UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2007

EZCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware		74-2540145
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1901 Capital Parkway
Austin, Texas 78746
(Address of principal executive offices)
Registrant’s telephone number: (512) 314-3400

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

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

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by one record holder who is an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.

As of March 31, 2007, 38,277,642 shares of the registrant’s Class A Non-voting Common Stock, par value $.01 per share and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share were outstanding.

 

 

EZCORP, INC.
INDEX TO FORM 10-Q

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2007, March 31, 2006 and September 30, 2006			1
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2007 and 2006			2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2007 and 2006			3
Notes to Interim Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures about Market Risk			27
Item 4. Controls and Procedures			28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			29
Item 6. Exhibits			29
SIGNATURE			30
EXHIBIT INDEX			31
CERTIFICATIONS
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

		March 31,				March 31,
		2007				2006				September 30,
		(Unaudited)				(Unaudited)				2006
		(In thousands)
Assets:
Current assets:
Cash and cash equivalents		$	61,605			$	26,041			$	29,939
Pawn loans			43,109				39,044				50,304
Payday loans, net			3,314				1,507				2,443
Pawn service charges receivable, net			6,986				6,598				8,234
Credit service fees receivable, net			3,718				2,663				3,954
Payday loan fees receivable, net			616				250				426
Inventory, net			28,649				30,764				35,616
Deferred tax asset			7,150				10,629				7,150
Federal income taxes receivable			—				—				35
Prepaid expenses and other assets			5,373				4,014				3,907
Total current assets			160,520				121,510				142,008
Investment in unconsolidated affiliate			20,955				17,614				19,275
Property and equipment, net			30,967				27,124				29,447
Deferred tax asset, non-current			4,249				4,012				3,749
Other assets, net			3,720				3,471				3,379
Total assets		$	220,411			$	173,731			$	197,858
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable and other accrued expenses		$	18,594			$	16,576			$	22,579
Customer layaway deposits			2,168				2,147				1,890
Federal income taxes payable			1,104				1,035				—
Total current liabilities			21,866				19,758				24,469
Deferred gains and other long-term liabilities			3,067				3,430				3,249
Commitments and contingencies Stockholders’ equity:
Preferred Stock, par value $.01 per share; Authorized 5 million shares; none issued and outstanding			—				—				—
Class A Non-voting Common Stock, par value $.01 per share; Authorized 50 million shares; 38,304,741 issued and 38,277,642 outstanding at March 31, 2007; 36,626,154 issued and 36,599,055 outstanding at March 31, 2006; 37,542,240 issued and 37,515,141 outstanding at September 30, 2006			383				363				375
Class B Voting Common Stock, convertible, par value $.01 per share; 3 million shares authorized; 2,970,171 issued and outstanding			30				30				30
Additional paid-in capital			128,916				120,547				124,572
Retained earnings			63,930				29,197				43,973
			193,259				150,137				168,950
Treasury stock, at cost (27,099 shares)			(35	)			(35	)			(35	)
Accumulated other comprehensive income			2,254				441				1,225
Total stockholders’ equity			195,478				150,543				170,140
Total liabilities and stockholders’ equity		$	220,411			$	173,731			$	197,858

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

Condensed Consolidated Statements of Operations (Unaudited)

						Three Months Ended								Six Months Ended
						March 31,								March 31,
						2007				2006				2007				2006
						(In thousands, except per share amounts)
Revenues:
Sales						$	50,032			$	47,605			$	99,012			$	89,958
Pawn service charges							16,556				15,453				34,518				31,967
Credit service fees							20,041				14,451				42,068				29,873
Payday loan fees							2,672				1,103				5,040				2,255
Other							342				329				692				658
Total revenues							89,643				78,941				181,330				154,711
Cost of goods sold							30,374				28,337				60,197				53,998
Net revenues							59,269				50,604				121,133				100,713
Operating expenses:
Operations							31,104				28,076				62,492				54,551
Credit service bad debt							2,402				1,873				7,606				5,643
Payday loan bad debt							514				284				1,338				888
Administrative							7,968				6,695				15,495				13,517
Depreciation and amortization							2,401				2,136				4,699				4,259
Total operating expenses							44,389				39,064				91,630				78,858
Operating income							14,880				11,540				29,503				21,855
Interest income							(567	)			(90	)			(881	)			(90	)
Interest expense							83				131				147				353
Equity in net income of unconsolidated affiliate							(820	)			(673	)			(1,465	)			(1,188	)
Loss on sale / disposal of assets							—				23				24				8
Income before income taxes							16,184				12,149				31,678				22,772
Income tax expense							5,988				4,422				11,721				8,289
Net income						$	10,196			$	7,727			$	19,957			$	14,483
Net income per common share:
Basic						$	0.25			$	0.20			$	0.49			$	0.37
Diluted						$	0.23			$	0.19			$	0.46			$	0.35
Weighted average shares outstanding:
Basic							41,002				39,202				40,773				38,932
Diluted							43,445				41,514				43,347				40,937

