SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C. 20549




Form
10-Q




xQuarterly report pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934




For the
quarterly period ended March 31, 2010 or




oTransition report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934




Commission File Number:  
000-52015




Western
Capital Resources, Inc.


(Exact
Name of Registrant as Specified in its Charter)





Minnesota
              47-0848102(State
      or Other Jurisdiction of Incorporation or Organization)
              (I.R.S.
      Employer Identification
Number)




11550 “I” Street, Suite 150,
Omaha, Nebraska 68137


(Address
of Principal Executive Offices) (Zip Code)




Registrant’s telephone
number, including area code: (402) 551-8888





N/A





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




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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). 
    Yes o No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check
one):




Large accelerated filer 
      o
                Accelerated filer 
      oNon-accelerated filer 
      o
                Smaller reporting company 
      þ




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).




Yes o No þ




APPLICABLE
ONLY TO CORPORATE ISSUERS




As of May
13, 2010, the registrant had outstanding 7,446,007 shares of common stock, no
par value per share.










Western
Capital Resources, Inc.




Index





PagePART
      I. FINANCIAL INFORMATIONItem
      1. Financial Statements
                  2Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                  12Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                  17Item
      4T. Controls and Procedures
                  17PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
                  18Item
      1A. Risk Factors
                  18Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                  19Item
      3. Defaults Upon Senior Securities
                  19Item
      4. Reserved
                  19Item
      5. Other Information
                  19Item
      6. Exhibits
                  20SIGNATURES
                  21


1


PART
I. FINANCIAL INFORMATION




Item 1. Financial
Statements





WESTERN
CAPITAL RESOURCES, INC. AND SUBSIDIARIES





CONTENTS





PageCONDENSED
      CONSOLIDATED FINANCIAL STATEMENTSCondensed
      Consolidated Balance Sheets
                3Condensed
      Consolidated Statements of Income
                4Condensed
      Consolidated Statements of Cash Flows
                5Notes
      to Condensed Consolidated Financial Statements
                6


2


WESTERN
CAPITAL RESOURCES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





March 31, 2010
                          
                          
                          December 31, 2009(Unaudited)ASSETSCURRENT
      ASSETSCash
                          
                          $
                          1,549,357
                          
                          
                          $
                          1,526,562Loans
      receivable (less allowance for losses of $991,000 and
      $1,237,000)
                          
                          
                          3,833,479
                          
                          
                          
                          4,875,870Inventory
                          
                          
                          187,778
                          
                          
                          
                          373,858Prepaid
      expenses and other
                          
                          
                          233,050
                          
                          
                          
                          288,145Deferred
      income taxes
                          
                          
                          394,000
                          
                          
                          
                          486,000TOTAL
      CURRENT ASSETS
                          
                          
                          6,197,664
                          
                          
                          
                          7,550,435PROPERTY
      AND EQUIPMENT
                          
                          
                          1,015,077
                          
                          
                          
                          1,075,715GOODWILL
                          
                          
                          11,458,744
                          
                          
                          
                          11,458,744INTANGIBLE
      ASSETS
                          
                          
                          767,918
                          
                          
                          
                          902,069OTHER
                          
                          
                          100,915
                          
                          
                          
                          107,715TOTAL
      ASSETS
                          
                          $
                          19,540,318
                          
                          
                          $
                          21,094,678LIABILITIES
      AND  SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
                          
                          $
                          863,858
                          
                          
                          $
                          1,352,989Income
      taxes payable
                          
                          
                          88,773
                          
                          
                          
                          145,773Note
      payable – short-term
                          
                          
                          1,636,044
                          
                          
                          
                          1,794,372Current
      portion long-term debt
                          
                          
                          765,029
                          
                          
                          
                          165,431Preferred
      dividend payable
                          
                          
                          275,000
                          
                          
                          
                          1,000,000Deferred
      revenue
                          
                          
                          239,543
                          
                          
                          
                          345,826TOTAL
      CURRENT LIABILITIES
                          
                          
                          3,868,247
                          
                          
                          
                          4,804,391LONG-TERM
      LIABILITIESNotes
      payable – long-term
                          
                          
                          1,499,265
                          
                          
                          
                          2,138,162Deferred
      income taxes
                          
                          
                          274,000
                          
                          
                          
                          250,000Other
                          
                          
                          37,429
                          
                          
                          
                          -TOTAL
      LONG-TERM LIABILITIES
                          
                          
                          1,810,694
                          
                          
                          
                          2,388,162TOTAL
      LIABILITES
                          
                          
                          5,678,941
                          
                          
                          
                          7,192,553SHAREHOLDERS'
      EQUITYSeries
      A convertible preferred stock 10% cumulative dividends, $0.01 par value,
      $2.10 stated value, 10,000,000 shares authorized, issued and
      outstanding
                          
                          
                          100,000
                          
                          
                          
                          100,000Common
      stock, no par value, 240,000,000 shares authorized, 7,996,007 shares
      issued and outstanding
                          
                          
                          -
                          
                          
                          
                          -Additional
      paid-in capital
                          
                          
                          18,478,337
                          
                          
                          
                          18,478,337Accumulated
      deficit
                          
                          
                          (4,716,960
                          )
                          
                          
                          (4,676,212
                          )TOTAL
      SHAREHOLDERS’ EQUITY
                          
                          
                          13,861,377
                          
                          
                          
                          13,902,125TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                          
                          $
                          19,540,318
                          
                          
                          $
                          21,094,678





See
notes to condensed consolidated financial statements.


3




WESTERN
CAPITAL RESOURCES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)





Three months endedMarch 31, 2010
                
                
                March 31, 2009REVENUESPayday
      loan fees
                
                $
                2,490,225
                
                
                $
                2,517,810Phones
      and accessories
                
                
                1,478,548
                
                
                
                1,664,180Check
      cashing fees
                
                
                232,595
                
                
                
                267,299Other
      income and fees
                
                
                454,634
                
                
                
                317,9984,656,002
                
                
                
                4,767,287STORE
      EXPENSESSalaries
      and benefits
                
                
                1,230,618
                
                
                
                1,220,032Provisions
      for loan losses
                
                
                160,744
                
                
                
                329,469Phones
      and accessories cost of sales
                
                
                428,123
                
                
                
                802,229Occupancy
                
                
                500,956
                
                
                
                337,517Advertising
                
                
                81,315
                
                
                
                150,713Depreciation
                
                
                68,872
                
                
                
                57,589Amortization
      of intangible assets
                
                
                134,151
                
                
                
                177,066Other
                
                
                616,311
                
                
                
                531,8683,221,090
                
                
                
                3,606,483INCOME
      FROM STORES
                
                
                1,434,912
                
                
                
                1,160,804GENERAL
      & ADMINISTRATIVE EXPENSESSalaries
      and benefits
                
                
                323,521
                
                
                
                344,754Depreciation
                
                
                4,256
                
                
                
                4,786Interest
      expense
                
                
                83,654
                
                
                
                81,796Other
                
                
                241,229
                
                
                
                351,163652,660
                
                
                
                782,499INCOME
      BEFORE INCOME TAXES
                
                
                782,252
                
                
                
                378,305INCOME
      TAX EXPENSE
                
                
                298,000
                
                
                
                150,000NET
      INCOME
                
                
                484,252
                
                
                
                228,305SERIES
      A CONVERTIBLE PREFERRED STOCK DIVIDENDS(assumes all
    paid)
                
                
                (525,000
                )
                
                
                (525,000
                )NET
      LOSS AVAILABLE TO COMMON SHAREHOLDERS
                
                $
                (40,748
                )
                
                $
                (296,695
                )NET
      LOSS PER COMMON SHAREBasic
      and diluted
                
                $
                (0.01
                )
                
                $
                (0.04
                )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING -Basic
      and diluted
                
                
                7,996,007
                
                
                
                7,779,507





See
notes to condensed consolidated financial statements.


