double between the fourth and sixth months of operations and double again between the sixth and ninth months of operations, and then increase an additional 50% by the end of the twelfth month of operations. In general,
our newer branches are taking approximately four to six months longer to achieve historical average revenue levels and more than a year longer to achieve historical gross profit levels.

Concentration of Risk

Branches located in the states of Missouri, California, Arizona, South
Carolina and Kansas represented approximately 24%, 13%, 8%, 7% and 5%, respectively, of total revenues for the year ended December 31, 2007. Branches located in the states of Missouri, Arizona, California, Kansas, Illinois, New Mexico, South
Carolina and Virginia represented approximately 31%, 13%, 8%, 7%, 6%, 6%, 6% and 5%, respectively, of total branch gross profit for the year ended December 31, 2007. To the extent that laws and regulations are passed that affect our ability to
offer payday loans or the manner in which we offer payday loans in any one of those states, our financial position, results of operations and cash flows could be adversely affected.

Impact of Inflation

We do not believe that inflation has a material impact on our income or
operations.

Seasonality

Our business
is seasonal due to fluctuating demand for payday loans during the year. Historically, we have experienced our highest demand for payday loans in January and in the fourth calendar quarter. As a result of the receipt by customers of their income tax
refunds, demand for payday loans has historically declined in the balance of the first quarter of each calendar year and the first month of the second quarter. Our loss ratio historically fluctuates with these changes in payday loan demand, with a
higher loss ratio in the second and third quarters of each calendar year and a lower loss ratio in the first and fourth quarters of each calendar year. Due to the seasonality of our business, results of operations for any quarter are not necessarily
indicative of the results of operations that may be achieved for the full year.

Impact of Recent Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes(FIN 48). FIN 48 is an interpretation of FASB
Statement No. 109, Accounting for Income Taxes and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and
measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. We adopted FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material impact on our results of operations or financial position.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurement (SFAS 157). SFAS 157
establishes a common definition for fair value to be applied to generally accepted accounting principles guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We will adopt this statement as of the beginning of fiscal year 2008 and we are still assessing the potential impact of adoption on our consolidated
financial statements.



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In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, (SAB 108). SAB 108 requires that public companies utilize a dual-approach to assessing the quantitative
effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after
November 15, 2006. SAB 108 did not have a material effect on our consolidated financial statements for the year ended December 31, 2007.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities
using different measurement techniques. SFAS 159 requires additional disclosures related to fair value measurements included in the entitys financial statements. This statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007. We have determined that this statement will not have a material impact on our results of operations or financial position.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R broadens the guidance of SFAS 141, extending its
applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a
result of business combinations. SFAS 141R expands on required disclosures to improve the statement users abilities to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for fiscal year beginning
December 1, 2009. We do not expect the adoption of SFAS 141R to have a material effect on our consolidated financial statements.

Off-Balance Sheet
Arrangements

We originate payday loans at all of our branches, except branches in Texas. For our locations in Texas, we began operating
as a credit service organization (CSO), through one of our subsidiaries, in September 2005. As a CSO, we act as a credit services organization on behalf of consumers in accordance with Texas laws. We charge the consumer a fee for arranging for an
unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers obligation to the third-party lender. We also service the loan for the lender. The CSO fee is
recognized ratably over the term of the loan. We are not involved in the loan approval process or in determining the loan approval procedures or criteria. As a result, loans made by the lender are not included in our loans receivable balance and are
not reflected in the Consolidated Balance Sheets. As noted above, however, we absorb all risk of loss through our guarantee of the consumers loan from the lender. As of December 31, 2006 and December 31, 2007, the consumers had total
loans outstanding with the lender of approximately $2.2 million and $3.1 million, respectively. Because of the economic exposure for potential losses related to the guarantee of these loans, we record a payable to reflect the anticipated losses
related to uncollected loans. The payable is recognized at its fair value pursuant to FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.Changes in the liability are recognized through the provision for loan losses on the Consolidated Statements of Income. The balance of the liability for estimated losses reported in accrued liabilities was approximately $100,000 as of
December 31, 2006 and $160,000 as of December 31, 2007.



57



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|ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

As of December 31, 2007, we have no material market risk sensitive instruments entered into for trading or other purposes, as defined by accounting principles generally accepted in the United States of America.

Interest rate risk

We currently invest our excess
cash balances in short-term investment grade securities including money market accounts that are subject to interest rate risk. The amount of interest income we earn on these funds will decline with a decline in interest rates. However, due to the
short-term nature of short-term investment grade securities and money market accounts, an immediate decline in interest rates would not have a material impact on our financial position, results of operations or cash flows.

We are potentially exposed to interest rate risk on our long-term debt. On December 7, 2007, we entered into an amended and restated credit
agreement to replace our existing credit facility. The credit agreement, which includes a $50.0 million five-year term loan and a revolving line of credit (including provisions permitting the issuance of letters of credit and swingline loans) of up
to $45.0 million, contains variable rate debt that accrues interest based on the type of loan. Borrowings under the term loan and the credit facility are available based on two types of loans, Base Rate loans or LIBOR Rate loans. Base Rate loans
bear interest at the higher of the Prime Rate or the Federal Funds Rate plus one-half of one percent (0.50%). LIBOR Rate loans bear interest at rates based on the LIBOR rate for the applicable loan period. The credit facility has a grid that adjusts
the borrowing rates for both Base Rate loans and LIBOR Rate loans based upon our leverage ratio. Given the balance of $74.5 million of variable rate debt at December 31, 2007, we are sensitive to fluctuations in interest rates. If prevailing
interest rates were to increase 1% over the rates as of December 31, 2007, and the borrowings remained constant, our interest expense would have increased by $745,000 on an annualized basis.

We executed an interest rate swap agreement that will take effect on March 31, 2008. The swap agreement is designated as a cash flow hedge, and
changes the floating rate interest obligation associated with the $50 million term loan into a fixed rate. The swap agreement has a maturity date of December 6, 2012. Under the swap, we will pay a fixed interest rate of 3.43% and receive
interest at a rate equal to the three-month LIBOR.



|ITEM 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

Our
Consolidated Financial Statements and Supplementary Data appear following Item 15 of this report.



|ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None



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##### Table of Contents

|ITEM 9A. | Controls and Procedures
|-------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

We maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that
information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934, as amended (the Exchange Acts)) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.

Managements Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process
designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Under the
supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
2007 based on the criteria in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31, 2007.

Grant Thornton LLP, the independent registered
public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of our internal control over financial reporting as of December 31, 2007 as stated in their report on
page F-3 of this report.

Changes in Internal Control Over Financial Reporting

Our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There were no changes in our internal control over financial reporting
that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 9B. | Other Information
|-------- | -----------------

None



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PART III



|ITEM 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

Incorporated by reference to our Proxy Statement for our 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the year ended December 31, 2007.



|ITEM 11. | Executive Compensation
|-------- | ----------------------

Incorporated by reference
to our Proxy Statement for our 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the year ended December 31, 2007.



|ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

Incorporated by reference to our Proxy Statement for our 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the year ended December 31, 2007.



|ITEM 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

Incorporated by reference to our Proxy Statement for our 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the year ended December 31,
2007.



|ITEM 14. | Principal Accounting Fees and Services
|-------- | --------------------------------------

Incorporated by reference to our Proxy Statement for our 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the year ended December 31, 2007.

PART IV



|ITEM 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------

The
following documents are filed as a part of this report:



| | (1) | Financial Statements. The following financial statements, contained on pages F-1 to F-35 of this report, are filed as part of this report under Item 8 
Financial Statements and Supplementary Data.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Financial Statement Schedules.All schedules have been omitted because they are not applicable, are insignificant or the required information is shown in the consolidated
financial statements or notes thereto.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Exhibits. Exhibits are listed on the Exhibit Index at the end of this report.
| | --- | -----------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |  |                   |  |                                                  
|--------------------- |  | ----------------- |  | -------------------------------------------------
|                      |  | QC HOLDINGS, INC.
|                      |  |                  
|                      |  | By:               |  | /s/ DON EARLY                                    
|                      |  |                   |  | Don Early                                        
|                      |  |                   |  | Chairman of the Board and Chief Executive Officer
|                      |  |                  
|Dated: March 14, 2008 |  |                   |  |                                                  

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has
been signed below by the following persons on behalf of the Company and in the capacities indicated on March 14, 2008.



|                       |  |  |  |                                                                                
|---------------------- |  |  |  | -------------------------------------------------------------------------------
|/s/ RICHARD B. CHALKER |  |  |  | /s/ DON EARLY                                                                  
|Richard B. Chalker     |  |  |  | Don Early                                                                      
|Director               |  |  |  | Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
|                       |  | 
|/s/ GERALD F. LAMBERTI |  |  |  | /s/ MARY LOU ANDERSEN                                                          
|Gerald F. Lamberti     |  |  |  | Mary Lou Andersen                                                              
|Director               |  |  |  | Vice Chairman, Secretary and Director                                          
|                       |  | 
|/s/ FRANCIS P. LEMERY  |  |  |  | /s/ DARRIN J. ANDERSEN                                                         
|Francis P. Lemery      |  |  |  | Darrin J. Andersen                                                             
|Director               |  |  |  | President and Chief Operating Officer                                          
|                       |  | 
|/s/ MARY V. POWELL     |  |  |  | /s/ DOUGLAS E. NICKERSON                                                       
|Mary V. Powell         |  |  |  | Douglas E. Nickerson                                                           
|Director               |  |  |  | Chief Financial Officer (Principal Financial
and Accounting Officer)           
|/s/ MURRAY A. INDICK   |  |  |  |                                                                                
|Murray A. Indick       |  |  |  |                                                                                
|Director               |  |  |  |                                                                                



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QC Holdings, Inc.

Index to Consolidated Financial Statements



|                                                                                                                                  |  |     
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                  |  | Page
|Reports of Independent Registered Public Accounting Firm                                                                          |  | F-2 
|                                                                                                                                  | 
|Consolidated Balance Sheets at December 31, 2006 and 2007                                                                         |  | F-4 
|                                                                                                                                  | 
|Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2007                          |  | F-5 
|                                                                                                                                  | 
|Consolidated Statements of Changes in Stockholders Equity for each of the years in the three-year period ended December 31, 2007 |  | F-6 
|                                                                                                                                  | 
|Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2007                      |  | F-7 
|                                                                                                                                  | 
|Notes to Consolidated Financial Statements                                                                                        |  | F-8 



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of QC Holdings, Inc. and
Subsidiaries:

We have audited the accompanying consolidated balance sheets of QC Holdings, Inc. and Subsidiaries as of December 31,
2007 and 2006, and the related statements of income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of QC Holdings, Inc. and Subsidiaries as of December 31, 2007 and 2006, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 2 and 9 to the consolidated financial statements, the Company has adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109as of January 1, 2007. As discussed in Notes 2 and 12 to the consolidated financial statements, the Company has adopted Financial Accounting Standards Board
Statement No. 123(R), Share-Based Payment (SFAS 123R) effective January 1, 2006. Additionally, as discussed in Note 2 to the consolidated financial statements, the Company has adopted Staff Accounting Bulletin 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements (SAB 108) effective January 1, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), QC Holdings, Inc. and Subsidiaries internal control over financial reporting as of
December 31, 2007, based on criteria established inInternal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 13, 2008, expressed an
unqualified opinion thereon.



|                      
|----------------------
|/s/ GRANT THORNTON LLP
|                      
|Kansas City, Missouri 
|March 13, 2008        



F-2



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of QC Holdings, Inc. and Subsidiaries:

We have audited QC Holdings, Inc. and Subsidiaries internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). QC Holdings, Inc. and Subsidiaries management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on QC Holdings, Inc. and
Subsidiaries internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, QC Holdings, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by COSO.

We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of QC Holdings, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the related statements of
income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2007, and our report dated March 13, 2008 expressed an unqualified opinion on those financial statements.



|                      
|----------------------
|/s/ GRANT THORNTON LLP
|                      
|Kansas City, Missouri 
|March 13, 2008        



F-3



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                                |  | December 31,2006 |         |   | December 31,2007 |  
|ASSETS                                                                                                                                                                                                          |  |                  |         |   |                  |   |         |  
|Current assets:                                                                                                                                                                                                 |  |                  |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                       |  | $                | 23,446  |   |                  | $ | 24,145  |  
|Loans receivable, less allowance for losses of $2,982 at December 31, 2006 and $4,442 at December 31, 2007                                                                                                      |  |                  | 66,018  |   |                  |   | 72,903  |  
|Prepaid expenses and other current assets                                                                                                                                                                       |  |                  | 3,028   |   |                  |   | 3,290   |  
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                            |  |                  | 92,492  |   |                  |   | 100,338 |  
|Property and equipment, net                                                                                                                                                                                     |  |                  | 31,311  |   |                  |   | 26,525  |  
|Goodwill                                                                                                                                                                                                        |  |                  | 14,492  |   |                  |   | 16,081  |  
|Other assets, net                                                                                                                                                                                               |  |                  | 4,652   |   |                  |   | 6,636   |  
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                                    |  | $                | 142,947 |   |                  | $ | 149,580 |  
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|                                                                                                                                                                                                                |  |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                            |  |                  |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                                                            |  |                  |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                                                                |  | $                | 909     |   |                  | $ | 1,321   |  
|Accrued expenses and other liabilities                                                                                                                                                                          |  |                  | 3,233   |   |                  |   | 4,245   |  
|Accrued compensation and benefits                                                                                                                                                                               |  |                  | 5,668   |   |                  |   | 6,653   |  
|Deferred revenue                                                                                                                                                                                                |  |                  | 4,558   |   |                  |   | 5,277   |  
|Income taxes payable                                                                                                                                                                                            |  |                  | 531     |   |                  |   | 769     |  
|Dividends payable                                                                                                                                                                                               |  |                  | 1,975   |   |                  |   |         |  
|Debt due within one year                                                                                                                                                                                        |  |                  | 16,300  |   |                  |   | 28,500  |  
|Deferred income taxes                                                                                                                                                                                           |  |                  | 1,742   |   |                  |   | 766     |  
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                       |  |                  | 34,916  |   |                  |   | 47,531  |  
|                                                                                                                                                                                                                |  |                 
|Long-term debt                                                                                                                                                                                                  |  |                  |         |   |                  |   | 46,000  |  
|Deferred income taxes                                                                                                                                                                                           |  |                  | 2,645   |   |                  |   | 989     |  
|Other non-current liabilities                                                                                                                                                                                   |  |                  | 598     |   |                  |   | 2,834   |  
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                               |  |                  | 38,159  |   |                  |   | 97,354  |  
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|Commitments and contingencies                                                                                                                                                                                   |  |                  |         |   |                  |   |         |  
|                                                                                                                                                                                                                |  |                 
|Stockholders equity:                                                                                                                                                                                           |  |                  |         |   |                  |   |         |  
|Common stock, $0.01 par value: 75,000,000 shares authorized; 20,700,250 shares issued and 19,501,300 outstanding at December 31, 2006;
20,700,250 shares issued and 18,787,267 outstanding at December 31, 2007 |  |                  | 207     |   |                  |   | 207     |  
|Additional paid-in capital                                                                                                                                                                                      |  |                  | 70,227  |   |                  |   | 67,446  |  
|Retained earnings                                                                                                                                                                                               |  |                  | 49,284  |   |                  |   | 9,502   |  
|Treasury stock, at cost                                                                                                                                                                                         |  |                  | (14,930 | ) |                  |   | (24,929 | )
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                                                      |  |                  | 104,788 |   |                  |   | 52,226  |  
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                      |  | $                | 142,947 |   |                  | $ | 149,580 |  
|                                                                                                                                                                                                                |  |                  |         |   |                  |   |         |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)