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

Condensed Consolidated Statements of Cash Flows (Unaudited)

		Six Months Ended
		March 31,
		2007				2006
		(In thousands)
Operating Activities:
Net income		$	19,957			$	14,483
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			4,699				4,259
Payday loan loss provision			1,338				888
Deferred taxes			(500	)			(95	)
Net loss on sale or disposal of assets			24				8
Share-based compensation			1,664				891
Income from investment in unconsolidated affiliate			(1,465	)			(1,188	)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net			1,294				3,279
Inventory, net			1,053				7
Prepaid expenses, other current assets, and other assets, net			(1,519	)			(2,028	)
Accounts payable and accrued expenses			(3,999	)			(2,453	)
Customer layaway deposits			278				459
Deferred gains and other long-term liabilities			(182	)			(167	)
Excess tax benefit from stock-based compensation			(824	)			—
Federal income taxes			2,534				421
Net cash provided by operating activities			24,352				18,764
Investing Activities:
Pawn loans made			(92,358	)			(85,782	)
Pawn loans repaid			55,464				53,718
Recovery of pawn loan principal through sale of forfeited collateral			50,003				46,337
Payday loans made			(19,110	)			(10,189	)
Payday loans repaid			16,903				9,437
Additions to property and equipment			(6,248	)			(4,385	)
Acquisitions, net of cash acquired			—				(1,590	)
Dividends from unconsolidated affiliate			826				601
Proceeds from sale of assets			—				15
Net cash provided by investing activities			5,480				8,162
Financing Activities:
Proceeds from exercise of stock options and warrants			1,293				1,947
Excess tax benefit from stock-based compensation			824				—
Debt issuance costs			(283	)			—
Net payments on bank borrowings			—				(7,000	)
Net cash provided by (used in) financing activities			1,834				(5,053	)
Change in cash and equivalents			31,666				21,873
Cash and equivalents at beginning of period			29,939				4,168
Cash and equivalents at end of period		$	61,605			$	26,041
Non-cash Investing and Financing Activities:
Pawn loans forfeited and transferred to inventory		$	44,089			$	46,122
Foreign currency translation adjustment		$	(1,029	)		$	321

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 2007

Note A: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Management has included all adjustments it considers necessary for a fair presentation. These adjustments are of a normal, recurring nature except for those related to an acquired business (described in Note C). The accompanying financial statements should be read with the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2006. The balance sheet at September 30, 2006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period balances have been reclassified to conform to the current presentation.

Our business is subject to seasonal variations, and operating results for the three and six-month periods ended March 31, 2007 (the “current quarter” and “current year-to-date period”) are not necessarily indicative of the results of operations for the full fiscal year.

Note B: Significant Accounting Policies

CONSOLIDATION: The consolidated financial statements include the accounts of EZCORP, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. We account for our 28% interest in Albemarle & Bond Holdings, plc using the equity method.

STOCK SPLIT: In November 2006, our Board of Directors approved a three-for-one stock split of our two classes of common stock to shareholders of record as of November 27, 2006. The additional shares were distributed on December 11, 2006. All shares and amounts per share in this report have been adjusted to reflect the split.

PAWN LOAN AND SALES REVENUE RECOGNITION: We record pawn service charges using the interest method for all pawn loans we believe to be collectible. We base our estimate of collectible loans on several factors, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following two to three months. Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our earnings and financial condition. If a pawn loan is not repaid, we value the forfeited collateral (inventory) at the lower of cost (pawn loan principal) or market (net realizable value) of the property. We record sales revenue and the related cost when this inventory is sold.

CREDIT SERVICE REVENUE RECOGNITION: We earn credit service fees when we assist customers in obtaining loans from unaffiliated lenders. We accrue the percentage of credit service fees we expect to collect. Accrued fees related to defaulted loans reduce credit service fee revenue upon loan default, and increase credit service fee revenue upon collection.

CREDIT SERVICE BAD DEBT: As part of our credit services, we issue a letter of credit to enhance the creditworthiness of our customers seeking loans from an unaffiliated lender. The letter of credit assures the lender that if the borrower defaults on the loan, we will pay the lender, upon demand, the principal and accrued interest owed it by the borrower plus any insufficient funds fee. We consider a loan defaulted if it has not been repaid or renewed by the maturity date. Although amounts paid under letters of credit may be collected later, we charge those amounts to bad debt upon default. We record recoveries under the letters of credit as a reduction of bad debt at the time of collection. Our credit service bad debt was $2.4 million, or 12.0% of credit service fee revenues for the current quarter. In the comparable 2006 period (the “prior year quarter”), credit service bad debt was $1.9 million, or 13.0% of fees in the period. Credit service bad debt was $7.6 million and $5.6 million, or 18.1% and 18.9% of credit service fee revenues for the current and prior year-to-date periods.