4


WESTERN
CAPITAL RESOURCES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)





Three Months EndedMarch 31, 2010
                
                
                March 31, 2009OPERATING
      ACTIVITIESNet
      Income
                
                $
                484,252
                
                
                $
                228,305Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                
                
                73,128
                
                
                
                62,374Amortization
                
                
                134,151
                
                
                
                177,066Deferred
      income taxes
                
                
                116,000
                
                
                
                107,000Loss
      on disposal of property and equipment
                
                
                618
                
                
                
                -Changes
      in operating assets and liabilitiesLoans
      receivable
                
                
                1,042,391
                
                
                
                1,014,539Inventory
                
                
                186,080
                
                
                
                (193,593
                )Prepaid
      expenses and other assets
                
                
                61,895
                
                
                
                (320,529
                )Accounts
      payable and accrued liabilities
                
                
                (546,131
                )
                
                
                273,034Deferred
      revenue
                
                
                (106,283
                )
                
                
                (78,676
                )Other
      liabilities – long-term
                
                
                37,429
                
                
                
                -Net
      cash provided by operating activities
                
                
                1,483,530
                
                
                
                1,269,520INVESTING
      ACTIVITIESPurchase
      of property and equipment
                
                
                (13,108
                )
                
                
                (184,991
                )Acquisition
      of stores, net of capital acquired
                
                
                -
                
                
                
                (2,178,000
                )Net
      cash used by investing activities
                
                
                (13,108
                )
                
                
                (2,362,991
                )FINANCING
      ACTIVITIESPayments
      on note payable – short-term
                
                
                (158,328
                )
                
                
                (100,000
                )Payments
      on notes payable – long-term
                
                
                (39,299
                )
                
                
                (25,117
                )Dividends
                
                
                (1,250,000
                )
                
                
                (300,000
                )Net
      cash used by financing activities
                
                
                (1,447,627
                )
                
                
                (425,117
                )NET
      INCREASE (DECREASE) IN CASH
                
                
                22,795
                
                
                
                (1,518,588
                )CASHBeginning
      of period
                
                
                1,526,562
                
                
                
                3,358,547End
      of period
                
                $
                1,549,357
                
                
                $
                1,839,959SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONIncome
      taxes paid
                
                $
                239,000
                
                
                $
                125,000Interest
      paid
                
                
                89,545
                
                
                
                79,085





See
notes to condensed consolidated financial statements.


5


WESTERN
CAPITAL RESOURCES, INC. AND SUBSIDIARIES





NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Basis of Presentation, Nature of
      Business and Summary of Significant Accounting
      Policies –





Basis of
Presentation





The
accompanying unaudited condensed consolidated financial statements have been
prepared according to the  instructions to Form 10-Q and Section
210.8-03(b) of Regulation S-X of the Securities and Exchange Commission (SEC)
and, therefore, certain information and footnote disclosures normally included
in financial statements prepared  in accordance with U. S. generally
accepted accounting principles (GAAP) have been omitted.





In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 2010 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2010. For further information, refer to the Consolidated Financial Statements
and footnotes thereto included in our Form 10-K as of and for the year ended
December 31, 2009. The condensed consolidated balance sheet at December 31,
2009, has been derived from the audited consolidated financial statements at
that date, but does not include all of the information and footnotes required by
GAAP.





Nature of
Business




Western
Capital Resources, Inc. (WCR), through its wholly owned operating subsidiaries,
Wyoming Financial Lenders, Inc. (WFL) and PQH Wireless, Inc. (PQH), collectively
referred to as the “Company,” provides retail financial services and retail
cellular phone sales to individuals primarily in the Midwestern United
States.  As of March 31, 2010, the Company operated 55 “payday” stores in
10 states (Colorado, Iowa, Kansas, Montana, Nebraska, North Dakota, South
Dakota, Utah, Wisconsin and Wyoming) and operated 33 Cricket wireless retail
stores in seven states (Illinois, Indiana, Kansas, Maryland, Missouri, Nebraska
and Texas).  The condensed consolidated financial statements include the
accounts of WCR, WFL, and PQH. All significant intercompany balances and
transactions have been eliminated in consolidation.





The
Company, through its “payday” division, provides non-recourse cash advance
loans, check cashing and other money services.  The short-term consumer
loans, known as cash advance loans or “payday” loans, are in amounts that
typically range from $100 to $500. Cash advance loans provide customers with
cash in exchange for a promissory note with a maturity of generally two to four
weeks and the 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 $22 per each $100 borrowed. To
repay the cash advance loans, customers may pay with cash, in which their
personal check is returned to them, or allowing their check to be presented to
the bank for collection.





The
Company also provides title loans and other ancillary consumer financial
products and services that are complementary to its cash advance-lending
business, such as check-cashing services, money transfers and money
orders.  In our check cashing business, we primarily cash payroll checks,
but we also cash government assistance, tax refund and insurance checks or
drafts. Our fees for cashing payroll checks average approximately 2.5% of the
face amount of the check, subject to local market conditions, and this fee is
deducted from the cash given to the customer for the check. We display our check
cashing fees in full view of our customers on a menu board in each store and
provide a detailed receipt for each transaction. Although we have established
guidelines for approving check-cashing transactions, we have no preset limit on
the size of the checks we will cash.





Our loans
and other related services are subject to state regulations (which vary from
state to state), federal regulations and local regulations, where
applicable.





The
Company also operates a Cricket Wireless Retail division that is a premier
dealer for Cricket Wireless, Inc. reselling cellular phones and accessories and
accepting service payments from Cricket customers.





Use of
Estimates





The
preparation of condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that may affect certain
reported amounts and disclosures in the condensed consolidated financial
statements and accompanying notes. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results could differ from those estimates.
Significant management estimates relate to the allowance for loans receivable,
allocation of and carrying value of goodwill and intangible assets, and deferred
taxes and tax uncertainties.


6


Revenue
Recognition





The
Company recognizes fees on cash advance loans on a constant-yield basis ratably
over the loans’ terms. Title loan fees are recognized using the interest
method.  The Company records revenue from check cashing fees, sales
of phones, and accessories and fees from all other services in the period
in which the sale or service is completed.





Loans Receivable / Loan Loss
Allowance





We
maintain a loan loss allowance for anticipated losses for our cash advance and
title loans. To estimate the appropriate level of the loan loss allowance, we
consider the amount of outstanding loans owed to us, historical loans charged
off, current and expected collection patterns and current economic trends. Our
current loan loss allowance is based on our net write offs, typically expressed
as a percentage of loan amounts originated for the last 24 months applied
against the principal balance of outstanding loans that we write off. The
Company also periodically performs a look-back analysis on its loan loss
allowance to verify the historical allowance established tracks with the actual
subsequent loan write-offs and recoveries. The Company is aware that as
conditions change, it may also need to make additional allowances in future
periods.





Included
in loans receivable are cash advance loans that are currently due or past due
and cash advance loans that have not been repaid.  This generally is
evidenced where a customer’s personal check has been deposited and the check has
been returned due to non-sufficient funds in the customer’s account, a closed
account, or other reasons.  Cash advance loans are carried at cost less the
allowance for doubtful accounts.  The Company does not specifically reserve
for any individual cash advance loan.  The Company aggregates cash advance
loans for purposes of estimating the loss allowance using a methodology that
analyzes historical portfolio statistics and management’s judgment regarding
recent trends noted in the portfolio.  This methodology takes into account
several factors, including the maturity of the store location and charge-off and
recovery rates.  The Company utilizes a software program to assist with the
tracking of its historical portfolio statistics.  As a result of the
Company’s collection efforts, it historically writes off approximately 45% of
the returned items.  Based on days past the check return date, write-offs
of returned items historically have tracked at the following approximately
percentages: 1 to 30 days – 45%; 31 to 60 days – 67%; 61 to 90 days – 83%; 91 to
120 days – 88%; and 121 to 180 days – 91%.  All returned items are
charged-off after 180 days, as collections after that date have not been
significant.  The loan loss allowance is reviewed quarterly and any
adjustment to the loan loss allowance as a result of historical loan
performance, current and expected collection patterns and current economic
trends is recorded.