|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|----------------------------------------------------- | ---- | ----------------------- | ------- | ---- |  | - | ------- | - |  | - | -------
|                                                      |      | Year Ended December 31,
|                                                      | 2005 |                         |         | 2006 |  |   | 2007   
|Revenues                                              |      |                         |         |      |  |   |         |   |  |   |        
|Payday loan fees                                      |      | $                       | 139,103 |      |  | $ | 152,354 |   |  | $ | 182,557
|Other                                                 |      |                         | 13,775  |      |  |   | 19,928  |   |  |   | 31,027 
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Total revenues                                        |      |                         | 152,878 |      |  |   | 172,282 |   |  |   | 213,584
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|                                                      |      |                         |        
|Branch expenses                                       |      |                         |         |      |  |   |         |   |  |   |        
|Salaries and benefits                                 |      |                         | 38,073  |      |  |   | 44,027  |   |  |   | 47,046 
|Provision for losses                                  |      |                         | 41,417  |      |  |   | 37,027  |   |  |   | 54,440 
|Occupancy                                             |      |                         | 19,062  |      |  |   | 22,686  |   |  |   | 27,181 
|Depreciation and amortization                         |      |                         | 3,890   |      |  |   | 4,918   |   |  |   | 4,803  
|Other                                                 |      |                         | 13,521  |      |  |   | 15,470  |   |  |   | 15,560 
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Total branch expenses                                 |      |                         | 115,963 |      |  |   | 124,128 |   |  |   | 149,030
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Branch gross profit                                   |      |                         | 36,915  |      |  |   | 48,154  |   |  |   | 64,554 
|Regional expenses                                     |      |                         | 9,364   |      |  |   | 11,941  |   |  |   | 12,614 
|Corporate expenses                                    |      |                         | 16,221  |      |  |   | 19,514  |   |  |   | 22,813 
|Depreciation and amortization                         |      |                         | 856     |      |  |   | 1,379   |   |  |   | 2,399  
|Interest expense (income), net                        |      |                         | (476    | )    |  |   | (317    | ) |  |   | 667    
|Other expense, net                                    |      |                         | 715     |      |  |   | 338     |   |  |   | 2,001  
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Income from continuing operations before income taxes |      |                         | 10,235  |      |  |   | 15,299  |   |  |   | 24,060 
|Provision for income taxes                            |      |                         | 3,912   |      |  |   | 6,090   |   |  |   | 9,458  
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Income from continuing operations                     |      |                         | 6,323   |      |  |   | 9,209   |   |  |   | 14,602 
|Loss from discontinued operations, net of income tax  |      |                         | (944    | )    |  |   |         |   |  |   |        
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Net income                                            |      | $                       | 5,379   |      |  | $ | 9,209   |   |  | $ | 14,602 
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|                                                      |      |                         |        
|Weighted average number of common shares outstanding: |      |                         |         |      |  |   |         |   |  |   |        
|Basic                                                 |      |                         | 20,508  |      |  |   | 19,981  |   |  |   | 19,283 
|Diluted                                               |      |                         | 21,448  |      |  |   | 20,627  |   |  |   | 19,578 
|                                                      |      |                         |        
|Earnings (loss) per share:                            |      |                         |         |      |  |   |         |   |  |   |        
|Basic                                                 |      |                         |         |      |  |   |         |   |  |   |        
|Continuing operations                                 |      | $                       | 0.31    |      |  | $ | 0.46    |   |  | $ | 0.76   
|Discontinued operations                               |      |                         | (0.05   | )    |  |   |         |   |  |   |        
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Net Income                                            |      | $                       | 0.26    |      |  | $ | 0.46    |   |  | $ | 0.76   
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Diluted                                               |      |                         |         |      |  |   |         |   |  |   |        
|Continuing operations                                 |      | $                       | 0.29    |      |  | $ | 0.45    |   |  | $ | 0.75   
|Discontinued operations                               |      |                         | (0.04   | )    |  |   |         |   |  |   |        
|                                                      |      |                         |         |      |  |   |         |   |  |   |        
|Net Income                                            |      | $                       | 0.25    |      |  | $ | 0.45    |   |  | $ | 0.75   
|                                                      |      |                         |         |      |  |   |         |   |  |   |        

See accompanying notes to consolidated financial statements.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

Years Ended December 31, 2005, 2006 and 2007

(in thousands)



|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |   |               |   |  |                          |         |   |  |   |         |  
|-------------------------------------- |  | ----------------- | - |  | ----------- | --- | ------------------------ | - | ------ | ---------------- |  | - | ------------- | - |  | ------------------------ | ------- | - |  | - | ------- | -
|                                       |  | Outstandingshares |   |  | Commonstock |     | Additionalpaid-incapital |   |        | Retainedearnings |  |   | Treasurystock |   |  | Totalstockholdersequity |        
|Balance, January 1, 2005               |  | 20,371            |   |  | $           | 204 |                          | $ | 69,417 |                  |  | $ | 36,671        |   |  | $                        |        |   |  | $ | 106,292 |  
|Net income                             |  |                   |   |  |             |     |                          |   |        |                  |  |   | 5,379         |   |  |                          |         |   |  |   | 5,379   |  
|Common stock repurchases               |  | (313              | ) |  |             |     |                          |   |        |                  |  |   |               |   |  |                          | (3,664  | ) |  |   | (3,664  | )
|Stock option exercises                 |  | 375               |   |  |             | 3   |                          |   | 303    |                  |  |   |               |   |  |                          | 536     |   |  |   | 842     |  
|Tax impact of stock-based compensation |  |                   |   |  |             |     |                          |   | 1,867  |                  |  |   |               |   |  |                          |         |   |  |   | 1,867   |  
|Other, net                             |  |                   |   |  |             |     |                          |   | 100    |                  |  |   |               |   |  |                          |         |   |  |   | 100     |  
|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |   |               |   |  |                          |         |   |  |   |         |  
|Balance, December 31, 2005             |  | 20,433            |   |  |             | 207 |                          |   | 71,687 |                  |  |   | 42,050        |   |  |                          | (3,128  | ) |  |   | 110,816 |  
|Net income                             |  |                   |   |  |             |     |                          |   |        |                  |  |   | 9,209         |   |  |                          |         |   |  |   | 9,209   |  
|Common stock repurchases               |  | (1,317            | ) |  |             |     |                          |   |        |                  |  |   |               |   |  |                          | (16,544 | ) |  |   | (16,544 | )
|Dividends to stockholders              |  |                   |   |  |             |     |                          |   |        |                  |  |   | (1,975        | ) |  |                          |         |   |  |   | (1,975  | )
|Stock-based compensation expense       |  |                   |   |  |             |     |                          |   | 1,234  |                  |  |   |               |   |  |                          |         |   |  |   | 1,234   |  
|Stock option exercises                 |  | 385               |   |  |             |     |                          |   | (3,916 | )                |  |   |               |   |  |                          | 4,742   |   |  |   | 826     |  
|Tax impact of stock-based compensation |  |                   |   |  |             |     |                          |   | 1,156  |                  |  |   |               |   |  |                          |         |   |  |   | 1,156   |  
|Other, net                             |  |                   |   |  |             |     |                          |   | 66     |                  |  |   |               |   |  |                          |         |   |  |   | 66      |  
|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |   |               |   |  |                          |         |   |  |   |         |  
|Balance, December 31, 2006             |  | 19,501            |   |  |             | 207 |                          |   | 70,227 |                  |  |   | 49,284        |   |  |                          | (14,930 | ) |  |   | 104,788 |  
|Net income                             |  |                   |   |  |             |     |                          |   |        |                  |  |   | 14,602        |   |  |                          |         |   |  |   | 14,602  |  
|Common stock repurchases               |  | (1,344            | ) |  |             |     |                          |   |        |                  |  |   |               |   |  |                          | (18,213 | ) |  |   | (18,213 | )
|Dividends to stockholders              |  |                   |   |  |             |     |                          |   |        |                  |  |   | (54,384       | ) |  |                          |         |   |  |   | (54,384 | )
|Issuance of restricted stock awards    |  | 37                |   |  |             |     |                          |   | (473   | )                |  |   |               |   |  |                          | 473     |   |  |   |         |  
|Stock-based compensation expense       |  |                   |   |  |             |     |                          |   | 2,139  |                  |  |   |               |   |  |                          |         |   |  |   | 2,139   |  
|Stock option exercises                 |  | 593               |   |  |             |     |                          |   | (6,333 | )                |  |   |               |   |  |                          | 7,741   |   |  |   | 1,408   |  
|Tax impact of stock-based compensation |  |                   |   |  |             |     |                          |   | 1,886  |                  |  |   |               |   |  |                          |         |   |  |   | 1,886   |  
|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |   |               |   |  |                          |         |   |  |   |         |  
|Balance, December 31, 2007             |  | 18,787            |   |  | $           | 207 |                          | $ | 67,446 |                  |  | $ | 9,502         |   |  | $                        | (24,929 | ) |  | $ | 52,226  |  
|                                       |  |                   |   |  |             |     |                          |   |        |                  |  |   |               |   |  |                          |         |   |  |   |         |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------- | ---- | ----------------------- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                            |      | Year Ended December 31, |        
|                                                                                            | 2005 |                         |         | 2006 |  |   | 2007    |  
|Cash flows from operating activities:                                                       |      |                         |         |      |  |   |         |   |  |   |         |  
|Net income                                                                                  |      | $                       | 5,379   |      |  | $ | 9,209   |   |  | $ | 14,602  |  
|Adjustments to reconcile net income to net cash provided by operating activities:           |      |                         |         |      |  |   |         |   |  |   |         |  
|Depreciation and amortization                                                               |      |                         | 5,373   |      |  |   | 6,297   |   |  |   | 7,202   |  
|Provision for losses                                                                        |      |                         | 42,327  |      |  |   | 37,027  |   |  |   | 54,440  |  
|Deferred income taxes                                                                       |      |                         | (520    | )    |  |   | 133     |   |  |   | (2,353  | )
|Loss on disposal of property and equipment                                                  |      |                         | 739     |      |  |   | 338     |   |  |   | 2,079   |  
|Impairment of goodwill                                                                      |      |                         | 662     |      |  |   |         |   |  |   |         |  
|Other, net                                                                                  |      |                         | 100     |      |  |   | 66      |   |  |   |         |  
|Lease incentive                                                                             |      |                         | 976     |      |  |   |         |   |  |   |         |  
|Stock-based compensation                                                                    |      |                         |         |      |  |   | 1,234   |   |  |   | 2,139   |  
|Stock option income tax benefits                                                            |      |                         | 1,867   |      |  |   | (1,156  | ) |  |   | (1,886  | )
|Changes in operating assets and liabilities:                                                |      |                         |         |      |  |   |         |   |  |   |         |  
|Loans receivable, net                                                                       |      |                         | (45,529 | )    |  |   | (44,978 | ) |  |   | (59,971 | )
|Prepaid expenses and other assets                                                           |      |                         | (934    | )    |  |   | (233    | ) |  |   | (251    | )
|Other assets                                                                                |      |                         | (232    | )    |  |   | 135     |   |  |   | (2,413  | )
|Accounts payable                                                                            |      |                         | 248     |      |  |   | 265     |   |  |   | 412     |  
|Accrued expenses, other liabilities, accrued compensation and benefits and deferred revenue |      |                         | 4,574   |      |  |   | 3,009   |   |  |   | 2,522   |  
|Income taxes                                                                                |      |                         | 882     |      |  |   | 857     |   |  |   | 1,940   |  
|Other non-current liabilities                                                               |      |                         | (99     | )    |  |   | (139    | ) |  |   | 2,141   |  
|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|Net operating                                                                               |      |                         | 15,813  |      |  |   | 12,064  |   |  |   | 20,603  |  
|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|                                                                                            |      |                         |        
|Cash flows from investing activities:                                                       |      |                         |         |      |  |   |         |   |  |   |         |  
|Proceeds from sales of investments                                                          |      |                         | 28,000  |      |  |   |         |   |  |   |         |  
|Purchases of investments                                                                    |      |                         | (4,000  | )    |  |   |         |   |  |   |         |  
|Purchase of property and equipment                                                          |      |                         | (20,996 | )    |  |   | (5,430  | ) |  |   | (3,259  | )
|Proceeds from sale of property and equipment                                                |      |                         | 70      |      |  |   | 108     |   |  |   | 74      |  
|Acquisition costs, net of cash acquired                                                     |      |                         | (906    | )    |  |   | (16,303 | ) |  |   | (3,641  | )
|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|Net investing                                                                               |      |                         | 2,168   |      |  |   | (21,625 | ) |  |   | (6,826  | )
|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|                                                                                            |      |                         |        
|Cash flows from financing activities:                                                       |      |                         |         |      |  |   |         |   |  |   |         |  
|Borrowings under credit facility                                                            |      |                         |         |      |  |   | 16,300  |   |  |   | 40,000  |  
|Payments on credit facility                                                                 |      |                         |         |      |  |   |         |   |  |   | (31,800 | )
|Proceeds from long-term debt                                                                |      |                         |         |      |  |   |         |   |  |   | 50,000  |  
|Dividends to stockholders                                                                   |      |                         |         |      |  |   |         |   |  |   | (56,359 | )
|Repurchase of common stock                                                                  |      |                         | (3,664  | )    |  |   | (16,544 | ) |  |   | (18,213 | )
|Exercise of stock options                                                                   |      |                         | 842     |      |  |   | 826     |   |  |   | 1,408   |  
|Excess tax benefits from stock-based payment arrangements                                   |      |                         |         |      |  |   | 1,156   |   |  |   | 1,886   |  
|Credit facility fees                                                                        |      |                         | (45     | )    |  |   | (371    | ) |  |   |         |  
|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|Net financing                                                                               |      |                         | (2,867  | )    |  |   | 1,367   |   |  |   | (13,078 | )
|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|                                                                                            |      |                         |        
|Cash and cash equivalents:                                                                  |      |                         |         |      |  |   |         |   |  |   |         |  
|Net increase (decrease)                                                                     |      |                         | 15,114  |      |  |   | (8,194  | ) |  |   | 699     |  
|At beginning of year                                                                        |      |                         | 16,526  |      |  |   | 31,640  |   |  |   | 23,446  |  
|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|At end of year                                                                              |      | $                       | 31,640  |      |  | $ | 23,446  |   |  | $ | 24,145  |  
|                                                                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|                                                                                            |      |                         |        
|Supplementary schedule of cash flow information:                                            |      |                         |         |      |  |   |         |   |  |   |         |  
|Cash paid during the year for                                                               |      |                         |         |      |  |   |         |   |  |   |         |  
|Income taxes                                                                                |      | $                       | 1,017   |      |  | $ | 5,110   |   |  | $ | 9,873   |  
|Interest                                                                                    |      |                         |         |      |  |   | 309     |   |  |   | 815     |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  DESCRIPTION OF THE BUSINESS

The
accompanying consolidated financial statements include the accounts of QC Holdings, Inc. and its wholly-owned subsidiaries, QC Financial Services, Inc., QC Auto Services, Inc., QC Loan Services, Inc. and QC E-Services, Inc. (collectively the
Company). QC Financial Services, Inc. is the 100% owner of QC Financial Services of California, Inc., Financial Services of North Carolina, Inc., QC Financial Services of Texas, Inc., Express Check Advance of South Carolina, LLC, QC Advance, Inc.,
Cash Title Loans, Inc. and QC Properties, LLC. QC Holdings, Inc., incorporated in 1998 under the laws of the State of Kansas, was founded in 1984, and has provided various retail consumer financial products and services throughout its 23-year
history. The Companys common stock trades on the NASDAQ Global Market exchange under the symbol QCCO.