CREDIT SERVICE ALLOWANCE FOR LOSSES: We also provide an allowance for losses we expect to incur under letters of credit for loans that have not yet matured. The allowance is based on recent loan default experience adjusted for seasonal variations. It includes all amounts we expect to pay to the unaffiliated lenders upon loan default, including loan principal, accrued interest and insufficient funds fees, net of the amounts we expect to collect from borrowers (“Expected LOC Losses”). Changes in the allowance are charged to credit service bad debt expense. We include the balance of Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheet. At March 31, 2007, the allowance for Expected LOC Losses was $0.6 million. At that date, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none was collected, was $17.9 million. This amount includes principal, interest and insufficient funds fees. Based on the expected loss and collection percentages, we also provide an allowance for the credit service fees we expect not to collect, and charge changes in this allowance to credit service fee revenue.

PAYDAY LOAN REVENUE RECOGNITION: We accrue fees on the percentage of payday loans we believe to be collectible using the interest method. Accrued fees related to defaulted loans reduce fee revenue upon loan default, and increase fee revenue upon collection.

PAYDAY LOAN BAD DEBT: We consider a loan defaulted if it has not been repaid or renewed by the maturity date. Although defaulted loans may be collected later, we charge the loan principal to bad debt upon default, leaving only active loans in the reported balance. We record collections of principal as a reduction of bad debt when collected. Our payday loan bad debt was $0.5 million, or 19.2% of payday loan fees for the current quarter. In the prior year quarter, payday loan bad debt was $0.3 million, or 25.7% of fees in the period. Payday loan bad debt was $1.3 million and $0.9 million, or 26.5% and 39.4% of payday loan fees for the current and prior year-to-date periods.

PAYDAY LOAN ALLOWANCE FOR LOSSES: We also provide an allowance for losses on payday loans that have not yet matured and related fees receivable, based on recent loan default experience adjusted for seasonal variations. We charge any changes in the principal valuation allowance to bad debt. We record changes in the fee receivable valuation allowance to payday loan fee revenue.

INVENTORY: If a pawn loan is not redeemed, we record the forfeited collateral at cost. We do not record loan loss allowances or charge-offs on the principal portion of pawn loans, as they are fully collateralized. In order to state inventory at the lower of cost (specific identification) or market (net realizable value), we record an allowance for shrinkage and excess, obsolete or slow-moving inventory. The allowance is based on the type and age of merchandise and recent sales trends and margins. At March 31, 2007, the inventory valuation allowance was $3.6 million, or 11.2% of gross inventory. We record changes in the inventory valuation allowance as cost of goods sold.

INTANGIBLE ASSETS: Goodwill and other intangible assets having indefinite lives are not subject to amortization. They are tested for impairment each July 1, or more frequently if events or changes in circumstances indicate that they might be impaired. We recognized no impairment of our intangible assets in the current or prior year-to-date periods. We amortize intangible assets with definite lives over their estimated useful lives.

PROPERTY AND EQUIPMENT: Property and equipment is shown net of accumulated depreciation of $79.9 million at March 31, 2007.

VALUATION OF TANGIBLE LONG-LIVED ASSETS: We assess the impairment of tangible long-lived assets whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable. The following factors could trigger an impairment review: significant underperformance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy for the overall business; or significant negative industry trends. When we determine that the net recorded amount of tangible long-lived assets may not be recoverable, we measure impairment based on the excess of the assets’ net recorded amount over the estimated fair value. No impairment of tangible long-lived assets was recognized in the current or prior year-to-date periods.

INCOME TAXES: We calculate the provision for federal income taxes based on our estimate of the effective tax rate for the full fiscal year. As part of the process of preparing the financial statements, we estimate income taxes in each jurisdiction in which we operate. This involves estimating the actual current tax liability and assessing temporary differences in recognition of income for tax and accounting purposes. These differences result in

deferred tax assets and liabilities that we include in our balance sheet. We must then assess the likelihood that the deferred tax assets will be recovered from future taxable income. If we determined we would not be able to realize all or part of our net deferred tax assets in the future, an increase to the valuation allowance would be charged to the income tax provision in that period. Likewise, if we determined we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, a decrease to the valuation allowance would decrease the tax provision in that period. We assess the need for a deferred tax asset valuation allowance quarterly. Our valuation allowance was $0.4 million at March 31, 2007.

SHARE-BASED COMPENSATION: We account for share-based compensation in accordance with the fair value recognition provisions of SFAS No. 123(R), “Share-based Payment.” We estimate the grant-date fair value of options using the Black-Scholes-Merton option-pricing model and amortize that fair value to compensation expense on a straight-line basis over the options’ vesting periods.