A
rollforward of the Company’s loans receivable allowance for the three months
ended March 31, 2010 and 2009 is as follows:





Three Months Ended
                      March 31,2010
                    
                    
                    2009Loans
      receivable allowance, beginning of period
                    
                    $
                    1,237,000
                    
                    
                    $
                    1,413,000Provision
      for loan losses charged to expense
                    
                    
                    161,000
                    
                    
                    
                    329,000Charge-offs,
      net
                    
                    
                    (407,000
                    )
                    
                    
                    (536,000
                    )Loans
      receivable allowance, end of period
                    
                    $
                    991,000
                    
                    
                    $
                    1,206,000





Net Loss Per Common
Share





Basic net
loss per common share is computed by dividing the loss available to common
shareholders by the weighted average number of common shares outstanding for the
year. Diluted net loss per common share is computed by dividing the net loss
available to common shareholders by the sum of the weighted average number of
common shares outstanding plus potentially dilutive common share equivalents
(stock warrants, convertible preferred shares) when dilutive. Potentially
dilutive securities Series A Convertible Preferred Stock (10,000,000) was
anti-dilutive and therefore excluded from the dilutive net loss per share
computation for 2010.





Recent Accounting
Pronouncements





In
January 2010, the FASB issued amendments to guidance on fair value measurements
and disclosures that will require inclusion of the amount of significant
transfers in and out of levels 1 and 2 fair value measurements and the
reasons for the transfers. In addition, the reconciliation for level 3
activity will be required on a gross rather than net basis. An amendment related
to the level of disaggregation in determining classes of assets and liabilities
and disclosures about inputs and valuation techniques was also issued. The
amendments are effective for annual or interim reporting periods beginning after
December 15, 2009, except for the requirement to provide the reconciliation
for level 3 activity on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010. The Company adopted this amendment
guidance with no material impact on its condensed consolidated financial
statements.


7


No other
new accounting pronouncement issued or effective during the fiscal quarter has
had or is expected to have a material impact on the condensed consolidated
financial statements.





2.
            Segment Information
      –





The
Company has grouped its operations into two segments – Payday Operations and
Cricket Wireless Retail Operations. The Payday Operations segment provides
financial and ancillary services. The Cricket Wireless Retail Operations segment
is a dealer for Cricket Wireless, Inc., reselling cellular phones and
accessories and serving as a payment center for Cricket customers.





Segment
information related to the three months ended March 31, 2010 and 2009
follows:





Three Months Ended
                      March 31, 2010
                    
                    
                    Three Months Ended
                      March 31, 2009Payday
                    
                    
                    Cricket
                      Wireless
                    
                    
                    Total
                    
                    
                    Payday
                    
                    
                    Cricket
                      Wireless
                    
                    
                    TotalRevenues
      from external customers
                    
                    $
                    2,782,907
                    
                    
                    $
                    1,873,095
                    
                    
                    $
                    4,656,002
                    
                    
                    $
                    2,843,365
                    
                    
                    $
                    1,923,922
                    
                    
                    $
                    4,767,287Net
      income (loss)
                    
                    $
                    437,341
                    
                    
                    $
                    46,911
                    
                    
                    $
                    484,252
                    
                    
                    $
                    287,785
                    
                    
                    $
                    (59,480
                    )
                    
                    $
                    228,305Total
      segment assets
                    
                    $
                    14,356,963
                    
                    
                    $
                    5,183,355
                    
                    
                    $
                    19,540,318
                    
                    
                    $
                    15,249,449
                    
                    
                    $
                    5,989,736
                    
                    
                    $
                    21,239,185





3.
            Notes
      Payable - Long-Term –





Effective
March 31, 2010, the Company amended notes payable to related parties. 
Under the amended payment terms of the notes, principal and interest payments on
the notes are to be made monthly in the aggregate amount of approximately
$61,500, beginning April 1, 2010, so as to amortize the outstanding balances of
the notes as of March 31, 2010 over the entire term at a 10% rate of interest
with all then-outstanding principal and accrued but unpaid interest due and
payable on March 1, 2013.





4.
            Stock
      Purchase and Sale –





On
February 23, 2010, WERCS, a Wyoming corporation (“WERCS”), entered into a
definitive Stock Purchase and Sale Agreement by and between WERCS, and WCR
Acquisition, Inc., a Delaware corporation, pursuant to which WERCS agreed to
sell to WCR Acquisition, Inc. all shares of common stock and Series A
Convertible Preferred Stock of the Company owned by WERCS.  The parties
later amended the Stock Purchase and Sale Agreement to substitute WCR, LLC, a
Delaware limited liability company, as the buyer of Company stock from
WERCS.  The sale of the shares of common stock and Series A Convertible
Preferred Stock closed on March 31, 2010.  WCR, LLC purchased the common
stock and the Series A Convertible Preferred Stock for aggregate consideration
of approximately $4,770,000.





Since the
10,000,000 shares of Series A Convertible Preferred Stock vote on an
as-converted basis (presently one-for-one) with shares of the Company’s common
stock, the purchase and sale transaction effects a change in the voting control
of the Company, with WCR, LLC possessing approximately 61.8% of the voting power
of the Company’s shares.





5.
            Resignation
      of Directors and Appointments to
  Vacancies –





On March
31, 2010, Mark Houlton and Robert W. Moberly resigned from their positions on
the Company’s Board of Directors in connection with closing of the transactions
contemplated by the Stock Purchase and Sale Agreement, as amended.  Their
resignations were not the result of any disagreement with the
Company.





On March
31, 2010, the Board of Directors of the Company appointed each of Angel Donchev
and Aldus H. Chapin II as directors of the Company, to serve until the Company’s
2010 annual shareholder meeting.


8


6.
            Employment
      Agreement/Management Bonus Pool –





On March
31, 2010, the Company entered into an Employment Agreement with John Quandahl,
its Chief Executive Officer, Chief Operating Officer, and interim Chief
Financial Officer.  The Employment Agreement provides Mr. Quandahl with an
annual base salary and eligibility for participation in an annual
performance-based cash bonus pool for management.  The performance-based
bonus provisions permit certain members of management to receive annual bonus
payments in cash based on EBITDA targets established by the Board of Directors
annually.  The 2010 Bonus Pool EBITDA target is set at $4
million.  If the Company’s actual EBITDA performance for a particular
annual period ranges from 85-100% of the established EBITDA target, the cash
bonus pool will be 7.5% of  EBITDA.  If the Company’s actual
EBITDA performance for a particular annual period exceeds 100% of the
established EBITDA target, 15% of EBITDA over the established target will be
added to the cash bonus pool.





7.
            Risks
      Inherent in the Operating
Environment –





The
Company’s payday or short-term consumer loan activities are highly regulated
under numerous local, state, and federal laws and regulations, which are subject
to change. New laws or regulations could be enacted that could have a negative
impact on the Company’s lending activities. Over the past few years, consumer
advocacy groups and certain media reports have advocated governmental and
regulatory action to prohibit or severely restrict deferred presentment cash
advances.




The
Federal Trade Commission has issued an FTC Consumer Alert (Federal Trade
Commission, March 2008, Consumer Alert entitled “Payday Loans Equal Very Costly
Cash: Consumers Urged to Consider the Alternatives”) that discourages consumers
from obtaining payday loans such as the loans we offer, primarily on the basis
that the types of loans we offer are very costly and consumers should consider
alternatives to accepting a payday loan. For further information, you may obtain
a copy of the alert at
www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt060.shtm.  The federal
government also passed legislation, the 2007 Military Authorization Act,
prohibiting us from offering or making our loans to members of the military when
the interest and fees calculated as an annual percentage rate exceed 36%. This
limitation effectively prohibits us from utilizing our present business model
for cash advance or “payday” lending when dealing with members of the U.S.
military, and as a result we do not and do not plan to conduct payday lending
business with U.S. military personnel. These facts evidence the widespread
belief that our charges relating to our loans are too expensive to be good for
consumers. Some consumer advocates and others have characterized payday lending
as “predatory.” As a result, there are frequently attempts in the various state
legislatures, and occasionally in the U.S. Congress, to limit, restrict or
prohibit payday lending.




