SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C. 20549




Form
10-Q




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




For the
quarterly period ended September 30, 2010 or




 ̈   Transition 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  ̈





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  ̈ No  ̈




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 
       ̈
            Accelerated filer 
       ̈Non-accelerated filer 
       ̈
            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  ̈ No þ




APPLICABLE
ONLY TO CORPORATE ISSUERS




As of
November 10, 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
              
              13Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
              
              20Item
      4T. Controls and Procedures
              
              20PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
              
              20Item
      1A. Risk Factors
              
              21Item
      3. Defaults Upon Senior Securities
              
              22Item
      6. Exhibits
              
              23SIGNATURES
              
              24




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





September 30, 2010
                      (Unaudited)
                    
                    
                    December 31, 2009ASSETSCURRENT
      ASSETSCash
                    
                    $
                    1,420,012
                    
                    
                    $
                    1,526,562Loans
      receivable (less allowance for losses of $1,102,000 and
      $1,237,000)
                    
                    
                    4,859,058
                    
                    
                    
                    4,875,870Inventory
                    
                    
                    268,677
                    
                    
                    
                    373,858Prepaid
      expenses and other
                    
                    
                    166,673
                    
                    
                    
                    288,145Deferred
      income taxes
                    
                    
                    436,000
                    
                    
                    
                    486,000TOTAL
      CURRENT ASSETS
                    
                    
                    7,150,420
                    
                    
                    
                    7,550,435PROPERTY
      AND EQUIPMENT
                    
                    
                    835,551
                    
                    
                    
                    1,075,715GOODWILL
                    
                    
                    11,458,744
                    
                    
                    
                    11,458,744INTANGIBLE
      ASSETS
                    
                    
                    509,864
                    
                    
                    
                    902,069OTHER
                    
                    
                    98,851
                    
                    
                    
                    107,715TOTAL
      ASSETS
                    
                    $
                    20,053,430
                    
                    
                    $
                    21,094,678LIABILITIES
      AND  SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
                    
                    $
                    1,080,892
                    
                    
                    $
                    1,352,989Income
      taxes payable
                    
                    
                    315,420
                    
                    
                    
                    145,773Note
      payable – short-term
                    
                    
                    2,000,000
                    
                    
                    
                    1,794,372Current
      portion long-term debt
                    
                    
                    774,531
                    
                    
                    
                    165,431Preferred
      dividend payable
                    
                    
                    925,000
                    
                    
                    
                    1,000,000Deferred
      revenue
                    
                    
                    295,756
                    
                    
                    
                    345,826TOTAL
      CURRENT LIABILITIES
                    
                    
                    5,391,599
                    
                    
                    
                    4,804,391LONG-TERM
      LIABILITIESNotes
      payable – long-term
                    
                    
                    1,110,329
                    
                    
                    
                    2,138,162Deferred
      income taxes
                    
                    
                    299,000
                    
                    
                    
                    250,000Other
                    
                    
                    37,429
                    
                    
                    
                    -TOTAL
      LONG-TERM LIABILITIES
                    
                    
                    1,446,758
                    
                    
                    
                    2,388,162TOTAL
      LIABILITES
                    
                    
                    6,838,357
                    
                    
                    
                    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, 7,446,007 and
      7,996,007 shares issued and outstanding
                    
                    
                    -
                    
                    
                    
                    -Additional
      paid-in capital
                    
                    
                    18,221,776
                    
                    
                    
                    18,478,337Accumulated
      deficit
                    
                    
                    (5,106,703
                    )
                    
                    
                    (4,676,212
                    )TOTAL
      SHAREHOLDERS’ EQUITY
                    
                    
                    13,215,073
                    
                    
                    
                    13,902,125TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                    
                    $
                    20,053,430
                    
                    
                    $
                    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 ended
                  
                  
                  Nine months endedSeptember 30, 2010
                  
                  
                  September 30, 2009
                  
                  
                  September 30, 2010
                  
                  
                  September 30, 2009REVENUESPayday
      loan fees
                  
                  $
                  2,834,253
                  
                  
                  $
                  2,814,599
                  
                  
                  $
                  7,865,541
                  
                  
                  $
                  7,872,094Phones
      and accessories
                  
                  
                  766,310
                  
                  
                  
                  1,186,550
                  
                  
                  
                  3,058,853
                  
                  
                  
                  4,163,525Check
      cashing fees
                  
                  
                  168,602
                  
                  
                  
                  184,213
                  
                  
                  
                  565,787
                  
                  
                  
                  646,863Other
      income and fees
                  
                  
                  648,919
                  
                  
                  
                  382,807
                  
                  
                  
                  1,732,630
                  
                  
                  
                  1,107,0724,418,084
                  
                  
                  
                  4,568,169
                  
                  
                  
                  13,222,811
                  
                  
                  
                  13,789,554STORE
      EXPENSESSalaries
      and benefits
                  
                  
                  1,095,857
                  
                  
                  
                  1,273,036
                  
                  
                  
                  3,475,357
                  
                  
                  
                  3,851,396Provisions
      for loan losses
                  
                  
                  404,777
                  
                  
                  
                  453,626
                  
                  
                  
                  897,455
                  
                  
                  
                  1,142,131Phones
      and accessories cost of sales
                  
                  
                  387,892
                  
                  
                  
                  438,646
                  
                  
                  
                  1,110,633
                  
                  
                  
                  1,772,002Occupancy
                  
                  
                  451,528
                  
                  
                  