SEGMENTS: We account for our operations in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Prior to October 1, 2006, we had a single reportable segment. Effective October 1, 2006, we reorganized our operations and internal reporting to manage it as two separate segments. See Note K for further discussion and separate data for each segment.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). To be recognized in the financial statements, FIN 48 requires that a tax position is more-likely-than-not to be sustained in an audit, based on the technical merits of the position. In making the determination of sustainability, we must presume the appropriate taxing authority with full knowledge of all relevant information will audit tax positions. FIN 48 also prescribes how the benefit should be measured, including the consideration of any penalties and interest. It requires that the new standard be applied to the balances of tax assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of retained earnings. We must adopt FIN 48 in the fiscal year ending September 30, 2008. We are evaluating the potential effect of FIN 48, but do not expect it to have a material effect on our financial position or results of operations. It will not impact our cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” Among other requirements, SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure about the use of fair value to measure assets and liabilities. We must adopt SFAS No. 157 in our fiscal year ending September 30, 2009. We are currently evaluating the impact, if any, of SFAS No. 157 on our financial position and results of operations. It will not impact our cash flows.

Note C: Acquisitions

We acquired three pawnshops in the fiscal year ended September 30, 2006. One was acquired in December 2005 for $1.6 million, and the other two were acquired in August 2006 for $0.6 million. The results of the acquired stores have been consolidated with our results since their acquisition. Pro forma results of operations have not been presented because the acquisitions were not material. In April 2007, we agreed to acquire fifteen pawn stores from a competitor. See Note L, “Subsequent Event,” for details.

Note D: Earnings Per Share

We have two classes of common stock and compute earnings per share using the two-class method in accordance with SFAS No. 128, “Earnings Per Share.” The holders of our Class A and Class B common stock have similar rights with the exception of voting rights, so earnings per common share for the two classes of common stock are the same.

We compute basic earnings per share on the basis of the weighted average number of shares of common stock outstanding during the period. We compute diluted earnings per share on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options, warrants and restricted stock awards.

Components of basic and diluted earnings per share are as follows (in thousands, except per share amounts):

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Net income (A)		$	10,196			$	7,727			$	19,957			$	14,483
Weighted average outstanding shares of common stock (B)			41,002				39,202				40,773				38,932
Dilutive effect of stock options, warrants, and restricted stock			2,443				2,312				2,574				2,005
Weighted average common stock and common stock equivalents (C)			43,445				41,514				43,347				40,937
Basic earnings per share (A/B)		$	0.25			$	0.20			$	0.49			$	0.37
Diluted earnings per share (A/C)		$	0.23			$	0.19			$	0.46			$	0.35

Anti-dilutive options, warrants and restricted stock grants have been excluded from the computation of diluted earnings per share because the assumed proceeds upon exercise, as defined by SFAS No. 123(R), were greater than the cost to re-acquire the same number of shares at the average market price, and therefore the effect would be anti-dilutive.

Note E: Investment in Unconsolidated Affiliate

We own 13,276,666 common shares of Albemarle & Bond Holdings, plc (“A&B”), or approximately 28% of the total outstanding shares. The investment is accounted for using the equity method. Since A&B’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. A&B files interim and annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our current year-to-date period ended March 31, 2007 represents our percentage interest in the results of A&B’s operations from July 1, 2006 to December 31, 2006.

Below is summarized financial information for A&B’s most recently reported results (using average exchange rates for the periods indicated):

		Six Months Ended December 31,
		2006				2005
		(in thousands)
Turnover (gross revenues)		$	32,853			$	26,391
Gross profit			23,631				18,207
Profit after tax (net income)			5,148				4,134

Note F: Contingencies

Currently and from time to time, we are defendants in legal and regulatory actions. While we cannot determine the ultimate outcome of these actions, after consultation with counsel, we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity. However, we cannot give any assurance as to their ultimate outcome.

Note G: Comprehensive Income

Comprehensive income includes net income and other revenues, expenses, gains and losses that are excluded from net income but are included as a component of total stockholders’ equity. Comprehensive income for the current quarter and current year-to-date periods ended March 31, 2007 was $10.8 million and $21.0 million. For the comparable 2006 periods, comprehensive income was $7.6 million and $14.2 million, respectively. The difference between comprehensive income and net income results from the effect of foreign currency translation adjustments determined in accordance with SFAS No. 52, “Foreign Currency Translation.” At March 31, 2007, the accumulated balance of foreign currency activity excluded from net income was $3.5 million, net of tax of $1.2 million. The net $2.3 million is presented as “Accumulated other comprehensive income” in the current quarter balance sheet.

Note H: Long-term Debt

We had no debt at March 31, 2007 and 2006. Our credit agreement provides for a $40.0 million revolving credit facility secured by our assets, and matures October 1, 2009. For any borrowed funds, we may choose a Eurodollar rate plus 100 to 200 basis points (depending on the leverage ratio) or the agent bank’s base rate. On the unused amount of the revolving facility, we pay a commitment fee of 25 to 30 basis points depending on the leverage ratio calculated at the end of each quarter. Terms of the agreement require, among other things, that we meet certain financial covenants. Payment of dividends and additional debt are allowed but restricted.