Since 1998, the
Company has been primarily engaged in the business of providing short-term consumer loans, known as payday loans, with principal values that typically range from $100 to $500. Payday loans provide customers with cash in exchange for a promissory
note with a maturity of generally two to three weeks and supported by that customers personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state, based on applicable regulations and generally
ranges from $15 to $20 per $100 borrowed. To repay the cash advance, customers may redeem their check by paying cash or they may allow the check to be presented to the bank for collection.

The Company also provides other consumer financial products and services, such as installment loans, credit services, check cashing services, title
loans, money transfers and money orders. All of the Companys loans and other services are subject to state regulation, which vary from state to state, as well as to federal and local regulation, where applicable.

As of December 31, 2007, the Company operated 596 branches with locations in Alabama, Arizona, California, Colorado, Idaho, Illinois, Indiana,
Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah, Virginia, Washington and Wisconsin.

In September 2007, the Company purchased certain assets from an automotive retailer and finance company focused exclusively in the
buy-here/pay-here segment of the used vehicle market in connection with ongoing efforts to evaluate alternative products that serve the Companys customer base. As of December 31, 2007 the Company is operating one
buy-here/pay-here dealership, which is located in Missouri.

In July 2007, a new law went into effect in Oregon that caps the interest rate
that may be charged on a payday loan to 36% per annum. As a result of the new regulation, the Company closed its eight branches in Oregon during the third quarter 2007. In addition, the Company closed 34 of its lower performing branches in
various states during 2007 (the majority of which were consolidated into nearby branches) and the Company terminated the de novo process on eight branches that never opened. As a result, the Company recorded approximately $3.7 million in pre-tax
charges for the year ended December 31, 2007, as a result of these closings. See additional information in Note 4.

On
December 1, 2006, the Company acquired all of the issued and outstanding membership interests in Express Check Advance of South Carolina, LLC (ECA) for approximately $16.3 million, net of cash acquired. The acquisition of ECA included 51 payday
loan branches located in South Carolina.



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##### Table of Contents

Beginning in second quarter 2006, the Company began offering an installment loan product to customers in
its Illinois branches. In September 2007, the Company began to offer installment loans to its customers in its New Mexico branches. The installment loans are payable in monthly installments (principal plus accrued interest) with terms ranging from
four months to one year, and all loans are pre-payable at any time without penalty. The fee for the installment loan is $30 per $100 borrowed per month. Currently, the maximum amount that the Company will advance under an installment loan is $1,000.
The average principal amount for installment loans originated during 2006 and 2007 was approximately $539 and $526, respectively.

Prior to
September 30, 2005, certain locations in North Carolina and Texas offered payday loans from a third-party financial institution. In October and November 2005, the Company closed all its 19 branches in North Carolina. The decision to close these
branches reflected the difficult operating environment in North Carolina associated with the Companys role as a marketing and servicing provider for a Delaware state-chartered bank. The bank offered payday cash advances in compliance with the
revised Payday Lending Guidelines issued by the Federal Deposit Insurance Corporation (FDIC). Prior to the FDIC issuing the revised Payday Lending Guidelines and the Companys subsequent decision to close its North Carolina branches, the North
Carolina operations represented approximately 5% of the Companys total revenue and total gross profit. See additional information in Note 4.

In February 2005, the Company entered into an agreement for marketing and servicing with a Delaware chartered-state bank with respect to short-term consumer loans to be made by the bank in Texas. On September 14, 2005, the Company
ceased serving as a marketing and servicing provider for new loans made by the bank. On that same day, the Company, through QC Financial Services of Texas, Inc., began operating as a credit services organization (CSO) in its Texas branches. As a
CSO, the Company acts as a credit services organization on behalf of consumers in accordance with Texas laws. See additional information in Note 8.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The accompanying
consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation.

Accounting reclassifications. Certain reclassifications have been made to prior period financial information to conform to the current presentation. The Consolidated Statements of Income for the year ended
December 31, 2005 includes the reclassification of credit service fees from payday loan fees to other revenues.

Use of
Estimates. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition. The Company records revenue from loans upon issuance. The term of a loan is generally two to three weeks
for a payday loan and 30 days for a title loan. At the end of each month, the Company records an estimate of the unearned revenue, which results in revenues being recognized on a constant-yield basis ratably over the term of each loan.

The Company records revenues from installment loans using the simple interest method. With respect to the Companys CSO services in Texas, the
Company earns a CSO fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers obligation to the third-party lender. The Company also
services the loan for the lender. The CSO fee is recognized ratably over the term of the loan.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



The Company recognizes revenues for its other consumer financial products and services, which
includes check cashing, money transfers and money orders, at the time those services are rendered to the customer, which is generally at the point of sale. The Company recognizes revenue on the sale of automobiles at the time the vehicle is
delivered to the customer and title has passed. In cases where the Company finances the vehicles, the interest is recognized over the term of the loan which is generally 2.5 years, based on the principal outstanding at the time.

The components of Other revenues as reported in the statements of income are as follows:



|                      |                |                         |        |  |      |        |  |   |       
|--------------------- | -------------- | ----------------------- | ------ |  | ---- | ------ |  | - | ------
|                      |                | Year Ended December 31,
|                      | 2005           |                         | 2006   |  | 2007
|                      | (in thousands)
|Installment loan fees |                | $                       |       |  | $    | 2,679  |  | $ | 10,127
|Credit service fees   |                |                         | 476    |  |      | 3,602  |  |   | 7,433 
|Check cashing fees    |                |                         | 6,170  |  |      | 6,634  |  |   | 6,282 
|Title loan fees       |                |                         | 4,478  |  |      | 4,756  |  |   | 4,243 
|Other fees            |                |                         | 2,651  |  |      | 2,257  |  |   | 2,942 
|                      |                |                         |        |  |      |        |  |   |       
|Total                 |                | $                       | 13,775 |  | $    | 19,928 |  | $ | 31,027
|                      |                |                         |        |  |      |        |  |   |       

Cash and Cash Equivalents. Cash and cash equivalents include cash on hand and short-term
investments with original maturities of three months or less. The carrying amount of cash and cash equivalents is the estimated fair value at December 31, 2006 and 2007.

Inventory.Inventory primarily consists of vehicles acquired from auctions and trade-ins. Vehicle transportation and reconditioning costs are
capitalized as a component of inventory. The cost of vehicle inventory is determined on the specific identification method. Vehicle inventories are stated at the lower of cost or market. Valuation allowances are established when the inventory
carrying values are in excess of estimated selling prices, net of direct costs of disposal. As of December 31, 2007, the Company currently has an inventory of used vehicles totaling $287,000 and management has determined that a valuation
allowance is not necessary.

Investments.From time to time, the Company has invested a portion of its excess cash in auction
rate securities. Due to the short-term nature of the securities, the Company does not take possession of the securities, which are instead held by third-party financial institutions. Because the legal maturity of the auction rate securities is
greater than one year, the securities ordinarily should not be classified as cash equivalents, rather as investments pursuant to Statement of Financial Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and
Equity Securities. As of December 31, 2006 and December 31, 2007, the Company did not have any investments in auction rate securities.

Securities classified as available-for-sale are reported at fair value. To the extent that the securities generate realized gains or losses, or experience any decline in value judged to be other-than-temporary, such
amounts are reported as other income or loss.

Loans Receivable, Provision for Losses and Allowance for Loan Losses. When the
Company enters into a payday loan with a customer, the Company records a loan receivable for the amount loaned to the customer plus the fee charged by the Company, which varies from state to state based on applicable regulations.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



The following table summarizes certain data with respect to the Companys payday loans:



|                                            |      |                         |        |  |      |        |  |   |       
|------------------------------------------- | ---- | ----------------------- | ------ |  | ---- | ------ |  | - | ------
|                                            |      | Year Ended December 31,
|                                            | 2005 |                         | 2006   |  | 2007
|Average amount of cash provided to customer |      | $                       | 307.96 |  | $    | 310.34 |  | $ | 313.15
|Average fee received by the Company         |      | $                       | 53.83  |  | $    | 53.08  |  | $ | 52.85 
|Average term of loan (days)                 |      |                         | 16     |  |      | 16     |  |   | 16    

When checks are presented to the bank for payment and returned as uncollected, all accrued fees,
interest and outstanding principal are charged-off as uncollectible, generally within 14 days after the due date. Accordingly, payday loans included in the receivable balance at any given point in time are typically not older than 30 days. These
charge-offs are recorded as expense through the provision for losses. Any recoveries on losses previously charged to expense are recorded as a reduction to the provision for losses in the period recovered. During the years ended December 31,
2006 and December 31, 2007, the Company received approximately $900,000 and $2.1 million, respectively from the sales of certain payday loan receivables that the Company had previously charged off. The sales were recorded as a credit to the
overall loss provision, which is consistent with the Companys policy for recording recoveries noted above.

With respect to the loans
receivable at the end of each reporting period, the Company maintains an aggregate allowance for loan losses (including fees and interest) for payday loans, title loans and installment loans at levels estimated to be adequate to absorb estimated
incurred losses in the respective outstanding loan portfolios. The Company does not specifically reserve for any individual loan. The Company aggregates payday loans, title loans and installment loans for purposes of computing the loss allowance
based on very similar historical averages of uncollectible amounts as a percentage of volume for each type of loan (generally ranging from 2% to 5% of the total volume). For purposes of the allowance calculation, installment loans are included with
payday loans and title loans based on the expectation that the loss experience for installment loans will be similar to payday loans and title loans. Beginning in fiscal year 2008, with approximately 18 full months of data available for installment
loans, the company intends to begin calculating a separate component of the allowance for installment loans. The allowance represents the Companys best estimate of probable losses inherent in the outstanding loan portfolios at the end of each
reporting period.

The methodology for estimating the allowance for loan losses utilizes a four-step approach, which reflects the
short-term nature of the loan portfolio at each period-end, the historical collection experience in the month following each reporting period-end and any fluctuations in recent general economic conditions. First, the Company computes the loss/volume
ratio for the last month of each reporting period. The loss/volume ratio represents the percentage of aggregate net payday, installment and title loan losses to total payday, installment and title loan volumes during a given period. Second, the
Company computes an adjustment to this percentage to reflect the collections experience in the month immediately following the reporting period-end. To estimate collections experience, the Company computes an average of the change in the loss/volume
ratio from the last month of each reporting period to the immediate subsequent month-end for each of the last three years (excluding the current year). This change is then added to, or subtracted from, the loss/volume ratio computed for the last
month of the current reporting period to derive an experience-adjusted loss/volume ratio. Third, the period-end gross payday, installment and title loans receivable balance is multiplied by the experience-adjusted loss/volume ratio to determine the
initial estimate of the allowance for loan losses. Fourth, the Company reviews and evaluates various qualitative factors that may or may not affect the computed initial estimate of the allowance for loan losses, including, among others, known
changes in state regulations or laws, changes to the Companys business and operating structure, and geographic or demographic developments. As of December 31, 2007, the Company determined that no qualitative adjustment to the allowance
for loan losses was necessary. As of



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



December 31, 2006, the Company recorded a qualitative adjustment of $315,000 to increase the allowance for loan losses as a result of higher than
expected loss experience during January 2007 for loans that were outstanding as of December 31, 2006.

Based on the calculation
discussed above, the Company records an adjustment to the allowance for loan losses through the provision for losses.

The following table
summarizes the activity in the allowance for loan losses and the provision for losses:



|                                                                                                                     |                |                         |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------- | -------------- | ----------------------- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                     |                | Year Ended December 31, |        
|                                                                                                                     | 2005           |                         |         | 2006 |  |   | 2007    |  
|                                                                                                                     | (in thousands) |                        
|Allowance for Loan Losses                                                                                            |                |                         |         |      |  |   |         |   |  |   |         |  
|Balance, beginning of year                                                                                           |                | $                       | 1,520   |      |  | $ | 1,705   |   |  | $ | 2,982   |  
|Adjustment to provision for losses based on evaluation of outstanding receivables at year end (a)                    |                |                         | 185     |      |  |   | 1,277   |   |  |   | 1,460   |  
|                                                                                                                     |                |                         |         |      |  |   |         |   |  |   |         |  
|Balance, end of year                                                                                                 |                | $                       | 1,705   |      |  | $ | 2,982   |   |  | $ | 4,442   |  
|                                                                                                                     |                |                         |         |      |  |   |         |   |  |   |         |  
|                                                                                                                     |                |                         |        
|Provision for Losses                                                                                                 |                |                         |         |      |  |   |         |   |  |   |         |  
|Charged-off to expense                                                                                               |                | $                       | 74,237  |      |  | $ | 76,232  |   |  | $ | 101,442 |  
|Recoveries                                                                                                           |                |                         | (33,195 | )    |  |   | (40,472 | ) |  |   | (48,522 | )
|Adjustment to provision for losses based on evaluation of outstanding receivables and CSO obligation at year end (a) |                |                         | 375     |      |  |   | 1,267   |   |  |   | 1,520   |  
|                                                                                                                     |                |                         |         |      |  |   |         |   |  |   |         |  
|Total provision for losses                                                                                           |                | $                       | 41,417  |      |  | $ | 37,027  |   |  | $ | 54,440  |  
|                                                                                                                     |                |                         |         |      |  |   |         |   |  |   |         |  



|(a) | Amounts differ in 2005 due to the exclusion of the North Carolina operations (see Note 4) in the provision for losses table and differ in 2005, 2006 and 2007 due to the inclusion of
changes in the credit services organization liability (see Note 8) in the provision for losses table.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Branch
Expenses. The direct costs incurred in operating the Companys branches have been classified as branch expenses. Branch operating expenses include salaries and benefits of branch employees, rent and other occupancy costs, depreciation and
amortization of branch property and equipment, armored car and security costs, and other costs incurred by the branches. The provision for losses is also a component of branch expenses.

Property and Equipment. Property and equipment are recorded at cost. Depreciation is charged to operations using the straight-line method over the
estimated useful lives of the assets. Buildings are depreciated generally over 39 years. Data processing equipment, data processing software, furniture, fixtures, vehicles and other equipment are generally depreciated from 3 to 7 years. Leasehold
improvements are amortized using the straight-line method over the shorter of the lease term (including renewal options that are reasonably assured), which generally ranges from 1 to 15 years with an average of 7 years, or the estimated useful life
of the related asset. Repair and maintenance expenditures that do not significantly extend asset lives are charged to expense as incurred. The cost and related accumulated depreciation and amortization of assets sold or disposed of are removed from
the accounts, and the resulting gain or loss is included in income.