                  442,058
                  
                  
                  
                  1,417,154
                  
                  
                  
                  1,199,446Advertising
                  
                  
                  92,100
                  
                  
                  
                  102,566
                  
                  
                  
                  266,599
                  
                  
                  
                  359,389Depreciation
                  
                  
                  71,520
                  
                  
                  
                  63,430
                  
                  
                  
                  210,543
                  
                  
                  
                  188,637Amortization
      of intangible assets
                  
                  
                  129,027
                  
                  
                  
                  179,664
                  
                  
                  
                  392,205
                  
                  
                  
                  536,394Other
                  
                  
                  632,556
                  
                  
                  
                  671,172
                  
                  
                  
                  1,749,078
                  
                  
                  
                  1,788,1203,265,257
                  
                  
                  
                  3,624,198
                  
                  
                  
                  9,519,024
                  
                  
                  
                  10,837,515INCOME
      FROM STORES
                  
                  
                  1,152,827
                  
                  
                  
                  943,971
                  
                  
                  
                  3,703,787
                  
                  
                  
                  2,952,039GENERAL
      & ADMINISTRATIVE EXPENSESSalaries
      and benefits
                  
                  
                  395,841
                  
                  
                  
                  376,885
                  
                  
                  
                  1,098,191
                  
                  
                  
                  1,011,934Depreciation
                  
                  
                  4,020
                  
                  
                  
                  8,103
                  
                  
                  
                  13,665
                  
                  
                  
                  17,564Interest
      expense
                  
                  
                  106,783
                  
                  
                  
                  81,351
                  
                  
                  
                  302,787
                  
                  
                  
                  245,457Other
                  
                  
                  206,480
                  
                  
                  
                  155,902
                  
                  
                  
                  775,196
                  
                  
                  
                  901,893713,124
                  
                  
                  
                  622,241
                  
                  
                  
                  2,189,839
                  
                  
                  
                  2,176,848INCOME
      BEFORE INCOME TAXES
                  
                  
                  439,703
                  
                  
                  
                  321,730
                  
                  
                  
                  1,513,948
                  
                  
                  
                  775,191INCOME
      TAX EXPENSE
                  
                  
                  168,000
                  
                  
                  
                  124,000
                  
                  
                  
                  538,000
                  
                  
                  
                  293,000NET
      INCOME
                  
                  
                  271,703
                  
                  
                  
                  197,730
                  
                  
                  
                  975,948
                  
                  
                  
                  482,191SERIES
      A CONVERTIBLE PREFERRED STOCK DIVIDENDS (assumes all paid)
                  
                  
                  (525,000
                  )
                  
                  
                  (525,000
                  )
                  
                  
                  (1,575,000
                  )
                  
                  
                  (1,575,000
                  )NET
      LOSS AVAILABLE TO COMMON SHAREHOLDERS
                  
                  $
                  (253,297
                  )
                  
                  $
                  (327,270
                  )
                  
                  $
                  (599,052
                  )
                  
                  $
                  (1,092,809
                  )NET
      LOSS PER COMMON SHAREBasic
      and diluted
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.08
                  )
                  
                  $
                  (0.14
                  )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -Basic
      and diluted
                  
                  
                  7,446,007
                  
                  
                  
                  7,996,007
                  
                  
                  
                  7,631,355
                  
                  
                  
                  7,924,633





See
notes to condensed consolidated financial statements.




4


WESTERN
CAPITAL RESOURCES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)





Nine Months EndedSeptember 30, 2010
                
                
                September 30, 2009OPERATING
      ACTIVITIESNet
      Income
                
                $
                975,948
                
                
                $
                482,191Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                
                
                224,208
                
                
                
                206,201Amortization
                
                
                392,205
                
                
                
                536,394Shares
      retired for reimbursement of expenses
                
                
                (88,000
                )
                
                
                -Deferred
      income taxes
                
                
                99,000
                
                
                
                217,000Loss
      on disposal of property and equipment
                
                
                38,296
                
                
                
                -Changes
      in operating assets and liabilitiesLoans
      receivable
                
                
                16,812
                
                
                
                215,449Inventory
                
                
                105,181
                
                
                
                (190,135
                )Prepaid
      expenses and other assets
                
                
                130,336
                
                
                
                (334,120
                )Accounts
      payable and accrued liabilities
                
                
                (102,450
                )
                
                
                204,245Deferred
      revenue
                
                
                (50,070
                )
                
                
                (32,606
                )Other
      liabilities – long-term
                
                
                37,429
                
                
                
                -Net
      cash provided by operating activities
                
                
                1,778,895
                
                
                
                1,304,619INVESTING
      ACTIVITIESPurchase
      of property and equipment
                
                
                (22,340
                )
                
                
                (441,266
                )Acquisition
      of stores
                
                
                -
                
                
                
                (2,178,000
                )Net
      cash used by investing activities
                
                
                (22,340
                )
                
                
                (2,619,266
                )FINANCING
      ACTIVITIESAdvances
      (payments) from notes payable – short-term
                
                
                205,628
                
                
                
                (100,000
                )Payments
      on notes payable – long-term
                
                
                (418,733
                )
                
                
                (102,244
                )Dividends
                
                
                (1,650,000
                )
                
                
                (625,000
                )Net
      cash used by financing activities
                
                
                (1,863,105
                )
                
                
                (827,244
                )NET
      DECREASE IN CASH
                
                
                (106,550
                )
                
                
                (2,141,891
                )CASHBeginning
      of period
                
                
                1,526,562
                
                
                
                3,358,547End
      of period
                
                $
                1,420,012
                
                
                $
                1,216,656SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONIncome
      taxes paid
                
                $
                269,353
                
                
                $
                125,000Interest
      paid
                
                
                291,559
                
                
                
                245,457Noncash
      investing and financing activities:Refinancing
      of note payable – short-term
                
                
                1,636,044
                
                
                
                -





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 accounting principles generally accepted
in the United States of America (“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 and nine month periods ended September 30, 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 September 30, 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 29 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 by allowing their check to be presented
to the bank for collection.