Note I: Goodwill and Other Intangible Assets

The following table presents the balance of each major class of indefinite-lived intangible asset at the specified dates:

		March 31, 2007				March 31, 2006				September 30, 2006
		(In thousands)
Pawn licenses		$	1,549			$	1,500			$	1,549
Goodwill			768				631				768
Total		$	2,317			$	2,131			$	2,317

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:

		March 31, 2007								March 31, 2006								September 30, 2006
		Carrying				Accumulated				Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization				Amount				Amortization
		(In thousands)
License application fees		$	345			$	(273	)		$	345			$	(242	)		$	345			$	(257	)
Real estate finders’ fees			556				(319	)			554				(302	)			556				(311	)
Non-compete agreements			398				(288	)			388				(267	)			398				(277	)
Total		$	1,299			$	(880	)		$	1,287			$	(811	)		$	1,299			$	(845	)

Total amortization expense from definite-lived intangible assets for the current quarter and year-to-date periods ended March 31, 2007 was approximately $17,000 and $35,000. For the comparable 2006 periods, amortization expense was approximately $17,000 and $34,000. The following table presents our estimate of amortization expense for definite-lived intangible assets for the next five fiscal years as of October 1, 2006 (in thousands):

Fiscal Year		Amortization Expense
2007		$	69
2008		$	68
2009		$	59
2010		$	44
2011		$	38

As acquisitions and dispositions occur in the future, amortization expense may vary from these estimates.

Note J: Common Stock, Warrants, Options, and Share-based Compensation

Our income includes the following share-based compensation expense, determined in accordance with the fair value provisions of SFAS No. 123(R):

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
		(in thousands)
Gross compensation cost		$	914			$	319			$	1,665			$	893
Income tax benefit			(315	)			(7	)			(536	)			(109	)
Share-based compensation cost, net of tax benefit		$	599			$	312			$	1,129			$	784

Stock option and warrant exercises resulted in the issuance of 667,953 shares of Class A Non-voting Common Stock in the current quarter for total proceeds of $1.1 million. For the current year-to-date period, 762,501 shares of Common Stock were issued for total proceeds of $1.3 million.

In September 2006, the Compensation Committee of our Board of Directors approved an award of 675,000 shares of restricted stock to our Chairman of the Board, and 945,000 shares of restricted stock to our Chief Executive Officer. The award was effective October 2, 2006. The cumulative market value of the two grants on the award date was $21 million, and 20% of the shares will vest every two years for a ten-year period if certain company performance requirements are achieved. If the bi-annual performance requirements are not met, the unvested shares will be added to subsequent vesting dates. In the event that the performance requirements for vesting are not achieved for any vesting date by the end of our fiscal year ending September 30, 2016, all unvested shares will be forfeited and cancelled.

In September 2006, the Compensation Committee of our Board of Directors approved an award of 137,250 shares of restricted stock to key individuals. The award was effective October 2, 2006. The shares will vest October 2, 2010, and the market value of the restricted stock on the award date was $1.8 million.

In November 2006, our Board of Directors approved a three-for-one stock split of our two classes of common stock to shareholders of record as of November 27, 2006. The additional shares were distributed on December 11, 2006. Shares and amounts per share in this report have been adjusted retroactively to reflect the split.

Note K: Operating Segment Information

Prior to October 1, 2006, we had a single reportable segment. Effective October 1, 2006, we reorganized our business and internal reporting to manage it as two reportable segments with operating results reported separately for each segment. The two reportable segments are:

	•		EZPAWN Operations: This segment offers pawn loans and related sales in all 282 of our EZPAWN stores and offers signature loans in seven EZMONEY stores and 80 of our EZPAWN stores.
	•		EZMONEY Operations: This segment offers signature loans in 362 of our EZMONEY stores.

There are no inter-segment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements. The following tables present operating segment information:

		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
		(in thousands)
Three Months Ended March 31, 2007:
Revenues:
Sales		$	50,032			$	—			$	50,032
Pawn service charges			16,556				—				16,556
Credit service fees			501				19,540				20,041
Payday loan fees			313				2,359				2,672
Other			342				—				342
Total revenues			67,744				21,899				89,643
Cost of goods sold			30,374				—				30,374
Net revenues			37,370				21,899				59,269
Operating expenses:
Operations expense			21,569				9,535				31,104
Credit service bad debt			91				2,311				2,402
Payday loan bad debt			62				452				514
Total operating expenses			21,722				12,298				34,020
Store operating income		$	15,648			$	9,601			$	25,249
Three Months Ended March 31, 2006:
Revenues:
Sales		$	47,605			$	—			$	47,605
Pawn service charges			15,453				—				15,453
Credit service fees			430				14,021				14,451
Payday loan fees			308				795				1,103
Other			329				—				329
Total revenues			64,125				14,816				78,941
Cost of goods sold			28,337				—				28,337
Net revenues			35,788				14,816				50,604
Operating expenses:
Operations expense			21,938				6,138				28,076
Credit service bad debt			123				1,750				1,873
Payday loan bad debt			57				227				284
Total operating expenses			22,118				8,115				30,233
Store operating income		$	13,670			$	6,701			$	20,371