Software.Purchased software is recorded at cost and is
amortized on a straight-line basis over the estimated useful life. The Company capitalizes costs for the development of internal use software, including coding and software configuration costs and costs of upgrades and enhancements in accordance
with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Computer software and development costs incurred in the preliminary project stage, as well as training and



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



maintenance costs are expensed as incurred. Direct and indirect costs associated with the application development stage of internal use software are
capitalized until such time that the software is substantially complete and ready for its intended use.

Advertising Costs.
Advertising costs, including related printing and postage, are charged to operations when incurred. Advertising expense was $3.4 million, $5.6 million and $5.5 million for the years ended December 31, 2005, 2006 and 2007, respectively.

Goodwill and Intangible Assets. Goodwill represents the excess of cost over the fair value of net tangible and identified
intangible assets of acquired branches using purchase accounting. Intangible assets, which are included in other assets, consist of customer relationships, non-compete agreements, trade names, debt issuance costs and other assets.

Goodwill and other intangible assets having indefinite useful lives are tested for impairment on an annual basis, or more frequently if events or changes
in circumstances indicate that the assets might be impaired. The approach for the review of goodwill has two steps: the first being to identify a potential impairment and the second to measure the amount of the impairment loss, if any. Intangible
assets with indefinite lives are tested annually using a one-step approach that compares the fair value to the carrying amount of the asset. No goodwill impairment was recognized during 2006 and 2007. In connection with the closing of the
branches in North Carolina, the Company recorded an impairment of goodwill totaling $662,000 during 2005. See additional information in Note 4.

Impairment of Long-Lived Assets. The Company evaluates all long-lived assets, including intangible assets that are subject to amortization, for impairment whenever events or changes in circumstances indicate
that the carrying amounts may not be recoverable. Impairment is recognized when the carrying amounts of these assets cannot be recovered by the undiscounted net cash flows they will generate.

Earnings per Share. Basic and diluted earnings per share are computed by dividing income available to common stockholders by the weighted average
number of common shares outstanding during the year. The computation of diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the year. The effect of stock options and unvested restricted stock
represent the only differences between the weighted average shares used for the basic earnings per share computation compared to the diluted earnings per share computation for each period presented. See additional information in Note 11.

Stock-Based Compensation. The Company adopted Statement of Financial Accounting Standards No. 123R (SFAS 123R), Share-Based Payment
effective January 1, 2006. The adoption of this statement requires the Company to recognize in its financial statements, compensation cost relating to share-based payment transactions. Under the provisions of SFAS 123R, the stock-based
compensation expense is recognized as expense over the vesting period. See additional information in Note 12.

Income Taxes.
Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts, based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense represents the tax payable for
the current period and the change during the period in deferred tax assets and liabilities.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes(FIN 48). FIN 48 is an interpretation of FASB Statement No. 109, Accounting for Income Taxes and it seeks to reduce the diversity in practice associated with certain aspects of
measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and
also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 on January 1, 2007. See additional information in Note 9.

Treasury Stock.The Companys board of directors periodically authorizes the repurchase of the Companys common stock. The
Companys repurchases of common stock are recorded as treasury stock and result in a reduction of stockholders equity. The shares held in treasury stock may be used for corporate purposes, including shares issued to employees as part of
the Companys stock-based compensation programs. When treasury shares are reissued, the Company uses the average cost method. The Company had 1.2 million and 1.9 million shares of common stock held in treasury at December 31,
2006 and 2007, respectively.

Fair Value of Financial Instruments. Statement of Financial Accounting Standards No. 107,Disclosures About Fair Value of Financial Instruments, requires the Company to disclose the fair value of its financial instruments, which represents the amount at which the instrument could be exchanged in a current transaction between willing
parties other than a forced sale or liquidation. The amounts reported in the consolidated balance sheets for cash and cash equivalents, loans receivable, borrowings under the credit facility and accounts payable are short-term in nature and their
carrying value approximates fair value. The Company estimates the fair value of long-term debt based upon borrowing rates available at the reporting date for indebtedness with similar terms and average maturities. During December 2007, the Company
entered into a $50 million, five-year term loan (as discussed in Note 7). Given the proximity of the issuance to December 31, 2007, the carrying value of the term loan approximates the fair value.

Quantifying Misstatements. In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 requires that public companies utilize a dual-approach to assess the quantitative effects of financial
misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The Company adopted SAB 108 as of December 31, 2006. SAB 108 did not have a material effect on the Companys
consolidated financial statements for the years ended December 31, 2006 and 2007.

NOTE 3  ACCOUNTING DEVELOPMENTS

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurement (SFAS 157). SFAS 157
establishes a common definition for fair value to be applied to generally accepted accounting principles guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company will adopt this statement as of the beginning of fiscal year 2008 and it is still assessing the potential impact of adoption on its consolidated
financial statements.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities using different measurement techniques. SFAS 159 requires additional disclosures related to fair value
measurements included in the entitys financial statements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has determined that this statement will not have a
material impact on its results of operations or financial position.

In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity
obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations. SFAS 141R expands on required
disclosures to improve the statement users abilities to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for fiscal year beginning December 1, 2009. The Company does not expect the adoption of
SFAS 141R to have a material effect on its consolidated financial statements.

NOTE 4  SIGNIFICANT BUSINESS TRANSACTIONS

Recapitalization of balance sheet In December 2007, the Company completed a $95 million recapitalization of its
balance sheet designed to return immediate value to its stockholders while preserving financial flexibility to support the Companys strategic growth plan. The Company restated and amended its prior credit facility to provide borrowing capacity
of $95 million through a $50 million term loan and a $45 million revolving credit facility. The maximum borrowings under the overall credit facility may be increased to $120 million pursuant to bank approval in accordance with the terms set forth in
the first amendment to the credit facility as of March 7, 2008 (see Note 16).

Special dividend.Concurrent with the
recapitalization of the balance sheet, the Companys board of directors approved a $2.50 per share special cash dividend that was paid on December 27, 2007 to stockholders of record at the close of business on December 18, 2007. The
Company utilized the $50 million term loan to fund the special cash dividend and related transaction costs.

Closure of branches.
During third quarter 2007, the Company closed all its branches in Oregon due to a new law that went into effect on July 1, 2007 that effectively precludes payday loans. As a result, the Company recorded approximately $517,000 in pre-tax charges
during second quarter 2007 associated with these closings. The charges included a $373,000 loss for the disposition of fixed assets, $102,000 for lease terminations and other related occupancy costs, $31,000 in severance and benefit costs and
$11,000 for other costs. In the Consolidated Statements of Income, the loss associated with the disposition of fixed assets is reported as an other expense, the costs associated with the lease terminations are included in occupancy costs and the
other costs of $11,000 are included in other branch expenses.

During 2007, the Company closed 34 of its lower performing branches in
various states (the majority of which were consolidated into nearby branches) and terminated the de novo process on eight branches that never opened. As a result, the Company recorded approximately $3.2 million in pre-tax charges during 2007 as a
result of these closings. The charges recorded included $1.6 million loss for the disposition of fixed assets, $1.6 million for lease terminations and other related occupancy costs and $45,000 for other costs. In the Consolidated Statements of
Income, the loss associated with the disposition of fixed assets is reported in other expenses, the costs associated with the lease terminations are occupancy costs and the other costs of $45,000 are included in other branch expenses.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



Summarized financial information for the closed branches is presented below:



|                      |                |                         |        |      |  |   |        |  
|--------------------- | -------------- | ----------------------- | ------ | ---- |  | - | ------ | -
|                      |                | Year Ended December 31, |       
|                      | 2006           |                         |        | 2007 | 
|                      | (in thousands) |                        
|Revenues              |                | $                       | 5,394  |      |  | $ | 1,818  |  
|Provision for losses  |                |                         | 1,296  |      |  |   | 449    |  
|Total branch expenses |                |                         | 6,920  |      |  |   | 3,621  |  
|Branch gross loss     |                | $                       | (1,526 | )    |  | $ | (1,803 | )



The following table
summarizes the accrued costs associated with the closure of branches and the activity related to those charges as of December 31, 2007 (in thousands).



|                                  |  |                            |   |           |   |            |  |   |                            |   |  |   |    
|--------------------------------- |  | -------------------------- | - | --------- | - | ---------- |  | - | -------------------------- | - |  | - | ---
|                                  |  | Balance atDecember 31,2006 |   | Additions |   | Reductions |  |   | Balance atDecember 31,2007
|Lease and related occupancy costs |  | $                          |  |           | $ | 1,681      |  | $ | (1,330                     | ) |  | $ | 351
|Severance                         |  |                            |   |           |   | 31         |  |   | (31                        | ) |  |   |    
|Other                             |  |                            |   |           |   | 56         |  |   | (56                        | ) |  |   |    
|                                  |  |                            |   |           |   |            |  |   |                            |   |  |   |    
|Total                             |  | $                          |  |           | $ | 1,768      |  | $ | (1,417                     | ) |  | $ | 351
|                                  |  |                            |   |           |   |            |  |   |                            |   |  |   |    

As of December 31, 2007, the balance of $351,000 for accrued costs associated with the
closure of branches is included as a current liability on the Consolidated Balance Sheet as the Company expects that the liabilities for these costs will be settled within one year.

Acquisitions.As part of its efforts to increase market share, the Company acquired 13 branches and certain assets during 2007 for a total of $3.3
million, which included net book value of depreciable assets of approximately $204,000, loans receivable of approximately $1.4 million, and the assumption of $200,000 in liabilities for branches not yet opened. In connection with an acquisition of
eight branches in Missouri, the Company closed six of the branches acquired and transferred the receivable balances to existing locations. The Company used the purchase method of accounting. The excess of the total acquisition cost over the fair
value of the net assets acquired totaled $1.9 million. Of this amount, the Company allocated $1.3 million to goodwill, $388,000 to customer relationships and $206,000 to non-compete agreements. The purchase price allocations with respect to these
acquisitions have been completed. The pro forma results of operations have not been presented because the results of operations for the Company would not have been materially different from those reported for the year ended December 31, 2007.

On September 24, 2007, QC Auto Services, Inc. purchased certain assets from Hart Family Motors, Inc., an automotive retailer and
related finance company focused exclusively on the buy-here/pay-here segment of the used vehicle market in connection with ongoing efforts to evaluate alternative products that serve the Companys customer base. The purchase price
was $375,000, which included net book value of depreciable assets of $50,000. The Company used the purchase method of accounting. The excess of the total acquisition cost over the fair value of the net assets acquired totaled $325,000, which was
allocated to goodwill. The purchase price allocation with respect to this acquisition has been completed. The pro forma results of operations have not been presented because the results of operations for the Company would not have been materially
different from those reported for the year ended December 31, 2007.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



On December 1, 2006, the Company acquired all of the issued and outstanding membership interests
in Express Check Advance of South Carolina, LLC (ECA). The results of ECAs operations have been included in the consolidated financial statements since that date. ECA currently operates 50 payday loan branches in South Carolina. As a result of
the acquisition, the Company established a significant presence in South Carolina. The aggregate purchase price was $16.3 million, net of cash acquired. The acquisition was funded with a draw on the Companys revolving credit facility, which
was repaid during first quarter 2007. The results of operations for the acquired ECA branches have been included in the consolidated financial statements since the date of acquisition.

The purchase price allocation with respect to the ECA acquisition has been completed and the following table summarizes the estimated fair values of the
assets acquired at the date of acquisition.



|                            |  |                     |        |  
|--------------------------- |  | ------------------- | ------ | -
|                            |  | At December 1, 2006 |       
|                            |  | (in thousands)      |       
|Current assets (a)          |  | $                   | 5,466  |  
|Property and equipment      |  |                     | 295    |  
|Goodwill                    |  |                     | 7,227  |  
|Customer relationships      |  |                     | 1,900  |  
|Non-compete agreement       |  |                     | 700    |  
|Trade Name                  |  |                     | 600    |  
|Deferred tax asset (b)      |  |                     | 277    |  
|                            |  |                     |        |  
|Total assets acquired       |  |                     | 16,465 |  
|Current liabilities assumed |  |                     | (60    | )
|                            |  |                     |        |  
|Net assets acquired         |  | $                   | 16,405 |  
|                            |  |                     |        |  



|(a) | Includes cash acquired of approximately $102,000.
|--- | -------------------------------------------------

|(b) | The deferred tax asset represents the deferred income taxes recorded as a reduction of goodwill for the tax basis differences in connection with the acquisition of ECA.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Discontinued operations.In October and November of 2005, the Company closed all 19 branches in North
Carolina. The Companys decision to close its North Carolina branches reflected the difficult operating environment in North Carolina associated with the Companys role as a marketer and service provider for a lending bank that was
offering payday cash advances in compliance with the revised Payday Lending Guidelines issued by the FDIC in March 2005. Prior to September 30, 2005, a third-party financial institution offered payday loans in the Companys North Carolina
branches. The Company entered into the arrangement with the Delaware state-chartered bank in April 2003. Under the terms of the agreement, the Company marketed and serviced the banks loans in North Carolina and the bank sold to the Company a
pro rata participation in loans that were made to its borrowers. The terms of the loans were generally similar to those of the Companys own loans, though the bank had sole discretion regarding the terms of its loans. In connection with the
closing of the North Carolina branches, the Company terminated its agreement with the bank. As a result of the North Carolina closings, the Company recorded approximately $1.7 million in pre-tax charges during 2005. The charges recorded included
$662,000 for the impairment of goodwill, $185,000 in severance and benefit costs, $540,000 in accelerated depreciation, $100,000 in loan losses, $83,000 for lease terminations and $79,000 for other costs including storage, moving and cleaning costs.

The Companys North Carolina operations are reported as discontinued operations in accordance with Statement of Financial Accounting
Standards No. 144 (SFAS 144)  Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance with SFAS 144, the Consolidated Statements of Income and related disclosures in the accompanying notes present the results
of the Companys North Carolina operations as discontinued operations for all periods presented. With respect to the Consolidated Balance Sheets and related disclosures in the accompanying notes and the Consolidated Statements of Cash Flows,
the items associated with the discontinued operations are included with the continuing operations for all periods presented.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



Summarized financial information for discontinued operations is presented below:



|                                  |  |                            |        |  
|--------------------------------- |  | -------------------------- | ------ | -
|                                  |  | Year EndedDecember 31,2005 |       
|                                  |  | (in thousands)             |       
|Total revenues                    |  | $                          | 4,262  |  
|Provision for losses              |  |                            | 910    |  
|Total branch expenses             |  |                            | 5,132  |  
|Branch gross loss                 |  |                            | (870   | )
|Loss before income taxes          |  |                            | (1,556 | )
|Benefit from income taxes         |  |                            | (612   | )
|Loss from discontinued operations |  | $                          | (944   | )

In the Companys Consolidated Statements of Cash Flows, the cash flows from discontinued
operations are combined with the cash flows from continuing operations. For the year ending December 31, 2005 cash flows used by discontinued operations were $1.0 million, which primarily consisted of the expenditures associated with closing
the Companys North Carolina operations.