The
Company also provides title and smaller unsecured installment 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.  Installment loan fees are recognized pro-rata over the loan
duration while installment loan maintenance fees are recognized when
earned.  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,
installment 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 that 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
approximate 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 – 90%.  All returned
items are charged-off after 180 days, as collections after that date have not
been significant.  The loan loss allowance is reviewed monthly 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 nine months
ended September 30, 2010 and 2009 is as follows:




Nine Months Ended
                    September 30,2010
                  
                  
                  2009Loans
      receivable allowance, beginning of period
                  
                  $
                  1,237,000
                  
                  
                  $
                  1,413,000Provision
      for loan losses charged to expense
                  
                  
                  897,000
                  
                  
                  
                  1,142,000Charge-offs,
      net
                  
                  
                  (1,032,000
                  )
                  
                  
                  (1,368,000
                  )Loans
      receivable allowance, end of period
                  
                  $
                  1,102,000
                  
                  
                  $
                  1,187,000





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 Series A Convertible Preferred Stock (10,000,000 shares) were
anti-dilutive and therefore excluded from the dilutive net loss per share
computation for 2010 and 2009.




7




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.





In April
2010, the FASB issued guidance on accounting for certain tax effects related to
the accounting for postretirement health care plans effective on the enactment
date of March 23, 2010.  The Company adopted this amendment guidance
with no material impact on its condensed consolidated financial
statements.





In July
2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2010-20 “ Receivables (Topic 310) –
Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses.”ASU 2010-20 requires extensive new
disclosures about financing receivables, including credit risk exposures and the
allowance for credit losses.  For public entities, ASU 2010-20
disclosures of period-end balances are effective for interim or annual reporting
periods ending on or after December 15, 2010.  Disclosures related to
activity that occurs during the reporting period are required for interim and
annual reporting periods beginning on or after December 15, 2010.  We
are assessing the impact of ASU 2010-20 on our disclosures.





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 and nine months ended September 30, 2010 and
2009 is set forth below:




Three Months Ended
                      September 30, 2010
                    
                    
                    Three Months Ended
                      September 30, 2009Payday
                    
                    
                    Cricket
                      Wireless
                    
                    
                    Total
                    
                    
                    Payday
                    
                    
                    Cricket
                      Wireless
                    
                    
                    TotalRevenues
      from external customers
                    
                    $
                    3,102,175
                    
                    
                    $
                    1,315,909
                    
                    
                    $
                    4,418,084
                    
                    
                    $
                    3,062,043
                    
                    
                    $
                    1,506,126
                    
                    
                    $
                    4,568,169Net
      income (loss)
                    
                    $
                    461,485
                    
                    
                    $
                    (189,782
                    )
                    
                    $
                    271,703
                    
                    
                    $
                    425,974
                    
                    
                    $
                    (228,244
                    )
                    
                    $
                    197,730




Nine Months Ended
                      September 30, 2010
                    
                    
                    Nine Months Ended
                      September 30, 2009Payday
                    
                    
                    Cricket
                      Wireless
                    
                    
                    Total
                    
                    
                    Payday
                    
                    
                    Cricket
                      Wireless
                    
                    
                    TotalRevenues
      from external customers
                    
                    $
                    8,768,974
                    
                    
                    $
                    4,453,837
                    
                    
                    $
                    13,222,811
                    
                    
                    $
                    8,703,516
                    
                    
                    $
                    5,086,038
                    
                    
                    $
                    13,789,554Net
      income (loss)
                    
                    $
                    1,403,494
                    
                    
                    $
                    (427,546
                    )
                    
                    $
                    975,948
                    
                    
                    $
                    964,715
                    
                    
                    $
                    (482,524
                    )
                    
                    $
                    482,191Total
      segment assets
                    
                    $
                    14,972,047
                    
                    
                    $
                    5,081,383
                    
                    
                    $
                    20,053,430
                    
                    
                    $
                    15,316,690
                    
                    
                    $
                    5,852,535
                    
                    
                    $
                    21,169,225





3.
            Credit
      Facility –





Credit
Facility with WERCS





On April
2, 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 has
been used for general working capital.





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.


8




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 had been
earlier delivered by Mr. Chris Larson (the former Chief Executive Officer of the
Company) expired by its terms.  As a result, 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.  As a result of the receipt of the
shares, the Company recorded $88,000 of other income in the second quarter
2010.





4.
            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.





5.
            Stock
      Purchase and Sale –





On
February 23, 2010, WERCS, a Wyoming corporation, 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 was consummated 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.





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.




9





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 exceeds 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
Committee on Financial Services.  We have no further information
regarding this bill or any legislative efforts Congress may propose at this
time.