		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
						(in thousands)
Six Months Ended March 31, 2007:
Revenues:
Sales		$	99,012			$	—			$	99,012
Pawn service charges			34,518				—				34,518
Credit service fees			1,078				40,990				42,068
Payday loan fees			668				4,372				5,040
Other			692				—				692
Total revenues			135,968				45,362				181,330
Cost of goods sold			60,197				—				60,197
Net revenues			75,771				45,362				121,133
Operating expenses:
Operations expense			43,311				19,181				62,492
Credit service bad debt			294				7,312				7,606
Payday loan bad debt			206				1,132				1,338
Total operating expenses			43,811				27,625				71,436
Store operating income		$	31,960			$	17,737			$	49,697
Six Months Ended March 31, 2006:
Revenues:
Sales		$	89,958			$	—			$	89,958
Pawn service charges			31,967				—				31,967
Credit service fees			652				29,221				29,873
Payday loan fees			749				1,506				2,255
Other			658				—				658
Total revenues			123,984				30,727				154,711
Cost of goods sold			53,998				—				53,998
Net revenues			69,986				30,727				100,713
Operating expenses:
Operations expense			42,656				11,895				54,551
Credit service bad debt			225				5,418				5,643
Payday loan bad debt			297				591				888
Total operating expenses			43,178				17,904				61,082
Store operating income		$	26,808			$	12,823			$	39,631

The following table reconciles store operating income, as shown above, to our consolidated income before income taxes:

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
		(in thousands)
Consolidated store operating income		$	25,249			$	20,371			$	49,697			$	39,631
Depreciation and amortization			2,401				2,136				4,699				4,259
Administrative expenses			7,968				6,695				15,495				13,517
Interest income			(567	)			(90	)			(881	)			(90	)
Interest expense			83				131				147				353
Equity in net income of unconsolidated affiliate			(820	)			(673	)			(1,465	)			(1,188	)
Loss on sale / disposal of assets			—				23				24				8
Consolidated income before income taxes		$	16,184			$	12,149			$	31,678			$	22,772

The following table presents separately identified segment assets:

		EZPAWN				EZMONEY
		Operations				Operations				Consolidated
		(in thousands)
Assets at March 31, 2007:
Pawn loans		$	43,109			$	—			$	43,109
Payday loans, net			465				2,849				3,314
Inventory, net			28,649				—				28,649
Total separately identified recorded segment assets		$	72,223			$	2,849			$	75,072
Brokered loans outstanding from unaffiliated lenders		$	411			$	16,474			$	16,885
Assets at March 31, 2006:
Pawn loans		$	39,044			$	—			$	39,044
Payday loans, net			410				1,097				1,507
Inventory, net			30,764				—				30,764
Total separately identified recorded segment assets		$	70,218			$	1,097			$	71,315
Brokered loans outstanding from unaffiliated lenders		$	355			$	11,685			$	12,040
Assets at September 30, 2006:
Pawn loans		$	50,304			$	—			$	50,304
Payday loans, net			489				1,954				2,443
Inventory, net			35,616				—				35,616
Total separately identified recorded segment assets		$	86,409			$	1,954			$	88,363
Brokered loans outstanding from unaffiliated lenders		$	553			$	17,657			$	18,210

Brokered loans outstanding from unaffiliated lenders, a term not defined by generally accepted accounting principles, are not recorded as an asset on our balance sheet, as we do not own a participation in the loans made by these lenders. We monitor the principal balance of these loans, as our credit service fees and bad debt are directly related to their volume due to the letters of credit we issue to secure these amounts. The balance shown above is the gross principal balance of the loans outstanding.

Note L: Subsequent Event

In April 2007, we announced our plans to acquire fifteen additional pawn stores from a competitor in Colorado for approximately $23 million cash. We expect the transaction to be completed in June 2007 following customary due diligence procedures and obtaining new leases or lease assignments and necessary licenses.

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

The discussion in this section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in this section and throughout this report.