NOTE 5  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:



|                                                |  |                |         |   |      |   |         |  
|----------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                |  | December 31,   |        
|                                                |  | 2006           |         |   | 2007 |  
|                                                |  | (in thousands) |        
|Buildings                                       |  | $              | 2,540   |   |      | $ | 2,540   |  
|Leasehold improvements                          |  |                | 21,767  |   |      |   | 20,898  |  
|Furniture and equipment                         |  |                | 22,124  |   |      |   | 23,216  |  
|Vehicles                                        |  |                | 772     |   |      |   | 865     |  
|                                                |  |                |         |   |      |   |         |  
|                                                |  |                | 47,203  |   |      |   | 47,519  |  
|Less: Accumulated depreciation and amortization |  |                | (15,892 | ) |      |   | (20,994 | )
|                                                |  |                |         |   |      |   |         |  
|Total                                           |  | $              | 31,311  |   |      | $ | 26,525  |  
|                                                |  |                |         |   |      |   |         |  

In April 2006, the Company purchased a building in St. Louis, Missouri for approximately $400,000.
The building is currently being used as a branch location that offers the Companys various financial services.

In February 2005, the
Company entered into a seven-year lease for a new corporate headquarters in Overland Park, Kansas. As part of the lease agreement, the Company received a tenant allowance from the landlord for leasehold improvements totaling $976,000. The tenant
allowance was recorded by the Company as a deferred rent liability and is being amortized as a reduction of rent expense over the life of the lease. As of December 31, 2006, the balance of the deferred rent liability was approximately $737,000,
which consisted of $598,000 classified as a non-current liability. As of December 31, 2007, the balance of the deferred rent liability was approximately $598,000, which consisted of $459,000 classified as a non-current liability.

Depreciation and amortization expense for property and equipment totaled $4.6 million, $6.1 million and $6.2 million for the years ended
December 31, 2005, 2006 and 2007, respectively.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



NOTE 6  GOODWILL AND INTANGIBLE ASSETS

Goodwill.The following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2006 and 2007:



|                             |                |              |        |  |   |       
|---------------------------- | -------------- | ------------ | ------ |  | - | ------
|                             |                | December 31,
|                             | 2006           |              | 2007  
|                             | (in thousands)
|Balance at beginning of year |                | $            | 7,265  |  | $ | 14,492
|Acquisitions                 |                |              | 7,227  |  |   | 1,589 
|                             |                |              |        |  |   |       
|Balance at end of year       |                | $            | 14,492 |  | $ | 16,081
|                             |                |              |        |  |   |       

The Company completed its annual impairment testing of goodwill and has concluded that no
impairment existed at December 31, 2006 and 2007.

Intangible Assets.The following table summarizes intangible assets:



|                                |                |              |       |      |  |   |        |  
|------------------------------- | -------------- | ------------ | ----- | ---- |  | - | ------ | -
|                                |                | December 31, |      
|                                | 2006           |              |       | 2007 | 
|                                | (in thousands) |             
|Amortized intangible assets:    |                |              |       |      |  |   |        |  
|Customer lists                  |                | $            | 1,915 |      |  | $ | 2,303  |  
|Non-compete agreements          |                |              | 705   |      |  |   | 907    |  
|Debt issue costs                |                |              | 416   |      |  |   | 2,334  |  
|Other                           |                |              | 15    |      |  |   | 15     |  
|                                |                |              |       |      |  |   |        |  
|                                |                |              | 3,051 |      |  |   | 5,559  |  
|Non-amortized intangible assets |                |              |       |      |  |   |        |  
|Trade names                     |                |              | 600   |      |  |   | 600    |  
|                                |                |              |       |      |  |   |        |  
|Gross carrying amount           |                | $            | 3,651 |      |  | $ | 6,159  |  
|Less: Accumulated amortization  |                |              | (208  | )    |  |   | (1,238 | )
|                                |                |              |       |      |  |   |        |  
|Net intangible assets           |                | $            | 3,443 |      |  | $ | 4,921  |  
|                                |                |              |       |      |  |   |        |  

Intangible assets at December 31, 2007 primarily included customer lists, non-compete
agreements, trade names and debt financing costs. Customer lists are amortized using the straight-line method over the useful lives ranging from 4 to 15 years. Non-compete agreements are currently amortized using the straight-line method over the
term of the agreements, ranging from three to five years. The amount recorded for trade names is considered an indefinite life intangible and is not subject to amortization, but is reviewed annually for impairment or if factors indicate. Costs paid
to obtain debt financing are amortized over the term of each related debt agreement using the straight-line method, which approximates the effective interest method. During 2007, the Company incurred approximately $1.9 million in debt issue costs
associated with the amendment of its credit agreement (as discussed in Note 7). Amortization expense for the years ended December 31, 2005, 2006 and 2007 was $16,000, $182,000 and $1.0 million, respectively. Annual amortization expense for
intangible assets recorded as of December 31, 2007 is estimated to be $1.1 million for each of the years 2008, 2009 and 2010, $587,000 for 2011 and $328,000 for 2012.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



NOTE 7  INDEBTEDNESS

The following table summarizes long-term debt at December 31, 2006 and 2007:



|                               |                |              |         |      |  |   |         |  
|------------------------------ | -------------- | ------------ | ------- | ---- |  | - | ------- | -
|                               |                | December 31, |        
|                               | 2006           |              |         | 2007 | 
|                               | (in thousands) |             
|Term loan                      |                | $            |         |      |  | $ | 50,000  |  
|Revolving credit facility      |                |              | 16,300  |      |  |   | 24,500  |  
|                               |                |              |         |      |  |   |         |  
|Total debt                     |                |              | 16,300  |      |  |   | 74,500  |  
|Less: debt due within one year |                |              | (16,300 | )    |  |   | (28,500 | )
|                               |                |              |         |      |  |   |         |  
|Long-term debt                 |                | $            |         |      |  | $ | 46,000  |  
|                               |                |              |         |      |  |   |         |  

On December 7, 2007, the Company entered into an Amended and Restated Credit Agreement with a
syndicate of banks to replace its existing line of credit facility. The previous line of credit facility had a total commitment of $45.0 million. The amended credit agreement provides for a five-year term loan of $50.0 million and a revolving line
of credit (including provisions permitting the issuance of letters of credit and swingline loans) of up to $45.0 million. The maximum borrowings under the amended credit facility may be increased to $145.0 million pursuant to bank approval and
subject to terms and conditions set forth therein.

The credit facility is guaranteed by each subsidiary and is secured by all the capital
stock of each subsidiary of the Company and all personal property (including, without limitation, all present and future accounts receivable, inventory, property and equipment, general intangibles (including intellectual property), instruments,
deposit accounts, investment property and the proceeds thereof). Borrowings under the term loan and the facility are available based on two types of loans, Base Rate loans or LIBOR Rate loans. Base Rate loans bear interest at the higher of the Prime
Rate or the Federal Funds Rate plus one-half of one percent (0.50%). LIBOR Rate loans bear interest at rates based on the LIBOR rate for the applicable loan period. The loan period for a LIBOR Rate loan may be one month, two months, three months or
six months and the loan may be renewed upon notice to the agent provided that no default has occurred. The credit facility has a grid that adjusts the borrowing rates for both Base Rate loans and LIBOR Rate loans based upon the Companys
leverage ratio. Leverage ratio is defined as the ratio of total debt to EBITDA. The credit facility also includes a non-use fee ranging from 0.25% to 0.375%, which is based upon the Companys leverage ratio. Among other provisions, the amended
credit agreement contains certain financial covenants related to EBITDA, fixed charges, leverage ratio, total indebtedness, and maximum loss ratio. The credit facility expires on December 6, 2012. As of December 31, 2007, the Company had
$24.5 million outstanding under the credit facility, which is classified as a current liability on the consolidated balance sheet due to the short-term nature of the loan term. The weighted average interest rate on short-term borrowings was 6.96%
during 2007.

In addition to scheduled repayments, as noted in the table below, the term loan contains mandatory prepayment provisions
whereby the Company is required to reduce the outstanding principal amounts of the term loan based on the Companys excess cash flow (as defined in the agreement) and the Companys leverage ratio as of the most recent completed fiscal
year.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



The following table summarizes future principal payments of indebtedness at December 31, 2007:



|      |  |                  |       
|----- |  | ---------------- | ------
|      |  | December 31,2007
|      |  | (in thousands)  
|2008  |  | $                | 28,500
|2009  |  |                  | 5,000 
|2010  |  |                  | 6,000 
|2011  |  |                  | 7,000 
|2012  |  |                  | 28,000
|      |  |                  |       
|Total |  | $                | 74,500
|      |  |                  |       

The Company entered into an interest rate swap agreement during first quarter 2008 for $49 million
of its outstanding debt as a cash flow hedge to interest rate fluctuations under the credit facility (see Note 16).

NOTE 8  CREDIT SERVICES
ORGANIZATION

Payday loans are originated by the Company at all of its branches, except branches in Texas. For its locations in
Texas, the Company began operating as a credit service organization (CSO), through one of its subsidiaries, in September 2005. As a CSO, the Company acts as a credit services organization on behalf of consumers in accordance with Texas laws. The
Company charges the consumer a fee for arranging for an unrelated third-party to make a loan to the consumer and for providing related services to the consumer, including a guarantee of the consumers obligation to the third-party lender. The
Company also services the loan for the lender. The CSO fee is recognized ratably over the term of the loan. The Company is not involved in the loan approval process or in determining the loan approval procedures or criteria. As a result, loans made
by the lender are not included in the Companys loans receivable balance and are not reflected in the Consolidated Balance Sheets. As noted above, however, the Company absorbs all risk of loss through its guarantee of the consumers loan
from the lender. As of December 31, 2006 and December 31, 2007, the consumers had total loans outstanding with the lender of approximately $2.2 million and $3.1 million, respectively. Because of the economic exposure for potential losses
related to the guarantee of these loans, the Company records a payable to reflect the anticipated losses related to uncollected loans. The payable is recognized at its fair value pursuant to FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.Changes in the liability are recognized through the provision for loan losses on the Consolidated Statements of Income. The balance
of the liability for estimated losses reported in accrued liabilities was approximately $100,000 as of December 31, 2006 and $160,000 as of December 31, 2007.



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



NOTE 9  INCOME TAXES

The Companys provision for income taxes from continuing operations is summarized as follows:



|                                 |  |                         |        |   |      |   |       |  |   |        |  
|-------------------------------- |  | ----------------------- | ------ | - | ---- | - | ----- |  | - | ------ | -
|                                 |  | Year Ended December 31, |       
|                                 |  | 2005                    |        |   | 2006 |   | 2007  | 
|                                 |  | (in thousands)          |       
|Current:                         |  |                         |        |   |      |   |       |  |   |        |  
|Federal                          |  | $                       | 4,510  |   |      | $ | 5,241 |  | $ | 10,397 |  
|State                            |  |                         | 430    |   |      |   | 716   |  |   | 1,414  |  
|                                 |  |                         |        |   |      |   |       |  |   |        |  
|Total Current                    |  |                         | 4,940  |   |      |   | 5,957 |  |   | 11,811 |  
|                                 |  |                         |        |   |      |   |       |  |   |        |  
|Deferred:                        |  |                         |        |   |      |   |       |  |   |        |  
|Federal                          |  |                         | (896   | ) |      |   | 115   |  |   | (2,022 | )
|State                            |  |                         | (132   | ) |      |   | 18    |  |   | (331   | )
|                                 |  |                         |        |   |      |   |       |  |   |        |  
|Total Deferred                   |  |                         | (1,028 | ) |      |   | 133   |  |   | (2,353 | )
|                                 |  |                         |        |   |      |   |       |  |   |        |  
|Total provision for income taxes |  | $                       | 3,912  |   |      | $ | 6,090 |  | $ | 9,458  |  
|                                 |  |                         |        |   |      |   |       |  |   |        |  

The sources of deferred income tax assets (liabilities) are summarized as follows:



|                                     |  |                |         |   |      |   |         |  
|------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                     |  | December 31,   |        
|                                     |  | 2006           |         |   | 2007 |  
|                                     |  | (in thousands) |        
|Deferred tax assets related to:      |  |                |         |   |      |   |         |  
|Allowance for loan losses            |  | $              | 4,654   |   |      | $ | 6,416   |  
|Accrued rent                         |  |                | 118     |   |      |   | 902     |  
|Accrued vacation                     |  |                | 289     |   |      |   | 469     |  
|Stock based compensation             |  |                | 480     |   |      |   | 1,080   |  
|Unused state tax credits             |  |                | 285     |   |      |   | 430     |  
|Deferred compensation                |  |                |         |   |      |   | 279     |  
|Other                                |  |                | 493     |   |      |   | 690     |  
|                                     |  |                |         |   |      |   |         |  
|Gross deferred tax assets            |  |                | 6,319   |   |      |   | 10,266  |  
|                                     |  |                |         |   |      |   |         |  
|Deferred tax liabilities related to: |  |                |         |   |      |   |         |  
|Property and equipment               |  |                | (2,522  | ) |      |   | (2,233  | )
|Loans receivable, tax value          |  |                | (6,619  | ) |      |   | (8,019  | )
|Goodwill                             |  |                | (755    | ) |      |   | (976    | )
|Prepaid assets                       |  |                | (525    | ) |      |   | (363    | )
|                                     |  |                |         |   |      |   |         |  
|Gross deferred tax liabilities       |  |                | (10,421 | ) |      |   | (11,591 | )
|Valuation allowance                  |  |                | (285    | ) |      |   | (430    | )
|                                     |  |                |         |   |      |   |         |  
|Net deferred tax (liabilities)       |  | $              | (4,387  | ) |      | $ | (1,755  | )
|                                     |  |                |         |   |      |   |         |  



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



As of December 31, 2006 and 2007, the Company has state tax credit carryforwards of
approximately $439,000 and $662,000, respectively. The deferred tax asset, net of federal tax effect, relating to the carryforwards as of December 31, 2006 and 2007 is approximately $285,000 and $430,000, respectively. The Companys
ability to utilize a significant portion of the state tax credit carryforwards is dependent on its ability to meet certain criteria imposed by the state not only for the year in which the credit is generated, but also for all subsequent years in
which any portion of the credit is utilized. In addition, the credits can only be utilized against the tax liabilities of specific subsidiaries in those states. Under these circumstances, management believes that it is not more likely than not that
the benefit of these credits will be fully realized and, accordingly, a valuation allowance in the amount of $285,000 and $430,000 has been established at December 31, 2006 and 2007, respectively.