In July
2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed
by the U.S. Congress and signed into law.  Under the Act, a new
Consumer Financial Protection Bureau will consolidate most federal regulation of
financial services offered to consumers, and replace the Office of Thrift
Supervision’s seat on the FDIC Board. Almost all credit providers, including
mortgage lenders, providers of payday loans, other nonbank financial companies,
and banks and credit unions with assets over $10 billion, will be subject to new
regulations to be passed by the Bureau.  While the Bureau does not
appear to have authority to make rules limiting interest rates or fees charged,
the scope and extent of the Bureau’s authority will nonetheless be broad, and it
is expected that the Bureau will address issues such as rollovers or extensions
of payday loans.  Future restrictions on the payday lending industry
could have serious consequences for the Company.





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.





During
the 2010 legislative session in Colorado, House Bill 10-1351 was passed into
law.  This bill amended the Colorado Deferred Deposit Loan Act, the
existing payday lending law.  The law became effective August 11, 2010 and
modified traditional payday lending by changing the single payment advance (with
no minimum term) into a single or multiple payment loan with a minimum six month
term. It also limited the amount and type of fees that can be charged on these
loans, effectively reducing by one-half the fees that can be charged and when
the fees may be realized.  At present, the Company continues to
operate its sole store in Colorado while the impact to profitability of this new
law is being assessed.  Currently, we derive 1.47% of our Payday
division revenues from fees in Colorado.





In May
2010, new laws were enacted in Wisconsin that restrict the number of times a
consumer may renew (or rollover) a payday loan. Previously, there were no limits
to the number of rollovers permitted.  Effective January 1, 2011,
consumers in Wisconsin will only be allowed to renew a payday loan once, and
then lenders will be required to offer a 60-day, interest free, payment plan to
consumers.  The Company is still assessing the impact of these new
Wisconsin laws. Our preliminary projections indicate the changes could
reduce revenue in the state by 30% - 40%.  Currently, we derive 6.01%
of our Payday division revenues from fees in Wisconsin.





On
November 2, 2010, voters in Montana passed Petition Initiative
I-164.  Effective January 1, 2011, Petition Initiative I-164 will cap
fees on payday loans at an imputed interest rate of 36%.  The Company
is evaluating all options related to its Montana operations, including
discontinuing its payday loan operations in that state.  Currently,
4.54% of the Company’s payday division revenues comes from fees derived in
Montana.





The
passage of federal or state laws and regulations could, at any point,
essentially prohibit the Company from conducting its payday lending business in
its current form.  Any such legal or regulatory change would certainly
have a material and adverse effect on the Company, its operating results,
financial condition and prospects, and perhaps even its viability.




10


For the
nine months ended September 30, 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
                    %
                    
                    
                    28
                    %
                    Missouri
                    
                    
                    31
                    %
                    
                    
                    40
                    %Wyoming
                    
                    
                    13
                    %
                    
                    
                    14
                    %
                    Nebraska
                    
                    
                    15
                    %
                    
                    
                    13
                    %North
      Dakota
                    
                    
                    16
                    %
                    
                    
                    15
                    %
                    Texas
                    
                    
                    11
                    %
                    
                    
                    11
                    %Iowa
                    
                    
                    12
                    %
                    
                    
                    12
                    %
                    Indiana
                    
                    
                    29
                    %
                    
                    
                    22
                    %





8.
            Preferred Stock Dividend
  –





Cumulated
dividends on the Company's Series A Convertible Preferred Stock are $525,000 and
$1,575,000 for the three and nine months ended September 30, 2010, respectively.
The Company has $525,000 cumulative unaccrued preferred dividends at September
30, 2010.





9.
            Other Expense
      –





A
breakout of other expense is as follows:





Three Months Ended
                        September 30,
                      
                      
                      Nine Months Ended
                        September 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Store expensesBank
      fees
                      
                      $
                      54,734
                      
                      
                      $
                      60,280
                      
                      
                      $
                      159,521
                      
                      
                      $
                      170,232Collection
      costs
                      
                      
                      105,291
                      
                      
                      
                      116,828
                      
                      
                      
                      308,216
                      
                      
                      
                      286,804Repairs
      & maintenance
                      
                      
                      47,125
                      
                      
                      
                      66,399
                      
                      
                      
                      137,081
                      
                      
                      
                      157,446Supplies
                      
                      
                      39,243
                      
                      
                      
                      80,426
                      
                      
                      
                      126,522
                      
                      
                      
                      243,481Telephone
                      
                      
                      33,194
                      
                      
                      
                      48,582
                      
                      
                      
                      108,644
                      
                      
                      
                      144,583Utilities
      and network lines
                      
                      
                      131,197
                      
                      
                      
                      110,685
                      
                      
                      
                      391,901
                      
                      
                      
                      277,718Other
                      
                      
                      221,772
                      
                      
                      
                      187,972
                      
                      
                      
                      517,193
                      
                      
                      
                      507,856$
                      632,556
                      
                      
                      $
                      671,172
                      
                      
                      $
                      1,749,078
                      
                      
                      $
                      1,788,120General & administrative
      expensesProfessional
      fees
                      
                      $
                      41,347
                      
                      
                      $
                      66,622
                      
                      
                      $
                      369,720
                      
                      
                      $
                      618,959Management
      and consulting fees
                      
                      
                      100,000
                      
                      
                      
                      -
                      
                      
                      
                      200,000
                      
                      
                      
                      -Other
                      
                      
                      65,133
                      
                      
                      
                      89,280
                      
                      
                      
                      205,476
                      
                      
                      
                      282,934$
                      206,480
                      
                      
                      $
                      155,902
                      
                      
                      $
                      775,196
                      
                      
                      $
                      901,893




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 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 sale by WERCS of its capital stock in the
Company to WCR, LLC.  The complaint seeks injunctive and declaratory
relief and unspecified money damages.  The Company believes the claims
are without merit.  While we are unable to predict the ultimate
outcome of these claims and proceedings, management currently 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.  Subsequent to the
filing of the lawsuit, the Company removed the lawsuit to federal court and the
plaintiffs sought to have the case remanded back to state court.  On
October 26, 2010, the plaintiffs’ motion to remand the case to state court was
denied by the federal court.  The Company has filed a motion to
dismiss the lawsuit and such motion is currently being considered by the federal
court.