Second Quarter Ended March 31, 2007 vs. Second Quarter Ended March 31, 2006

The following table presents selected, unaudited, consolidated financial data for our three-month periods ended March 31, 2007 and 2006 (“current quarter” and “prior year quarter”):

		Three Months Ended March 31,								Percentage
		2007				2006				Change
		(Dollars in thousands)
Net revenues:
Sales		$	50,032			$	47,605				5.1	%
Pawn service charges			16,556				15,453				7.1	%
Credit service fees			20,041				14,451				38.7	%
Payday loan fees			2,672				1,103				142.2	%
Other			342				329				4.0	%
Total revenues			89,643				78,941				13.6	%
Cost of goods sold			30,374				28,337				7.2	%
Net revenues		$	59,269			$	50,604				17.1	%
Net income		$	10,196			$	7,727				32.0	%

Six Months Ended March 31, 2007 vs. Six Months Ended March 31, 2006

The following table presents selected, unaudited, consolidated financial data for our six-month periods ended March 31, 2007 and 2006 (“current year” and “prior year”):

		Six Months Ended March 31,								Percentage
		2007				2006				Change
		(Dollars in thousands)
Net revenues:
Sales		$	99,012			$	89,958				10.1	%
Pawn service charges			34,518				31,967				8.0	%
Credit service fees			42,068				29,873				40.8	%
Payday loan fees			5,040				2,255				123.5	%
Other			692				658				5.2	%
Total revenues			181,330				154,711				17.2	%
Cost of goods sold			60,197				53,998				11.5	%
Net revenues		$	121,133			$	100,713				20.3	%
Net income		$	19,957			$	14,483				37.8	%

Consolidated signature loan data (combined payday loan and credit service activities) are as follows:

		Three Months Ended March 31,								Six Months Ended March 31,
		2007				2006				2007				2006
		(Dollars in thousands)
Fee revenue		$	22,713			$	15,554			$	47,108			$	32,128
Bad debt:
Net defaults, including interest on brokered loans			3,260				2,568				8,660				6,822
Insufficient funds fees, net of collections			172				191				457				517
Change in valuation allowance			(599	)			(627	)			(300	)			(867	)
Other related costs			83				25				127				59
Net bad debt			2,916				2,157				8,944				6,531
Fee revenue less bad debt		$	19,797			$	13,397			$	38,164			$	25,597
Average signature loan balance outstanding during period (a)		$	21,075			$	14,600			$	21,043			$	14,737
Signature loan balance at end of period (a)		$	20,199			$	13,547			$	20,199			$	13,547
Participating stores at end of period			449				346				449				346
Signature loan bad debt, as a percent of fee revenue			12.8	%			13.9	%			19.0	%			20.3	%
Net default rate (a) (b)			2.9	%			3.3	%			3.7	%			4.2	%

Overview

We lend or provide credit services to individuals who do not have cash resources or access to credit to meet their short-term cash needs. We offer pawn loans in 280 domestic EZPAWN stores and two Mexico EZPAWN stores open at March 31, 2007. Pawn loans are non-recourse loans collateralized by tangible personal property. At these stores, we also sell merchandise, primarily collateral forfeited from our pawn lending operations, to customers looking for good value. In 369 EZMONEY stores and 80 of our domestic EZPAWN stores open March 31, 2007, we offer short-term non-collateralized loans, often called payday loans, or fee-based credit services to customers seeking loans (collectively, “signature loans”).

In April 2007, we announced our plans to acquire fifteen additional pawn stores from a competitor in Colorado, and expect that purchase to be completed in June 2007.

We manage our business as two segments. The EZPAWN Operations segment offers pawn related activities in all 282 EZPAWN stores, and offers signature loans in 80 EZPAWN stores and seven EZMONEY stores. The EZMONEY Operations segment offers signature loans in 362 EZMONEY stores, and accounts for approximately 96% of our consolidated signature loan revenues. The following tables present store data by operating segment:

		Three Months Ended March 31, 2007
		EZPAWN Operations				EZMONEY Operations				Consolidated
Stores in operation:
Beginning of period			288				333				621
New openings			1				30				31
Acquired			—				—				—
Sold, combined, or closed			—				(1	)			(1	)
End of period			289				362				651
Average number of stores during the period			289				344				633

		Six Months Ended March 31, 2007
		EZPAWN Operations				EZMONEY Operations				Consolidated
Stores in operation:
Beginning of period			287				327				614
New openings			2				37				39
Acquired			—				—				—
Sold, combined, or closed			—				(2	)			(2	)
End of period			289				362				651
Average number of stores during the period			288				338				626
Composition of ending stores:
EZPAWN — United States			280				—				280
EZPAWN — Mexico			2				—				2
EZMONEY signature loan stores adjoining EZPAWNs			7				157				164
EZMONEY signature loan stores — free standing			—				205				205
Total stores in operation			289				362				651
Total stores offering signature loans			87				362				449

		Three Months Ended March 31, 2006
		EZPAWN Operations				EZMONEY Operations				Consolidated
Stores in operation:
Beginning of period			288				235				523
New openings			—				22				22
Acquired			—				—				—
Sold, combined, or closed			—				(1	)			(1	)
End of period			288				256				544
Average number of stores during the period			288				246				534

		Six Months Ended March 31, 2006
		EZPAWN Operations				EZMONEY Operations				Consolidated
Stores in operation:
Beginning of period			287				227				514
New openings			—				30				30
Acquired			1				—				1
Sold, combined, or closed			—				(1	)			(1	)
End of period			288				256				544
Average number of stores during the period			288				242				529
Composition of ending stores:
EZPAWN — United States			281				—				281
EZPAWN — Mexico			—				—				—
EZMONEY signature loan stores adjoining EZPAWNs			7				158				165
EZMONEY signature loan stores — free standing			—				98				98
Total stores in operation			288				256				544
Total stores offering signature loans			90				256				346

We earn pawn service charge revenue on our pawn lending. While allowable service charges vary by state and loan size, a majority of our pawn loans are in amounts that allow 20% per month, or 240% annually. Our average pawn loan amount typically ranges between $80 and $90 but varies depending on the valuation of each item pawned. The total loan term, consisting of the primary term and grace period, ranges between 60 and 120 days.