In
February 2009, Congress introduced H.R. 1214, the Payday Loan Reform Act of 2009
(an amendment to the Truth in Lending Act).  If enacted, this amendment
would restrict charges for a single-payment loan to a 391% effective annual
rate, or $15 per $100 for a two-week loan, prohibit loan rollovers, limit
borrowers to one outstanding loan at a time and permit only one extended
repayment plan every six months.  Presently, the bill is in the House
Financing Committee.  We have no further information regarding this bill or
any legislative efforts Congress may propose at this time.  In November
2009, Senator Christopher Dodd introduced proposed federal legislation entitled
the “Restoring American Financial Stability Act of 2009” which, among other
things, would create a federal agency authorized to promulgate consumer
protection regulations covering a variety of financial industries, including
payday lending.  In March 2010, the bill was passed by the U.S. Senate
Banking Committee for consideration by the full Senate.  Presently, it is
uncertain whether or when the full U.S. Senate may consider and vote upon the
bill.  Moreover, because of the apparently broad regulatory powers that
would be afforded to one or more federal agencies under the currently proposed
legislation, it is highly uncertain what impact such legislation would have upon
the Company, its operations or prospects, if passed.





The
passage of federal laws or similar laws at state levels, would essentially
prohibit the Company from conducting its payday lending business in its current
form, and would certainly have a material and adverse effect on the Company,
operating results, financial condition and prospects and even its
viability.





For the
three months ended March 31, 2010 and 2009, the Company had significant
revenues by state (shown as a percentage of applicable division’s revenue) as
follows:





Payday Division
                          
                          
                          Cricket Wireless Division2010
                            % of Revenues
                          
                          
                          2009
                            % of Revenues
                          
                          
                          
                          
                          2010
                            % of Revenues
                          
                          
                          2009
                            % of RevenuesNebraska
                          
                          
                          27
                          %
                          
                          
                          29
                          %
                          
                          Missouri
                          
                          
                          32
                          %
                          
                          
                          53
                          %Wyoming
                          
                          
                          13
                          %
                          
                          
                          14
                          %
                          
                          Nebraska
                          
                          
                          15
                          %
                          
                          
                          14
                          %North
      Dakota
                          
                          
                          15
                          %
                          
                          
                          14
                          %
                          
                          Texas
                          
                          
                          11
                          %
                          
                          
                          13
                          %Iowa
                          
                          
                          12
                          %
                          
                          
                          11
                          %
                          
                          Indiana
                          
                          
                          25
                          %
                          
                          
                          10
                          %





8.
            Preferred Stock Dividend
  –





Quarterly
cumulated dividends on the Company's Series A Convertible Preferred Stock are
$525,000. The Company has $525,000 cumulative unaccrued preferred dividends at
March 31, 2010.


9


9.
            Other Expense
      –





A
breakout of other expense is as follows:





Three Months Ended
                            March 31,2010
                          
                          
                          2009Store expensesBank
      fees
                          
                          $
                          58,890
                          
                          
                          $
                          50,978Collection
      costs
                          
                          
                          110,153
                          
                          
                          
                          76,203Repair
      and maintenance
                          
                          
                          49,106
                          
                          
                          
                          46,043Supplies
                          
                          
                          43,676
                          
                          
                          
                          88,326Telephone
                          
                          
                          39,229
                          
                          
                          
                          50,841Utilities
      and network lines
                          
                          
                          148,247
                          
                          
                          
                          81,723Other
                          
                          
                          167,010
                          
                          
                          
                          137,754$
                          616,311
                          
                          
                          $
                          531,868General & administrative
      expensesProfessional
      fees
                          
                          $
                          173,025
                          
                          
                          $
                          251,035Other
                          
                          
                          68,204
                          
                          
                          
                          100,128$
                          241,229
                          
                          
                          $
                          351,163





10.
            Litigation Matter
      –





On March
26, 2010, the Company and all of the then-current members of its Board of
Directors, among others, were sued by former members of our management team,
Messrs. Steven Staehr and David Stueve.  In that lawsuit, the plaintiffs
have alleged, among other things, that our Board of Directors breached certain
of their fiduciary duties in connection with the proposed sale by WERCS of its
capital stock in the Company to WCR, LLC.  The Company believes these
claims are entirely meritless.  While we are unable to predict the ultimate
outcome of these claims and proceedings, management believes there is not a
reasonable possibility that the costs and liabilities of such matters,
individually or in the aggregate, will have a material adverse effect on our
financial condition or results of operations.




11.
            Special Shareholder Meeting
      –





On March
29, 2010, the Company held a special shareholder meeting in accordance with a
demand made by WERCS on February 24, 2010, together with a shareholder proposal
made by WERCS, to consider and vote on an amendment to the Company’s Amended and
Restated Articles of Incorporation, as amended, to make the Minnesota Control
Share Acquisition Act inapplicable to the Company.  The meeting demand and
proposal are covered in the Company’s Proxy Statement (on Form DEF 14A) filed
with the SEC on March 15, 2010.  The shareholders of the Company approved
the proposed amendment at the special shareholder meeting.





The
Company filed a Current Report on Form 8-K on April 2, 2010 to report the vote
of security holders on the amendment to the Amended and Restated Articles of
Incorporation which was approved by shareholders at the March 29, 2010 special
shareholders meeting.




12.
            Subsequent Events
      –





Credit
Facility with WERCS





Effective
April 1, 2010, WFL, the wholly owned payday lending operating subsidiary of WCR,
refinanced its outstanding credit facility.  On that date, WERCS, a Wyoming
corporation and the former holder of the Company’s Series A Convertible
Preferred Stock, satisfied all of WFL’s financial obligations owing to Banco
Popular North America and entered into a Business Loan Agreement and associated
$2,000,000 Promissory Note with WFL.  The loan from WERCS extinguished the
$1,637,341 that WFL owed to Banco Popular, and the remaining $362,659 will be
used for general working capital.


10


The
Business Loan Agreement and associated Promissory Note contained terms that were
substantially similar to those contained in the original loan documents with
Banco Popular.  To secure the obligations of WFL under the new Business
Loan Agreement and Promissory Note, the Company entered into (i) a Commercial
Pledge Agreement with WERCS pursuant to which the Company pledged its share
ownership in WFL, and (ii) a Commercial Security Agreement pursuant to which the
Company granted WERCS a security interest in substantially all of the Company’s
assets.  The Company also entered into a Commercial Guaranty relating to
the repayment of WFL’s obligations under the Business Loan Agreement and
Promissory Note.





The
payment terms under the Promissory Note require the Company to make monthly
payments of accrued interest only for 11 months, followed by an April 1, 2011
balloon payment of any remaining accrued but unpaid interest and all $2,000,000
of principal under the promissory note.  Interest accrues on the unpaid
principal balance of the promissory note at the rate of 12.0% per
annum.





Banco
Popular Loan Satisfaction and Redemption of Stock





On April
2, 2010, as part of the WERCS transactions described above, the Company and WFL
satisfied their obligations to Banco Popular North America under a Business Loan
Agreement and related promissory note, the outstanding principal and accrued
interest amount of which was $1,637,341.





In
connection with the payment in full of WFL’s and the Company obligations to
Banco Popular North America, the guaranty of such obligations that were earlier
delivered by Mr. Chris Larson, the former Chief Executive Officer of the
Company, was terminated.  As a result, the Company has obtained and
cancelled all 550,000 shares of common stock of Mr. Larson held in escrow since
May 1, 2009 pursuant to the terms of a Settlement Agreement with Mr. Larson
dated as of May 1, 2009.





Annual
Shareholder Meeting





On May 7,
2010, the Company held its annual shareholder meeting for 2010.  At the
annual meeting, the Company’s shareholders (i) ratified the selection by the
Company’s Board of Directors of Lurie Besikof Lapidus & Company, LLP as the
Company’s independent registered public accounting firm for fiscal 2010, and
(ii) elected the following four individuals to the Company’s Board of Directors
to serve until the next annual meeting of the shareholders:  John
Quandahl, Angel Donchev, Richard E. Miller and Aldus H. Chapin II.  The
Company reported detailed voting results on a Current Report on Form 8-K filed
with the SEC on May 13, 2010.





