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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


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

For the fiscal year ended June 30, 2005


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

For the transition period from ___to___

Commission File Number 0-20774

ACE CASH EXPRESS, INC.

(Exact name of registrant as specified in its charter)


Texas (State or other jurisdiction of incorporation or organization)		75-2142963 (IRS Employer Identification No.)


1231 Greenway Drive, Suite 600
Irving, Texas		75038
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) (972) 550-5000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered

None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes þ No 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 o

As of December 31, 2004, the aggregate market value of voting stock (based upon the last reported sales price on The Nasdaq Stock Market) held by nonaffiliates of the registrant was $342,041,167.

As of September 7, 2005, the number of shares of the Common Stock outstanding was 13,709,963.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III is incorporated by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

PART I

ITEM 1. BUSINESS

Overview

We began operations in 1968, and were incorporated as a Texas corporation in March 1982. We are a leading retailer of financial services, including check cashing, short-term consumer loans and bill payment services. As of June 30, 2005, we had a total network of 1,371 stores in 37 states and the District of Columbia, consisting of 1,142 company-owned stores and 229 franchised stores. This makes us the largest owner, operator and franchisor of check cashing stores in the United States and one of the largest providers of short-term consumer loans, also known as payday loans. We focus on serving unbanked and underbanked consumers, many of whom seek alternatives to traditional banking relationships in order to gain convenient and immediate access to check cashing services and short-term consumer loans. We seek to develop and maintain the largest network of stores in each of the markets where we operate. Our growth strategy is to open new stores, franchise stores in new and existing markets, opportunistically acquire stores, and introduce new services into our store network.

Our stores offer check cashing, loans and other retail financial services at competitive rates in clean settings during hours convenient for our customers. Our stores are located in highly visible, accessible locations, usually in strip shopping centers, free-standing buildings and kiosks located inside retail stores.

Our reportable segments are strategic business units that differentiate between company-owned and franchised stores. Company-owned store revenue is generated from customer-transaction processing in stores owned by the Company, and franchised store revenue is generated from the franchise fees charged for opening the franchised store and on-going royalty fees received from franchisees. For more information on our segment financial information, please see Note 2 to our Consolidated Financial Statements.

Website Access to Reports. Through our website at www.acecashexpress.com we provide free access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Forms 3, 4 and 5 filed by reporting persons, and all amendments thereto, as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. In addition, the Securities and Exchange Commission maintains a website that contains reports, proxy and information statements, and other information regarding the Company at www.sec.gov.

Industry Overview

Check Cashing. We operate primarily in the check cashing industry. We believe there are approximately 11,000 check cashing stores nationally, with five other check cashing companies operating or franchising over 100 stores and five companies operating or franchising between 50 and 100 locations.

Check cashing companies focus on and offer services to a customer segment that banks generally do not service and operate at locations and during hours that are typically more convenient than those traditionally offered by banks. In addition, unlike many banks, check cashing stores are willing, for a fee, to assume the risk that checks they cash will “bounce.” For instance, some banks will refuse to cash a check for a person who does not maintain an account with the bank. For account holders, some banks will require an account holder to maintain sufficient funds to cover a check to be cashed or to wait several days for the check to clear. As a result, we believe check cashing stores provide an attractive alternative to customers with relatively small account balances or without bank accounts. Although these customers might save money by depositing their checks in a bank and waiting for them to clear, many prefer paying a fee to take advantage of the convenience and availability of immediate cash offered by check cashing stores.

The fees charged for this service are intended to provide the check casher with a profit after covering operating expenses, including any interest expense incurred by the check casher on the funds advanced to customers, and for the risk assumed by the check cashing store. A check cashing store assumes the risk that the check will not be collected because of insufficient funds, stop payment orders or fraud. In order to minimize this risk and the losses associated with uncollected checks, many check cashing stores cash only payroll or government entitlement checks, or charge higher fees and have stricter approval procedures for cashing personal checks.

Short-Term Consumer Loans. Short-term consumer loans provide a customer cash in exchange for the customer’s check or an authorization to debit the customer’s bank account, along with an agreement to defer the deposit of that check or initiation of that debit to the customer’s bank account, as the case may be, until the customer’s next payday, typically two to four weeks later. If the customer returns to the store and repays the loan within that time period, the check is returned to the customer.

Short-term consumer loans provide a simple, quick and confidential way for consumers to meet short-term cash needs between paydays while avoiding the high cost of penalties associated with writing checks with insufficient funds and other penalties and fees associated with making a late payment. Until the development of the short-term consumer loan industry in the early 1990s, customers often resorted to writing bad checks as a short-term solution to meet immediate cash needs.

We believe there are currently over 22,000 short-term consumer loan stores operating in the United States. While the majority of these stores offer only the short-term consumer loan service, some of these stores also offer other services such as check cashing or pawn loans.

Other financial services. In addition to check cashing and short-term consumer loan services, most stores offer customers a range of other services, including bill payments, money orders and money transfers. Most stores also offer photocopying, fax transmission services and postage stamps.

Competitive Strengths

We offer a menu of retail financial services delivered through our growing network of 1,371 stores conveniently located in close proximity to where our customers live and work. We believe that our store employees provide a professional experience that our customers value, which allows us to better understand their present and future financial service needs. We intend to capitalize on the following competitive strengths in order to grow our company:

Focus on Customer Service. Treating our customers with respect is an integral part of our organizational culture. Unlike many of our competitors, all of our stores display an easy-to-read menu of our services, with costs and fees clearly stated, in order to help our customers make an informed purchasing decision. Additionally, many of our stores located in markets with large Hispanic populations display our services in both English and Spanish. Our customers also receive a receipt with each transaction that details the fees paid. Our store employees are trained to greet customers as they enter the store, assist them in an efficient and helpful manner and thank them for their business. Many of our employees have long-standing relationships with customers who use our services multiple times a year. We believe that providing prompt, friendly and knowledgeable service helps us achieve higher levels of customer satisfaction and generate higher visit frequency. We measure and track our customer service quality at the store and employee levels through customer calls made to our toll-free service line and our annual customer service survey.

Efficient Operating Model. We believe that our operating model and business practices position us to grow our revenues and increase profitability. In our fiscal year ended June 30, 2002, we introduced our Operational Goals program, a standardized set of best practices, to help ensure a clear and consistent benchmark would be used to evaluate the performance of our store employees. Our regional vice presidents, district managers and store employees continue to be focused on their achievement of these goals. We measure their performance on a daily, weekly, monthly and quarterly basis. Each year, we adjust our Operational Goals and our measurement targets to encourage continued improvement across our store base and maximize profitability.

Our Operational Goals for fiscal 2006 are to:

	•		provide quality customer service and take pride in our store appearance;

	•		reduce cash shortages in our stores;

	•		reduce forgeries;

	•		increase our in-store loan payoffs;

	•		reduce the number of times our stores open late or close early;

	•		properly staff our stores for peak schedules;

	•		increase the number of daily loan transactions;

	•		reduce overtime hours;

	•		increase the number of new customer transactions; and

	•		provide more customers with the ACE Prepaid Mastercard®.

Since implementing our Operational Goals, we have increased comparable store revenue and decreased store operating expenses, resulting in increased gross margin.

Proprietary Information Systems. To better service our customers and manage our stores in the most profitable manner, we have developed proprietary information systems, including a point-of-sale system and a management information system, designed for the efficient delivery of our financial services with the proper balance of corporate management. Our in-house information systems team has built a reliable and scalable technology infrastructure that will allow us to grow our business without significant additional capital expenditures. Our investment in information systems has allowed us to improve functionality, including:

	•		moving customers in and out of the store more quickly due to faster connectivity to our centralized risk management system;

	•		evaluating customer transaction patterns to improve our check cashing approval process;

	•		utilizing automated decision-making technology to reduce check cashing risk;

	•		monitoring daily revenue by service on a regional, store and employee basis;

	•		detecting and preventing fraud and other losses, including cash differences, forgery and employee theft;

	•		planning and managing optimal store cash levels and store personnel scheduling; and

	•		facilitating compliance with regulatory requirements.

By maintaining interactive and flexible information systems, we provide more services in a standardized and efficient manner, which we believe allows us to operate our stores with fewer personnel than many of our competitors.

Proven Acquisition Strategy. From 1991 to present, we grew from 181 to 1,142 company-owned stores, in large part, as a result of a disciplined acquisition strategy. Of our 1,142 stores, 451 were acquired in 111 separate transactions. Acquired stores are quickly integrated into our existing store base following the deployment of our proprietary point-of-sale system. By implementing our Operational Goals and information systems, we are typically able to increase revenue and gross margin in our acquired stores and to enhance the acquired stores’ service offerings. The average cost of converting an acquired store to an ACE store consists primarily of expenditures related to new signage, implementation of our point-of-sale system and minor store remodeling. We believe there are opportunities to continue to improve the results in some of our recently acquired stores.

Experienced Management Team. Our executive management team is a blend of company veterans and recent key additions that have experience in the check cashing industry as well as other retail-based businesses. These employees have demonstrated an ability to grow retail businesses profitably through new store openings, acquisitions and franchising. Jay Shipowitz, our Chief Executive Officer, who was promoted from President and Chief Operating Officer to Chief Executive Officer on July 1, 2004, has been with us since 1997 and has managed all areas of operations and finance during his tenure. Barry Barron, our Executive Vice President and Chief Operations Officer, has been with us since 2001 and has extensive experience operating company-owned and franchised restaurant locations. We believe that our executive management team’s experience has allowed us to deliver a consistent service offering to our customers, which in turn has generated higher levels of customer loyalty and positioned us to capitalize on future growth opportunities.

Growth Strategy

A key objective of our network growth strategy is to have the most locations in each market and to offer the broadest selection of financial services in our industry. We believe that by offering the convenience of high-density store locations, exceptional customer service and a broad suite of retail financial services, we will achieve a high level of customer satisfaction. The key elements of our growth strategy are as follows:

Open Company-Owned Stores. We have identified several key geographic areas or markets for the development of both ACE Cash Express stores as well as ACE Cash Advance stores. These markets were identified following a review of the country’s top standard metropolitan statistical areas and an internal evaluation of each market’s ability to support our store development program.

Specific trade areas are identified within each geographic market based upon our assessment of the area’s demographics and traffic patterns. Our real estate department then seeks to identify specific site locations within each trade area. The

specific site is then presented for approval to our Capital Approval Committee consisting of our President and Chief Executive Officer, Executive Vice President and Chief Operations Officer, and our Executive Vice President and Chief Financial Officer. The Capital Approval Committee bases its decision to approve a specific site and to pursue the development of a store on such factors as the terms of the lease, the visibility of the store, the capital cost of the proposed store and the trade area’s demographics.

We opened 80 company-owned stores in fiscal 2005 (including 20 ACE Cash Advance stores), compared to 53 stores in fiscal 2004 and 14 stores in fiscal 2003. Our company-owned store growth in fiscal 2003 was less than our historical new store growth primarily due to limitations on capital expenditures imposed by our bank credit agreement through March 31, 2003. Our current bank credit agreement enables us to pursue our company-owned store growth strategy more aggressively. We expect to open approximately 50 to 60 new ACE Cash Express company-owned stores and 50 to 60 ACE Cash Advance company-owned stores, with a net gain of approximately 70 to 100 company-owned stores after store closures, in fiscal 2006. We are still targeting an aggregate net gain of approximately 300 company-owned stores for the five-year period ending June 30, 2008.

A decision to close a store is typically based upon store performance or our inability to obtain favorable lease renewal terms. Company-owned stores are evaluated for closure during our quarterly business reviews and at the end of the store’s lease term or any renewals of the lease term. A landlord may also choose not to renew the lease at the end of its term. We closed 32 stores in fiscal 2005, 24 stores in fiscal 2004, and 28 stores in fiscal 2003. This represents 3%, 2%, and 3% of total company-owned stores as of June 30, 2005, 2004 and 2003, respectively.

Company-owned stores are sold infrequently. Company-owned stores that are sold are typically located in isolated geographic areas that do not fit into our overall strategic geographic development plans. We sold six stores in fiscal 2005, five stores in fiscal 2004, and 23 stores in fiscal 2003.

Continue Franchise Store Development. Our goal is to be the industry leader in offering quality franchising opportunities and exceptional support systems and services to existing and potential franchisees. We believe that by offering attractive investment opportunities and exceptional franchisee support systems and services, we will attract potential franchisees to partner with us rather than other franchisors.

Our franchise department seeks to locate franchised stores in geographic markets that are not designated for company-owned development. The franchise department targets specific trade areas within each geographic market and identifies potential franchisees within these trade areas. These potential franchisees are then contacted to determine their level of interest in developing an ACE Cash Express store. Potential franchisees interested in developing stores also contact the franchise department directly.

We opened 48 franchised stores in fiscal 2005, compared to 32 franchised stores in fiscal 2004 and 26 stores in fiscal 2003. As of June 30, 2005, we had 229 franchised stores and we believe our targeted markets will provide additional ACE franchise stores across the United States. Currently, we have franchise agreements for the development of over 100 new franchise stores.

A franchise agreement may be terminated if the franchisee does not comply with the franchise agreement. Subject to the terms of the franchise agreement, a franchisee may also elect to voluntarily close a store or leave the ACE system based upon a variety of factors specific to the individual franchisee. In either case, we consider these closed stores, whether or not the store actually closes or is re-branded. In fiscal 2005, one franchised store was closed, compared to 15 franchised stores in fiscal 2004 and eight franchised stores in fiscal 2003.

Pursue Opportunistic Acquisitions. A key element of our network growth strategy is to acquire existing check-cashing stores and to re-brand them as ACE Cash Express stores. Since 1991, we have acquired over 500 check-cashing stores. We have not acquired any monoline payday loan stores but may do so in the future.

Our evaluation of an acquisition candidate is based upon that store’s existing revenue and cash flow, our ability to introduce additional services enhancing revenue growth, our assessment of the store’s geographic market and its consistency with our strategic development plans and our expectation that we can introduce our proprietary information systems and Operational Goals to the store generating operating efficiencies.

A decision to acquire a store is reached following an assessment of the factors noted above and a financial review of our anticipated return on investment. Acquisitions requiring an investment of greater than $1 million are approved by our board of directors.

We believe that our extensive experience with acquisitions allows us to efficiently integrate acquired stores into our network. In fiscal 2005, we acquired 74 stores compared to 34 stores in fiscal 2004 and two stores in fiscal 2003.