Differences between the Companys effective income tax rate computed for income from continuing operations and the statutory federal income tax rate
are as follows:



|                                                              |  |                         |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                              |  | Year Ended December 31, |      
|                                                              |  | 2005                    |       |   | 2006 |   |       | 2007 | 
|                                                              |  | (in thousands)          |      
|Income tax expense using the statutory federal rate in effect |  | $                       | 3,582 |   |      | $ | 5,355 |      |  | $ | 8,421 |  
|Tax effect of:                                                |  |                         |       |   |      |   |       |      |  |   |       |  
|State and local income taxes, net of federal benefit          |  |                         | 194   |   |      |   | 477   |      |  |   | 704   |  
|Other                                                         |  |                         | 136   |   |      |   | 258   |      |  |   | 333   |  
|                                                              |  |                         |       |   |      |   |       |      |  |   |       |  
|Total provision for income taxes                              |  | $                       | 3,912 |   |      | $ | 6,090 |      |  | $ | 9,458 |  
|                                                              |  |                         |       |   |      |   |       |      |  |   |       |  
|Effective tax rate                                            |  |                         | 38.2  | % |      |   | 39.8  | %    |  |   | 39.3  | %
|Statutory federal tax rate                                    |  |                         | 35.0  | % |      |   | 35.0  | %    |  |   | 35.0  | %

On January 1, 2007, the Company adopted the provisions of FIN 48. Prior to the adoption of
FIN 48, the Company had accrued sufficient liabilities for unrecognized tax benefits under the provisions of Statement of Financial Accounting Standard No. 5, Accounting for Contingencies and therefore no adjustments to
retained earnings were necessary as a result of the implementation of FIN 48. As required by FIN 48, which clarifies FASB Statement No. 109, Accounting for Income Taxes, the Company recognizes the financial statement benefit
of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of December 31, 2006 and December 31, 2007, the accrued liability for
unrecognized tax benefits was approximately $150,000 and $94,000, respectively.

A reconciliation of the beginning and ending amount of
unrecognized benefits is as follows:



|                             |  |                  |     |  
|---------------------------- |  | ---------------- | --- | -
|                             |  | December 31,2007 |    
|                             |  | (in thousands)   |    
|Balance at beginning of year |  | $                | 150 |  
|Settlements                  |  |                  | (56 | )
|                             |  |                  |     |  
|Balance at end of year       |  | $                | 94  |  
|                             |  |                  |     |  



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



The $94,000 of unrecognized tax benefits at December 31, 2007, which if ultimately recognized,
will reduce the Companys annual effective tax rate. During third quarter 2007, the Company settled its only outstanding tax audit with one state jurisdiction. The review board of the state jurisdiction agreed with the Companys petition
and withdrew the tax amounts that were assessed under the audit. As a result of the settlement, the Companys FIN 48 liability was decreased by $56,000 and interest payable was decreased by $27,000.

The Company records accruals for interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively.
Interest and penalties and associated accruals were not material in 2005, 2006 or 2007.

The Company is subject to income taxes in the U.S.
federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In the ordinary course of business,
transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of
deductions and the allocation of income among tax jurisdictions. During 2006, the Company settled two open tax years, 2003 and 2004, which were undergoing audit by the United States Internal Revenue Service. The 2004, 2005 and 2006 federal income
tax returns are the only open tax years for which the statute of limitations is still open. Generally, state income tax returns for all years after 2003 are subject to potential future audit by tax authorities in the Companys state tax
jurisdictions.

NOTE 10  EMPLOYEE BENEFIT PLAN

The Company has established a defined-contribution 401(k) benefit plan that covers substantially all its full-time employees. Under the plan, the Company makes a matching contribution of 50% of each employees
contribution, up to 6% of the employees compensation. The Companys matching contributions and administrative expenses relating to the 401(k) plan were $356,000, $446,000 and $448,000 during 2005, 2006 and 2007, respectively.

In June 2007, the Company established a non-qualified deferred compensation plan for certain highly compensated employees. The plan permits
participants to defer a portion of their compensation until termination of their employment, at which time payment of deferred amounts is made in a lump sum or annual installments. Deferred amounts are credited with deemed gains or losses of the
underlying hypothetical investments. Under the plan, the Company makes a matching contribution of 50% of each employees contribution, up to 6% of the employees compensation. The Companys matching contributions and administrative
expenses relating to the plan were approximately $198,000 for the year ended December 31, 2007. Included in Other Liabilities (non-current) are amounts deferred under this plan of approximately $737,000 at December 31, 2007 with a
corresponding asset included in Other Assets (non-current).



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



NOTE 11  STOCKHOLDERS EQUITY

Earnings Per Share.The following table presents the computations of basic and diluted earnings per share for the periods presented:



|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ |  | - | ------
|                                                                                                                              |  | Year Ended December 31,              
|                                                                                                                              |  | 2005                                  |        |   | 2006 |   | 2007  
|                                                                                                                              |  | (in thousands, except per share data)
|Net income from continuing operations                                                                                         |  | $                                     | 6,323  |   |      | $ | 9,209  |  | $ | 14,602
|Loss from discontinued operations available to common stockholders                                                            |  |                                       | (944   | ) |      |   |        |  |   |       
|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       
|Income available to common stockholders                                                                                       |  | $                                     | 5,379  |   |      | $ | 9,209  |  | $ | 14,602
|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       
|Weighted average basic common shares outstanding                                                                              |  |                                       | 20,508 |   |      |   | 19,981 |  |   | 19,283
|Incremental shares from assumed conversion of stock options, unvested restricted shares and unvested performance-based shares |  |                                       | 940    |   |      |   | 646    |  |   | 295   
|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       
|Weighted average diluted common shares outstanding                                                                            |  |                                       | 21,448 |   |      |   | 20,627 |  |   | 19,578
|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       
|Earnings (loss) per share                                                                                                     |  |                                       |        |   |      |   |        |  |   |       
|Basic                                                                                                                         |  |                                       |        |   |      |   |        |  |   |       
|Continuing operations                                                                                                         |  | $                                     | 0.31   |   |      | $ | 0.46   |  | $ | 0.76  
|Discontinued operations                                                                                                       |  |                                       | (0.05  | ) |      |   |        |  |   |       
|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       
|Net income                                                                                                                    |  | $                                     | 0.26   |   |      | $ | 0.46   |  | $ | 0.76  
|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       
|Diluted                                                                                                                       |  |                                       |        |   |      |   |        |  |   |       
|Continuing operations                                                                                                         |  | $                                     | 0.29   |   |      | $ | 0.45   |  | $ | 0.75  
|Discontinued operations                                                                                                       |  |                                       | (0.04  | ) |      |   |        |  |   |       
|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       
|Net income                                                                                                                    |  | $                                     | 0.25   |   |      | $ | 0.45   |  | $ | 0.75  
|                                                                                                                              |  |                                       |        |   |      |   |        |  |   |       

The Company had approximately 19.5 million and 18.8 million shares outstanding at
December 31, 2006 and 2007, respectively. For financial reporting purposes, however, unvested restricted shares in the amount of approximately 138,688 and unvested performance-based shares totaling 42,000 are excluded from the determination of
average common shares outstanding used in the calculation of basic earnings per share in the above table for the year ended December 31, 2007. Shares from options to purchase shares of common stock that were excluded from the diluted earnings
per share calculations because they were anti-dilutive totaled approximately 624,000, 1.0 million and 754,000 for the years ended December 31, 2005, 2006 and 2007, respectively.

Stock Repurchases. The board of directors has authorized the Company to repurchase up to $40 million of its common stock in the open market and/or
through private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in our stock-based compensation programs. Under the announced stock repurchase program, the Company expended $3.7 million for
approximately 313,400 shares, $16.5 million for approximately 1.3 million shares, and $18.2 million for approximately 1.3 million shares during the years ended December 31, 2005, 2006, and 2007, respectively. Shares received in
exchange for tax withholding obligations arising from the vesting of restricted stock are included in common stock repurchased in the Consolidated Statement of Cash Flows. As of December 31, 2007, the Company had approximately $1.7 million that
may yet be purchased under the current program.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



Dividends.For the year ended December 31, 2007, the Company paid $56.4 million in
dividends to its stockholders, of which approximately $2.0 million was accrued as a payable at December 31, 2006. In December 2007, the Companys board of directors approved a special cash dividend of $2.50 per share in conjunction with
the recapitalization of the Companys balance sheet. The special dividend totaled $48.5 million and was paid on December 27, 2007 to stockholders of record at the close of business on December 18, 2007. In addition, the Company paid
other dividends during 2007 at a rate of $0.10 per share in each quarter.

NOTE 12  STOCK-BASED COMPENSATION

Long-Term Incentive Stock Plans. As of December 31, 2007, the Companys stock-based compensation plans include the 1999 Stock Option Plan
(1999 Plan), the 2004 Equity Incentive Plan (2004 Plan) and an option to purchase 200,000 shares of common stock granted to a current officer of the Company when he was a consultant to the Company. Securities remaining available for future issuance
under equity compensation plans approved by security holders consist solely of shares of common stock available under the 2004 Plan. The maximum number of shares of common stock of the Company originally reserved and available for issuance under the
2004 Plan was 3.0 million shares. As of December 31, 2007, there are approximately 587,000 shares of common stock available for future issuance under the 2004 Plan, which may be issued, in any combination, as incentive stock options,
non-qualified stock options, stock appreciation rights, performance-based share awards, restricted stock or other incentive awards of, or based on, the Companys common stock. During 2005, 2006 and 2007, the Company has issued a combination of
stock options (non-qualified), restricted stock and performance-based shares to its employees as part of the Companys long-term equity incentive compensation program.

In accordance with the Companys stock-based compensation plans, the exercise price of a stock option is equal to the market price of the stock on
the date of the grant and the option awards typically vest over four years in 25% increments on the first, second, third and fourth anniversaries of the grant date. Generally, options granted will expire 10 years from the date of grant.

Restricted stock awards and performance-based share awards are valued on the date of grant and have no purchase price. Restricted stock awards
typically vest over four years in 25% increments on the first, second, third and fourth anniversaries of the grant date. The vesting period for performance-based share awards is implicitly stated as the time period it will take for the performance
condition to be met. Under the 2004 Plan, unvested shares of restricted stock and unvested performance-based share awards may be forfeited upon the termination of employment with the Company, dependent upon the circumstances of termination. Except
for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock and holders of unvested performance-based share awards have full stockholders rights, including voting rights and the right to receive
cash dividends.

Share-Based Compensation. The Company adopted the provisions of SFAS 123R effective January 1, 2006. The
adoption of this statement requires the Company to recognize in its financial statements compensation costs relating to share-based payment transactions. Under the provisions of SFAS 123R, the stock-based compensation expense is recognized as
expense over the vesting period.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



The following table summarizes the stock-based compensation expense reported in net income for the
years ended December 31, 2006 and 2007:



|                                                |  |                         |       |      |   |      
|----------------------------------------------- |  | ----------------------- | ----- | ---- | - | -----
|                                                |  | Year Ended December 31,
|                                                |  | 2006                    |       | 2007
|                                                |  | (in thousands)         
|Employee stock-based compensation:              |  |                         |       |      |   |      
|Stock options                                   |  | $                       | 795   |      | $ | 795  
|Restricted stock awards                         |  |                         | 177   |      |   | 541  
|Performance-based shares                        |  |                         | 26    |      |   | 603  
|                                                |  |                         |       |      |   |      
|                                                |  |                         | 998   |      |   | 1,939
|Non-employee director stock-based compensation: |  |                         |       |      |   |      
|Stock options                                   |  |                         | 236   |      |   |      
|Restricted stock awards                         |  |                         |       |      |   | 200  
|                                                |  |                         |       |      |   |      
|Total stock-based compensation                  |  | $                       | 1,234 |      | $ | 2,139
|                                                |  |                         |       |      |   |      

The following table sets forth the impact on the Companys financial results due to the
adoption of SFAS 123R for the years ended December 31, 2006 and 2007 (in thousands, except per share data):



|                                                      |  |                         |       |      |   |      
|----------------------------------------------------- |  | ----------------------- | ----- | ---- | - | -----
|                                                      |  | Year Ended December 31,
|                                                      |  | 2006                    |       | 2007
|Income from continuing operations before income taxes |  | $                       | 1,234 |      | $ | 2,139
|Income from continuing operations                     |  | $                       | 743   |      | $ | 1,298
|Net income                                            |  | $                       | 743   |      | $ | 1,298
|                                                      |  |                        
|Basic earning per common share                        |  | $                       | 0.04  |      | $ | 0.07 
|Diluted earnings per common share                     |  | $                       | 0.04  |      | $ | 0.07 

Prior to the adoption of SFAS 123R, the Company presented all tax benefits of deductions resulting
from the exercise of share-based awards as operating cash flows in the Consolidated Statement of Cash Flows. SFAS 123R requires the cash flows resulting from the tax benefits generated from tax deductions in excess of the compensation costs
recognized for the share-based awards (excess tax benefits) be classified as financing cash inflows with a corresponding reduction of operating cash flows. In connection with the exercise of stock options by employees and the vesting of restricted
stock, the Company recorded excess tax benefits of approximately $1.2 million and $1.9 million during the years ending December 31, 2006 and 2007, respectively.

Prior to January 1, 2006,the Company used the intrinsic value method as described in Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employeesand its
related Interpretations, to measure employee stock-based compensation as permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation.Under this method, compensation expense
was measured as the difference between the current value of the shares involved and the price the employee is required to pay on grant date, if any. Compensation expense was generally measured on the date the awards were granted and recognized over
the vesting period, which approximates the anticipated service period.

The Companys reported net income for the year ended
December 31, 2005 does not include any stock-based employee compensation expense because all stock options granted under the Companys equity compensation plans had an exercise price equal to the fair market value of the underlying common
stock on the date of grant. If the Company had applied the fair value provisions set forth in SFAS 123 to stock option grants to employees, compensation expense would have been higher than is reported in the consolidated financial statements by
approximately $7.1 million for the year ended December 31, 2005.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



On May 9, 2005, the Compensation Committee of the Companys board of directors approved the
acceleration of vesting of all unvested options to purchase common stock of the Company that had an exercise price that was greater than the market price on that date. This action resulted in the accelerated vesting of options to purchase 964,000
shares of common stock of the Company. The weighted average exercise price of the accelerated options was $15.97 per share. The closing price of the Companys common stock on the Nasdaq National Market on May 9, 2005 was $13.50 per share.

The Company accelerated the vesting of these options because it believed it was in the best interest of its stockholders to reduce future
compensation expense that the Company would otherwise have been required to report in its income statement upon the adoption of SFAS 123R. The Company did not accelerate the vesting requirements for unvested options granted to employees with an
exercise price that was less than the market price on May 9, 2005, however, these options were scheduled to vest prior to the adoption of SFAS 123R. As a result, all employee options outstanding as of January 1, 2006 had vested prior to
the adoption of SFAS 123R. The pro forma disclosures below include the impact of the accelerated vesting of options in the second quarter of 2005 and reflect an approximate $6.2 million pre-tax charge to pro forma earnings for the year ended
December 31, 2005.

