UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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                     

DOLLAR FINANCIAL CORP.

DELAWARE		23-2636866
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
1436 Lancaster Avenue
Berwyn, Pennsylvania		19312-1288
(Address of Principal Executive		(Zip Code)
Offices)

Common Stock, $.001 par value per share
(Title of Class)

     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: þ

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

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

     As of August 31, 2005, 18,087,702 shares of the registrant’s common stock, par value $0.001 per share, were outstanding. As of such date the aggregate market value of voting stock (based upon the last reported sales price in The Nasdaq Stock Market) held by nonaffiliates of the registrant was approximately $135,430,453.

     The Company’s definitive proxy statement to be filed in connection with its solicitation of proxies for its Annual Meeting of Stockholders to be held on November 17, 2005, is incorporated by reference to Part III of this Annual Report on Form 10-K, Items 10, 11, 12, 13 and 14.

 

 

DOLLAR FINANCIAL CORP.

Table of Contents

2005 Report on Form 10-K

Money Mart^®, Loan Mart^® and We The People^® are trademarks of Dollar Financial Corp. This Annual Report on Form 10-K also includes trademarks and tradenames of other companies.

PART I
Item 1.		Business			3
Item 2.		Properties			21
Item 3.		Legal Proceedings			22
Item 4.		Submission of Matters to a Vote of Security Holders			24
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			25
Item 6.		Selected Financial Data			26
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			42
Item 8.		Financial Statements and Supplementary Data			43
Item 9.		Changes and Disagreements with Accountants on Accounting and Financial Disclosure			83
Item 9A.		Controls and Procedures			83
Item 9B.		Other Information			83
PART III
Item 10.		Directors and Executive Officers of the Registrant			84
Item 11.		Executive Compensation			84
Item 12.		Security Ownership of Certain Beneficial Owners and Management			85
Item 13.		Certain Relationships and Related Transactions			85
Item 14.		Principal Accountant Fees and Services			85
PART IV
Item 15.		Exhibits and Financial Statement Schedules			86
Signatures					92
CONSENT OF ERNST & YOUNG LLP
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION OF PRESIDENT
CERTIFICATION OF EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
CERTIFICATION OF CHIEF EXECUTIVE OFFICER, PURSUANT TO SECTION 906
CERTIFICATION OF PRESIDENT, PURSUSANT TO SECTION 906
CERTIFICATION OF EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, PURSUANT TO SECTION 906
PRESS RELEASE ISSUED BY DOLLAR FINANCIAL CORP. AND DOLLAR FINANCIAL GROUP

Item 1. BUSINESS

General

     We are a leading international financial services company serving under-banked consumers. Our customers are typically lower- and middle-income working-class individuals who require basic financial services but, for reasons of convenience and accessibility, purchase some or all of their financial services from us rather than banks and other financial institutions. To serve this market, we currently operate a network of 1,330 stores, including 742 company-operated stores, in 36 states, the District of Columbia, Canada and the United Kingdom. We provide a diverse range of consumer financial products and other services primarily consisting of check cashing, short-term consumer loans, money orders, money transfers and legal document preparation services. We have 588 franchised locations in the United States, Canada, and the United Kingdom, including our network of We The People stores acquired in March 2005. Our financial services store network is the second-largest network of its kind in the United States and the largest network of its kind in each of Canada and the United Kingdom. Our We The People legal document preparation services retail store network is the largest of its kind in the United States.

     We are a Delaware corporation incorporated in April 1990 as DFG Holdings, Inc. We operate our store network through our direct wholly-owned subsidiary, Dollar Financial Group, Inc., a New York corporation formed in 1979 (“OPCO”), and its direct and indirect wholly-owned foreign and domestic subsidiaries (collectively, “OPCO”).

     Our network includes the following platforms for delivering our financial services and retail-based legal document preparation services to the consumers in our core markets:

United States

     We currently operate a total of 526 stores, with 263 operating under the name “Money Mart^®”, 88 operating under the name “Loan Mart^®” and 175 under the name “We The People^®”. The Money Mart stores typically offer our full range of financial products and services, including check cashing and short-term consumer loans. The Loan Mart stores offer short-term consumer loans and other ancillary services depending upon location. By offering short-term lending services, we hope to attract a customer who might not use check cashing services. The We The People stores offer retail-based legal document preparation services. At June 30, 2005, we also had relationships with 173 document transmitter locations, such as independent mail stores and insurance offices, which assisted in completing short-term consumer loans we marketed through a direct-to-consumer lending operation. We have, however, since discontinued our operations as a marketing and servicing agent for consumer loans that are fulfilled through document transmitter locations and currently no longer operate through any of these locations.

     Our U.S. business had revenues of $109.9 million for the twelve month period ended June 30, 2004 (“fiscal 2004”) and $118.1 million for the twelve month period ended June 30, 2005 (“fiscal 2005”).

Canada

     There are currently 345 financial services stores in our Canadian network, of which 214 are operated by us and 131 are operated by franchisees. All stores in Canada are operated under the name “Money Mart” except locations in the Province of Québec. The stores in Canada typically offer check cashing, short-term consumer loans and other ancillary products and services.