Introduce New Services. In addition to our current broad service offering, we continuously evaluate new services for possible introduction into our stores. For example, in fiscal 2002, we entered into a written agreement with NetSpend Corporation, a prepaid payments company, whereby we offer prepaid debit cards in our stores. The MasterCard® prepaid debit card offered through NetSpend allows our customers to “load” cash onto these cards and use them wherever MasterCard debit cards are accepted. Pursuant to our agreement, we receive from the customer a portion of the purchase price of the cards and a convenience fee for loads on the cards. In addition, we receive from NetSpend an additional portion of the purchase price of the card and commissions based on the aggregate amount loaded or direct deposited on the cards, the number of purchases or ATM withdrawal transactions made with the cards and account maintenance and subscription fees paid by the customer. Our agreement with NetSpend expires on March 31, 2007, and will automatically renew for one year periods thereafter absent 365 days’ prior notice by either of the parties. Either party may terminate the agreement at an earlier date if the non-terminating party (i) fails to pay to the terminating party amounts when due, (ii) fails to timely cure a default under the agreement or (iii) is bankrupt or insolvent. During fiscal 2005, we and our franchisees sold approximately 187,000 cards and loaded a total face value of more than $575 million. Revenues generated under this NetSpend agreement during fiscal 2005, 2004, and 2003 were $7.3 million, $4.6 million, and $2.7 million, respectively, which represents 2.7%, 1.9%, and 1.2% of our net revenues for such periods, and are included in Bill Pay revenue. We believe that our distribution network, with 1,371 network stores in 37 states and the District of Columbia, makes us an ideal partner for financial service companies seeking to gain immediate access to our customer base. Our distribution network allows us to offer our customers new services through third parties, without incurring the costs associated with a proprietary research and development process.

Continue Comparable Store Revenue Growth. We believe we have an opportunity to continue comparable store revenue growth. To increase comparable store revenues, we employ a variety of advertising and marketing programs, with a focus on in-store programs that allow us to combine the selling efforts of store personnel with various selling messages displayed on point-of-purchase material. We also employ seasonal marketing campaigns around specific annual events, such as a loan program around the holidays and a tax season promotion at the beginning of the calendar year. In addition to adding new services, we seek to attract additional customers. For example, we recognize the importance of the growing Hispanic demographic and have designed specific advertising and point-of-purchase materials to meet their needs.

Improve Operating Efficiency. As our business grows, we seek to further improve our operating efficiency. We have outlined a list of Operational Goals to maximize the profitability potential of our stores. Our employees are evaluated and compensated, in part, based on their achievement of these goals, which we adjust each year to account for the continued improvement in our business. We believe that by focusing on these specific goals and tying them to employee compensation, we can further enhance the operating efficiency of our stores as well as overall operating margins. As a result of continued improvement in our operating model, we increased our gross margin during fiscal 2005 as compared to fiscal 2004.

Our Customers

We primarily serve the nation’s approximately 60 million unbanked and underbanked individuals with services to help them manage their day-to-day financial needs. Our customers generally do not participate in the traditional banking and financial services system and require alternative solutions to gain convenient and immediate access to cash, short-term consumer loans, bill payments, money transfers and prepaid debit cards.

Our customer profile is diverse. Based on a survey of our customers, we believe the demographic composition of our customer base to be as follows:

	•		approximately 50% Caucasian; 25% Hispanic; 20% African American; 5% Other;

	•		a majority ranging in age from 25 to 45;

	•		an average household annual income of approximately $30,000, with approximately 40% above $40,000;

	•		approximately half are male and half are female, with our check cashing customers skewed towards younger males and our short-term consumer loan customers skewed towards older females;

	•		generally rent their housing and move more frequently than the national average; and

	•		pay bills with walk-in payments or money orders.

We believe that the Hispanic population, while an estimated 25% of our customer base today, offers significant growth potential for us. According to the U.S. Census Bureau, Hispanics are the largest minority group in the United States, numbering approximately 39 million and representing the fastest growing demographic segment in the United States, with 58% population growth between 1990 and 2000.

Our Services

We offer convenient, fee-based services to meet the needs of our customers, including check cashing, short-term consumer loans, bill payment, money transfer and money order services and other retail financial services. The following table reflects the major categories of services that we currently offer and the revenues from these services for the indicated fiscal years:


	Fiscal Year Ended June 30,
	2005		2004		2003
	(in thousands)
Check cashing	$	131,619	$	129,194	$	125,703
Short-term consumer loans		91,793		77,029		70,806
Bill payments		20,266		16,961		13,507
Money transfers		11,868		11,136		10,898
Money orders		6,875		6,330		6,960
Franchising		3,180		2,774		2,346
Other fees		3,048		3,235		4,069

Total revenue	$	268,649	$	246,659	$	234,289

Check cashing. Our primary business is cashing checks for a fee. We primarily cash payroll checks, but we also cash government assistance, tax refund and insurance checks or drafts. Subject to market conditions at different locations, our check cashing fees for payroll checks are approximately 2.3% of the face amount of the check, and this fee is deducted from the cash returned to the customer. We may charge higher rates for cashing out-of-state checks, handwritten checks, money orders and insurance checks or drafts, depending on risk and market factors. Unlike many of our competitors, 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.

During fiscal 2005, our company-owned stores cashed approximately 13.3 million checks with an aggregate face amount of approximately $5.3 billion. The face amount of the average check was $396 and our average fee per check was $9.98, or 2.5%, of the average check.

The full amount of the check fee is recognized as revenue at the time of the transaction with no allowance for anticipated returned checks. If a check cashed by us is returned for any reason, we record the face amount of the check (which includes the check fee) as a loss in the period in which it is returned in other store expenses. We then transfer the check to our collection department, which contacts the maker and payee of each returned check to initiate the collection process. Our collection department utilizes a proprietary automated tracking system to monitor the status of all returned items. The percent of check fee revenue attributable to returned checks was 0.11%, 0.15%, and 0.14% for the fiscal years ended June 30, 2005, 2004 and 2003, respectively.

Short-term consumer loans. We are engaged in the short-term consumer loan business because we believe that many consumers have limited access to other sources of consumer credit. In general, the short-term consumer loans offered at our stores involve providing a customer with cash in exchange for the customer’s check or an authorization to debit the customer’s bank account, along with an agreement to defer the deposit of that check or the initiation of that debit on the customer’s account, as the case may be, for a term of 14 days and in some cases until the customer’s next payday, typically two to four weeks later. If the customer returns to the store and repays the loan, we return the check to the customer. If the customer fails to repay the loan, we deposit the check or debit the customer’s checking account. If the check is returned or the debit is rejected for insufficient funds or any other reason, we contact the customer and initiate collection efforts. Customers must have a checking account in order to apply for a short-term consumer loan.

The amount of the customer’s check or debit authorization is the amount of the cash provided to the customer plus our fee. Our short-term consumer loans are authorized by statute or rule in the states in which we offer them and are subject to extensive regulation. The scope of that regulation, including the terms on which short-term consumer loans may be made, by the states is not consistent. All states in which we offer short-term consumer loans establish maximum allowable fees and other charges to consumers for these short-term consumer loans. In addition, many of the states regulate the maximum amount, maturity and renewal or extension of these short-term consumer loans. To comply with the laws and regulations of

the states in which short-term consumer loans are offered at our stores, the terms of our short-term consumer loans must vary from state to state. As required, we are licensed to offer short-term consumer loans under the laws and regulations of the states.

Since January 1, 2003, all of the short-term consumer loans offered at our company-owned stores have consisted of either short-term consumer loans made by us or short-term consumer loans made by Republic Bank & Trust Company, a Kentucky state-chartered bank. As of June 30, 2005, we were offering short-term consumer loans in 621 of our owned stores and Republic Bank was offering short-term consumer loans in 427 of our company-owned stores in Texas, Pennsylvania and Arkansas. As of June 30, 2005, we did not offer short-term consumer loans in 92 of our company-owned stores in Georgia, Maryland and North Carolina due to an unfavorable regulatory environment in those states. During the fiscal year ended June 30, 2005, we made approximately 1.6 million short-term consumer loans and Republic Bank made approximately 578,000 short-term consumer loans through our stores. The average advance provided to a customer in our short-term consumer loan transactions was $277 and the average finance charge paid to us was $41.17. The average advance provided to a customer by Republic Bank loan made through our stores was $319 and the average finance charge was $56.30. As of June 30, 2005, the gross receivable for short-term consumer loans made by us was approximately $31.8 million. In addition, we are obligated to pay Republic Bank for loan losses in an amount up to the total outstanding amount of Republic Bank loans recorded on Republic Bank’s financial statements, which was $10.7 million as of June 30, 2005.

For the short-term consumer loans we offer, the customer’s application data is electronically transmitted to our centralized computer system, which scores the loan with a proprietary loan-scoring system. An approval or denial is communicated back to the store, where the required loan documentation or adverse action form is printed for the customer. Loans made by Republic Bank are scored in a similar process, but Republic Bank is responsible for reviewing each loan application and determining whether such application is approved for a loan. We are not involved in the loan approval process or the determination of the Republic Bank loan approval procedures or criteria. For our fiscal year ended June 30, 2005, our provision for loan losses, including our accrual for anticipated payments to Republic Bank for losses on their loans, as a percentage of matured loan volume (which represents all loans which became due and payable during the reporting period) for our loans and for Republic Bank loans combined was 4.4%, compared to 4.7% for fiscal 2004. At the end of each fiscal quarter, we analyze the loan loss provision, our loan loss allowance and the accrued liability to Republic Bank, that has been computed to determine if our estimates of the allowance and liability are adequate based on our understanding of past loan loss experience, current economic conditions, volume and growth of the loan portfolios, timing of maturity, as well as collections experience.

On March 1, 2005, the Federal Deposit Insurance Corporation, or FDIC, issued revised Guidelines for Payday Lending which provide guidance to banks that engage in payday lending, and include a requirement that such banks develop procedures to ensure that a payday loan is not provided to any customer with payday loans outstanding from any lender for more than three months in the previous 12 months. The revised FDIC guidelines became effective on July 1, 2005, and affect the loans offered at our stores by Republic Bank. In fiscal 2006, we have introduced two new loan products to our Texas customers and one new loan product to our customers in Arkansas and Pennsylvania that provide alternatives to the loan product offered by Republic Bank. These new loan products will provide consumers who exceed the maximum allowable payday loans under the revised FDIC guidelines access to the credit they require.

In our stores in Texas, Arkansas and Pennsylvania, commencing August 1, 2005, we began offering a 20-week, 10-payment installment loan product made by the First Bank of Delaware to customers that have reached the limits outlined by the FDIC guidelines. In our stores in Texas, commencing on July 1, 2005, we began offering customers who do not qualify for either the Republic Bank loan or the First Bank of Delaware loan a 32-day, single-installment loan permitted under Texas law.

Bill payments. Our stores serve as payment locations for customers to pay many of their utility, telephone and other bills to third parties and also serve as a distribution point for bank-issued prepaid debit cards.

Upon acceptance of the customer’s bill payment, we remit the amount owed to the third party on the next business day under an agreement with that payee and either receive a service fee from the payee or collect a fee from the consumer. The agreements generally have a three-to-five year term, but oftentimes renew automatically unless written notice is provided by either party. We offer these services primarily through agreements directly with various product and service providers, such as Verizon, Sprint, TXU (a Texas utility company), and Baltimore Gas & Electric. These agreements vary in term and fee structure based on estimated quantity and volume of future customer payments. In fiscal 2005, our company-owned stores processed approximately 7.9 million bill payment transactions through agreements with 139 service providers for revenue of $13.0 million. In fiscal 2004, our company-owned stores processed approximately 7.8 million bill payment transactions through agreements with 102 service providers for revenue of $12.4 million.

Our stores also offer NetSpend’s ACE MasterCard debit card, which allows customers to “load” cash onto a MasterCard

debit card and use it wherever MasterCard debit cards are accepted. We receive a fee when customers purchase the card, load cash on the card, use it for a purchase or use it at an automated teller machine for a cash withdrawal. During fiscal 2005, our company-owned stores sold approximately 172,000 prepaid debit cards and loaded more than $527 million onto these cards, compared to fiscal 2004, when we sold approximately 133,000 cards and loaded more than $245 million onto these cards.

Money transfers. We are an agent for the transmission and receipt of wire transfers through the MoneyGram® network, the second largest wire transfer provider after Western Union. Through this network, our customers can transfer funds electronically to any of approximately 75,000 MoneyGram agent locations worldwide, including our stores. MoneyGram establishes the fees for this service and pays us a commission.

Money orders. We sell money orders issued by Travelers Express in any amount up to $1,000. These money orders are generally used by our customers for bill payments, rent payments and other general disbursements. We sold approximately 7.6 million money orders during fiscal 2005. The fees charged for money orders depend on local market conditions and the size of the money order. We remit the face amount of each money order sold to Travelers Express. Our money order revenues include the fee paid by our customers and the recognition of deferred revenue related to contract incentive payments.

Franchising. We sell several types of ACE franchises, including: a standard store franchise; a store-within-a-store or kiosk franchise; a small market franchise for market areas with a population under 15,000; and a conversion franchise that permits an existing check cashing business to convert to an ACE franchisee. Our franchise revenues consist of an initial franchise fee of up to $30,000 and monthly royalties of up to 6% of revenue. There were 229 company-franchised stores in operation as of June 30, 2005, compared to 204 as of June 30, 2004, and we currently have franchise agreements with franchisees to develop over 100 new franchise stores.

We franchise our stores in order to complement our company-owned growth and network expansion plans in a cost effective manner. By expanding into new geographic markets, we increase our brand awareness and create further purchasing power with our vendors and a pipeline for future acquisition opportunities. Typically, we have a right of first refusal to purchase the franchised store. We acquired 22, 13 and two franchised stores during the years ended June 30, 2005, 2004 and 2003, respectively.

In order to qualify potential franchisees, we primarily evaluate their financing viability, familiarity with the industry and prior business experience. The franchisee is responsible for the capital cost of opening the store, including leasehold improvements, signage, computer equipment and security systems, operating costs and working capital. We have no obligation to finance any costs related to start-up or operations for the franchisees. Franchises are financed by the franchisee with their own financing sources.

Other services. In many company-owned stores, we offer a variety of other retail financial services to our customers, such as photocopying, fax transmission services, postage stamps and various prepaid services, including long-distance telephone cards.

We lease self-service machines, which utilize our internally developed point-of-sale system and are able to cash checks, sell prepaid long-distance telephone cards, sell money orders and process third-party bill payments. As of June 30, 2005, we had seven machines in company-owned locations and we had 44 bill payment self-service machines located at a third-party service provider’s locations. We placed 130 self-service machines in H&R Block retail locations for use during the 2005 tax season (i.e., January through March). The machines in H&R Block locations only cash refund anticipation loan checks issued to customers of H&R Block.

Our tax business self-service machines are leased over various terms, typically 3 to 5 years, but our corresponding annual lease expense is recognized during the tax season. After tax season, the machines remain in H&R Block offices, but are unused until the next tax season. Lease expense for self-service machines used during tax season for the fiscal years ended June 30, 2005, 2004 and 2003 was $0.7 million, $1.3 million, and $1.6 million, respectively.