Changes
in Board of Directors





On May
10, 2010, the Company’s Board of Directors unanimously appointed a new and
independent director, Mr. Ellery Roberts, to a vacancy existing on the Board of
Directors.  In connection with his appointment, Mr. Roberts was appointed
to serve on the audit committee (as chairperson) and compensation committee of
the Board of Directors.  On May 7, 2010, James Mandel delivered his written
resignation from his position on the Company’s Board of Directors.  At the
time of Mr. Mandel’s resignation, he was serving on the audit and compensation
committees of the Board of Directors.


11


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





Forward-Looking
Statements




Some of
the statements made in this report are “forward-looking statements,” as that
term is defined under Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements are based upon
our current expectations and projections about future events. Whenever used in
this report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect”
and similar expressions, or the negative of such words and expressions, are
intended to identify forward-looking statements, although not all
forward-looking statements contain such words or expressions. The
forward-looking statements in this report are primarily located in the material
set forth under the headings “Description of Business,” “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” but are found in other parts of this report as well. These
forward-looking statements generally relate to our plans, objectives and
expectations for future operations and are based upon management’s current
estimates and projections of future results or trends. Although we believe that
our plans and objectives reflected in or suggested by these forward-looking
statements are reasonable, we may not achieve these plans or objectives. You
should read this report completely and with the understanding that actual future
results may be materially different from what we expect. We will not necessarily
update forward-looking statements even though our situation may change in the
future.





Specific
factors that might cause actual results to differ from our expectations or may
affect the value of the common stock, include, but are not limited
to:





·
            Changes
      in local, state or federal laws and regulations governing lending
      practices, or changes in the interpretation of such laws and
      regulations





·
            Litigation
      and regulatory actions directed toward our industry or us, particularly in
      certain key states





·
            Our
      need for additional financing, and





·
            Unpredictability
      or uncertainty in financing markets which could impair our ability to grow
      our business through acquisitions.





Other
factors that could cause actual results to differ from those implied by the
forward-looking statements in this report are more fully described in the “Risk
Factors” section of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.





Industry
data and other statistical information used in this report are based on
independent publications, government publications, reports by market research
firms or other published independent sources.  Some data are also based on
our good faith estimates, derived from our review of internal surveys and the
independent sources listed above.  Although we believe these sources are
reliable, we have not independently verified the information.




General
Overview




We
provide (through Wyoming Financial Lenders, Inc.) retail financial services to
individuals primarily in the midwestern and southwestern United States. These
services include non-recourse cash advance loans, check cashing and other money
services. At the close of business on March 31, 2010, we owned and operated 55
stores in 10 states (Colorado, Iowa, Kansas, Montana, Nebraska, North Dakota,
South Dakota, Utah, Wisconsin and Wyoming).





We
provide short-term consumer loans—known as “payday” or “cash advance” loans—in
amounts 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
four weeks and the customer’s post-dated 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 $22 for each whole or
partial increment of $100 borrowed. To repay a payday loan, a customer may pay
with cash, in which case their personal check is returned to them, or allow the
check to be presented to the bank for collection. All of our payday loans and
other services are subject to state regulations (which vary from state to
state), federal regulations and local regulation, where applicable.





In
October 2008, we began operating Cricket Wireless retail stores as an authorized
dealer of Cricket Wireless products and services. Authorized dealers are
permitted to sell the Cricket line and generally locate their store operations
in areas with a strong potential customer base where Cricket does not maintain a
corporate storefront. These locations are generally within the urban core or
surrounding areas of a community. We are an authorized premier Cricket dealer,
and as such, we are only permitted to sell the Cricket line of prepaid cellular
phones at our Cricket retail stores. At the close of business on March 31, 2010,
we owned and operated 33 stores in seven states (Illinois, Indiana, Kansas,
Maryland, Missouri, Nebraska, and Texas).


12


Our
expenses primarily relate to the operations of our various stores.  The
most significant expenses include salaries and benefits for our store employees,
provisions for payday loan losses and occupancy expense for our leased real
estate.  Our other significant expenses are general and administrative,
which includes compensation of employees and professional fees for consulting,
accounting, audit and legal services.





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 changes in loan volumes.  Occupancy and phone and accessory cost of
sales make up our second and third largest expense item.  Our provision for
losses is also a significant expense.  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.





We
evaluate our stores 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 financial and other measures 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 we undertook as of December 31, 2009 have been open at least 24 months
on that date.  We monitor newer branches for their progress toward
profitability and rate of loan growth, units sold, or payment
volume.





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 involved with the efforts of the various industry lobbying efforts.  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.  In Nebraska, legislation was
introduced in 2008 (but did not advance) to ban all cash advance or payday loans
in Nebraska.  Despite the defeat of this legislation, since we derived
approximately 27% of our 2009 total payday lending revenues in Nebraska, any
subsequent attempts to pass similar legislation in Nebraska, or other
legislation that would restrict our ability to make cash advance loans in
Nebraska, would pose significant risks to our business.





With
payday loan industry growth and fragmentation, we believe there are
opportunities to grow our business, primarily through acquisitions as opposed to
organic growth.  We continually evaluate opportunities 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
stores.  In addition to expanding our geographic reach, our strategic
expansion plans also involve the expansion and diversification of our product
and service offerings.  For this reason, we have focused, and will continue
to focus, a significant amount of time and resources on the development of our
Cricket Wireless retail stores.  We believe that successful expansion, both
geographically and product- and service-wise, will help to mitigate the
regulatory and economic risk inherent in our business by making us less reliant
on (i) cash advance lending alone and (ii) any particular aspect of our business
that concentrated geographically.





Discussion of Critical
Accounting Policies




Our
condensed 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.





Our
significant accounting policies are discussed in Note 1, “Nature of Business and
Summary of Significant Accounting Policies,” of the notes to our condensed
consolidated financial statements included in this report.  We believe that
the following critical accounting policies affect the more significant estimates
and assumptions used in the preparation of our condensed consolidated financial
statements:




Loan Loss
Allowance




We
maintain a loan loss allowance for anticipated losses for our cash advance and
title loans. To estimate the appropriate level of the loan loss allowance, we
consider the amount of outstanding loans owed to us, historical loans charged
off, current and expected collection patterns and current economic trends. Our
current loan loss allowance is based on our net write offs, typically expressed
as a percentage of loan amounts originated for the last 24 months applied
against the principal balance of outstanding loans that we write off. The
Company also periodically performs a look-back analysis on its loan loss
allowance to verify the historical allowance established tracks with the actual
subsequent loan write-offs and recoveries. The Company is aware that as
conditions change, it may also need to make additional allowances in future
periods.


13


Included
in loans receivable are cash advance loans that are currently due or past due
and cash advance loans that have not been repaid.  This generally is
evidenced where a customer’s personal check has been deposited and the check has
been returned due to non-sufficient funds in the customer’s account, a closed
account, or other reasons.  Cash advance loans are carried at cost less the
allowance for doubtful accounts.  The Company does not specifically reserve
for any individual cash advance loan.  The Company aggregates cash advance
loans for purposes of estimating the loss allowance using a methodology that
analyzes historical portfolio statistics and management’s judgment regarding
recent trends noted in the portfolio.  This methodology takes into account
several factors, including the maturity of the store location and charge-off and
recovery rates.  The Company utilizes a software program to assist with the
tracking of its historical portfolio statistics.  As a result of the
Company’s collection efforts, it historically writes off approximately 45% of
the returned items.  Based on days past the check return date, write-offs
of returned items historically have tracked at the following approximately
percentages: 1 to 30 days – 45%; 31 to 60 days – 67%; 61 to 90 days – 83%; 91 to
120 days – 88%; and 121 to 180 days – 91%.  All returned items are
charged-off after 180 days, as collections after that date have not been
significant.  The loan loss allowance is reviewed quarterly and any
adjustment to the loan loss allowance as a result of historical loan
performance, current and expected collection patterns and current economic
trends is recorded.