11




11.
            Management and Advisory Agreement
      –





Effective
April 1, 2010, the Company entered into a Management and Advisory Agreement
with  Blackstreet Capital Management, LLC (“Blackstreet”), to provide
certain financial, managerial, strategic and operating advice and
assistance.  Blackstreet employs two of the Company’s directors and is
affiliated with another entity to which a third director provides consulting
services.  The annual fees for this contract will be the greater of 5%
of EBITDA or $300,000.


12


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 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” (Part I, Item 2), Legal Proceedings (Part
II, Item 1), and “Risk Factors” (Part II, Item 1A), 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 and/or
nationally;





·
            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, small unsecured installment
loans, check cashing and other money services. At the close of business on
September 30, 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”, “installment” 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(s) 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 or
installment 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, installment 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 September 30,
2010, we owned and operated 29 stores in seven states (Illinois, Indiana,
Kansas, Maryland, Missouri, Nebraska, and Texas).


13





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 number of branches operated 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 payday loan fees), 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
contraction 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 and year-to-date
2010 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.





In an
effort to expand our geographic reach, our strategic expansion plans 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 is 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, “Basis of Presentation,
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,
installment, 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.





14


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
approximate 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 – 90%.  All returned
items are charged-off after 180 days, as collections after that date have not
been significant.  The loan loss allowance is reviewed monthly 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 nine months
ended September 30, 2010 and 2009 is as follows:




Nine Months Ended
                        September 30,2010
                      
                      
                      2009Loans
      receivable allowance, beginning of period
                      
                      $
                      1,237,000
                      
                      
                      $
                      1,413,000Provision
      for loan losses charged to expense
                      
                      
                      897,000
                      
                      
                      
                      1,142,000Charge-offs,
      net
                      
                      
                      (1,032,000
                      )
                      
                      
                      (1,368,000
                      )Loans
      receivable allowance, end of period
                      
                      $
                      1,102,000
                      
                      
                      $
                      1,187,000





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 September 30, 2010 Compared to Three Months
Ended September 30, 2009





For the
three-month period ended September 30, 2010, net income was $.27 million
compared to net income of $.20 million for the three months ended September 30,
2009. During the three months ended September 30, 2010, income from operations
before income taxes was $.44 million compared to $.32 million for the three
months ended September 30, 2009. The major components of revenues, store
expenses, general and administrative expenses, total operating expenses and
income tax expense are discussed below.





Revenues





Revenues
totaled $4.42 million for the three months ended September 30, 2010, compared to
$4.57 million for the three months ended September 30, 2009. The decrease in
total revenues resulted from a lower average selling price per unit under
Cricket’s new pricing structure which took effect in all markets on August 3,
2010, a reduction in the number of phone and modem units sold which can be
attributed to elevated sales in 2009 as Cricket rolled out new markets and from
operating five fewer Cricket store locations during the three months ended
September 30, 2010 compared to the three months ended September 30,
2009.  The decrease in phone and modem sales revenue was partially
offset by an increase in fees generated from accepting Cricket service payments,
which is included in “Other income and fees”.  This trend is expected
to continue due to Cricket’s change in its retail pricing structure and
compensation structure to dealers.





Loan
originations in the 2010 interim period remained stable.  During both
the three-month periods ended September 30, 2010 and September 30, 2009, we
originated approximately $19.3 million $19.2 million in cash advance loans,
respectively.  Our average loan (including fees) totaled approximately
$366 and $361 during the three-month periods ended September 30, 2010 and 2009,
respectively. Our average fee for the three-month periods ended September 30,
2010 and 2009 was $54 and $53, respectively.




15





The
following table summarizes our revenues for the three months ended September 30,
2010 and 2009, respectively:




Three Months Ended
                              September 30,
                            
                            Three Months Ended
                              September 30,2010
                            
                            2009
                            
                            2010
                            
                            2009(percentage of revenues)Payday
      loan fees
                            $
                            2,834,253
                            
                            $
                            2,814,599
                            
                            
                            64.2
                            %
                            
                            61.6
                            %Phones
      and accessories
                            
                            766,310
                            
                            
                            1,186,550
                            
                            
                            17.3
                            %
                            
                            26.0
                            %Check
      cashing fees
                            
                            168,602
                            
                            
                            184,213
                            
                            
                            3.8
                            %
                            
                            4.0
                            %Other
      income and fees
                            
                            648,919
                            
                            
                            382,807
                            
                            
                            14.7
                            %
                            
                            8.4
                            %Total
                            $
                            4,418,084
                            
                            $
                            4,568,169
                            
                            
                            100.0
                            %
                            
                            100.0
                            %





Store
Expenses




Total
expenses associated with store operations for the three months ended September
30, 2010 were $3.27 million, compared to $3.62 million for the three months
ended September 30, 2009, or a 9.7% reduction for the interim
periods.  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 and leasehold
improvements, amortization of intangible assets and other expenses associated
with store operations.