New Store Economics

The capital cost of opening a new ACE Cash Express store varies depending on the size and type of store, but is typically in the range of $65,000 to $85,000, before the Moneygram incentive. This capital cost includes leasehold improvements, signage, computer equipment and security systems. MoneyGram pays us an incentive for each new ACE Cash Express company-owned location opened, which is accounted for as deferred revenue that is recognized over the remaining life of our contract with MoneyGram. For more information, see “Relationships with the Money Order and MoneyGram Suppliers” below. During fiscal 2005, we opened 60 ACE Cash Express stores. In addition, the typical store requires working capital of $80,000 to $100,000 to fund operating cash and the store’s loan portfolio. It typically takes approximately one year for a store to break even on a store margin basis. First-year losses typically average $15,000 to $30,000 per store.

The capital cost of a mature ACE Cash Advance store is typically in the range of $35,000 to $45,000, and includes leasehold improvements, signage, computer equipment and security systems. A new ACE Cash Advance store requires working capital of $70,000 to $100,000. During fiscal 2005, we opened 20 ACE Cash Advance stores.

The following tables show the average annual store revenues and the average gross margin for ACE Cash Express company-owned stores (excluding acquired stores) which were opened in the year indicated and were open as of June 30, 2005:


	Number of		Average Store Revenues
	Stores Open at		Year Ended June 30,
Year Opened:	June 30, 2005		2005		2004		2003		2002		2001
			(in thousands)
1996 and earlier		273	$	282.2	$	284.2	$	270.4	$	272.5	$	241.0
1997		33		285.1		270.7		248.1		242.2		209.1
1998		45		255.0		252.8		243.5		228.8		191.8
1999		60		232.7		216.3		206.0		199.2		164.4
2000		59		217.0		210.1		191.9		180.4		127.1
2001		41		236.7		215.1		187.9		143.0		34.3
2002		35		210.6		183.6		128.9		35.6		—
2003		12		207.7		160.3		36.2		—		—
2004		42		122.8		28.7		—		—		—
2005		60		39.9		—		—		—		—

		660
ACE Cash Advance stores ⁽¹⁾		31
Acquired stores ⁽¹⁾		451

		1,142


	Number of		Average Store Gross Margin
	Stores Open at		Year Ended June 30,
Year Opened:	June 30, 2005		2005			2004			2003			2002			2001
						(in thousands)
1996 and earlier		273	$	119.3		$	117.8		$	110.7		$	116.0		$	80.4
1997		33		117.5			98.0			89.1			88.8			56.0
1998		45		89.8			78.9			84.0			81.4			44.9
1999		60		79.2			61.1			59.5			55.0			16.5
2000		59		66.6			54.8			48.3			46.3			(6.7	)
2001		41		71.2			51.5			39.4			8.6			(21.3	)
2002		35		63.7			37.7			(1.4	)		(26.4	)		—
2003		12		58.2			16.3			(18.3	)		—			—
2004		42		(14.3	)		(31.7	)		—			—			—
2005		60		(29.3	)		—			—			—			—

		660
ACE Cash Advance stores ⁽¹⁾		31
Acquired stores ⁽¹⁾		451

		1,142


(1)		ACE Cash Advance and acquired store count are provided on this newly constructed ACE Cash Express store economics table to delineate mix between ACE Cash Express newly constructed , ACE Cash Advance and acquired stores in our company-owned store network. A similar table for ACE Cash Advance and acquired stores would not provide a useful performance trend because we have just recently begun opening ACE Cash Advance stores, and acquired store performance varies significantly depending on the number of years that the store has been open prior to acquisition

Our store construction and facilities planning staff reviews and negotiates leases for store locations, supervises the construction of new stores and the remodeling of existing stores and performs lease management services once the leases are executed. Since many of our stores are built within existing retail space, the work area of each store is a modular-designed unit that can be customized to meet the varying size and other requirements of each location while giving it a consistent appearance.

We close stores in the normal course of business for various reasons, including inadequate operating performance, lease expirations and shopping center closings. During fiscal 2005, 2004 and 2003, we closed 32, 24 and 28 company-owned stores, respectively.

Company-owned Store Locations and Operations

The following map illustrates the number and location of company-owned stores in operation as of June 30, 2005:

The following table illustrates the development of company-owned stores since June 30, 2001:


	Company-Owned Stores
	As of June 30,
Market Area	2005		2004		2003		2002		2001
Texas		368		340		328		329		326
California		92		87		85		88		90
Colorado		78		66		53		56		53
Arizona		73		72		75		72		75
Florida		65		63		68		91		91
Pennsylvania		43		16		16		16		9
Georgia		39		44		46		50		50
Ohio		38		27		25		24		18
Tennessee		38		39		18		18		19
Maryland		36		38		39		39		40
Virginia		34		32		29		29		29
Louisiana		33		35		27		27		25
Indiana		30		28		26		25		25
Washington		23		14		13		13		13
Oklahoma		20		20		21		23		23
Arkansas		18		8		8		8		8
North Carolina		16		18		16		16		16
South Carolina		16		10		10		13		13
Washington, D.C.		15		16		16		16		16
Nevada		15		15		14		14		14
New Mexico		13		13		11		10		10
Missouri		11		11		11		11		11
Oregon		9		7		8		8		7
Kansas		6		6		4		4		4
Kentucky		5		—		—		—		—
Wisconsin		5		—		—		—		—
Alabama		3		1		1		3		3

Total		1,142		1,026		968		1,003		988

We typically locate our company-owned stores in highly visible, accessible locations and operate during convenient hours for our customers. We locate stores on high traffic streets or intersections. Our stores occupy approximately 1,200 square feet on average and are located in strip shopping centers and free-standing buildings. As of June 30, 2005, we also operate approximately 70 smaller kiosks located inside retail stores. We are focused on increasing the customer’s awareness of ACE

by using consistent signage and store design at each location. All but two of our company-owned stores are leased.

Normal business hours of our company-owned stores are from 9:00 a.m. until 7:00 p.m., Monday through Thursday, 9:00 a.m. until 8:00 p.m. on Friday and 9:00 a.m. until 6:00 p.m. on Saturday. Approximately 190 stores are also open on Sunday, generally from 10:00 a.m. until 5:00 p.m. The business hours of any store may be changed due to local market conditions. We are open on all holidays except for Thanksgiving, Christmas and New Year’s Day.

Franchised Store Locations

The following map illustrates the states in which our franchisees operate stores and the number of stores in operation as of June 30, 2005:

We are the largest franchisor of check cashing stores in the United States. Our franchises are marketed through a dedicated sales force, supplemented by advertising in newspapers, trade journals and other media.

The following table illustrates the development of franchised stores since June 30, 2001:


	Franchised Stores
	As of June 30,
Market Area	2005		2004		2003		2002		2001
Texas		42		51		55		56		55
Ohio		21		20		18		16		14
Arizona		15		9		5		3		2
South Carolina		15		14		13		8		8
Florida		14		13		16		14		13
North Carolina		13		8		6		7		7
Oklahoma		13		11		11		11		9
Tennessee		11		8		7		7		7
California		10		9		10		11		12
Colorado		8		7		6		4		3
Louisiana		8		6		12		12		12
Kansas		7		6		5		4		1
Missouri		6		6		4		3		3
Oregon		6		5		4		4		4
Georgia		5		4		6		6		7
Wisconsin		4		2		1		1		—
Alabama		3		2		—		—		1
Indiana		3		2		2		2		2
Virginia		3		1		1		1		—
Arkansas		2		2		1		1		1
Delaware		2		2		2		1		1
Idaho		2		2		2		2		1
Iowa		2		—		—		—		—


	Franchised Stores
	As of June 30,
Market Area	2005		2004		2003		2002		2001
Maine		2		2		1		1		1
Michigan		2		1		1		1		1
Minnesota		2		2		2		2		2
New Mexico		2		—		—		—		—
Hawaii		1		1		1		—		—
Mississippi		1		1		2		1		1
New Jersey		1		1		1		1		1
Pennsylvania		1		1		—		—		—
South Dakota		1		1		1		1		1
Wyoming		1		1		1		1		1
Kentucky		—		3		3		2		2
Connecticut		—		—		—		—		2

Total		229		204		200		184		175

We are planning to continue our expansion through the sale of new franchises and the opening of additional stores under existing franchise agreements.

Advertising and Marketing

Our marketing efforts are designed to increase revenues by developing products that meet the needs of our consumers, create customer loyalty and introduce new customers to the ACE brand. We achieve this by differentiating our products in ways that are the most relevant to customers, generating interest and use with promotional activity and providing consumers with great customer service.

We have been effective in marketing our services through in-store programs with high-impact, consumer relevant point-of-purchase materials. We implement additional promotions to maximize key seasonal revenue opportunities, including holidays and tax season.

In fiscal 1996, we introduced a free loyalty and retention program called ACE Plus which rewards customers with free phone cards, discounted transaction fees and cash rebates based on points accumulated for each customer’s check cashing transactions. During fiscal 2005, we launched a new loyalty program in several markets, which provides similar rewards, but allows customers to earn points on all ACE transactions. We record a refund obligation as a reduction of revenue based on the cost of expected point redemption. Since inception, approximately 8 million customers have joined the ACE Plus program. Approximately 2 million customers have used their ACE Plus card in the last 12 months.

We are continuously testing new ways of communicating and promoting our products and services, which include direct mail and print in both English and Spanish, telemarketing and enhanced bilingual in-store communications.

Information Systems

Our information systems include a proprietary point-of-sale system in our stores and a management information system that together form the foundation of our operating model.

The point-of-sale system is fully operational in all stores and is licensed to our franchisees. It is designed to facilitate customer service and risk management in a logical and straight-forward manner for our store employees. The point-of-sale system:

	•		records and monitors the details of every transaction, including the service type, amount, fees, employee, time, actions taken and duration;

	•		integrates a proprietary and extensive customer/maker risk management database with an automated decision methodology to guide our employees through the transaction and to better manage risk in check cashing transactions;

	•		provides services in a standardized and efficient manner, which we believe allows us to operate our stores with fewer personnel than many of our competitors (many of our stores are operated by only one person);

	•		reduces the risk of transaction errors by automatically recalling customer data and calculating fees; and

	•		provides fully automated, immediate and statistically validated loan application decisions that help ensure

standardization and compliance with state and federal lending regulations.

On at least a daily basis, and in many cases on a real-time basis, all transaction data are transmitted to our centralized database at our headquarters and are integrated into our management information system. This system is designed to provide summary and detailed information to district managers, regional vice presidents and corporate managers at any time through Internet connectivity. The system allows us to:

	•		monitor daily revenue by service on a company, regional, store and employee basis;

	•		monitor and manage daily store exception reports, which record, for example, any cash shortages and late store opening times;

	•		identify cash differences between bank statements and our records, such as differences resulting from missing checks and deposits;

	•		determine, on a daily basis, the amount of cash needed at each store location, allowing centralized cash management personnel to maintain the optimal amount of cash inventory in each store;

	•		electronically transmit information and documents to third-party providers of services offered at our stores;

	•		develop a standardized labor scheduling methodology by store, by day;

	•		facilitate compliance with regulatory requirements; and

	•		post revenue and some expenses to our general ledger system.

Our information systems department has a staff of approximately 60 employees. Our development staff primarily focuses on designing and testing new point-of-sale enhancements as well as ongoing development of the management information systems infrastructure. Our store and customer help desk staff provides assistance to our store managers related to transaction procedures, as well as directly answering customer questions.

We operate a wide area data communications network for our stores that has reduced customer waiting times, increased reliability and allowed the implementation of new service enhancements. Each of our stores has from two to four networked PCs that run the Windows XP® operating system on standard Intel-based PCs. We run our proprietary point-of-sale software on each of the PCs in order to control and record all retail transactions at the store. Connected to each PC are several peripherals, including a money order dispenser, receipt printer, laser printer, check scanner, cash drawer and debit card PIN pad.

Each store is connected to our host system using either a DSL or frame relay connection that allows the store to quickly access our centralized corporate databases and risk management resources. All transaction posting, processing and storage is performed on the host system, an IBM iSeries™ (previously known as an AS/400) mid-range computer with over two terabytes of disk storage.

We maintain and test a comprehensive disaster recovery plan for all critical host systems. The disaster recovery plan is routinely updated to reflect new requirements and business systems and, as part of the plan, we have a contract with a third party at an off-site location to provide us immediate access to needed technologies, if necessary.

Security

Employee safety is critical to us. Almost all company-owned store employees work behind bullet-resistant Plexiglas® and steel-reinforced partitions. Each company-owned store’s security measures include safes, alarm systems monitored by third parties, teller area entry control, perimeter opening entry detection and tracking of all employee movement in and out of secured areas. All stores are currently using a centralized security system through a third-party provider. The centralized security system includes identical alarm systems in all stores, remote control activated alarms, arming/disarming and changing user codes and mechanically and electronically controlled time-delay safes. Although we do not have a contractual indemnification agreement with our security provider for the full amount of store losses, any amounts received from the security provider as compensation for losses (which have historically been minimal) are recorded in store expenses as a reduction of the loss. Under our crime insurance policy for store theft, no claims were made in fiscal 2005, 2004 or 2003. Under our crime insurance policy for self-service machines, no claims were made in fiscal 2005 or 2004 and claims recovered in fiscal 2003 were recorded as a reduction of the loss.

Our business requires our stores to maintain a significant supply of cash. We are therefore subject to the risk of cash shortages resulting from employee and non-employee theft and employee errors. Although we have implemented various programs to reduce these risks and provide security for our facilities and employees, we cannot assure you that these problems will be eliminated. During fiscal 2005, 2004 and 2003, cash shortages from employee errors and from theft were approximately $1.2 million (0.4% of revenue), $0.9 million (0.4% of revenues) and $1.3 million (0.6% of revenues), respectively.

Our point-of-sale system allows management to detect cash shortages on a daily basis. In addition to other procedures, district managers conduct audits of each company-owned store’s cash position and inventories on an unannounced, random basis. Daily transportation of currency and checks is provided by professional armored carriers. Our employees generally do not transport currency or checks.

Human Resources

Our operations consist of company-owned stores, including ACE Cash Express and ACE Cash Advance stores and franchised stores.

ACE Cash Advance and franchised store operations are each managed by a division vice president. Our company-owned ACE Cash Express store operations are organized by regions. Each region has a regional vice president who reports to one of three division vice presidents of operations and is responsible for the operations, administration, training and supervision of company-owned stores in his or her region. We currently have 13 regional vice presidents who are responsible for the operations of approximately 85 stores each. We currently have 92 district managers, each of whom reports to the regional vice president for his or her region and is directly responsible for the general management of up to 20 stores within his or her territory. These district managers are responsible for hiring, scheduling, store operations, local marketing and employee relations. Each store manager reports to a district manager and has direct responsibility over his or her store’s operations.

Each region also has a human resources manager that coordinates recruiting, hiring and training (initial and on-going) within the region. We are committed to hiring only nationally certified human resources managers. Currently, ten of our 13 managers are certified and the remaining three are preparing for the certification tests in 2005 and 2006. All human resources managers attend an annual three-day conference at the corporate office and must complete 60 hours of continuing education every three years to maintain their national certification.