A
rollforward of the Company’s loans receivable allowance for the three months
ended March 31, 2010 and 2009 is as follows:





Three Months Ended
                      March 31,2010
                    
                    
                    2009Loans
      receivable allowance, beginning of period
                    
                    $
                    1,237,000
                    
                    
                    $
                    1,413,000Provision
      for loan losses charged to expense
                    
                    
                    161,000
                    
                    
                    
                    329,000Charge-offs,
      net
                    
                    
                    (407,000
                    )
                    
                    
                    (536,000
                    )Loans
      receivable allowance, end of period
                    
                    $
                    991,000
                    
                    
                    $
                    1,206,000





Valuation of Long-lived and
Intangible Assets





The
Company assesses the impairment of long-lived and intangible assets whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable; goodwill is tested on an annual basis. Factors that could trigger
an impairment review include significant underperformance relative to expected
historical or projected future cash flows, significant changes in the manner of
use of acquired assets or the strategy for the overall business, and significant
negative industry trends. When management determines that the carrying value of
long-lived and intangible assets may not be recoverable, impairment is measured
based on the excess of the assets' carrying value over the estimated fair
value.





Results
of Operations - Three Months Ended March 31, 2010 Compared to Three Months Ended
March 31, 2009





For the
three-month period ended March 31, 2010, net income was $.48 million compared to
net income of $.23 million for the three months ended March 31, 2009. During the
three months ended March 31, 2010, income from operations before income taxes
was $.78 million compared to $.38 million for the three months ended March 31,
2009. The major components of revenues, store expenses, general and
administrative expenses, total operating expenses and income tax expense from
continuing operations are discussed below.





Revenues





Revenues
totaled $4.66 million for the three months ended March 31, 2010, compared to
$4.77 million for the three months ended March 31, 2009. The decrease in total
revenues resulted from sales of a higher percentage of units under Cricket’s
instant rebate program, which has the effect of decreasing the average per-unit
selling price and gross revenues.  While unit sales increased approximately
25% in the three months ended March 31, 2010 compared to the three months ended
March 31, 2009, the average per-unit selling price decreased over 28%. 
During the three-month period ended March 31, 2010, we generated $1.48 million
in phone and accessory sales compared to $1.66 million for the three-month
period ended March 31, 2009.





A slight
decrease in loan originations in the 2010 interim period also contributed to the
decrease in total revenues.  During the three-month period ended March 31,
2010, we originated approximately $16.1 million in cash advance loans compared
to $16.6 million during the 2009 interim period. Our average loan (including
fee) totaled approximately $368 and $370, respectively, during the three-month
periods ended March 31, 2010 and 2009. Our average fee for both three-month
periods ended March 31, 2010 and 2009 was $54.


14


The
following table summarizes our revenues for the three months ended March 31,
2010 and 2009, respectively:




Three Months Ended
                            March 31,
                          
                          Three Months Ended
                            March 31,2010
                          
                          2009
                          
                          2010
                          
                          2009(percentage of revenues)Payday
      loan fees
                          $
                          2,490,225
                          
                          $
                          2,517,810
                          
                          
                          53.5
                          %
                          
                          52.8
                          %Phones
      and accessories
                          
                          1,478,548
                          
                          
                          1,664,180
                          
                          
                          31.8
                          %
                          
                          34.9
                          %Check
      cashing fees
                          
                          232,595
                          
                          
                          267,299
                          
                          
                          5.0
                          %
                          
                          5.6
                          %Other
      income and fees
                          
                          454,634
                          
                          
                          317,998
                          
                          
                          9.7
                          %
                          
                          6.7
                          %Total
                          $
                          4,656,002
                          
                          $
                          4,767,287
                          
                          
                          100
                          %
                          
                          100
                          %





Store
Expenses




Total
expenses associated with store operations for the three months ended March 31,
2010 were $3.22 million, compared to $3.61 million for the three months ended
March 31, 2009.  The major components of these expenses are salaries and
benefits for our store employees, provision for loan losses, costs of sales for
phones and accessories, occupancy costs primarily relating to our store
leaseholds, advertising expenses, depreciation of store equipment, amortization
of intangible assets and other expenses associated with store
operations.





Overall,
our most significant increases in store expenses for the three months ended
March 31, 2010 and 2009 related to our costs of occupancy. Our most significant
decreases in store expenses over that same period related to the provision for
loan losses, and phone and accessories cost of sales.  Salaries and
benefits related to our store employees remained stable between the interim
periods.  A discussion and analysis of the various components of our store
expenses appears below.





Salaries
and Benefits. Payroll and related costs at the store level were $1.23 million
compared to $1.22 million for the periods ended March 31, 2010 and 2009,
respectively. We expect that, with anticipated continued store growth, these
salaries and benefits expenses will increase in 2010.





Provisions
for Loan Losses. For the three months ended March 31, 2010, our provisions for
loan losses were $.16 million compared to $.33 million for the three months
ended March 31, 2009. Our provisions for loan losses represented approximately
6.5% and 13.1% of our loan fee revenue for the three months ended March 31, 2010
and 2009, respectively.  The more favorable loss ratio year-to-year
reflects our expanded collection efforts in the three months ended March 31,
2010 compared to the three months ended March 31, 2009.  Due to
our inability to foretell the depth and duration of the continued economic
downturn, we believe there are currently uncertainties in how significant a
change in our loan losses during 2010 may be.





Phone and
Accessories Cost of Sales.  For the three months ended March 31, 2010, our
costs of sales were $.43 million compared to $.80 million for the same period in
2009.  The decrease in our Cricket Wireless phone service segment revenues,
which resulted from Cricket’s rebate programs, had a corresponding downward
impact to our costs of sales.  At March 31, 2010, we had 33 Cricket
Wireless stores compared to 30 at March 31, 2009.





Occupancy
Costs. Occupancy expenses, comprised mainly of store leases, were $.50 million
for the three months ended March 31, 2010 versus $.34 million for the three
months ended March 31, 2009. The increase in our occupancy expenses resulted
from our operation of more stores throughout the more recent
period.





Advertising.
Advertising and marketing expenses decreased significantly from $.15 million for
the three months ended March 31, 2009 to $.08 million for the three months ended
March 31, 2010, a $.07 million or 46.4% reduction.  In general, we expect
that our marketing and advertising expenses for 2010 will remain consistent with
2009 levels.





Depreciation.
Depreciation, relating to store equipment and capital expenditures for stores,
increased to $.07 million for the three months ended March 31, 2010 from $.06
million for the three months ended March 31, 2009.  The 17.2% increase in
depreciation expense was due to an increased number of Cricket Wireless store
locations containing depreciable assets.




Amortization
of Intangible Assets. Amortization of intangible assets decreased from $.18
million for the three months ended March 31, 2009 to $.13 million, or 24%, for
the three months ended March 31, 2010. Payday division expense decreased $.03
million due to intangible assets becoming fully amortized while the expense on
the Cricket division decreased by $.02 million due to amortization expense being
lower each subsequent year.


15


Other
Store Expenses. Other expenses were $.62 million for the three months ended
March 31, 2010 versus $.53 million for the three months ended March 31, 2009
primarily due to higher costs associated with operating a greater number of
stores on a year-over-year basis and an increase in collection
costs.





General and Administrative
Expenses





Total
general and administrative costs for the three months ended March 31, 2010 were
$.65 million compared to $.78 million for the period ended March 31, 2009. For
the three months ended March 31, 2010, the major components of these costs were
salaries and benefits for our corporate headquarters operations and executive
management, interest expense, and other general and administrative expenses. A
discussion of the various components of our general and administrative costs for
the three months ended March 31, 2010 and 2009 appears below:





Salaries
and Benefits. Salaries and benefits expenses for the three months ended March
31, 2010 were $.32 million, a $.02 million decrease from the $.34 million in
such expenses during period ended March 31, 2009. The decrease was due to store
acquisition and start up costs incurred during the interim period in
2009.