Overall,
our most significant decreases in store expenses for the three months ended
September 30, 2010 and 2009 related to salaries and benefits, phone and
accessories cost of sales, amortization of intangible assets, and other store
operation expenses.  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 $1.10 million
compared to $1.27 million for the periods ended September 30, 2010 and 2009,
respectively. We expect salaries and benefits expenses to remain near the three
months ended September 30, 2010 level for the remainder of 2010.





Provisions
for Loan Losses. For the three months ended September 30, 2010, our provisions
for loan losses were $.40 million compared to $.45 million for the three months
ended September 30, 2009. Our provisions for loan losses represented
approximately 14.3% and 16.1% of our loan fee revenue for the three months ended
September 30, 2010 and 2009, respectively.  The more favorable loss
ratio year-to-year reflects our expanded collection efforts in the three months
ended September 30, 2010 compared to the three months ended September
30, 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 our total 2010 loan losses may be and how they
may differ from 2009.





Phone and
Accessories Cost of Sales.  For the three months ended September 30,
2010, our costs of sales were $.39 million compared to $.44 million for the same
period in 2009.  The decrease in our Cricket Wireless segment revenues
had a corresponding downward impact to our costs of sales.





Occupancy
Costs. Occupancy expenses, comprised mainly of store leases, were $.45 million
for the three months ended September 30, 2010 versus $.44 million for the three
months ended September 30, 2009.





Advertising.
Advertising and marketing expenses decreased from $.10 million for the three
months ended September 30, 2009 to $.09 million for the three months ended
September 30, 2010, a $.01 million or 10.2% 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 slightly to $.07 million for the three months ended September 30, 2010
and $.06 for the three months ended September 30, 2009.




Amortization
of Intangible Assets. Amortization of intangible assets decreased from $.18
million for the three months ended September 30, 2009 to $.13 million, or 27.8%,
for the three months ended September 30, 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.





Other
Store Expenses. Other expenses decreased to $.63 million for the three months
ended September 30, 2010 from $.67 million for the three months ended September
30, 2009.  The decrease was primarily due to a decrease in collection
costs, supplies, and other expenses related to store
operations.


16




General and Administrative
Expenses





Total
general and administrative costs for the three months ended September 30, 2010
were $.71 million compared to $.62 million for the period ended September 30,
2009. For the three months ended September 30, 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 September 30, 2010 and 2009
appears below:





Salaries
and Benefits. Salaries and benefits expenses for the three months ended
September 30, 2010 were $.40 million, a $.02 million increase from the $.38
million in such expenses during period ended September 30, 2009. The increase
was due to costs incurred under the new management bonus plan.





Interest.  Interest
expense for the three months ended September 30, 2010 was $.11 million compared
to $.08 million for the three months ended September 30,
2009.  Interest expense related to the WERCS loan and notes payable
for store acquisitions made during prior periods.





Other
General and Administrative Expenses. Other general and administrative expenses,
which includes professional fees for accounting and legal services, management
and consulting fees, utilities, office supplies, collection costs and other
minor costs associated with corporate headquarters activities, increased $.05
million or 31%, to $.21 million for the three months ended September 30, 2010
compared to $.16 million from the three months ended September 30, 2009. The
increase in these expenses is mainly attributable to management fees we began
incurring during 2010 and was partially offset by a reduction of nonrecurring
professional fees incurred in 2009.  We expect professional fees to
continue to remain stable or slightly increase throughout the remainder of 2010
due to ongoing litigation.  Management and consulting fees, which are
expected to recur, were $.10 million for the three months ended September 30,
2010.





Income Tax
Expense





Income
tax expense for the three months ended September 30, 2010 was $.17 million
compared to income tax expense of $.12 million for the three months ended
September 30, 2009, an effective rate of 38.2% and 38.5%,
respectively.





Results
of Operations - Nine Months Ended September 30, 2010 Compared to Nine Months
Ended September 30, 2009





For the
nine-month period ended September 30, 2010, net income was $.98 million compared
to net income of $.48 million for the nine months ended September 30, 2009.
During the nine months ended September 30, 2010, income from operations before
income taxes was $1.51 million compared to $.78 million for the nine months
ended September 30, 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 $13.2 million for the nine months ended September 30, 2010, compared to
$13.8 million for the nine months ended September 30, 2009. The decrease in
total revenues resulted from the following factors impacting the Cricket
Wireless division: a reduction in the number of phone and modem units sold,
which can be attributed to elevated sales in 2009 as Cricket rolled out new
markets, a lower average selling price per unit under Cricket’s new pricing
structure which took effect in all markets on August 3, 2010, sales of a higher
percentage of units under Cricket’s promotional programs, and the closing of
some Cricket store locations.  These programs have the effect of
decreasing the average per-unit selling price and gross revenues.  This was
partially offset by an increase in fees generated from accepting Cricket service
payments.  This trend is expected to continue due to Cricket’s changes
to its retail pricing structure and compensation structure for
dealers.  During the nine-month period ended September 30, 2010, we
generated $3.06 million in phone and accessory sales compared to $4.16 million
for the nine-month period ended September 30, 2009.