Training. Service associates, store managers, district managers and regional vice presidents must complete formal training programs. Those training programs include:

	•		an annual management training program with all regional vice presidents, district managers and human resource managers which covers employee hiring, progressive discipline, retention, sexual harassment, compensation, equal employment opportunity compliance and leadership;

	•		an annual three-day district manager conference at our corporate headquarters which covers topics such as customer service, loss reduction, safety and security, better delivery of services and compliance with legal and regulatory requirements;

	•		quarterly regional vice president meetings that focus on operational goal achievement and human resource issues; and

	•		store employee training which consists of classroom and on-the-job training with experienced store employees for a minimum of three weeks.

The regional human resources manager also coordinates on-going training for store employees to review customer service, compliance and service-focused issues.

Hiring and Retention. District managers, human resource managers and team leaders, who are experienced store managers, are responsible for store employee recruitment. To facilitate this process, we use an Internet-based automated recruitment system that pre-screens all applicants to ensure they meet our position requirements. We believe the automated recruitment system also allows us to identify employee characteristics and recruiting sources that can lead to long-term, successful employees.

All store employees undergo a thorough criminal background check, social security check, credit check, employment verification, drug screening and two-step interview process before employment. In 2001, we created a compensation and career path program to provide employees with competitive pay rates and opportunities for advancement. We offer a complete and competitive benefits package to attract and retain employees.

Employees

At June 30, 2005, we had 2,711 employees, including 1,021 service associates at company-owned stores, 1,271 store managers, 92 district managers, 13 regional vice presidents, 208 regional support personnel (located in regional offices and the corporate headquarters), 99 corporate employees and seven franchise personnel. We use third-party firms to conduct background checks, credit checks and drug tests of all of our prospective employees.

We consider our employee relations to be good. Our employees are not covered by a collective bargaining agreement, and we have never experienced any organized work stoppage, strike, or labor dispute.

Competition

We believe that the principal competitive factors in the check cashing and short-term consumer loan (also known as payday loan) industry are location, customer service, fees, convenience, range of services offered, speed and confidentiality. We face intense competition and believe that the check cashing and short-term consumer lending markets are becoming more competitive as these industries mature and consolidate. We compete with other check cashing stores, grocery stores, banks, savings and loan institutions, short-term consumer lenders, other financial services entities and any retail businesses that cash checks, sell money orders, provide money transfer services, or offer other similar financial services. Some retailers cash checks without charging a fee under limited circumstances. Some of our competitors have larger and more established customer bases and substantially greater financial, marketing and other resources. Our stores have also recently been facing competition from automated check cashing machines deployed in supermarkets, convenience stores and other public venues by large financial services organizations, as well as retail financial services that our competitors offer over the Internet. We cannot assure you that we will be able to compete successfully with our competitors.

Relationship with Republic Bank

We are party to a marketing and servicing agreement with Republic Bank. Under this agreement, we provide various services to Republic Bank in connection with our marketing and servicing of Republic Bank’s short-term consumer loans in exchange for a service fee equal to a portion of the interest charged by Republic Bank based on loan volume. These services include advertising, application processing and collecting payments from Republic Bank’s customers. As of June 30, 2005, Republic Bank was offering its loans in 427 of our company-owned stores in Arkansas, Pennsylvania and Texas. Approximately 10.4%, 9.7% and 3.9% of our total revenues in fiscal 2005, 2004 and 2003, respectively, were derived from fees paid to us by Republic Bank. The term of our agreement with Republic Bank expires January 1, 2008, but either party may terminate this agreement at an earlier date if (i) the non-terminating party fails to timely cure a material default under, or an inaccurate representation or warranty in, the agreement, (ii) either party’s performance under the agreement is rendered illegal or materially adversely affected as a result of changes in law, (iii) the terminating party is notified by any governing regulatory agency that such party’s performance of its obligations under the agreement may be unlawful, unsafe or unsound or may jeopardize such party’s standing or rating with such agency, or (iv) the non-terminating party is bankrupt or is in receivership. In addition, provided we are not in default under the agreement, we may terminate this agreement at an earlier date if Republic Bank ceases to fund the short-term consumer loans we market, or if applicable law is amended or changed in a manner that has an adverse effect on our ability to continue servicing these Republic Bank Loans. Finally, we may exclude from the agreement all of our stores in a particular state if we determine that we can profitably engage in that state in short-term consumer loan transactions independent of Republic Bank or any other bank subject to similar restrictions on making such short-term loans; except that the stores in Arkansas or in Pennsylvania may not be excluded before January 1, 2006, and the stores in Texas may not be excluded before April 1, 2006.

Under our agreement with Republic Bank, we are obligated to reimburse Republic Bank by paying it an amount equal to the net amount charged off by Republic Bank, less Republic Bank’s established reserves. We could be obligated to pay Republic Bank for loan losses in an amount up to the total outstanding amount of Republic Bank loans recorded on Republic Bank’s financial statements, which was $10.7 million as of June 30, 2005. Therefore, we record a liability for our anticipated payments to Republic Bank for losses on their loans, partially offset by amounts due to us from Republic Bank. We determine our allowance for loan losses and our payable to Republic Bank based upon a review of historical and recent loan losses and the loan portfolio. For the year ended June 30, 2005, we provided approximately $8.7 million for losses on Republic Bank loans and charged-off $8.4 million related to these loans. The balance of the liability for Republic Bank loan losses reported in accrued liabilities as of June 30, 2005 was $4.0 million.

Regulation

General. We are subject to regulation in some jurisdictions in which we operate, including jurisdictions that regulate check cashing fees or require the registration of check cashing companies or money transmission agents. We are also subject to federal and state regulation relating to the recording and reporting of certain financial transactions and relating to the privacy of customer information. Further, our loan-related activities are subject to state regulation and, in certain respects, federal regulation.

State Regulations. In some states, check cashing companies or money transmission agents are required to meet minimum bonding or capital requirements and are subject to record-keeping requirements. We operate in 19 states or jurisdictions that have licensing and/or fee regulations regarding check cashing: Arizona, Arkansas, California, Florida, Georgia, Indiana, Kentucky, Louisiana, Maryland, Nevada, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, Washington, Wisconsin, and the District of Columbia. We are licensed in each of the states or jurisdictions in which a license is currently required for us to operate as a check cashing company. To the extent these states have adopted ceilings on check cashing fees, those ceilings are in excess of or equal to the fees we charge.

In those states in which we operate as a short-term consumer or payday lender, we are licensed as such and are subject to the various state regulations governing the terms of short-term consumer loans. Typically, the state regulations limit the amount that a lender or service-provider may lend or provide and, in some cases, the number of loans or transactions that a lender or service-provider may make, to any customer at one time, restrict the amount of finance or service charges or fees that the lender or service provider may assess in connection with any loan or transaction and limit a customer’s ability to renew any loans or transactions. The lender or service provider must also comply with various consumer disclosure requirements, which are typically similar or equivalent to the federal Truth in Lending Act and corresponding federal regulations, in connection with the loans or transactions. Collection activities regarding past due loans or similar transactions may also be subject to consumer-debt-collection laws and regulations adopted by the various states.

We are subject to franchising laws and regulations in the states in which we offer and sell franchises. Those laws and regulations vary by state, but generally include filing or registration requirements, record-keeping requirements and mandated disclosures to prospective franchisees.

Federal Regulations. Under the Bank Secrecy Act regulations of the U.S. Department of the Treasury, we must report transactions involving currency in an amount greater than $10,000, and we must retain records for five years for purchases of monetary instruments for cash in amounts from $3,000 to $10,000. In general, every financial institution, including us, must report each deposit, withdrawal, exchange of currency or other payment or transfer, whether by, through or to the financial institution, that involves currency in an amount greater than $10,000. In addition, multiple currency transactions must be treated as single transactions if the financial institution has knowledge that the transactions are by, or on behalf of, any person and result in either cash in or cash out totaling more than $10,000 during any one business day. Management believes that our point-of-sale system and employee-training programs permit us to comply with these requirements.

The Bank Secrecy Act also requires us to register as a money services business with the Treasury Department. This registration is intended to enable governmental authorities to better enforce laws prohibiting money laundering and other illegal activities. We are registered as a money services business with the Treasury Department and must re-register with the Financial Crimes Enforcement Network of the Treasury Department, or FinCEN, by December 31, 2005, and at least every two years thereafter. We must also maintain a list of names and addresses of, and other information about, our stores and must make that list available to any requesting law enforcement agency (through FinCEN). That store list must be updated at least annually. We do not believe that compliance with these existing requirements has had or will have any material impact on our operations.

In addition, federal regulations require us to report suspicious transactions involving at least $2,000 to FinCEN. The regulations generally describe three classes of reportable suspicious transactions—one or more related transactions that the money services business knows, suspects, or has reason to suspect (1) involve funds derived from illegal activity or are intended to hide or disguise such funds, (2) are designed to evade the requirements of the Bank Secrecy Act, or (3) appear to serve no business or lawful purpose. Because of our point-of-sale system and transaction monitoring systems, we do not believe that compliance with the existing reporting requirement and the corresponding record keeping requirements has had or will have any material impact on our operations.

The Gramm-Leach-Bliley Act and its implementing federal regulations require us to generally protect the confidentiality of our customers’ nonpublic personal information and to disclose to our customers our privacy policy and practices, including those regarding sharing the customers’ nonpublic personal information with third parties. That disclosure must be made to customers at the time that the customer relationship is established and at least annually thereafter.

Federal anti-money-laundering laws make it a criminal offense to own or operate a money transmitting business without the appropriate state licenses. In addition, the USA PATRIOT Act of 2001 and its implementing federal regulations require us, as a “financial institution,” to establish and maintain an anti-money-laundering program. Such a program must include (1) internal policies, procedures and controls designed to identify and report money laundering, (2) a designated compliance officer, (3) an ongoing employee-training program and (4) an independent audit function to test the program. Because of our compliance with other federal regulations having essentially a similar purpose, we do not believe that compliance with these requirements has had or will have any material impact on our operations.

Short-term Consumer Loans. Short-term consumer loans, also known as payday loans, are strictly regulated by federal guidance and state laws and regulations. The Office of the Comptroller of the Currency, which supervises national banks, took action in 2002 to effectively prohibit certain national banks from offering and making short-term consumer loans because of various risks it believes short-term consumer lending poses to those banks. Also, during the last few years, legislation has been introduced in the U.S. Congress and in certain state legislatures, and regulatory authorities have proposed or publicly addressed the possibility of proposing regulations, that would prohibit or severely restrict short-term consumer loans. For example, in December 2002, we ceased offering short-term consumer loans at our stores in Alabama, Georgia and North Carolina as a result of laws enacted restricting short-term consumer loans in those states. As a result of more recently enacted laws in Alabama permitting short-term consumer loans, beginning July 2004, we resumed offering short-term consumer loans at our stores in that state. More recently, the Georgia state legislature passed a law banning short-term consumer loans in that state. We intend to continue, with others in the short-term consumer loan industry, to inform and educate legislators and to oppose legislative or regulatory action that would prohibit or severely restrict short-term consumer loans. Nevertheless, if legislative or regulatory action with that effect were taken on the federal level or in states in which we have a significant number of stores, that action would have a material adverse effect on our loan-related activities and revenues. Moreover, similar action by states where we are not currently conducting business could result in us having fewer opportunities to pursue our growth strategy.

Since January 1, 2003, all of the consumer loans offered at our stores have consisted of (1) short-term, single-installment consumer loans we made, (2) short-term, single-installment consumer loans Republic Bank made or (3) since August 1, 2005, longer-term, multi-installment loans First Bank of Delaware made. Our activities as a short-term consumer lender obligate us to comply with the consumer-disclosure requirements of the federal Truth in Lending Act and Regulation Z adopted under that act. Our activities as a collection agent for our past-due loans, past-due Republic Bank loans and past-due First Bank of Delaware loans obligate us to comply with the federal Fair Debt Collection Practices Act and corresponding regulations and certain state laws and regulations regarding collection practices and to register as a collection agency in certain states.

Republic Bank is subject to supervision and regular examinations by the Kentucky Department of Financial Institutions and the FDIC. First Bank of Delaware is subject to supervision and regular examinations by the Delaware Department of Banking and the FDIC. The FDIC issued guidelines governing permissible arrangements between a state-chartered bank and a marketer/servicer of its short-term loans, also referred to as payday loans, in July 2003, and issued revised guidelines in March 2005. The guidelines apply to our marketing and servicing agreements with Republic Bank and First Bank of Delaware regarding the offering of each such bank’s loans at our stores in Arkansas, Pennsylvania and Texas and our servicing activities regarding those loans. The guidelines describe the FDIC’s expectations for a bank’s prudent risk-management practices regarding payday loan marketing and servicing relationships. They address bank capital requirements, allowances for loan losses and loan classifications as well as income recognition, collection-recovery practices and compliance with consumer protection laws when a bank engages in payday lending.

The revised FDIC guidelines issued in March 2005 include a requirement that banks (such as Republic Bank and First Bank of Delaware) develop procedures to ensure that a payday loan is not provided to any customer with payday loans from any lender for more than three months in the previous 12 months. Assuming an average term of approximately 15 days, this limits the number of payday loans a customer may have from all lenders during any 12-month period to six. The revised FDIC guidelines also suggest that supervised lenders should offer a customer subject to such a limitation, or refer such a customer to, a longer-term loan product. The revised FDIC guidelines became effective July 1, 2005. In response to the revised FDIC guidelines, since August 1, 2005, customers at our stores in Texas, Pennsylvania and Arkansas who are denied a shorter-term Republic Bank loan, may apply for a longer-term First Bank of Delaware installment loan. It is unclear at this time what procedures and/or alternate products the FDIC may accept as conforming with the revised guidelines. If the implementation and enforcement of the revised FDIC guidelines or any newly promulgated guidelines by the FDIC, or any order, law, rule or regulation by the States of Kentucky or Delaware or the FDIC, were to have the effect of significantly curtailing either Republic Bank’s short-term consumer lending services or First Bank of Delaware’s installment lending services, our revenues derived from fees from Republic Bank or First Bank of Delaware would be materially adversely affected, unless we could offer, or we could secure an agreement with another financial institution not subject to such limitations to offer, similar or alternate services. We cannot assure you that we would be successful in offering similar or

alternate services or finding such a replacement financial institution, in the latter case especially because arrangements like ours with Republic Bank and First Bank of Delaware are coming under increasing political and regulatory scrutiny. Lawsuits filed against banks offering short-term consumer loans, such as one filed by the New York State Attorney General’s office in September 2003, may hinder our ability to partner with a replacement bank or to establish relationships with new banks in other states as part of our growth strategy. Any alternate or similar services or agreement with a replacement bank or new bank may also not be on terms as favorable to us as our current agreements with Republic Bank and First Bank of Delaware.

Each of Republic Bank and First Bank of Delaware is also subject to FDIC inspection and authority, and as a result of our marketing and servicing activities, we too are subject to such inspection and authority. To the extent an inspection involves review of the Republic Bank loans, the First Bank of Delaware loans or any related processes, the regulatory authority may require us to provide requested information and to grant access to our pertinent locations, personnel and records.