The following table illustrates the effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS 123 to employee stock options for the year ended December 31, 2005 (in thousands, except per share date):



|                                                                                                                                                 |  |                            |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | ------ | -
|                                                                                                                                                 |  | Year EndedDecember 31,2005 |       
|Net income as reported                                                                                                                           |  | $                          | 5,379  |  
|Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax benefits
(a) |  |                            | (5,269 | )
|                                                                                                                                                 |  |                            |        |  
|Pro forma net income available to common stockholders                                                                                            |  | $                          | 110    |  
|                                                                                                                                                 |  |                            |        |  
|Basic earnings per share                                                                                                                         |  |                            |        |  
|As reported                                                                                                                                      |  | $                          | 0.26   |  
|Pro forma                                                                                                                                        |  | $                          | 0.01   |  
|                                                                                                                                                 | 
|Diluted earnings per share                                                                                                                       |  |                            |        |  
|As reported                                                                                                                                      |  | $                          | 0.25   |  
|Pro forma                                                                                                                                        |  | $                          | 0.01   |  



|(a) | The pro forma computation assumes that the Company does not receive a tax benefit upon exercise for any incentive stock options granted to its employees.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

In 2002 and in years prior to 2001, the Company granted stock options to non-employees. In accordance with the provisions of SFAS 123, the Company
recorded compensation expense of approximately $100,000 and $66,000 for the years ended December 31, 2005 and 2006, respectively, related to these non-employee option grants in the consolidated financial statements. These stock options vested
100% in September 2006 and as a result, no additional compensation expense is required.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



Pursuant to SFAS 123R, the Company elected to use the modified prospective application method, which
requires public companies to (1) record compensation cost for the unvested portion of previously issued awards that remain outstanding at the initial date of adoption and (2) record compensation cost for any awards issued, modified,
repurchased, or cancelled after the effective date of SFAS 123R. As of January 1, 2006, the Company did not have any unvested equity awards outstanding other than the options granted to a former consultant, as discussed above.

Stock Options.In December 2007, the Company recapitalized its balance sheet and the Companys board of directors approved a special dividend
of $2.50 per share that was paid on December 27, 2007. In accordance with the anti-dilution provisions in the Companys long-term incentive stock plans, the number and exercise price of all stock options outstanding at the time of the
special cash dividend were proportionately adjusted for 94 employees, five non-employee directors and one former director to maintain the aggregate fair value before and after the special cash dividend. Pursuant to SFAS 123R, these adjustments were
accounted for as modifications as a result of an equity restructuring. Based on the anti-dilution provisions in the long-term incentive plans, the Company did not record any additional compensation expense for the adjustment to the number and
exercise price of the outstanding options.

The Company did not grant any stock options during 2007. In 2006, the Company granted 675,000
stock options to certain employees and non-employee directors under the 2004 Plan. The grants consisted of 627,500 stock options to employees that vest equally over four years and 47,500 stock options to non-employee directors that vested
immediately upon grant. The Company estimated that the fair value of these option grants was approximately $3.4 million. The fair value of the options was determined at the grant date using a Black-Scholes option-pricing model, which requires the
Company to make several assumptions. The risk-free interest rate used was based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of the grant. The dividend yield on the Companys common stock was
assumed to be zero since the Company did not pay dividends prior to the grant of these stock options. The expected volatility factor used by the Company was based on the Companys historical stock trading history. In accordance with the
Securities and Exchange Commissions Staff Accounting Bulletin No. 107, the Company computed the expected term of the option by using the simplified method, which is an average of the vesting term and original contractual term. As of
December 31, 2007, there were $1.8 million of total unrecognized compensation costs related to outstanding stock options. The Company expects that these costs will be amortized over a weighted average period of two years.

The weighted-average grant date fair value of options granted during the years 2005 and 2006 was $8.82, and $5.31, respectively. The total intrinsic
value of options exercised during the years ended December 31, 2005, 2006 and 2007, was $5.1 million, $4.3 million and $7.2 million, respectively.

The grant date fair value of options granted in 2005 and 2006 were calculated using a Black-Scholes option-pricing model based on the following assumptions:



|                         |  |                         |   |  |                 |  
|------------------------ |  | ----------------------- | - |  | --------------- | -
|                         |  | Year Ended December 31, |  
|                         |  | 2005                    |   |  | 2006            |  
|Dividend yield           |  | 0.00                    | % |  | 0.00            | %
|Risk-free interest rate  |  | 3.79% to 4.21           | % |  | 4.31% to 4.89   | %
|Expected volatility      |  | 41.85% to 60.94         | % |  | 31.09% to 38.56 | %
|Expected life (in years) |  | 6.00                    |   |  | 6.25            |  



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



A summary of nonvested stock option activity and related information for the year ended
December 31, 2007 is as follows:



|                                     |  |          |   |  |                                      |     
|------------------------------------ |  | -------- | - |  | ------------------------------------ | ----
|                                     |  | Options  |   |  | WeightedAverage GrantDate Fair Value
|Nonvested balance, January 1, 2007   |  | 627,500  |   |  | $                                    | 5.34
|Granted                              |  |          |   |  |                                      |     
|Vested                               |  | (156,875 | ) |  |                                      | 5.34
|Stock option adjustment (a)          |  | 120,942  |   |  |                                      | 4.25
|Forfeited                            |  |          |   |  |                                      |     
|                                     |  |          |   |  |                                      |     
|Nonvested balance, December 31, 2007 |  | 591,567  |   |  | $                                    | 4.25
|                                     |  |          |   |  |                                      |     



|(a) | Represents the adjustment to nonvested options due to the special dividend as discussed above.
|--- | ----------------------------------------------------------------------------------------------

The total fair value of options vested during 2007 was approximately $838,000.

A summary of all stock option activity under the equity compensation plans for the year ended December 31, 2007 is as follows:



|                               |  |           |   |  |                               |       |                                                  |     |                                        |   |      
|------------------------------ |  | --------- | - |  | ----------------------------- | ----- | ------------------------------------------------ | --- | -------------------------------------- | - | -----
|                               |  | Options   |   |  | WeightedAverageExercise Price |       | Weighted AverageRemainingContractual Term(years) |     | AggregateIntrinsic Value(in thousands)
|Outstanding, January 1, 2007   |  | 2,541,000 |   |  | $                             | 10.32 |                                                  |     |                                        |   |      
|Granted                        |  |           |   |  |                               |       |                                                  |     |                                        |   |      
|Exercised                      |  | (592,786  | ) |  |                               | 2.38  |                                                  |     |                                        |   |      
|Stock option adjustment (a)    |  | 498,196   |   |  |                               | 10.12 |                                                  |     |                                        |   |      
|Forfeited                      |  | (9,500    | ) |  |                               | 16.68 |                                                  |     |                                        |   |      
|                               |  |           |   |  |                               |       |                                                  |     |                                        |   |      
|Outstanding, December 31, 2007 |  | 2,436,910 |   |  | $                             | 10.12 |                                                  | 6.9 |                                        | $ | 4,736
|                               |  |           |   |  |                               |       |                                                  |     |                                        |   |      
|Exercisable, December 31, 2007 |  | 1,845,343 |   |  | $                             | 10.32 |                                                  | 6.5 |                                        | $ | 3,691
|                               |  |           |   |  |                               |       |                                                  |     |                                        |   |      



|(a) | Represents the adjustment to nonvested options due to the special dividend as discussed above.
|--- | ----------------------------------------------------------------------------------------------



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



The following table summarizes information about options outstanding and exercisable at
December 31, 2007:



|               |  |                     |  |                                                                   |  |                               |       |                   |           |                               |   |      
|-------------- |  | ------------------- |  | ----------------------------------------------------------------- |  | ----------------------------- | ----- | ----------------- | --------- | ----------------------------- | - | -----
|               |  | Options Outstanding |  | Options Exercisable                                              
|Exercise Price |  | NumberOutstanding   |  | Weighted AverageRemainingContractual Life ofOutstanding(in years) |  | WeightedAverageExercise Price |       | NumberExercisable |           | WeightedAverageExercise Price
|$1 to $5       |  | 341,540             |  | 4.3                                                               |  | $                             | 1.92  |                   | 341,540   |                               | $ | 1.92 
|$5 to $10      |  | 839,038             |  | 8.0                                                               |  |                               | 9.47  |                   | 247,471   |                               |   | 9.44 
|$10 to $15     |  | 1,193,482           |  | 6.8                                                               |  |                               | 12.66 |                   | 1,193,482 |                               |   | 12.66
|$15 to $20     |  | 62,850              |  | 7.0                                                               |  |                               | 15.07 |                   | 62,850    |                               |   | 15.07
|               |  |                     |  |                                                                   |  |                               |       |                   |           |                               |   |      
|               |  | 2,436,910           |  | 6.9                                                               |  | $                             | 10.12 |                   | 1,845,343 |                               | $ | 10.32
|               |  |                     |  |                                                                   |  |                               |       |                   |           |                               |   |      

Restricted stock grants. A summary of all restricted stock activity under the equity
compensation plans for the year ended December 31, 2007 is as follows:



|                                     |  |                  |   |  |                                      |      
|------------------------------------ |  | ---------------- | - |  | ------------------------------------ | -----
|                                     |  | Restricted Stock |   |  | WeightedAverage GrantDate Fair Value
|Nonvested balance, January 1, 2007   |  | 98,765           |   |  | $                                    | 13.24
|Granted                              |  | 84,474           |   |  |                                      | 15.69
|Vested                               |  | (37,172          | ) |  |                                      | 14.15
|Forfeited                            |  | (7,379           | ) |  |                                      | 13.66
|                                     |  |                  |   |  |                                      |      
|Nonvested balance, December 31, 2007 |  | 138,688          |   |  | $                                    | 14.46
|                                     |  |                  |   |  |                                      |      

During 2007, the Company granted 84,474 shares of restricted stock to certain employees and
non-employee directors under the 2004 Plan. The grants consisted of 71,974 shares to employees that vest equally over four years and 12,500 shares to non-employee directors that vested immediately upon grant. The Company estimated that the fair
market value of these restricted grants totaled $1.3 million.

As of December 31, 2007, there was $1.5 million of total unrecognized
compensation costs related to the nonvested restricted stock grants. The Company estimates that these costs will be amortized over a weighted average period of 2.5 years.

Performance-based share awards. On December 14, 2006, the Company granted 42,000 shares to four executive officers pursuant to performance-based share award agreements. The vesting of the performance-based
share awards is based on the Company meeting certain performance goals for the year ended December 31, 2007. The fair market value of these grants was approximately $629,000. The Company recognized approximately $26,000 and $603,000 in
stock-based compensation expense related to these grants for the years ended December 31, 2006 and 2007, respectively. The performance-based shares were fully amortized as of December 31, 2007. During first quarter 2008, the performance
shares vested based upon the certification of the Companys financial results by the Companys board of directors.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



A summary of all performance-based share awards activity under the equity compensation plans for the
year ended December 31, 2007 is as follows:



|                                     |  |                          |  |                                      |      
|------------------------------------ |  | ------------------------ |  | ------------------------------------ | -----
|                                     |  | Performance-Based Shares |  | WeightedAverage GrantDate Fair Value
|Nonvested balance, January 1, 2007   |  | 42,000                   |  | $                                    | 14.98
|Granted                              |  |                          |  |                                      |      
|Vested                               |  |                          |  |                                      |      
|Forfeited                            |  |                          |  |                                      |      
|                                     |  |                          |  |                                      |      
|Nonvested balance, December 31, 2007 |  | 42,000                   |  | $                                    | 14.98
|                                     |  |                          |  |                                      |      

NOTE 13  COMMITMENTS AND CONTINGENCIES

Operating Leases.The Company leases certain equipment and buildings under non-cancelable operating leases. The following table summarizes the
future minimum lease payments as of December 31, 2007. The future minimum lease payments include payments required for the initial non-cancelable term of the operating lease plus any payments for periods of expected renewals provided for in the
lease that the Company considers to be reasonably assured of exercising.



|           |  |                |        |                           |   |        |  |   |        
|---------- |  | -------------- | ------ | ------------------------- | - | ------ |  | - | -------
|           |  | Non-Cancelable |        | ReasonablyAssuredRenewals |   | Total 
|           |  | (in thousands)
|2008       |  | $              | 13,496 |                           | $ | 922    |  | $ | 14,418 
|2009       |  |                | 10,513 |                           |   | 3,554  |  |   | 14,067 
|2010       |  |                | 6,781  |                           |   | 6,972  |  |   | 13,753 
|2011       |  |                | 3,335  |                           |   | 9,752  |  |   | 13,087 
|2012       |  |                | 1,568  |                           |   | 10,463 |  |   | 12,031 
|Thereafter |  |                | 477    |                           |   | 49,647 |  |   | 50,124 
|           |  |                |        |                           |   |        |  |   |        
|Total      |  | $              | 36,170 |                           | $ | 81,310 |  | $ | 117,480
|           |  |                |        |                           |   |        |  |   |        

Rental expense was $10.6 million, $13.9 million and $17.1 million during the years ended
December 31, 2005, 2006 and 2007, respectively.

Litigation. The Company is subject to various legal proceedings arising from
normal business operations. Although there can be no assurances, based on the information currently available, management believes that it is probable that the ultimate outcome of each of the actions will not have a material adverse effect on the
consolidated financial statements. However, an adverse outcome in any of the actions could have a material adverse effect on the financial results of the Company in the period, which it is recorded.



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QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



Missouri. On October 13, 2006, one of the Companys Missouri customers sued the
Company in the Circuit Court of St. Louis County, Missouri in a purported class action. The lawsuit alleges violations of the Missouri statute pertaining to unsecured loans under $500 and the Missouri Merchandising Practices Act. The lawsuit seeks
monetary damages and a declaratory judgment that the arbitration agreement with the plaintiff is not enforceable on a variety of theories. The Company has not filed an answer, but has moved to compel arbitration of this matter. Plaintiff has secured
the right to have discovery regarding the Companys arbitration provision, however, prior to the courts ruling on the Companys motion. The Court heard oral arguments on the Companys motion in June 2007. On December 31,
2007, the court entered an order striking the class action waiver provision in our customer arbitration agreement, ordered the case to arbitration and dismissed the lawsuit filed in Circuit Court. In February 2008, we appealed the portion of the
courts order striking the class action waiver provision in the arbitration agreement with our customer.

North Carolina. On
February 8, 2005, the Company, two of its subsidiaries, including its subsidiary doing business in North Carolina, and Mr. Don Early, the Companys Chairman of the Board and Chief Executive Officer, were sued in Superior Court of New
Hanover County, North Carolina in a putative class action lawsuit filed by James B. Torrence, Sr. and Ben Hubert Cline, who were customers of a Delaware state-chartered bank for whom the Company provided certain services in connection with the
banks origination of payday loans in North Carolina, prior to the closing of the Companys North Carolina branches in fourth quarter 2005. The lawsuit alleges that the Company violated various North Carolina laws, including the North
Carolina Consumer Finance Act, the North Carolina Check Cashers Act, the North Carolina Loan Brokers Act, the state unfair trade practices statute and the state usury statute, in connection with payday loans made by the bank to the two plaintiffs
through the Companys retail locations in North Carolina. The lawsuit alleges that the Company made the payday loans to the plaintiffs in violation of various state statutes, and that if the Company is not viewed as the actual lenders or
makers of the payday loans, its services to the bank that made the loans violated various North Carolina statutes. Plaintiffs are seeking certification as a class, unspecified monetary damages, and treble damages and attorneys fees under
specified North Carolina statutes. Plaintiffs have not sued the bank in this matter and have specifically stated in the complaint that plaintiffs do not challenge the right of out-of-state banks to enter into loans with North Carolina residents at
such rates as the banks home state may permit, all as authorized by North Carolina and federal law. This case is in the preliminary stages.