A
decrease in check cashing fees in the 2010 interim period also contributed to
the decrease in total revenues.  Loan fees for the 2010 interim period
remained consistent with 2009.  During the nine-month period ended
September 30, 2010, we originated approximately $53.05 million in cash advance
loans compared to $53.51 million during the 2009 interim period. Our average
loan (including fees) totaled approximately $366 and $364 during the nine-month
periods ended September 30, 2010 and 2009, respectively. Our average fee for
both nine-month periods ended September 30, 2010 and 2009 was $54.




17


The
following table summarizes our revenues for the nine months ended September 30,
2010 and 2009, respectively:




Nine Months Ended
                                September 30,
                              
                              Nine Months Ended
                                September 30,2010
                              
                              2009
                              
                              2010
                              
                              2009(percentage of revenues)Payday
      loan fees
                              
                              $
                              7,865,541
                              
                              $
                              7,872,094
                              
                              
                              59.5
                              %
                              
                              57.1
                              %Phones
      and accessories
                              
                              
                              3,058,853
                              
                              
                              4,163,525
                              
                              
                              23.1
                              %
                              
                              30.2
                              %Check
      cashing fees
                              
                              
                              565,787
                              
                              
                              646,863
                              
                              
                              4.3
                              %
                              
                              4.7
                              %Other
      income and fees
                              
                              
                              1,732,630
                              
                              
                              1,107,072
                              
                              
                              13.1
                              %
                              
                              8.0
                              %Total
                              
                              $
                              13,222,811
                              
                              $
                              13,789,554
                              
                              
                              100
                              %
                              
                              100
                              %





Store
Expenses




Total
expenses associated with store operations for the nine months ended September
30, 2010 were $9.52 million, compared to $10.84 million for the nine months
ended September 30, 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 nine months ended
September 30, 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, salaries and benefits related to our store employees,
and phone and accessories cost of sales.  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 $3.48 million
compared to $3.85 million for the periods ended September 30, 2010 and 2009,
respectively. We expect future salaries and benefits expenses to be consistent
with 2010 levels.





Provisions
for Loan Losses. For the nine months ended September 30, 2010, our provisions
for loan losses were $.90 million compared to $1.14 million for the nine months
ended September 30, 2009. Our provisions for loan losses represented
approximately 11.4% and 14.5% of our loan fee revenue for the nine months ended
September 30, 2010 and 2009, respectively. The more favorable loss ratio
year-to-year reflects our expanded collection efforts in the nine months ended
September 30, 2010 compared to the nine months ended September 30, 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 our
total 2010 loan losses may be and how they may differ from 2009.





Phone and
Accessories Cost of Sales.  For the nine months ended September 30,
2010, our costs of sales decreased to $1.11 million compared to $1.77 million
for the same period in 2009.  The decrease in our Cricket Wireless
segment revenues had a corresponding downward impact to our costs of
sales.  At September 30, 2010, we had 29 Cricket Wireless stores
compared to 35 at September 30, 2009.





Occupancy
Costs. Occupancy expenses, comprised mainly of store leases, were $1.42 million
for the nine months ended September 30, 2010 versus $1.20 million for the nine
months ended September 30, 2009. The increase in our occupancy expenses resulted
from less stores open throughout the entire period in 2009 compared to the
number of stores open throughout the entire recent period.





Advertising.
Advertising and marketing expenses decreased significantly from $.36 million for
the nine months ended September 30, 2009 to $.27 million for the nine months
ended September 30, 2010, a $.09 million or 25.0% 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 $.21 million for the nine months ended September 30, 2010 from $.19
million for the nine months ended September 30, 2009.  The 11.6%
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 $.54
million for the nine months ended September 30, 2009 to $.39 million, or a 27.8%
reduction, for the nine months ended September 30, 2010. Payday division expense
decreased due to intangible assets becoming fully amortized while the expense on
the Cricket division decreased due to amortization expense being lower each
subsequent year.


18





Other
Store Expenses. Other expenses were $1.75 million and $1.79 million for the nine
months ended September 30, 2010 and September 30, 2009,
respectively.





General and Administrative
Expenses





Total
general and administrative costs for the nine months ended September 30, 2010
were $2.19 million compared to $2.18 million for the period ended September 30,
2009. For the nine months ended September 30, 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 nine months ended September 30, 2010 and 2009
appears below:





Salaries
and Benefits. Salaries and benefits expenses for the nine months ended September
30, 2010 were $1.10 million, a $.09 million increase from the $1.01 million in
such expenses during period ended September 30, 2009. The increase was due to
costs incurred under the new management bonus plan.





Depreciation.
Depreciation for the nine months ended September 30, 2010 and 2009 was $.14
million and $0.18 million for the nine months ended September 30, 2010 and 2009,
respectively. Depreciation relates primarily to equipment and capital
improvements at the Company’s corporate headquarters.





Interest.  Interest
expense for the nine months ended September 30, 2010 and 2009 was $.30 million
and $.25  million for the nine months ended September 30, 2010 and
September 30, 2009, respectively.  Interest expense related to the
WERCS loan and notes payable for store acquisitions made during prior
periods.





Other
General and Administrative Expenses. Other general and administrative expenses,
which includes professional fees for accounting and legal services, management
and consulting fees, utilities, office supplies, collection costs and other
minor costs associated with corporate headquarters activities, decreased $.13
million or 14%, to $.78 million for the nine months ended September 30, 2010
compared to $.90 million from the nine months ended September 30, 2009. The
significant decrease in these expenses is mainly attributable to nonrecurring
professional fees incurred in 2009.  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. Management and consulting
fees, which are expected to recur, were $.20 million for the nine months ended
September 30, 2010.