Relationships with the Money Order and MoneyGram Suppliers

Money Order Agreement. We are a party to a money order agreement with Travelers Express Company, Inc., which became effective on December 17, 1998 and expires on December 31, 2007. Under this agreement, we exclusively sell Travelers Express money orders that bear our logo. The money order agreement obligates us to make prompt remittances of money order proceeds. Our payment and other obligations to Travelers Express under the money order agreement and the MoneyGram Agreement (described below) are secured by a subordinated lien on our assets in accordance with security agreements described in Note 3 of Notes to Consolidated Financials Statements.

In conjunction with the money order agreement, we received $3 million from Travelers Express in April 1998, and $400,000 in each of 1999 through 2003, for a total of $5 million. When the term of the money order agreement was extended in October 2003, we received a signing bonus of approximately $2 million and have and will receive annual incentive bonuses of $350,000 on January 1 each of 2004 through 2007. The signing bonus and each annual incentive bonus will be amortized on a straight-line basis over the period for and during which that bonus is paid. If the money order agreement is terminated before its expiration under certain circumstances, we will be obligated to repay Travelers Express a portion of the amendment signing bonus (without interest). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Note 3 of Notes to Consolidated Financial Statements.

MoneyGram Agreement. We act as an agent for the receipt and transmission of wire transfers of money through the MoneyGram network in accordance with a money transfer agreement with Travelers Express and MoneyGram Payment Systems, Inc., an affiliate of Travelers Express, that became effective on January 1, 2001 and expires on December 31, 2007. If MoneyGram has paid us a bonus after January 1, 2001, the agreement will extend according to a formula which, as currently calculated, would provide for an extension through August 2008. We agreed to offer and sell only MoneyGram wire transfer services during the seven-year term of this MoneyGram Agreement. Under the MoneyGram Agreement, we earn commissions for each transmission and receipt of money through the MoneyGram network effected at a company-owned location; those commissions equal varying percentages of the fees charged by MoneyGram Payment Systems to consumers for the MoneyGram services.

Under the MoneyGram Agreement, we are also entitled to receive a total of approximately $12.5 million in bonuses, payable in equal monthly installments (without interest) over the seven-year term. The amount of those monthly installments will be subject to reduction if we close or sell a significant number of those locations at which MoneyGram services were offered at the beginning of the MoneyGram Agreement. In addition, we will be entitled to receive certain incentive payments regarding new MoneyGram service locations that we open or acquire during the term of the MoneyGram Agreement.

Relationship with H&R Block/SSM Arrangements

We are a party to a multi-year license agreement with H&R Block Tax Services, Inc. under which we may place our self-service machines (“SSMs”) in various H&R Block retail offices during the tax season (i.e., January through March) of each year. Those SSMs are available to cash only tax refund and tax refund anticipation loan checks for H&R Block’s customers. We receive check-cashing fees from customers who use those SSMs, and we pay H&R Block fees that vary according to the value of the checks cashed in those SSMs. We placed over 130 SSMs in H&R Block retail offices during the 2005 tax season, and anticipate placing between 100 and 150 SSMs at H&R Block retail offices during the 2006 tax season.

The arrangements by which we obtained cash or currency for the SSMs in the H&R Block retail offices are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Self-Service Machine Funding Arrangements.”

ITEM 2. PROPERTIES

Our average store size is approximately 1,200 square feet. Our stores are located in strip shopping centers, free-standing buildings and kiosks located inside retail stores. All but two of our stores are leased, generally under leases providing for an initial term of three years and optional renewal terms of three to six years. We own the land and building at one store in Indianapolis, Indiana and one store in Tampa, Florida. Our corporate headquarters in Irving, Texas, a suburb of Dallas, occupies approximately 56,000 square feet under a lease that expires in 2008.

ITEM 3. LEGAL PROCEEDINGS

Putative Class Actions

On June 1, 2005, Perseveranda Goins, Marie Aficial and Antonia Torres filed in the Superior Court of the State of California for the County of San Diego, a putative class action seeking damages and injunctive relief against us and Your Financial Resource, Inc., one of our franchisees, alleging, among other things, that we and our franchisee violated various California state law requirements with respect to the making of short-term consumer loans to the plaintiffs by, among other things, failing to make proper disclosures to the plaintiffs and assessing plaintiffs’ insufficient funds fees in excess of the statutory maximum. On July 1, 2005, the defendants removed the lawsuit to the Federal District Court for the Southern District of California.

On June 13, 2005, Rebecca Webb and Pamela List, both of whom are our former employees, filed in the United States District Court for the Eastern District of Texas, Marshall Division, a putative class action against us under the Fair Labor Standards Act seeking to recover overtime wages allegedly due to “center managers” and “managers-in-training” who regularly worked in excess of 45 hours per week.

Because these lawsuits purport to be class actions, the amount of damages for which we might be responsible is necessarily uncertain. In addition, any such amount depends upon proof of the allegations and on the number of persons who constitute the class of plaintiffs (if permitted by the court). While no assessment of outcome can be made at this time, we intend to vigorously defend these lawsuits.

Other Incidental Proceedings

We are also involved from time to time in various legal proceedings incidental to the conduct of our business. We believe that none of these incidental legal proceedings, or any other threatened legal proceedings, will result in any material impact on our financial condition, results of operations and cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our shareholders during the fourth quarter of fiscal 2005.

PART II


ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock is quoted on The Nasdaq Stock Market (“NASDAQ”) under the symbol “AACE.” At September 7, 2005, there were approximately 136 holders of record of the Common Stock, and there were approximately 2,300 beneficial holders of the Common Stock held in nominee or street name.

The following table sets forth the high and low sale prices of the Common Stock as reported by NASDAQ for the past two fiscal years:


	High		Low
Fiscal 2004
Quarter ended September 30, 2003	$	14.99	$	10.70
Quarter ended December 31, 2003		23.50		14.45
Quarter ended March 31, 2004		34.50		21.45
Quarter ended June 30, 2004		32.60		20.25

Fiscal 2005
Quarter ended September 30, 2004	$	28.74	$	22.24
Quarter ended December 31, 2004		30.50		24.29
Quarter ended March 31, 2005		29.99		22.17
Quarter ended June 30, 2005		25.87		19.61

On September 7, 2005, the last reported sale price of the Common Stock on NASDAQ was $22.95 per share.

We have never paid dividends on the Common Stock and have no plans to pay dividends in the foreseeable future.

The information under the caption, “Equity Compensation Plan Information,” in our Proxy Statement for our Annual Meeting of stockholders to be held on November 11, 2005 is incorporated herein by reference.

The following table sets forth information regarding our repurchases of shares of Common Stock during the quarter ended June 30, 2005:


					Total Number		Maximum
					of Shares		Approximate
					Purchased as		Dollar Value of
	Total				Part of Publicly		Shares that May
	Number of		Average		Announced		Yet Be Purchased
	Shares		Price Paid		Plans or		Under the Plans
	Purchased		Per Share		Programs		or Programs
Period	(1)		(1)		(2)		(2)
April 1 – April 30		—		—		—	$	2,291,966
May 1 – May 31		625	$	0.01		—	$	20,000,000
June 1 – June 30		—		—		—	$	20,000,000

Total		625	$	0.01		—	$	20,000,000


(1)		All of these shares were issued as restricted stock under our 1997 Stock Incentive Plan, and upon forfeiture, we privately repurchased them from the grantees of the restricted stock for the per share amount (par value) paid by them. These repurchases were not made as part of our publicly announced repurchase program.

(2)		Previously, our board of directors had authorized $5 million for the repurchase of shares of our Common Stock on the open market or in negotiated transactions. During Fiscal 2000 and 2001, we repurchased 211,400 shares at an average price of $12.81 per share. In May 2005, our board of directors terminated the previous repurchase program and established a new program authorizing up to $20 million for the repurchase of shares. Since then, no shares have been repurchased. The repurchase program does not have an expiration date, but will terminate when we have made all of the authorized repurchases or earlier by our board of directors.

ITEM 6. SELECTED FINANCIAL DATA


	Year Ended June 30,
	2005			2004			2003		2002			2001
	(in thousands, except per share and store data)
Statement of Earnings Data:
Revenue	$	268,649		$	246,659		$	234,289	$	229,266		$	196,775
Store expenses:
Salaries and benefits		65,293			59,593			58,170		57,864			51,969
Occupancy		34,768			30,563			29,194		28,207			26,439
Provision for loan losses and doubtful accounts		27,090			24,235			22,892		22,064			24,825
Depreciation		7,684			7,563			6,966		7,180			6,697
Other		38,398			40,066			38,192		36,512			35,085

Total store expenses		173,233			162,020			155,414		151,827			145,015

Gross margin		95,416			84,639			78,875		77,439			51,760

Region expenses		22,971			19,251			17,056		17,495			14,127
Headquarters expenses		19,245			18,681			17,133		16,594			10,328
Franchise expenses		1,227			1,196			1,225		993			1,017
Other depreciation and amortization		3,094			3,893			5,423		7,570			5,087
Interest expense		4,880			10,231			16,004		14,934			12,016
Other (income) expenses:
Restructuring		—			—			—		(163	)		7,710
Legal settlements		—			—			1,050		1,984			350
Loss on early extinguishment of debt		—			4,858			270		—			—
Other (income) expense, including store closing expense		(864	)		(1,893	)		264		1,006			108

Total other expenses		(864	)		2,965			1,584		2,827			8,168

Income from continuing operations before income taxes		44,863			28,422			20,450		17,026			1,017
Provision for income taxes		17,497			11,370			8,174		6,913			406

Income from continuing operations		27,366			17,052			12,276		10,113			611
Gain on sale of discontinued operations, net of income tax (1)		—			—			499		—			—

Net income	$	27,366		$	17,052		$	12,775	$	10,113		$	611


Diluted earnings per share	$	1.98		$	1.49		$	1.25	$	1.00		$	0.06


Weighted average number of diluted shares		13,821			11,477			10,206		10,141			10,158


Balance Sheet Data:
Cash and cash equivalents	$	109,430		$	123,041		$	108,110	$	116,264		$	129,186
Loans receivable, net		20,787			17,047			13,000		17,356			14,386
Total assets		292,621			270,262			255,383		263,677			272,812
Revolving advances		43,300			60,000			83,900		97,500			109,800
Term advances (current portion)		—			—			3,833		48,350			1,125
Term advances (noncurrent portion)		—			—			34,436		—			51,875
Shareholders’ equity		196,685			162,604			75,156		62,311			50,898

SELECTED FINANCIAL DATA (continued)


	Year Ended June 30,
	2005			2004			2003			2002			2001
Operating Data:
Company-owned stores in operation:
Beginning of year		1,026			968			1,003			988			915
Acquired		74			34			2			8			133
Opened		80			53			14			39			49
Sold		(6	)		(5	)		(23	)		—			(4	)
Closed (2)		(32	)		(24	)		(28	)		(32	)		(105	)

End of year		1,142			1,026			968			1,003			988

Franchised stores in operations:
Beginning of year		204			200			184			175			157
Opened		48			32			26			22			30
Acquired by ACE		(22	)		(13	)		(2	)		(8	)		(4	)
Closed		(1	)		(15	)		(8	)		(5	)		(8	)

End of year		229			204			200			184			175

Total store network		1,371			1,230			1,168			1,187			1,163


Percentage increase (decrease) in comparable company-owned store revenues from prior year: (3)
Total revenue		3.1	%		5.0	%		1.9	%		17.2	%		25.5	%
Check fees including tax check fees		(3.8	%)		4.1	%		5.4	%		9.7	%		2.4	%
Loan fees and interest		12.7	%		7.8	%		(4.4	%)		36.1	%		176.9	%

Capital Expenditures: (in thousands)
Purchases of property and equipment, net	$	18,951		$	7,439		$	4,721		$	6,992		$	11,188
Store acquisition costs:
Property and equipment		958			511			50			135			1,467
Intangible assets		18,429			6,403			673			1,177			35,841

Check Cashing Data:
Face amount of checks cashed (in millions)	$	5,277		$	5,103		$	5,040		$	4,843		$	4,498
Face amount of average check	$	396		$	388		$	383		$	378		$	358
Average fee per check	$	9.98		$	9.91		$	9.65		$	9.36		$	8.38
Fees as a percentage of average check		2.52	%		2.55	%		2.52	%		2.48	%		2.34	%
Number of checks cashed (in thousands)		13,325			13,151			13,148			12,821			12,580

Collections Data: (in thousands, except percentages)
Face amount of returned checks	$	26,914		$	21,705		$	24,087		$	23,637		$	26,536
Collections		20,951			13,947			16,935			16,090			17,717

Net write-offs	$	5,963		$	7,758		$	7,152		$	7,547		$	8,819


Collections as a percentage of returned checks		77.8	%		64.3	%		70.3	%		68.1	%		66.8	%
Net write-offs as a percentage of revenues		2.2	%		3.1	%		3.1	%		3.3	%		4.5	%
Net write-offs as a percentage of the face amount of checks cashed		0.11	%		0.15	%		0.14	%		0.16	%		0.20	%

SELECTED FINANCIAL DATA (continued)


	Year Ended June 30,
	2005			2004			2003			2002			2001
	(in thousands, except averages and percentages)
Combined Small Consumer Loans Operating Data:
Volume – new loans and refinances	$	640,356		$	527,723		$	484,026		$	502,013		$	396,783
Average advance	$	290		$	278		$	274		$	269		$	269
Average finance charge	$	45.87		$	43.71		$	44.55		$	45.61		$	42.30
Number of loan transactions – new loans and refinances		2,139			1,909			1,798			1,866			1,477

Matured loan volume	$	613,380		$	516,741		$	488,940		$	489,887		$	370,559
Loan fees and interest	$	91,793		$	77,029		$	70,806		$	74,197		$	54,771
Loan loss provision	$	26,941		$	24,280		$	22,293		$	21,924		$	24,825
Gross margin on loans		70.7	%		68.5	%		68.5	%		70.5	%		54.7	%
Loan loss provision as a percent of matured loan volume		4.4	%		4.7	%		4.6	%		4.5	%		6.7	%

Loans Processed for Republic Bank: (4)
Volume – new loans and refinances	$	184,646		$	159,692		$	63,897			—			—
Average advance	$	319		$	296		$	302			—			—
Average finance charge	$	56.30		$	52.11		$	53.35			—			—
Number of loan transactions – new loans and refinances		578			541			211			—			—
Matured loan volume	$	181,153		$	157,018		$	56,040			—			—
Loan fees and interest	$	27,880		$	24,036		$	9,037			—			—
Provision for loan losses payable to Republic Bank	$	8,686		$	7,390		$	2,932			—			—

ACE Loans: (5)
Volume – new loans and refinances	$	455,710		$	368,031		$	420,129		$	502,013		$	396,783
Average advance	$	277		$	269		$	268		$	269		$	269
Average finance charge	$	41.17		$	39.40		$	42.71		$	45.61		$	42.30
Number of loan transactions – new loans and refinances		1,561			1,368			1,587			1,866			1,477
Matured loan volume	$	432,227		$	359,723		$	432,900		$	489,887		$	370,559
Loan fees and interest	$	63,913		$	52,993		$	61,769		$	74,197		$	54,771
Loan loss provision	$	18,255		$	16,890		$	19,361		$	21,924		$	24,825

Balance Sheet Data:
Gross loans receivable	$	31,790		$	27,663		$	21,734		$	29,569		$	27,768
Less: Allowance for losses on loans receivable		11,003			10,616			8,734			12,213			13,382

Loans receivable, net of allowance	$	20,787		$	17,047		$	13,000		$	17,356		$	14,386


Allowance for losses on loans receivable:
Beginning of period	$	10,616		$	8,734		$	12,213		$	13,382		$	—
Provision for loan losses		18,255			16,890			19,361			21,924			26,429
Charge-offs		(18,996	)		(15,295	)		(23,729	)		(24,519	)		(13,510	)
Recoveries		1,128			287			889			1,426			463

End of period	$	11,003		$	10,616		$	8,734		$	12,213		$	13,382


Allowance as a percent of gross loans receivable		34.6	%		38.3	%		40.2	%		41.3	%		48.2	%


(1)		Discontinued operations related to our sale of 19 underperforming stores in Florida for a pre-tax gain of $0.8 million and an after-tax gain of $0.5 million recorded in the three months ended December 31, 2002.