Depreciation.
Depreciation for the three months ended March 31, 2010 and 2009 remained
consistent. Depreciation relates primarily to equipment and capital improvements
at the Company’s corporate headquarters.





Interest. 
Interest expense for the three months ended March 31, 2010 and 2009 was
consistent at $.08 million, respectively.  Interest expense related to the
use of our revolving line of credit and issuance of notes payable for store
acquisitions.





Other
General and Administrative Expenses. Other general and administrative expenses,
which includes professional fees for accounting and legal services, utilities,
office supplies, collection costs and other minor costs associated with
corporate headquarters activities, decreased $.11 million or 31.3%, to $.24
million for the three months ended March 31, 2010 compared to $.35 million from
the three months ended March 31, 2009. The significant decrease in these
expenses is mainly attributable to nonrecurring professional fees incurred in
2009 related to our restatement.  We expect professional fees to continue
to decrease throughout the remainder of 2010 since most fees relate to the
annual audit and non-recurring corporate expense.





Income Tax
Expense





Income
tax expense for the three months ended March 31, 2010 was $.30 million compared
to income tax expense of $.15 million for the three months ended March 31, 2009,
an effective rate of 38% and 39.7%, respectively.




Liquidity
and Capital Resources





Summary
cash flow data is as follows:




Three Months Ended March 31,2010
                        
                        2009Cash
      flows provided (used) by :Operating
      activities
                        $
                        1,483,530
                        
                        $
                        1,269,520Investing
      activities
                        
                        (13,108
                        )
                        
                        (2,362,991
                        )Financing
      activities
                        
                        (1,447,627
                        )
                        
                        (425,117
                        )Net
      increase (decrease) in cash
                        
                        22,795
                        
                        
                        (1,518,588
                        )Cash,
      beginning of period
                        
                        1,526,562
                        
                        
                        3,358,547Cash,
      end of period
                        $
                        1,549,357
                        
                        $
                        1,839,959




At March
31, 2010, we had cash of $1.55 million compared to cash of $1.84 million on
March 31, 2009. The decrease results mainly from recent dividend payments and
principal payments on notes payable.  We believe that our available cash,
combined with expected cash flows from operations and the injection of working
capital from the WERCS refinancing, will be sufficient to fund our liquidity and
capital expenditure requirements throughout fiscal 2010. Our expected short-term
uses of available cash include the funding of operating activities (including
anticipated increases in payday loans) and the financing of expansion
activities, including new store openings and
store acquisitions.


16


Banco
Popular Line of Credit





On
January 4, 2010, WFL, the wholly owned payday lending operating subsidiary of
WCR, entered into an amended Business Loan Agreement and associated promissory
note with Banco Popular North America for $1,999,924.  WCR and Banco
Popular also entered into a new Commercial Pledge Agreement pursuant to which
WCR pledged its share ownership in WFL and substantially all of its other assets
to Banco Popular as collateral security for the obligations of WFL under the
amended Business Loan Agreement and promissory note.  In connection with
the new agreements, WFL paid Banco Popular $216,046 in principal and interest
accrued through December 31, 2009.  The payment structure under the new
promissory note changed from a line of credit to a term loan, requiring WFL to
make seven monthly principal payments of $52,776 from November 29, 2009 through
May 29, 2010, followed by a $175,000 principal payment on May 29, 2010 and a
balloon payment of $1,508,895 on May 31, 2010.  Under the new promissory
note with Banco Popular, interest accrued on the unpaid principal balance at the
variable rate equal to (i) the one-month LIBOR (as published by the British
Banker’s Association) plus (ii) a margin of 7.25%.





On April
2, 2010, WFL, the wholly owned payday lending operating subsidiary of WCR,
refinanced its outstanding credit facility.  On that date, WERCS, the
former holder of the Company’s Series A Convertible Preferred Stock, satisfied
all of WFL’s financial obligations owing to Banco Popular North America (as
described in the paragraph above) and entered into a Business Loan Agreement and
associated $2,000,000 promissory note with WFL.  The loan from WERCS
extinguished the $1,637,341 that WFL then owed to Banco Popular.  The
remaining $362,659 of loan proceeds was eligible for general working capital
use.  The Business Loan Agreement and associated promissory note contained
terms that were substantially similar to those contained in the original loan
documents with Banco Popular.  To secure the obligations of WFL under the
new Business Loan Agreement and promissory note, the Company entered into (i) a
Commercial Pledge Agreement with WERCS pursuant to which the Company pledged its
share ownership in WFL, and (ii) a Commercial Security Agreement pursuant to
which the Company granted WERCS a security interest in substantially all of the
Company’s assets.  The Company also entered into a Commercial Guaranty
relating to the repayment of WFL’s obligations under the Business Loan Agreement
and promissory note.  The payment terms under the promissory note require
the Company to make monthly payments of accrued interest only for 11 months,
followed by an April 1, 2011 balloon payment of any remaining accrued but unpaid
interest and all $2,000,000 of principal under the promissory note. 
Interest accrues on the unpaid principal balance of the promissory note at the
rate of 12.0% per annum.





In
connection with the payment in full of WFL’s obligations to Banco Popular, the
guaranty of such obligations that was earlier delivered by Mr. Chris Larson, the
former Chief Executive Officer of the Company, was terminated.  As a
result, effective as of April 2, 2010, the Company obtained and cancelled all
550,000 shares of common stock of Mr. Larson that had been held in escrow since
May 1, 2009 pursuant to the terms of a Settlement Agreement with Mr. Larson
dated as of May 1, 2009.





Off-Balance
Sheet Arrangements





The
Company had no off-balance sheet arrangements as of March 31, 2010.





Item 3. Quantitative and
Qualitative Disclosures About Market Risk





Not
applicable.





Item 4T. Controls and
Procedures





Evaluation of Disclosure
Controls and Procedures




We
maintain disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in our reports filed
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer as
appropriate, to allow timely decisions regarding required disclosure. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance the objectives of the control system are
met.





As of
March 31, 2010, our Chief Executive Officer and Interim Chief Financial Officer
carried out an evaluation of the effectiveness of our disclosure controls and
procedures as such term is defined in Rule 13a-15(e) under the Securities and
Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded our disclosure controls and procedures are
effective as of March 31, 2010.


17


Changes in Internal Control
over Financial Reporting




There
were no changes in our internal control over financial reporting during the
quarter ended March 31, 2010 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.





PART
II. OTHER INFORMATION




Item 1.
Legal Proceedings





On March
26, 2010, the Company and all of the then-current members of its Board of
Directors, among others, were sued by former members of our management team,
Messrs. Steven Staehr and David Stueve.  In that lawsuit, the plaintiffs
have alleged, among other things, that our Board of Directors breached certain
of their fiduciary duties primarily in connection with the proposed sale by
WERCS of its capital stock in the Company to WCR, LLC.  The Company
believes the claims are entirely meritless.  While we are unable to predict
the ultimate outcome of these claims and proceedings, management believes there
is not a reasonable possibility that the costs and liabilities of such matters,
individually or in the aggregate, will have a material adverse effect on our
financial condition or results of operations.




Item 1A. Risk
Factors





In
evaluating the Company’s business and prospects, readers should consider the
following risk factors, which supplement and update the risk factors contained
in our Annual Report on Form 10-K for the fiscal year ended December 31,
2009.





The
payday loan industry is highly regulated under state laws. Changes in state laws
and regulations governing lending practices, or changes in the interpretation of
such laws and regulations, 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 the date of this report,
approximately 34 states and the District of Columbia had legislation permitting
or not prohibiting payday loans.  During the last few years, legislation
has been adopted in some states that prohibits or severely restricts payday
loans.