Income Tax
Expense





Income
tax expense for the nine months ended September 30, 2010 was $.54 million
compared to income tax expense of $.29 million for the nine months ended
September 30, 2009, an effective rate of 36% and 38%, respectively.




Liquidity
and Capital Resources





Summary
cash flow data is as follows:


Nine Months Ended September
      30,2010
              
              2009Cash
      flows provided (used) by :Operating
      activities
              
              $
              1,778,895
              
              $
              1,304,619Investing
      activities
              
              
              (22,340
              )
              
              (2,619,266
              )Financing
      activities
              
              
              (1,863,105
              )
              
              (827,244
              )Net
      decrease in cash
              
              
              (106,550
              )
              
              (2,141,891
              )Cash,
      beginning of period
              
              
              1,526,562
              
              
              3,358,547Cash,
      end of period
              
              $
              1,420,012
              
              $
              1,216,656




At
September 30, 2010, we had cash of $1.42 million compared to cash of $1.53
million on December 31, 2009.  We believe that our available cash,
combined with expected cash flows from operations will be sufficient to fund our
liquidity and capital expenditure requirements through September 30, 2011. 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.


19




Because
of the constant threat of regulatory changes to the payday lending industry, we
believe it is unlikely we can secure debt financing from financial
institutions.  As a result, financing we may obtain from alternate
sources is likely to involve higher interest rates.





WERCS
Credit Facility





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 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 used for general working capital.  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 WFL 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.





Off-Balance
Sheet Arrangements




The
Company had no off-balance sheet arrangements as of September 30,
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
September 30, 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 September 30, 2010.





Changes in Internal Control
over Financial Reporting




There
were no changes in our internal control over financial reporting during the
quarter ended September 30, 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 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 sale by WERCS of its capital stock in the
Company to WCR, LLC.  The complaint seeks injunctive and declaratory
relief and unspecified money damages.  The Company believes the claims
are without merit.  While we are unable to predict the ultimate
outcome of these claims and proceedings, management currently 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.  After the filing of the
lawsuit, the Company removed the lawsuit to federal court and the plaintiffs
sought to remand the case back to state court.  On October 26, 2010,
the plaintiffs’ motion to remand the case to state court was denied by the
federal court.  The Company has filed a motion to dismiss the lawsuit
and such motion is currently being considered by the federal
court.


20




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 passed in Colorado, Wisconsin and Montana that
restricts certain payday lending practices.  During the 2010
legislative session in Colorado, House Bill 10-1351 was passed into law.
 This bill amended the Colorado Deferred Deposit Loan Act, the existing
payday lending law.  The law became effective August 11, 2010 and modifies
traditional payday lending by changing the single payment advance (with no
minimum term) into a single or multiple payment loan with a minimum six month
term.  It also limited the amount and type of fees that can be charged on
these loans, effectively reducing by one-half the fees that can be charged, and
when the fees may be realized.  At present, the Company continues to
operate its sole store in Colorado while the impact to profitability of this new
law is being assessed.  Currently, we derive 1.47% of our Payday
division revenues from fees in Colorado.  In Wisconsin, new
legislation effective January 1, 2011 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.  In
addition, payday lenders will be required to offer a 60-day, interest free,
payment plan to consumers upon maturity of their payday loans.  The
Company is still assessing the impact of these new Wisconsin laws. Our
preliminary projections indicate the changes could reduce revenue in the state
by 30% - 40%.  Currently, we derive 6.01% of our Payday division
revenues from fees in Wisconsin.  Finally, on November 2, 2010, voters
in Montana passed Petition Initiative I-164.  Effective January 1,
2011, Petition Initiative I-164 will cap fees on payday loans at an imputed
interest rate of 36%.  The Company is evaluating all options related
to its Montana operations, including discontinuing its payday loan operations in
that state.  Currently, 4.54% of the Company’s payday division
revenues come from fees derived in Montana.





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.




21




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
Committee on Financial Services.  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 July
2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed
by the U.S. Congress and signed into law.  Under the Act, a new
federal agency, the Consumer Financial Protection Bureau, will consolidate most
federal regulation of financial services offered to consumers and replaces the
Office of Thrift Supervision’s seat on the FDIC Board.  Almost all
credit providers, including mortgage lenders, providers of payday loans, other
nonbank financial companies, and banks and credit unions with assets over $10
billion, will be subject to new regulations.  While the Bureau does
not appear to have authority to make rules limiting interest rates or fees
charged, the scope and extent of the Bureau’s authority will nonetheless be
broad, and it is expected that the Bureau will address issues such as rollovers
or extensions of payday loans.  Future restrictions on the payday
lending industry could have serious consequences for the Company.





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 3. Defaults upon
Senior Securities





As of
September 30, 2010, the Company had an outstanding accrued but unpaid and
cumulated dividends on its Series A Convertible Preferred Stock aggregating to
$925,000.  Our Series A Convertible Preferred Stock ranks senior to
our common stock.




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Item 6.
Exhibits




Exhibit
                
                Description31.1
                
                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).




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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:
      November 12, 2010
                      Western
      Capital Resources, Inc.(Registrant)By:
                      /s/
      John QuandahlJohn
      QuandahlChief
      Executive Officer, Chief Operating Officer and
                        Interim
      Chief Financial
Officer




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