(2)		Fiscal 2001 Includes the 85 stores closed during the fourth quarter resulting from a plan established and executed by management during the third quarter of fiscal 2001.

(3)		Calculated based on changes in revenue for all company-owned stores open in both periods and open for at least 13 months.

(4)		Republic Bank loans are short-term consumer loans made by Republic Bank & Trust Company at our company-owned stores in Arkansas, Pennsylvania and Texas since January 1, 2003.

(5)		Operating data for ACE loans include short-term consumer loans made by Goleta National Bank at our company-owned stores until we discontinued offering Goleta loans on December 31, 2002.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

We are a leading retailer of financial services, including check cashing, short-term consumer loans and bill payment services. As of June 30, 2005, we had a total network of 1,371 stores in 37 states and the District of Columbia, consisting of 1,142 company-owned stores and 229 franchised stores. This makes us the largest owner, operator and franchisor of check cashing stores in the United States and one of the largest providers of short-term consumer loans, also known as payday loans. We focus on serving unbanked and underbanked consumers, many of whom seek alternatives to traditional banking relationships in order to gain convenient and immediate access to check cashing services and short-term consumer loans. We seek to develop and maintain the largest network of stores in each of the markets where we operate. Our growth strategy is to open new stores, franchise stores in new and existing markets, opportunistically acquire stores, increase our customer base and introduce new services into our store network.

For our check cashing services, we charge our customers fees that are usually equal to a percentage of the amount of the check being cashed and are deducted from the cash provided to the customer. For our short-term consumer loans, we receive interest on the loans. For the Republic Bank loans and the First Bank of Delaware loans offered at certain of our stores, we receive origination and servicing fees from such bank.

Our expenses primarily relate to the operations of our stores, including salaries and benefits for our employees, occupancy expense for our leased real estate, security expenses, returns and cash shortages, loan loss provisions, depreciation of our assets and corporate and other expenses, including costs related to store openings and closings.

Regulatory Developments

The Federal Deposit Insurance Corporation, or FDIC, issued guidelines governing permissible arrangements between a state-chartered bank and a marketer and servicer of its payday loans in July 2003, and issued revised guidelines in March 2005. The guidelines apply to our marketing and servicing agreements with Republic Bank and First Bank of Delaware regarding the offering of each such bank’s loans at our stores in Arkansas, Pennsylvania and Texas and our servicing activities regarding those loans. The guidelines describe the FDIC’s expectations for a bank’s prudent risk-management practices regarding payday loan marketing and servicing relationships. They address bank capital requirements, allowances for loan losses and loan classifications as well as income recognition, collection-recovery practices and compliance with consumer protection laws when a bank engages in payday lending.

The revised FDIC guidelines issued in March 2005 include a requirement that banks (such as Republic Bank and First Bank of Delaware) develop procedures to ensure that a payday loan is not provided to any customer with payday loans from any lender for more than three months in the previous 12 months. Assuming an average term of approximately 15 days, this limits the number of payday loans a customer may have from all lenders during any 12-month period to six. The revised FDIC guidelines also suggest that supervised lenders should offer a customer subject to such a limitation, or refer such a customer to, a longer-term loan product. The revised FDIC guidelines became effective July 1, 2005. In response to the revised FDIC guidelines, since August 1, 2005, customers at our stores in Texas, Pennsylvania and Arkansas who are denied a shorter-term Republic loan, may apply for a longer-term First Bank of Delaware installment loan. It is unclear at this time what procedures and/or alternate products the FDIC may accept as conforming with the revised guidelines. If the implementation and enforcement of the revised FDIC guidelines or any newly promulgated guidelines by the FDIC, or any order, law, rule or regulation by the States of Kentucky or Delaware or the FDIC, were to have the effect of significantly curtailing either Republic Bank’s short-term consumer lending services or First Bank of Delaware’s installment lending services, our revenues derived from fees from Republic Bank or First Bank of Delaware would be materially adversely affected, unless we could offer, or we could secure an agreement with another financial institution not subject to such limitations to offer, similar or alternate services. We cannot assure you that we would be successful in offering similar or alternate services or finding such a replacement financial institution, in the latter case especially because arrangements like ours with Republic Bank and First Bank of Delaware are coming under increasing political and regulatory scrutiny. Lawsuits filed against banks offering these short-term consumer loans, such as one filed by the New York State Attorney General’s office in September 2003 against a Delaware state-chartered bank and the companies servicing its short-term consumer loans through a structure that is in some respects similar to our agreements with Republic Bank and First Bank of Delaware, may hinder our ability to partner with a replacement bank or to establish relationships with new banks in other states as part of our

growth strategy. Any alternate or similar services or agreement with a replacement bank or new bank may also not be on terms as favorable to us as our current agreements with Republic Bank and First Bank of Delaware.

Critical Accounting Policies and Estimates

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions to determine the reported amounts of our assets, liabilities, revenues and expenses. We base these estimates and assumptions upon the best information available to us at the time the estimates or assumptions are made. The most significant estimates made by our management, which we consider critical, include our allowance for loan losses and accrued liability for loan losses payable to Republic Bank, valuation of goodwill, income taxes, and valuation of self-insured liabilities, because these estimates and assumptions could change materially as conditions both within and beyond our control change. Accordingly, our actual results could differ materially from our estimates. The following is a discussion of our critical accounting policies and the related management estimates and assumptions necessary in determining the value of related assets or liabilities. A full description of all of our significant accounting policies is included in Note 1—Summary of Significant Accounting Policies to our consolidated financial statements included in this Annual Report on Form 10-K.

Allowance for Loan Losses and Accrued Liability for Loan Losses Payable to Republic Bank. We establish an allowance for loan losses based on our estimates of the amount of uncollectible loans in our loan portfolio. We also establish a liability for loan losses payable to Republic Bank based on our estimates of the amount of uncollectible loans in Republic Bank’s loan portfolio. The loan loss allowance and liability to Republic Bank are considered critical because they are material, subjective, and involve estimates. We determine the required allowance and liability using information such as recent loan loss experience and economic trends and conditions. While the estimates can be affected by operations experience and regulatory changes, historically, our allowance and liability levels have remained consistent as a percentage of their respective loan portfolios.

We regularly review our loss exposure to determine appropriate loss reserve amounts, as well as to determine strategies that could minimize our future exposure. While we believe our current allowance and liability are adequate, we could be negatively affected if we experience a higher than historical level of losses in the short-term, which would require us to increase our provision for loan losses and accrual for loan losses payable to Republic Bank.

Goodwill. From time to time, we acquire individual stores or a group of stores. When we enter into these acquisitions, we value the underlying tangible and intangible assets and record the excess of the purchase price over the net assets acquired as goodwill. We review the carrying value of goodwill annually or when events and circumstances warrant such a review. We review the carrying value of goodwill using a discounted cash flow model of the expected net cash flows of the business. The most significant variables used in the model include expected revenues, incremental costs and working capital requirements. We regularly compare actual results to expected performance, but in the event we experience significant declines in revenue levels or significant increases in operating costs, the value of goodwill could be impaired, and we might be required to write-down the recorded value of goodwill.

Income Taxes. We establish our deferred tax assets and liabilities based on our profits or losses in each jurisdiction in which we operate. We periodically assess the likelihood of realizing our deferred tax assets and would record a valuation allowance based on the amount of deferred tax assets that we believe is more likely than not to be realized. We base our judgment of the recoverability of our deferred tax asset primarily on historical earnings, our estimate of current and expected future earnings, prudent and feasible tax planning strategies, and current and future ownership changes. A significant adverse change in any one or several of these factors would materially affect our assessment of the likelihood of recoverability of our deferred tax assets and would impact the amount of tax expense we record. Historically, we have fully recovered our deferred tax assets as estimated.

Self-insurance liabilities. We are self-insured for workers’ compensation, general liability and medical liability claims not otherwise covered by third-party insurance policies. The established self-insured reserves are determined by a review of actuarial assessments and historical loss experience, and may be adjusted based on higher or lower actual loss experience. In the event that we experience higher than expected losses, we may be required to increase the levels of our self-insured liabilities and/or record a charge to cover uninsured losses. Historically, our calculated reserves for self-insured liabilities have been adequate.

Summary of Annual Results

Our fiscal 2005 total revenue was approximately $22.0 million, or 9%, higher than our fiscal 2004 total revenue. This increase resulted primarily from an approximate $14.8 million, or 19%, increase in loan-related revenue, an approximate $2.4 million, or 2%, increase in check cashing fees, and an approximate $3.3 million, or 20%, increase in bill-payment (including

debit card) revenue. Our 2005 net income was approximately $27.4 million, with diluted earnings per share of $1.98, compared to our 2004 net income of approximately $17.1 million, with diluted earnings per share of $1.49.

During the quarter ended March 31, 2005, we performed a review of our accounting practices surrounding leases and lease-related items in light of the views that the Office of the Chief Accountant of the Securities and Exchange Commission, expressed in a letter dated February 7, 2005 to the American Institute of Certified Public Accountants, regarding the application of generally accepted accounting principles to operating lease accounting matters.

Historically, we recorded rent expense on a straight-line basis over the initial non-cancelable term of a lease commencing upon store opening. We concluded that the calculation for straight-line rent should be based on the reasonably assured lease term as defined in SFAS 98, “Accounting for Leases”, which in most cases exceeds the initial non-cancelable lease term. In addition, we reassessed the depreciable lives of leasehold improvements to be the shorter of their estimated useful life or the reasonably assured lease term at the inception of the lease. Further, we concluded that landlord allowances which had previously been recorded as a reduction to related leasehold improvements should be reflected as deferred rent and amortized over the reasonably assured lease term as a reduction to rent expense rather than depreciation.

We have restated our June 30, 2002 balance sheet to record a cumulative adjustment to retained earnings of $3.8 million related to periods prior to and including fiscal 2002. For periods subsequent to the end of fiscal 2002, we recorded a one-time non-cash after-tax adjustment of $0.6 million in the third quarter of fiscal 2005 to reflect the cumulative impact of correcting our accounting practices related to leased stores. This adjustment resulted in a $0.04 reduction in diluted earnings per share in the third quarter of fiscal 2005.

We evaluated the materiality of these corrections on our financial statements and concluded that the incremental impact of these corrections is not material to any quarterly or annual period in fiscal 2003 or fiscal 2004. Other than the cumulative adjustment discussed above, prior years’ financial results will not be restated. The adjustments required to correct these practices does not affect historical or future net cash flows or the timing of the payments under the related leases.

Results of Operations


Revenue Analysis	Year Ended June 30,
	2005		2004		2003		2005			2004			2003
	(in thousands)						(percentage of revenue)
Check cashing fees	$	131,619	$	129,194	$	125,703		49.0	%		52.4	%		53.7	%
Loan fees and interest		91,793		77,029		70,806		34.2			31.2			30.2
Bill-payment services		20,266		16,960		13,507		7.5			6.9			5.8
Money transfer services		11,868		11,136		10,898		4.4			4.5			4.6
Money order fees		6,875		6,330		6,960		2.6			2.6			3.0
Franchise revenues		3,180		2,774		2,346		1.2			1.1			1.0
Other fees		3,048		3,236		4,069		1.1			1.3			1.7

Total revenue	$	268,649	$	246,659	$	234,289		100.0	%		100.0	%		100.0	%


Average revenue per store (excluding franchise revenues)	$	244.6	$	247.8	$	235.5

Fiscal 2005 Compared to Fiscal 2004. Our total revenue growth resulted from a $7.1 million, or 3.1%, increase in comparable company-owned store revenues (956 stores) and a $14.9 million increase from stores that were not open for both of the full periods compared. The number of company-owned stores increased by 116, or 11%, to 1,142 stores open at June 30, 2005 from 1,026 stores open at June 30, 2004. During fiscal 2005, we opened 80 newly constructed stores, acquired 74, sold six, and closed 32 company-owned stores.

Check cashing fees, including tax check fees, increased because of a 2% increase in the average size check and a 1% increase in the number of checks cashed. Same store check cashing fees decreased 3.8% in fiscal 2005 from fiscal 2004. Tax check fees of $20.3 million for fiscal 2005 decreased by $0.5 million, from $20.8 million in fiscal 2004. We received $3.4 million of tax check fees from our 130 self-service machines (“SSMs”) located in H&R Block offices in fiscal 2005, compared to $4.3 million of tax check fees from our over 200 self-service machines in H&R Block offices in fiscal 2004.

The increase in loan fees and interest in fiscal 2005 resulted from a 21% increase in loan volume in both the ACE loan product and the Republic Bank loan product. Same store loan fees increased 12.7% in fiscal 2005 from fiscal 2004. We did not offer, and therefore we did not receive any fees from, our ACE Texas loan product or the First Bank of Delaware loan product in fiscal 2005.

The increase in bill payment fees in fiscal 2005 was a result of growth in revenues from our services related to prepaid debit cards. Money transfer services increased as a result of the increase in the number of stores in the ACE network. Despite a decrease in the number of money orders sold (which relates to increased customer usage of electronic bill-payment services), money order fees increased as a result of rate increases. Revenue from guarantees, incentives and bonuses paid under vendor agreements (which presently pertains only to money transfers and money orders) are recorded in their respective revenue product line. The Travelers Express Agreement provides incentive bonuses for opening new store locations at which MoneyGram services are offered as well as certain other performance incentives. Incentive bonuses are recognized as revenue over the remaining term of the agreement. The amounts recorded as guarantees, incentive and bonus revenue for the years ended June 30, 2005, 2004 and 2003 are as follows:


	Year Ended June 30,
	2005		2004		2003
	(in thousands)
Money transfer services:
Incentive and store opening bonuses	$	2,868	$	2,559	$	2,528
Guarantees		1,319		1,326		1,470

		4,187		3,885		3,998

Money order fees:
Incentive bonuses		808		854		950

Total guarantee and bonus revenue	$	4,995	$	4,739	$	4,948

Other fees decreased in fiscal 2005 as a result of the discontinuation of certain miscellaneous products. Franchise revenues consist of royalties and initial franchise fees. Franchise revenues increased in fiscal 2005 as a result of the increased number of franchised store openings. During fiscal 2005, we opened 48 franchised stores, acquired 22 former ACE franchised stores, and closed one franchised store, resulting in a net increase of 25 franchised stores.