There are
nearly always bills pending in various states to alter the current laws
governing payday lending.  Any of these bills, or future proposed
legislation or regulations prohibiting payday loans or making them less
profitable, could be passed in any state at any time, or existing payday loan
laws could expire.  In 2008, legislation banning payday loans was
introduced in Nebraska, however, the bill never made it out of committee. 
Nevertheless, since we derive approximately 27% of our payday revenues in
Nebraska, the passage of any such legislation in Nebraska would have a highly
material and negative effect on our business.  More recently, legislation
has been introduced in Colorado and Wisconsin that restricts certain payday
lending practices.  In Colorado, proposed legislation (presently expected
to be enacted into law) will require a minimum term of six month for all payday
loans.  In Wisconsin, proposed legislation (also presently expected to be
enacted into law) will limit payday loans to the lesser of $1,500 or 35% of the
applicant’s monthly income, and permit borrowers to cancel loans within 24 hours
and roll their loans over only one time.  The Company is currently
assessing the likely impact of these changes on its business.





Statutes
authorizing payday loans typically provide state agencies that regulate banks
and financial institutions with significant regulatory powers to administer and
enforce the laws relating to payday lending.  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 those jurisdictions.  They may also impose rules that are
generally adverse to our industry.  Finally, in many states, the attorney
general has scrutinized or continues to scrutinize the payday loan statutes and
the interpretations of those statutes.





Any
adverse change in present laws or regulations, or their interpretation, in one
or more such states (or an aggregation of states in which we conduct a
significant amount of business) would likely result in our curtailment or
cessation of operations in such jurisdictions.  Any such action could have
a corresponding highly material and negative impact on our results of operations
and financial condition, primarily through a material decrease in revenues, and
could also negatively affect our general business prospects as well if we are
unable to effectively replace such revenues in a timely and efficient
manner.


18


Our
business is subject to complex federal laws and regulations governing lending
practices, and changes in such laws and regulations 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 under that Act.  Additionally, we are
subject to the Equal Credit Opportunity Act, the Gramm-Leach-Bliley Act and
certain other federal laws.  Additionally, anti-payday loan legislation has
been introduced in the U.S. Congress in the past.  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 the equivalent of 36% per annum.  The military lending prohibition
became effective on October 1, 2007.





In July
2008, a bill was introduced before the U.S. Senate, entitled the “Protecting
Consumers from Unreasonable Credit Rates Act of 2008” (an amendment to the Truth
in Lending Act), proposing to set a maximum actual or imputed interest rate of
36% on all extensions of credit of any type.  The bill was intended to
limit the charges and fees payable in connection with payday lending.  No
action has been taken on the bill since its referral to the Senate Committee on
Banking, Housing and Urban Affairs in July 2008.





In
February 2009, Congress introduced H.R. 1214 (the Payday Loan Reform Act of
2009, an amendment to the Truth in Lending Act).  If enacted, this
amendment would restrict charges for a single-payment loan to a 391% effective
annual rate, or $15 per $100 for a two-week loan, prohibit loan rollovers, limit
borrowers to one outstanding loan at a time and permit only one extended
repayment plan every six months.  Presently, the bill is in the House
Financing Committee.  We have no further information regarding this bill or
any legislative efforts Congress may propose at this time.  The passage of
this bill would have a material and adverse effect on the Company, operating
results, financial conditions and prospects and even its viability.





In
November 2009, Senator Christopher Dodd introduced proposed federal legislation
entitled the “Restoring American Financial Stability Act of 2009” which, among
other things, would create a federal agency authorized to promulgate consumer
protection regulations covering a variety of financial industries, including
payday lending.  In March 2010, the bill was passed by the U.S. Senate
Banking Committee for consideration by the full Senate.  Presently, it is
uncertain whether or when the full U.S. Senate may consider and vote upon the
bill.  Moreover, because of the apparently broad regulatory powers that
would be afforded to one or more federal agencies under the currently proposed
legislation, it is highly uncertain what impact such legislation would have upon
the Company, its operations or prospects, if passed.





Any
adverse change in present federal laws or regulations that govern or otherwise
affect payday lending could result in our curtailment or cessation of operations
in certain jurisdictions or locations.  Furthermore, any failure to comply
with any applicable federal laws or regulations could result in fines,
litigation, the closure of one or more store locations or negative
publicity.  Any such change or failure would have a corresponding impact on
our results of operations and financial condition, primarily through a decrease
in revenues resulting from the cessation or curtailment of operations, decrease
in our operating income through increased legal expenditures or fines, and could
also negatively affect our general business prospects as well if we are unable
to effectively replace such revenues in a timely and efficient manner or if
negative publicity effects our ability to obtain additional financing a
needed.




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




None.





Item 3. Defaults upon
Senior Securities





As of
March 31, 2010, the Company had an outstanding accrued but unpaid and cumulated
dividends on its Series A Convertible Preferred Stock aggregating to
$275,000.  Our Series A Convertible Preferred Stock ranks senior to our
common stock.





Item 4.
Reserved





Item 5.
Other Information





On May
10, 2010, the Company terminated its engagement of B&L Capital, LLC, a
Minnesota limited liability company, for financial and advisory consulting
services.





Also on
May 10, 2010, the Company entered into a Management and Advisory Agreement with
Blackstreet Capital Management, LLC, a Delaware limited liability company,
pursuant to which the Company will obtain certain prescribed management and
advisory services relating and helpful to the Company’s business.  In
particular, the Company obtain financial, managerial, strategic and operational
advice and assistance in connection with its day-to-day operations, including
such matters as the investment of funds and cash management; the development and
implementation of strategies for improving the operating, marketing and
financial performance of the Company; the growth of the Company’s business
either organically or through acquisitions; lobbying efforts on behalf of the
Company; the provision of regulatory compliance needs; the installation and
monitoring of controls and procedures at the Company; the implementation of
periodic reporting procedures; and the provision of support and services for
various corporate functions including administrative support.  The terms of
the Management and Advisory Agreement provide that the Company will pay
Blackstreet Capital Management an annual management and advisory fee equal to
the greater of 5% EBITDA per annum or $300,000, payable in monthly advance
installments.  The provisions of the agreement respecting the provision of
services and payment of fees are effective as of April 1, 2010.  Due to the
fact that Blackstreet Capital Management, LLC employs two of the Company’s
directors and is affiliated with another entity to which a third director
provides consulting services, the Company’s Board of Directors formed a special
committee of disinterested directors to independently review, consider and
approve the Management and Advisory Agreement.


19




Item 6.
Exhibits




Exhibit
              
              Description3.1
              
              Amended
      and Restated Articles of Incorporation, as amended on December 27, 2007,
      March 28, 2008, July 29, 2008 and March 30, 2010 (filed
      herewith).10.1
              
              Business
      Loan Agreement between Wyoming Financial Lenders, Inc. and Banco Popular
      North America, dated effective as of October 30, 2009 (incorporated by
      reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
      filed on January 19, 2010).10.2
              
              Promissory
      Note of Wyoming Financial Lenders, Inc. to Banco Popular North America,
      dated effective as of October 30, 2009 (incorporated by reference to
      Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on
      January 19, 2010).10.3
              
              Commercial
      Pledge Agreement between Western Capital Resources, Inc. and Banco Popular
      North America, dated effective as of October 30, 2009 (incorporated by
      reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K
      filed on January 19, 2010).10.4
              
              Employment
      Agreement with John Quandahl dated effective as of March 31, 2010 (filed
      herewith).10.5
              
              Business
      Loan Agreement between Wyoming Financial Lenders, Inc. and WERCS, dated
      effective as of April 2, 2010 (filed
      herewith).10.6
              
              Promissory
      Note of Wyoming Financial Lenders, Inc. to WERCS, dated effective as of
      April 2, 2010 (filed
      herewith).10.7
              
              Commercial
      Pledge Agreement between Western Capital Resources, Inc. and WERCS, dated
      effective as of April 2, 2010 (filed
      herewith).10.8
              
              Commercial
      Security Agreement between Western Capital Resources, Inc. and WERCS,
      dated effective as of April 2, 2010 (filed
      herewith).31.1
              
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith
      ).31.2
              
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith
      ).32
              
              Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002(filed herewith).


20


SIGNATURES





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





Dated:
      May 13, 2010
              Western
      Capital Resources, Inc.(Registrant)By:
              /s/ John QuandahlJohn
      QuandahlChief
      Executive Officer, Chief Operating Officer and
                Interim
      Chief Financial Officer




21