We began reducing the total loan term on pawn loans from 90 days to 60 days in 67 of our pawn stores in August 2005 and another 148 in November 2005. Forty-three stores had previously made the change. We estimate this change reduced our pawn portfolio approximately 15% for the loans in these stores that were between 60 and 90 days old, with very little or no impact on pawn service charge revenues. This change also created a one-time doubling of forfeitures as loans made 90 and 60 days earlier simultaneously forfeited for a 30-day period, resulting in a higher level of inventory available for sale (beginning inventory plus forfeitures and purchases). In the 67 stores converted in August 2005, we experienced this doubling of forfeitures as loans matured in the quarter ended December 31, 2005. In the 148 stores converted in November 2005, we experienced this doubling of forfeitures as loans matured during the quarter ended March 31, 2006.

In our pawnshops, we acquire inventory for retail sales through pawn loan forfeitures and, to a lesser extent, through purchases of customers’ merchandise. The gross profit on sales of inventory depends primarily on our assessment of the resale value at the time the property is either accepted as loan collateral or purchased. Improper assessment of the resale value in the lending or purchasing process can result in lower margins or reduced marketability of the merchandise.

At March 31, 2007, 252 of our 369 EZMONEY stores and 50 of our 282 pawn stores offered credit services to customers seeking loans from unaffiliated lenders. We do not participate in the loans made by the lenders, but typically earn a fee of 20% of the loan amount for helping customers obtain credit and for enhancing customers’ creditworthiness by providing letters of credit. We also offer a free service to improve or establish customers’ credit histories by reporting their payments to an external credit-reporting agency. Loans obtained by our credit service customers average approximately $500 and the loan term is generally less than 30 days, averaging about 17 days.

We earn payday loan fee revenue on our payday loans. In 147 stores, we make payday loans subject to state law. The average payday loan amount is approximately $400 and the term is generally less than 30 days, averaging about 18 days. We typically charge a fee of 15% to 22% of the loan amount for a 7 to 23-day period. Through December 2005, we also marketed and serviced payday loans made by County Bank of Rehoboth Beach in some of our stores. We could purchase a 90% participation in the County Bank loans we marketed. As of December 31, 2005, County Bank discontinued its payday loan program. Most of our stores previously marketing County Bank loans now provide credit services to customers in obtaining loans from unaffiliated lenders.

In the current quarter, the EZPAWN Operations segment contributed $2.0 million greater store operating income compared to the prior year quarter, including an increase in pawn service charges, an increase in the gross profit on sales and a reduction in operating expenses. Our EZMONEY Operations segment contributed $2.9 million greater store operating income, comprised of higher fees net of bad debt, somewhat offset by higher operating costs primarily at new stores. After an increase in administrative expenses, our consolidated net income improved to $10.2 million in the current quarter from $7.7 million in the prior year quarter.

Results of Operations

Second Quarter Ended March 31, 2007 vs. Second Quarter Ended March 31, 2006

The following discussion compares our results of operations for the quarter ended March 31, 2007 (the “current quarter”) to the quarter ended March 31, 2006 (the “prior year quarter”). The discussion should be read with the accompanying financial statements and related notes.

EZPAWN Operations Segment

The following table presents selected financial data for the EZPAWN Operations segment:

		Three Months Ended March 31,
		2007				2006
		(Dollars in thousands)
Sales		$	50,032			$	47,605
Pawn service charges			16,556				15,453
Credit service fees			501				430
Payday loan fees			313				308
Other			342				329
Total revenues			67,744				64,125
Cost of goods sold			30,374				28,337
Net revenues			37,370				35,788
Operating expenses:
Operations expense			21,569				21,938
Credit service bad debt			91				123
Payday loan bad debt			62				57
Total operating expenses			21,722				22,118
Store operating income		$	15,648			$	13,670
Other data:
Gross margin on sales			39	%			41	%
Annualized inventory turnover			3.8x				3.5x
Average pawn loan balance per pawn store at quarter end		$	153			$	139
Average inventory per pawn store at quarter end		$	102			$	109
Average yield on pawn loan portfolio			150	%			149	%
Pawn loan redemption rate			80	%			79	%
Average signature loan balance per store offering signature loans at quarter end (a)		$	10			$	8