Fiscal 2004 Compared to Fiscal 2003. Our total revenue growth resulted from a $10.7 million, or 5.0%, increase in comparable company-owned store revenues (945 stores) and a $1.7 million increase from stores that were not open for both of the full periods compared. The number of company-owned stores increased by 58, or 6%, to 1,026 stores open at June 30, 2004 from 968 stores open at June 30, 2003. During fiscal 2004, we opened 53 newly constructed stores, acquired 34, sold five, and closed 24 company-owned stores.

Check cashing fees, including tax check fees, increased because of a 1% increase in the average size check and a 3% increase in the average fee per check. Same store check cashing fees increased 4.1% in fiscal 2004 from fiscal 2003. Tax check fees of $20.8 million for fiscal 2004 decreased by $0.7 million, from $21.5 million in fiscal 2003. We received $4.3 million of tax check fees from our over 200 self-service machines (“SSMs”) located in H&R Block offices in fiscal 2004, compared to $4.7 million of tax check fees from 240 SSMs in H&R Block offices in 2003.

The increase in loan fees and interest in fiscal 2004 resulted from a 9% increase in loan volume in both the ACE loan product and the Republic Bank loan product.

Over half of the increase in bill payment fees in fiscal 2004 was a result of growth in revenues from our services related to prepaid debit cards ($1.9 million). Also, we continue to add new payees to the bill payment program and benefit from growth from existing payees. Money order fees decreased in fiscal 2004 primarily because of the sale of fewer money orders, which in turn was primarily because of increased customer usage of electronic bill-payment services. Other fees decreased in fiscal 2004 as a result of the discontinuation of certain miscellaneous products.

Franchise revenues consist of royalties and initial franchise fees. Franchise revenues increased in fiscal 2004 as a result of the increased number of franchised store openings. During fiscal 2004, we opened 32 franchised stores, acquired 13 former franchised stores, and closed 15 franchised stores.


Store Expense Analysis	Year Ended June 30,
	2005		2004		2003		2005			2004			2003
	(in thousands)						(percentage of revenue)
Salaries and benefits	$	65,293	$	59,593	$	58,170		24.3	%		24.2	%		24.8	%
Occupancy		34,768		30,563		29,194		13.0			12.4			12.5
Provision for loan losses and doubtful accounts		27,090		24,235		22,892		10.1			9.8			9.8
Depreciation		7,684		7,563		6,966		2.9			3.1			3.0
Other:


Store Expense Analysis	Year Ended June 30,
	2005			2004			2003			2005			2004			2003
	(in thousands)									(percentage of revenue)
Armored and security		8,750			7,954			7,782			3.2			3.2			3.3
Returns and cash shorts		7,288			9,350			9,896			2.7			3.8			4.2
Information services		3,884			5,860			3,831			1.4			2.4			1.6
Bank charges		5,839			5,093			5,314			2.2			2.1			2.3
Store supplies		4,423			4,219			4,063			1.6			1.7			1.7
Telecommunications		1,977			2,211			3,027			0.7			0.9			1.3
Advertising and marketing		2,863			2,072			564			1.1			0.8			0.2
Miscellaneous		3,374			3,307			3,715			1.3			1.3			1.6

Other		38,398			40,066			38,192			14.2			16.2			16.2

Total store expenses	$	173,233		$	162,020		$	155,414			64.5	%		65.7	%		66.3	%


Average per store expense	$	159.6		$	164.6		$	157.8

Average per store gross margin	$	85.0		$	83.2		$	77.7

Face amount of returned checks	$	26,914		$	21,705		$	24,087
Collections		(20,951	)		(13,947	)		(16,935	)

Net write-offs	$	5,963		$	7,758		$	7,152


Net write-offs as a percentage of the face amount of checks cashed		0.11	%		0.15	%		0.14	%

Fiscal 2005 Compared to Fiscal 2004. Total store expenses increased as a result of the expenses related to the increased number of stores, and additional loan provision related to the growth in the loan business.

Salaries and benefits, occupancy, depreciation, armored and security, bank charges, store supplies and advertising and marketing increased primarily as a result of the 11% increase in the number of stores compared to the same period last year. Returned checks, net of collections, and cash shortages decreased due to continued improvements in operational procedures and controls and the sale of aged checks. Returned checks, net of collections, and cash shortages as a percentage of revenues also decreased, to 2.7% in fiscal 2005 from 3.7% in fiscal 2004. The percent of check fee revenue attributable to returned checks was 0.11%, 0.15%, and 0.14% for the fiscal years ended June 30, 2005, 2004 and 2003. The reduction in information services was primarily related to a reduction in lease expense related to the reduced number of self-service machines deployed in H&R Block locations during the fiscal 2005 tax season, along with the prior year’s incremental lease expense of $1.4 million related to the buyout of 105 self-service machine leases. Loan loss provision increased primarily due to growth of both the ACE and Republic Bank loan business. As a result of our regular review of our loan loss exposure, effective July 1, 2004, the provision rate was reduced by 25 basis points from the same period last year. During fiscal 2005, we also recovered $1.2 million from the sale of previously charged off loans, which consisted of approximately $0.9 million related to ACE loans and $.0.3 million related to Republic Bank loans. The allowance for loan losses of $11.0 million at June 30, 2005, represented 34.6% of gross loans receivable, an increase from the allowance for loan losses of $10.6 million, representing 38.3% of gross loans receivable, at June 30, 2004. Loan losses are charged to this allowance, which is reviewed for adequacy (and may be adjusted) on a quarterly basis.

Fiscal 2004 Compared to Fiscal 2003. Total store expenses increased as a result of the expenses related to the increased number of stores, and additional loan provision related to the growth in the loan business.

Salaries and benefits expenses increased because of an increase in employees corresponding with the growth in the number of stores and increased performance bonuses for store operations personnel. Occupancy costs and armored and security expenses combined increased because of the increase in the number stores. Returned checks, net of collections, and cash shortages decreased due to continued improvements in operational procedures and controls. Returned checks, net of collections, and cash shortages as a percentage of revenues also decreased, to 3.8% in fiscal 2004 from 4.2% in fiscal 2003. Loan loss provision increased primarily due to growth of both the ACE and Republic Bank loan business. The allowance for loan losses of $10.6 million at June 30, 2004, represented 38.3% of gross loans receivable, an increase from the allowance for loan losses of $8.7 million, representing 40.2% of gross loans receivable, at June 30, 2003. Loan losses are charged to this allowance, which is reviewed for adequacy (and may be adjusted) on a quarterly basis. Depreciation expense increased as a result of the increased number of stores and the replacement of store signage throughout Texas. Other store expenses increased due to incremental lease expense of $1.4 million related to the buyout of 105 self-service machine leases.


Other Expenses Analysis	Year Ended June 30,
	2005			2004			2003		2005			2004			2003
				(in thousands)					(percentage of revenue)
Region expenses	$	22,971		$	19,251		$	17,056		8.6	%		7.8	%		7.3	%
Headquarters expenses		19,245			18,681			17,133		7.1			7.6			7.3
Franchise expenses		1,227			1,196			1,225		0.5			0.5			0.5
Other depreciation and amortization		3,094			3,893			5,423		1.1			1.6			2.3
Interest expense, net		4,880			10,231			16,004		1.8			4.1			6.8
Loss on early extinguishment of debt		—			4,858			270		—			2.0			0.1
Other (income) expenses, net		(864	)		(1,893	)		1,314		(0.3	)		(0.8	)		0.6

Total other expenses	$	50,553		$	56,217		$	58,425		18.8	%		22.8	%		24.9	%

Region Expenses

Fiscal 2005 Compared to Fiscal 2004. Region expenses increased $3.7 million primarily because of the addition of two new regions and increases in salaries and benefits expense resulting from additional staffing in collections, facilities and real estate development related to supporting the growth in the number of stores.

Fiscal 2004 Compared to Fiscal 2003. Region expenses increased primarily because of increases in salaries and benefits expense resulting from additional staffing in collections, facilities and real estate development related to supporting the growth in the number of stores.

Headquarters Expenses

Fiscal 2005 Compared to Fiscal 2004. Headquarters expenses increased $0.5 million in fiscal 2005. Increased professional fees related to the completion of the internal control audit requirements of Section 404 of the Sarbanes-Oxley Act approximate $0.3 million of the increase; and expense related to restricted stock granted under our 1997 Stock Incentive Plan constituted $0.6 million of the increase; and these increases were partially offset by a reductions in bonus expense and a lease accounting reclassification recorded in the third quarter of fiscal 2005. Landlord allowances, which had previously been recorded as a reduction to related leasehold improvements, are reflected as deferred rent and amortized over the reasonably assured lease term as a reduction to rent expense rather than depreciation expense.

Fiscal 2004 Compared to Fiscal 2003. Headquarters expenses increased $1.5 million in fiscal 2004. Increased salaries and benefits related to the addition of professional personnel (including an assistant vice president of internal audit, a vice president of compliance, chief marketing officer, and general counsel) constituted approximately $1.5 million of the increase; employee-performance bonus expense constituted $0.5 million of the increase; increased professional fees constituted $0.6 million of the increase; and expense related to restricted stock granted under our 1997 Stock Incentive Plan constituted $0.5 million of the increase; and these increases were partially offset by a reduction in legal expenses regarding our prior litigation of $1.7 million.

Franchise Expenses

Fiscal 2005 Compared to Fiscal 2004. Franchise expenses relate to the salaries, benefits, and other franchisee support costs for the sales and support personnel in our ACE Franchise Group. Franchise expenses in fiscal 2005 remained unchanged from fiscal 2004.

Fiscal 2004 Compared to Fiscal 2003. Franchise expenses relate to the salaries, benefits, and other franchisee support costs for the sales and support personnel in our ACE Franchise Group. Franchise expenses in fiscal 2004 remained unchanged from fiscal 2003.

Other Depreciation and Amortization

Fiscal 2005 Compared to Fiscal 2004. Other depreciation and amortization decreased $1.2 million because of the decrease in the amount of debt financing costs amortized in fiscal 2005 compared to fiscal 2004, offset by increases in depreciation and amortization related to opening 80 and acquiring 74 new stores.

Fiscal 2004 Compared to Fiscal 2003. Other depreciation and amortization decreased because of the decrease in the amount of debt financing costs amortized in fiscal 2004 compared to fiscal 2003.

Interest Expense

Fiscal 2005 Compared to Fiscal 2004. Interest expense decreased because of the repayment in May 2004 of our term notes issued to American Capital Strategies, Ltd., along with lower interest expense from lower average revolver advances.

Fiscal 2004 Compared to Fiscal 2003. Interest expense decreased because of reductions in the effective interest rates on the term debt and revolving advances after the amendment of the credit agreement in March 2003 and the repayment of the notes in May 2004, along with lower interest expense from lower average revolver advances and term note balances during fiscal 2004.

Loss on Early Extinguishment of Debt

Fiscal 2004 Compared to Fiscal 2003. In May 2004, we used the net proceeds from our sale of shares of common stock to repay the entire principal amount outstanding of our term notes issued to American Capital Strategies, Ltd. We paid a cash prepayment fee of approximately $700,000 and incurred a non-cash charge of approximately $4.1 million related to the write-off of deferred financing fees associated with those notes. There was no expense or payment related to the termination of the interest rate swap agreement associated with those notes.


Other (Income) Expenses, Net	Year Ended June 30,
	2005			2004			2003
	(in thousands)
Gain on sale of stores to franchisees	($	1,802	)	($	649	)	($	888	)
Gain on sale of warrants issued by Netspend Corporation		(132	)		(1,049	)		—
Store closing expense		495			410			534
Settlements (1)		—			(138	)		5,750
Insurance recovery resulting from claims related to the Goleta loan-related lawsuits		—			—			(4,700	)
Loss on liquidation of ePacific investment		—			—			703
Store lease buyout (2)		—			(450	)		—
Gain on sale of land in North Carolina		—			(95	)		—
Other		575			78			(85	)

Total other (income) expenses, net	($	864	)	($	1,893	)	$	1,314


(1)		Fiscal 2004 consists of $106,000 for additional administrative costs related to the settlement of substantially all claims in the Goleta loan-related lawsuits, $190,000 for a state regulatory settlement and the recovery of $434,000 resulting from the settlement of the Silverman lawsuit. Fiscal 2003 consists of a $5 million charge for settlement and release of substantially all claims in the Goleta loan-related lawsuits and payments of $500,000 and $250,000 to resolve state and federal regulatory matters, respectively.

(2)		We received payment to terminate a store lease in Arizona to allow another retailer to occupy the location.

income tax rate of 35%, plus a provision for state income taxes. The effective income tax rate was 39.0% for fiscal 2005 and 40.0% for fiscal 2004.

Fiscal 2004 Compared to Fiscal 2003. A provision of $11.4 million was recorded for income taxes for fiscal 2004, compared to $8.5 million for fiscal 2003. The provision for income taxes was calculated based on a statutory federal income tax rate of 35%, plus a provision for state income taxes. The effective income tax rate was 40.0% for both fiscal 2004 and 2003.

Balance Sheet Variations

Cash and cash equivalents, money orders payable and revolving advances vary because of seasonal and day-to-day requirements resulting primarily from maintaining cash for cashing checks and making small consumer loans, receipts of cash from the sale of money orders and remittances on money orders sold, receipts of cash for wire transfers, and remittances for wire transfers and receipts of cash for electronic bill payments and remittances for bill payments. For the year ended June 30, 2005, cash and cash equivalents decreased $13.6 million, compared to an increase of $14.9 million for year ended June 30, 2004.

During fiscal 2004, we completed a public offering of 2,411,622 shares of our common stock at an offering price of $27.00 per share. We used the net proceeds of approximately $61.4 million from our sale of shares in the offering to repay in full the outstanding amount (approximately $30.4 million of principal and interest) of our senior subordinated secured promissory notes issued to American Capital Strategies, Ltd. With that repayment, we also paid a cash prepayment fee of approximately $700,000. We also incurred non-cash charges in the fourth quarter of fiscal 2004 of approximately $4.1 million related to the write-off of deferred financing fees associated with those notes. After repayment of those notes, we used the remaining net proceeds to pay down our revolving credit facilities.

Accounts receivable, net, at June 30, 2005 decreased $1.6 million from June 30, 2004 primarily due a reduction in the receivables due from Republic Bank due to more timely remittances from Republic Bank.