There are three similar purported class action lawsuits filed in North Carolina against three other companies unrelated to the Company. In December 2005, the judge in those three cases (1) granted the defendants motions to stay
the purported class action lawsuits and to compel arbitration in accordance with the terms of the arbitration provisions contained in the consumer loan contracts, (2) ruled that the class action waivers in those consumer loan contracts are
valid, and (3) denied plaintiffs motions for class certifications. The plaintiffs in those three cases, who are represented by the same law firms as the plaintiffs in the case filed against the Company, have appealed that ruling. The
judge handling the lawsuit against the Company in North Carolina is the same judge who issued these three orders in December 2005. The Company has not had a ruling on the similar pending motions by the plaintiffs and the Company in its North
Carolina case. There is a stay in the North Carolina lawsuit, pending the outcome of the appeal in the other three North Carolina cases concerning the enforceability of the arbitration provision in the consumer contracts. Accordingly, there will be
no ruling on the Companys motion to enforce arbitration in North Carolina during the pendency of that appeal. In January 2007, the North Carolina Court of Appeals heard the appeal in the three companion cases, although it is unknown when the
court will issue its ruling.

Other Matters.The Company is also currently involved in ordinary, routine litigation and
administrative proceedings incidental to its business, including customer bankruptcy and employment-related matters. The Company believes the likely outcome of these other cases and proceedings will not be material to its business or its financial
condition.



F-33



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



NOTE 14  CERTAIN CONCENTRATIONS OF RISK

The Company is subject to regulation by federal and state governments that affect the products and services provided by the Company, particularly payday
loans. The Company currently operates in 24 states throughout the United States. The level and type of regulation of payday loans varies greatly from state to state, ranging from states with no regulations or legislation to other states with very
strict guidelines and requirements.

Company branches located in the states of Missouri, California, Arizona, South Carolina and Kansas
represented approximately 24%, 13%, 8%, 7%, and 5%, respectively, of total revenues for the year ended December 31, 2007. Company branches located in the states of Missouri, Arizona, California, Kansas, Illinois, New Mexico, South Carolina and
Virginia represented approximately 31%, 13%, 8%, 7%, 6%, 6%, 6% and 5%, respectively, of total branch gross profit for the year ended December 31, 2007. To the extent that laws and regulations are passed that affect the Companys ability
to offer payday loans or the manner in which the Company offers its payday loans in any one of those states, the Companys financial position, results of operations and cash flows could be adversely affected.

NOTE 15  SELECTED QUARTERLY INFORMATION (Unaudited)



|                                               |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        
|---------------------------------------------- |  | ------------------------------------- | ------ | ------------- | - | ------------ |  | ------------- | ------ | ----- | - | ------ |  | - | -------
|                                               |  | Year Ended December 31, 2007         
|                                               |  | FirstQuarter                          |        | SecondQuarter |   | ThirdQuarter |  | FourthQuarter |        | Total
|                                               |  | (in thousands, except per share data)
|2007                                           |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        
|Total revenues                                 |  | $                                     | 48,519 |               | $ | 51,244       |  | $             | 56,548 |       | $ | 57,273 |  | $ | 213,584
|Branch gross profit                            |  |                                       | 17,202 |               |   | 14,774       |  |               | 16,510 |       |   | 16,068 |  |   | 64,554 
|Income from continuing operations before taxes |  |                                       | 5,628  |               |   | 5,428        |  |               | 7,087  |       |   | 5,917  |  |   | 24,060 
|Net income                                     |  |                                       | 3,382  |               |   | 3,269        |  |               | 4,283  |       |   | 3,668  |  |   | 14,602 
|                                               |  |                                       |        |               |  
|Earnings per share (a):                        |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        
|Basic                                          |  | $                                     | 0.17   |               | $ | 0.17         |  | $             | 0.22   |       | $ | 0.19   |  | $ | 0.76   
|                                               |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        
|Diluted                                        |  | $                                     | 0.17   |               | $ | 0.16         |  | $             | 0.22   |       | $ | 0.19   |  | $ | 0.75   
|                                               |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        



|                                               |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        
|---------------------------------------------- |  | ------------------------------------- | ------ | ------------- | - | ------------ |  | ------------- | ------ | ----- | - | ------ |  | - | -------
|                                               |  | Year Ended December 31, 2006         
|                                               |  | FirstQuarter                          |        | SecondQuarter |   | ThirdQuarter |  | FourthQuarter |        | Total
|                                               |  | (in thousands, except per share data)
|2006                                           |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        
|Total revenues                                 |  | $                                     | 38,432 |               | $ | 39,767       |  | $             | 45,346 |       | $ | 48,737 |  | $ | 172,282
|Branch gross profit                            |  |                                       | 12,334 |               |   | 9,163        |  |               | 11,756 |       |   | 14,901 |  |   | 48,154 
|Income from continuing operations before taxes |  |                                       | 4,127  |               |   | 553          |  |               | 4,219  |       |   | 6,400  |  |   | 15,299 
|Net income                                     |  |                                       | 2,493  |               |   | 296          |  |               | 2,531  |       |   | 3,889  |  |   | 9,209  
|                                               |  |                                       |        |               |  
|Earnings per share (a):                        |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        
|Basic                                          |  | $                                     | 0.12   |               | $ | 0.01         |  | $             | 0.13   |       | $ | 0.20   |  | $ | 0.46   
|                                               |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        
|Diluted                                        |  | $                                     | 0.12   |               | $ | 0.01         |  | $             | 0.12   |       | $ | 0.19   |  | $ | 0.45   
|                                               |  |                                       |        |               |   |              |  |               |        |       |   |        |  |   |        



|(a) | Earnings per share are computed independently for each of the quarters presented. Accordingly, the accumulation of quarterly earnings per share do not equal the total computed for
the year.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-34



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##### Table of Contents

QC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued



NOTE 16  SUBSEQUENT EVENTS

Equity Compensation Grants. During first quarter 2008, the Company granted approximately 161,672 restricted shares to various employees and
directors under the 2004 Plan. The total fair market value of the restricted shares under these grants was approximately $1.6 million. The 140,512 restricted shares granted to employees vest equally over four years and had a fair market value on the
date of grant of $1.4 million. The 21,160 shares granted to the directors vested immediately upon the date of grant and had a fair market value of approximately $216,000. In addition, the Company granted 235,700 stock options to certain employees
that vest equally over four years and had a fair market value on the date of grant of approximately $1.1 million. The Company expects the issuance of the restricted stock and stock options during first quarter of 2008 will result in an increase in
compensation expense of approximately $782,000 (net of estimated forfeitures) for the year ended December 31, 2008

Interest Rate
Swap Agreement.The Company entered into an interest rate swap agreement that will take effect on March 31, 2008. The swap agreement is designated as a cash flow hedge, and changes the floating rate interest obligation associated with the
$50 million term loan into a fixed rate. The swap agreement has a maturity date of December 6, 2012. Under the swap, the Company will pay a fixed interest rate of 3.43% and receive interest at a rate of LIBOR.

Stock Repurchase Program. In March 2008, the Companys board of directors increased the authorization limit of the Companys common
stock repurchase program to $60 million and extended the program through June 30, 2009.

Amendment of Credit Agreement.On
March 7, 2008, the Company entered into an amendment of its credit agreement, which modified the interest margin on the loans based on various leverage ratios, amended certain definitions and financial covenants and added a covenant regarding
the minimum ratio of consolidated current assets to total consolidated debt. The amendment also reduced the accordion feature of the credit agreement to $25 million from $50 million. As a result, borrowings under the amended credit facility may be
increased to a maximum of $120 million subject to the terms and conditions set forth therein.



F-35



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##### Table of Contents

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                             
|3.1         |  | Amended and Restated Articles of Incorporation. Incorporated by reference and previously filed as an exhibit to the Annual Report on Form 10-K filed with the Securities and Exchange Commission
on March 14, 2006.                                                                                                 
|            | 
|3.2         |  | Amended and Restated Bylaws. Incorporated by reference and previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2006.                                                                                                                     
|            | 
|4.1         |  | Specimen Stock Certificate. Incorporated by reference and previously filed as an exhibit to Amendment No. 2 to the Registration Statement on Form S-1 filed with the Securities and Exchange
Commission (Registration No. 333-115297) on June 24, 2004.                                                             
|            | 
|4.2         |  | Reference is made to exhibits 3.1 and 3.2.                                                                                                                                                                                                                                                                          
|            | 
|10.1        |  | QC Holdings, Inc. 1999 Stock Option Plan. Incorporated by reference and previously filed as an exhibit to Registration Statement on Form S-1 filed with the Securities and Exchange Commission
(Registration No. 333-115297) on May 7, 2004.                                                                        
|            | 
|10.2        |  | QC Holdings, Inc. 2004 Equity Incentive Plan. Incorporated by reference and previously filed as an exhibit to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities
and Exchange Commission (Registration No. 333-115297) on July 9, 2004.                                            
|            | 
|10.3        |  | Form of Management Stock Agreement. Incorporated by reference and previously filed as an exhibit to Registration Statement on Form S-1 filed with the Securities and Exchange Commission
(Registration No. 333-115297) on May 7, 2004.                                                                              
|            | 
|10.4        |  | Registration Rights Agreement among QC Holdings, Inc., Don Early and Prides Capital Fund I, LP, dated as of April 18, 2006. Incorporated by reference and previously filed as an exhibit to
Current Report on Form 8-K filed with the Securities and Exchange Commission on April 21, 2006.                         
|            | 
|10.5        |  | Stock Option Agreement with Robert L. Albin dated September 1, 2002. Incorporated by reference and previously filed as an exhibit to Registration Statement on Form S-1 filed with the Securities
and Exchange Commission (Registration No. 333-115297) on May 7, 2004.                                             
|            | 
|10.6        |  | Form of Indemnification Agreement between QC Holdings, Inc. and the indemnified parties. Incorporated by reference and previously filed as an exhibit to Amendment No. 2 to the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission (Registration No. 333-115297) on June 24, 2004.
|            | 
|10.7        |  | Form of Incentive Stock Option Agreement. Incorporated by reference and previously filed as an exhibit to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March
14, 2006.                                                                                                           
|            | 
|10.8        |  | Form of Non-Qualified Stock Option Agreement (Director). Incorporated by reference and previously filed as an exhibit to Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 14, 2006.                                                                                            
|            | 
|10.9        |  | Form of Non-Qualified Stock Option Agreement (Employee). Incorporated by reference and previously filed as an exhibit to Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 14, 2006.                                                                                            
|            | 
|10.10       |  | Form of Restricted Stock Award Agreement (Employee). Incorporated by reference and previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission
on December 20, 2006.                                                                                             
|            | 
|10.11       |  | Form of Restricted Stock Award Agreement (Non-Employee Director). Incorporated by reference and previously filed as an exhibit to Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 14, 2007.                                                                                   



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.12       |  | Amended and Restated Credit Agreement dated as of December 7, 2007, among QC Holdings, Inc., U.S. Bank National Association, as Agent and Arranger, and the Lenders that are parties thereto.
Incorporated by reference and previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2007.                                                                                                                                               
|            | 
|10.13       |  | First Amendment Agreement dated as of March 7, 2008, between QC Holdings, Inc. as Borrower, U.S. Bank National Association, as Agent and Arranger, and the Lenders that are parties thereto.
Incorporated by reference and previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on March 13, 2008.                                                                                                                                                   
|            | 
|10.14       |  | Security Agreement dated as of January 19, 2006, by QC Holdings, Inc., as Grantor, for the benefit of U.S. Bank National Association, as Agent for each of the Banks. Incorporated by reference
and previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2006.                                                                                                                                                                        
|            | 
|10.15       |  | Subsidiary Security Agreement dated as of January 19, 2006, by QC Financial Services, Inc.; QC Properties, LLC; QC Financial Services of California, Inc.; QC Advance, Inc.; Cash Title Loans,
Inc. and QC Financial Services of Texas, Inc., as Grantors, for the benefit of U.S. Bank National Association, as Agent for each of the Banks. Incorporated by reference and previously filed as an exhibit to Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 25, 2006.
|            | 
|10.16       |  | Unlimited Continuing Guaranty Agreement dated as of January 19, 2006, by QC Financial Services, Inc.; QC Properties, LLC; QC Financial Services of California, Inc.; QC Advance, Inc.; Cash Title
Loans, Inc. and QC Financial Services of Texas, Inc., for the benefit of U.S. Bank National Association, as Agent for each of the Banks. Incorporated by reference and previously filed as an exhibit to Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 25, 2006.   
|            | 
|10.17       |  | Pledge Agreement dated as of January 19, 2006, between QC Holdings, Inc., as Pledgor, and U.S. Bank National Association, Agent, as Secured Party. Incorporated by reference and previously filed
as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2006.                                                                                                                                                                                           
|            | 
|10.18       |  | Pledge Agreement dated as of January 19, 2006, between QC Financial Services, Inc., as Pledgor, and U.S. Bank National Association, Agent, as Secured Party. Incorporated by reference and
previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2006.                                                                                                                                                                                 
|            | 
|10.19       |  | Securities Purchase Agreement between Express Check Advance LLC and QC Financial Services, Inc., dated as of December 1, 2006. Incorporated by reference and previously filed as an exhibit to
Current Report on Form 8-K filed with the Securities and Exchange Commission on December 6, 2006.                                                                                                                                                                                                               
|            | 
|10.20       |  | First Amendment to Pledge Agreement dated as of December 1, 2006, between QC Financial Services, Inc., as Pledgor, and U.S. Bank National Association, Agent, as Secured Party. Incorporated by
reference and previously filed as an exhibit to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2007.                                                                                                                                                                
|            | 
|10.21       |  | Subsidiary Security Agreement dated as of December 1, 2006, by Express Check Advance of South Carolina, LLC, as Grantor, for the benefit of U.S. Bank National Association, as Agent for each of
the Banks. Incorporated by reference and previously filed as an exhibit to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2007.                                                                                                                                    



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                     
|10.22       |  | Unlimited Continuing Guaranty Agreement dated as of December 1, 2006, by Express Check Advance of South Carolina, LLC, as Guarantor, for the benefit of U.S. Bank National Association, as
Agent for each of the Banks. Incorporated by reference and previously filed as an exhibit to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2007.                     
|            | 
|10.23       |  | Subsidiary Security Agreement dated as of December 7, 2007, by QC E-Services, Inc.; QC Auto Services, Inc.; and QC Loan Services, Inc., as Grantors, for the benefit of U.S. Bank National
Association, as Agent for each of the Lenders. Incorporated by reference and previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2007.
|            | 
|10.24       |  | Unlimited Continuing Guaranty Agreement dated as of December 7, 2007, by QC E-Services, Inc.; QC Auto Services, Inc.; and QC Loan Services, Inc., for the benefit of U.S. Bank National
Association, as Agent for each of the Lenders. Incorporated by reference and previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2007.   
|            | 
|10.25       |  | First Amendment to Pledge Agreement dated as of December 7, 2007, between QC Holdings, Inc., as Pledgor, and U.S. Bank National Association, Agent, as Secured Party. Incorporated by reference
and previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2007.                                                                    
|            | 
|21.1        |  | Subsidiaries of the Registrant. *                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|23.1        |  | Consent of Grant Thornton LLP. *                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|31.1        |  | Certifications of Chief Executive Officer of the Company under Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *                                                                                                                                                                                                                                                      
|            | 
|31.2        |  | Certifications of Chief Financial Officer of the Company under Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *                                                                                                                                                                                                                                                      
|            | 
|32.1        |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. *                                                                                                                                                                                                                                                                                                 



|* | Filed herewith.
|- | ---------------