Loans receivable, net, at June 30, 2005 increased $3.7 million from June 30, 2004 due to the increased volume of our loan product. As of June 30, 2005, we offered our loan product in 621 or our company-owned stores, compared to 561 company-owned stores as of June 30, 2004. Loans receivable, net, does not include any of the Republic Bank deferred-deposit loans available through our stores in Arkansas, Pennsylvania and Texas, because we serve only as marketing and servicing agent for Republic Bank regarding those loans and do not acquire or own any participation interest in any of those loans. Our agreement with Republic Bank provides for us to receive agency fees from Republic Bank, though such fees are subject to reduction or offset by the losses from uncollected Republic Bank loans.

Property and equipment, net, at June 30, 2005 increased $10.3 million from June 30, 2004 as a result fixed asset additions ($19.9 million including $0.4 million for capitalized software development.), lease expense reclassification to leasehold improvements ($0.9 million), offset by depreciation expense ($9.1 million) and retirements ($1.5 million). Goodwill, net, at June 30, 2005 increased $17.0 million from June 30, 2004 as a result of the 74 stores acquired during fiscal 2005.

Other assets at June 30, 2005 increased $3.0 million from June 30, 2004 as a result of the purchase of a certificate of deposit of $1.8 million as required by our Republic Bank agreement, an increase in store inventories of $1.5 million, the capitalization of annual license fees of $0.4 million, and an increase in prepaid advertising costs of $0.5 million, offset by the decreases in deferred finance costs of $0.6 million, and deferred taxes of $0.6 million.

Revolving advances at June 30, 2005 decreased by $16.7 million from June 30, 2004 due to reduced average daily usage of the revolving credit facility, which in turn resulted from continued improvements in cash forecasting and operational procedures regarding store cash deliveries and more efficient management of working capital during fiscal 2005.

Accounts payable, accrued liabilities, and other current liabilities at June 30, 2005 increased by $3.4 million from June 30, 2004, as indicated by the following:


	For the Year Ended June 30,
	2005		2004		Change
	(in thousands)
Accounts payable	$	12,162	$	8,911	$	3,251
Accrued salaries and benefits		9,745		9,782		(37	)
Money transfer payable		2,596		2,132		464
Payable to Republic Bank		2,348		1,584		764


	For the Year Ended June 30,
	2005		2004		Change
	(in thousands)
Deferred revenue		2,207		1,900		307
Accrued workers’ compensation		1,000		821		179
Income taxes payable		766		1,621		(855	)
Accrued bank charges		464		376		88
Deferred gain on sale of stores		161		159		2
Notes payable — current		120		32		88
Accrued litigation		86		104		(18	)
Interest-rate swap		70		—		70
Interest payable		21		138		(117	)
Restructuring accrual		—		28		(28	)
Accrued self-service machine write-off		—		1,400		(1,400	)
Other accrued liabilities		4,371		3,723		648

	$	36,117	$	32,711	$	3,406

ACE Loan Portfolio

We have established a loan loss allowance for our loans receivable, consisting of our short-term consumer loans and, only until June 30, 2003, our participation interests in outstanding Goleta loans, at a level that our management believes to be adequate to absorb known or probable losses from short-term consumer loans. In the first six months of fiscal 2003, we gradually ceased to offer Goleta loans and began to offer state-regulated short-term consumer loans at our owned stores. As of December 31, 2002, Goleta loans were no longer offered at any of our stores, though we continued to collect outstanding Goleta loans until June 30, 2003. Because our short-term consumer loans are substantially similar to the Goleta loans formerly offered, our method for determining our loan loss allowance for both types of loans is the same.

Our current policy for determining the loan loss allowance is based on historical experience, as well as the results of management’s review and analysis of the payment and collection of the loans within the last fiscal quarter. We have determined, based on recent operating history, that we receive payment of approximately 94.8% (for loans maturing in the first, second and fourth fiscal quarters) or 95.7% (for loans maturing during tax refund season in the third fiscal quarter) of the loan volume, or principal amount of the loans. Therefore, the loan loss allowance is approximately 5.2% of the principal amount of the loans maturing in the first, second and fourth fiscal quarters and approximately 4.3% of the principal amount of the loans maturing in the third fiscal quarter. Our policy is to charge off all of our short-term consumer loans, or participation interests in Goleta loans, which are 180 days or more past due or delinquent. Charge-offs are applied as a reduction to the loan loss allowance, and any recoveries of previously charged-off loans or participation interests in Goleta loans are applied as an increase to the loan loss allowance. The type of loans we offer typically have a term of only two to four weeks, and when the loan matures, the loan no longer accrues interest.

At the end of each fiscal quarter, we analyze the loan loss provision and the allowance that has been computed based on the activity described above to determine if the allowance is adequate based on our understanding of what is occurring in the stores with customers, past loan loss experience, current economic conditions, volume and growth of the loan portfolio, timing of maturity, as well as collections experience. For this purpose, we treat each renewal of a loan in which no additional principal is advanced as a continuation of the initial loan. If necessary, we make adjustments to the provision and the allowance. As a result of our regular review of our loan loss exposure, effective July 1, 2004, the provision rate was reduced by 25 basis points from the same period last year.

An analysis of the loan loss allowance with reference to our gross loans receivable (which does not include any Republic Bank loans) is as follows:


	Year Ended June 30,
	2005			2004			2003
	(in thousands)
ACE Loans:
Gross loans receivable, beginning of period	$	27,663		$	21,734		$	29,569
Originations		455,710			368,031			420,129
Repayments		(433,715	)		(347,094	)		(405,124	)
Charge-offs		(18,996	)		(15,295	)		(23,729	)
Recoveries		1,128			287			889

Gross loans receivable, end of period	$	31,790		$	27,663			21,734


	Year Ended June 30,
	2005			2004			2003
	(in thousands)
Allowance for losses on loans receivable		(11,003	)		(10,616	)		(8,734	)

Loans receivable, net of allowance	$	20,787		$	17,047		$	13,000


Allowance for losses on loans receivable:
Beginning of period	($	10,616	)	($	8,734	)	($	12,213	)
Provision for loan losses		(18,255	)		(16,890	)		(19,361	)
Charge-offs		18,996			15,295			23,729
Recoveries		(1,128	)		(287	)		(889	)

End of period	($	11,003	)	($	10,616	)	($	8,734	)


Net loan charge-offs as a percent of matured loan volume ⁽¹⁾		3.9	%		4.1	%		5.4	%
Allowance as a percent of gross loans receivable		34.6	%		38.3	%		40.2	%


⁽¹⁾		Matured loan volume represents all loans which became due and payable during the reporting period.

The schedule below indicates the progression of receipts or collections of each “quarterly portfolio” of loans, consisting of both our short-term consumer loans and participation interests in Goleta loans. In this case, a “quarterly portfolio” is our interests in all of the loans that matured in a particular fiscal quarter. We can track the payment rates at different points of time for each quarterly portfolio.

We have established the following targets regarding each quarterly portfolio:

	•		Receive or collect 91.5% (or 93% in our third fiscal quarter) of the total volume, or principal amount of loans, by the end of the current quarter (i.e., by December 31 for the short-term consumer loans maturing between October 1 and December 31).

	•		Receive or collect a cumulative 93.2% (or 94.8% in our third fiscal quarter) by 90 days out (i.e., by March 31 for the same quarterly portfolio).

	•		Receive or collect a cumulative 94.8% (or 95.7% in our third fiscal quarter) by 180 days out (i.e., by June 30 for the same quarterly portfolio). We charge-off our short-term consumer loans when they become delinquent for 180 days.

The assumed higher rate of payment in our third fiscal quarter is a result of improved collections during the annual tax season because of borrowers’ receipt of tax refunds.

Collection Progression for Quarterly ACE Loan Portfolios


	Collection Percentage
				Actual
Days Following Quarter	Target			Fiscal 2005			Fiscal 2004			Fiscal 2003

	First Quarter

30		91.5	%		93.0	%		92.8	%		92.4	%
90		93.2	%		94.6	%		94.9	%		94.7	%
180		94.8	%		94.7	%		95.1	%		95.1	%


	Second Quarter

30		91.5	%	93.5	%	93.9	%	93.1	%
90		93.2	%	95.6	%	95.5	%	95.9	%
180		94.8	%	96.0	%	95.8	%	96.1	%


	Third Quarter

30		93.0	%	94.9	%	94.7	%	93.5	%
90		94.8	%	96.3	%	96.0	%	95.9	%
180		95.7	%			96.1	%	96.1	%


	Collection Percentage
				Actual
Days Following Quarter	Target			Fiscal 2005			Fiscal 2004			Fiscal 2003

	Fourth Quarter

30		91.5	%		93.3	%		93.2	%		93.4	%
90		93.2	%					94.7	%		95.4	%
180		94.8	%					95.1	%		95.6	%

All loans not paid on the due date are considered delinquent. Even when payments are subsequently received for delinquent loans, no additional interest is accrued on those loans. Our policy is to charge off all ACE loans that are 180 days or more past due. The following table provides loans past due (non-accrual) and loans ninety days or more past due at each balance sheet date:


	Year Ended June 30,
	2005			2004			2003
	(dollars in thousands)
ACE Loans:
Gross loans receivable, end of period	$	31,790		$	27,663		$	21,734
Loans past due (unpaid at due date)	$	10,992		$	9,914		$	7,841
% of gross loans receivable		34.6	%		35.8	%		36.1	%
Loans past due 90+ days	$	3,927		$	3,653		$	3,249
% of gross loans receivable		12.4	%		13.2	%		15.0	%

Off-Balance Sheet Arrangement with Republic Bank

Although we market and service these Republic Bank loans, Republic Bank is responsible for reviewing each loan application and determining whether such application is approved for a loan. We are not involved in the loan approval process, including with respect to determining the loan approval procedures or criteria, nor do we acquire or own any participation interest in these loans. Consequently, Republic Bank loans are not included in our loan portfolio or in our loans receivable and are not reflected on our balance sheet. Under our agreement, however, we are obligated to reimburse Republic Bank by paying it an amount equal to the net amount charged off by Republic Bank, regarding its loans in our stores. Therefore, we could be obligated to pay Republic Bank for loan losses in an amount up to the total outstanding amount of Republic Bank loans recorded on Republic Bank’s financial statements, which was $10.7 million as of June 30, 2005.

Because of our economic exposure for losses related to the Republic Bank loans, we have established a payable to reflect our anticipated losses related to uncollected Republic Bank loans that are 180 days or more past due. Though we have not had any long-term experience with Republic Bank loans, we believe that the loss experience with Republic Bank loans will be similar to the loss experience with our other loans because the loan products are similar in term, amount and credit quality. Accordingly, the payable for amounts due to Republic Bank for losses regarding Republic Bank loans has been established using the same methodology discussed in the Loan Portfolio disclosure. We cannot assure you, however, that our estimates will be accurate, and if the Republic Bank loan losses are materially greater than our recorded amount payable to Republic Bank, our financial condition could be materially adversely affected.

For the year ended June 30, 2005, we provided approximately $8.7 million for losses on Republic Bank loans and charged-off $8.4 million related to these loans. The balance of the liability for Republic Bank loan losses reported in accrued liabilities as of June 30, 2005 was $4.0 million.

For the year ended June 30, 2004, we provided approximately $7.4 million for losses on Republic Bank loans and charged-off $6.6 million related to these loans. The balance of the liability for Republic Bank loan losses reported in accrued liabilities as of June 30, 2004 was $3.7 million.

An analysis of the loan losses payable to Republic Bank is as follows:


	Year Ended June 30,
	2005			2004			2003
	(in thousands)
Republic Bank Loans:
Gross loans receivable, beginning of period	$	9,434		$	10,356		$	—
Originations		184,646			159,692			63,897
Repayments		(174,997	)		(154,084	)		(53,462	)
Charge-offs		(8,755	)		(6,545	)		—
Recoveries		385			15			(79	)

Gross loans receivable, end of period ⁽¹⁾	$	10,713		$	9,434			10,356


Liability for loan losses payable to Republic Bank, beginning of period		(3,714	)		(2,854	)		—
Provision for loan losses payable to Republic Bank		(8,686	)		(7,390	)		(2,933	)
Charge-offs		8,755			6,545			—
Recoveries		(385	)		(15	)		79

Liability for loan losses payable to Republic Bank, end of period		(4,030	)		(3,714	)		(2,854	)


Net loans receivable	$	6,683		$	5,720		$	7,502


Net loan charge-offs as a percent of matured loan volume ⁽²⁾		4.6	%		4.2	%		—
Liability as a percent of gross receivable		37.6	%		39.4	%		27.6	%


⁽¹⁾		Republic Bank loans are not carried on our balance sheet.

⁽²⁾		Matured loan volume represents all loans which became due and payable during the reporting period.

The schedule below indicates the progression of receipts or collections of each “quarterly portfolio” of loans, consisting of Republic Bank loans. In this case, a “quarterly portfolio” is all of the Republic Bank loans that matured in a particular fiscal quarter. We can track the payment rates at different points of time for each quarterly portfolio.

The assumed higher rate of payment in our third fiscal quarter is a result of improved collections during the annual tax season because of borrowers’ receipt of tax refunds.

Collection Progression for Quarterly Republic Bank Loan Portfolios


	Collection Percentage
				Actual
Days Following Quarter	Target			Fiscal 2005			Fiscal 2004			Fiscal 2003

	First Quarter

30		91.5	%		91.6	%		92.4	%		—
90		93.2	%		93.5	%		94.8	%		—
180		94.8	%		94.3	%		94.9	%		—


			Second Quarter

30	91.5	%		92.2	%	93.6	%	—
90	93.2	%		94.9	%	95.9	%	—
180	94.8	%		95.4	%	95.9	%	—


	Third Quarter

30		93.0	%	94.3	%	94.7	%	94.3	%
90		94.8	%	95.8	%	95.9	%	96.6	%
180		95.7	%			96.0	%	96.8	%


		Page
		Number
PART I

Item 1.	Business		3
Item 2.	Properties		21
Item 3.	Legal Proceedings		21
Item 4.	Submission of Matters to a Vote of Security Holders		21

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		21
Item 6.	Selected Financial Data		23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		51
Item 8.	Financial Statements and Supplementary Data		51
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		51
Item 9A.	Controls and Procedures		51
	Management’s Report on Internal Control over Financial Reporting		52
	Report of Independent Registered Public Accounting Firm		53

Item 9B.	Other Information		54

PART III

Item 10.	Directors and Executive Officers of the Registrant		54
Item 11.	Executive Compensation		54
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		54
Item 13.	Certain Relationships and Related Transactions		54
Item 14.	Principal Accountant Fees and Services		54

PART IV

Item 15.	Exhibits and Financial Statement Schedules		54

SIGNATURES			59

INDEX TO EXHIBITS			93
Third Amendment to the Marketing & Services Agreement
Installment Loan Marketing & Servicing Agreement
Subsidiaries
Consent of Grant Thornton LLP
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

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