     Our Canadian business had revenues of $(USD)84.8 million for fiscal 2004 and $(USD)108.2 million for fiscal 2005.

United Kingdom

     There are currently 459 financial services stores in our U.K. network, of which 154 are operated by us and 305 are operated by franchisees. All stores in the United Kingdom (with the exception of certain franchises operating under the name “Cash A Cheque”) are operated under the name “Money Shop.” The stores in the United Kingdom typically offer check cashing, short-term consumer loans and other ancillary products and services.

     Our U.K. business had revenues of $(USD)51.8 million for fiscal 2004 and $(USD)65.2 million for fiscal 2005.

     We currently have 588 franchised locations in Canada, the United Kingdom and in the United States. These franchised locations offer many of the same products and services offered by company-operated stores using the same associated trade names, trade-

marks and service marks within the standards and guidelines we have established. Total franchise revenues were $7.5 million for fiscal 2004 and $11.3 million for fiscal 2005.

     Our customers, many of whom receive income on an irregular basis or from multiple employers, are drawn to our convenient neighborhood locations, extended operating hours and high-quality customer service. Our products and services, principally our check cashing and short-term consumer loan program, provide immediate access to cash for living expenses or other needs. We principally cash payroll checks, although our stores also cash government benefit, personal and income-tax-refund checks. During fiscal 2005, we cashed 8.1 million checks with a total face amount of $3.4 billion and an average face amount of $421 per check. Acting both as a servicer and as a direct lender, we originated 3.3 million short-term consumer loans with an average principal amount of $339 and a weighted average term of approximately 14.3 days. In addition, we acted as a direct lender originating 9,516 longer-term installment loans with an average principal amount of $1,089 and a weighted average term of approximately 327 days. We also strive to provide our customers with high-value ancillary services, including Western Union money order and money transfer products, electronic tax filing, bill payment, foreign currency exchange, photo ID and prepaid local and long-distance phone services.

Industry Overview

     We operate in a sector of the financial services industry that serves the basic need of lower- and middle-income working-class individuals to have convenient access to cash. This need is primarily evidenced by consumer demand for check cashing and short-term loans, and consumers who use these services are often underserved by banks and other financial institutions.

     Lower- and middle-income individuals represent the largest part of the population in each country in which we operate. Many of these individuals work in the service sector, which in the United States is one of the fastest growing segments of the workforce.

     However, many of these individuals, particularly in the United States, do not maintain regular banking relationships. They use services provided by our industry for a variety of reasons, including that they often:

	•		do not have sufficient assets to meet minimum balance requirements or to achieve the benefits of savings with banks;
	•		do not write enough checks to make a bank account beneficial;
	•		need access to financial services outside of normal banking hours;
	•		desire not to pay fees for banking services that they do not use;
	•		require immediate access to cash from their paychecks;
	•		may have a dislike or distrust of banks; and
	•		do not have a neighborhood bank in close proximity to them.

     In addition to check cashing services, under-banked consumers also require short-term loans that provide cash for living and other expenses. They also may not be able to or want to obtain loans from banks as a result of:

	•		their immediate need for cash;
	•		irregular receipt of payments from their employers;
	•		their desire for convenience and customer service; and
	•		the unavailability of bank loans in small denominations for short terms.

     Despite the demand for basic financial services, access to banks has become more difficult over time for many consumers. Many banks have chosen to close their less profitable or lower-traffic locations. Typically, these closings have occurred in lower-income neighborhoods where the branches have failed to attract a sufficient base of customer deposits. This trend has resulted in fewer convenient alternatives for basic financial services in many neighborhoods. Many banks have also reduced or eliminated some services that under-banked consumers need.

     As a result of these trends, a significant number of retailers have begun to offer financial services to lower- and middle-income individuals. The providers of these services are fragmented, and range from specialty finance offices to retail stores in other industries that offer ancillary services.

     We believe that the under-banked consumer market will continue to grow as a result of a diminishing supply of competing banking services as well as underlying demographic trends. These demographic trends include an overall increase in the population and an increase in the number of service-sector jobs as a percentage of the total workforce.

     The demographics of the typical customers for non-banking financial services vary slightly in each of the markets in which we operate, but the trends driving the industry are generally the same. In addition, the type of store and services that appeal to customers in each market vary based on cultural, social, geographic and other factors. Finally, the composition of providers of these services in each market results in part from the historical development and regulatory environment in that market.

Growth Opportunities

     We believe that significant opportunities for growth exist in our industry as a result of:

	•		growth of the service-sector workforce;
	•		failure of commercial banks and other traditional financial service providers to adequately address the needs of lower and middle-income individuals; and
	•		trends favoring larger operators in the industry.

     We believe that, as the lower- and middle-income population segment increases, and as trends within the retail banking industry make banking less accessible to these consumers, the industry in which we operate will see a significant increase in demand for our products and services. We also believe that the industry will continue to consolidate as a result of a number of factors, including:

	•		economies of scale available to larger operations;
	•		use of technology to serve customers better and to control large store networks;
	•		inability of smaller operators to form the alliances necessary to deliver new products; and
	•		increased licensing and regulatory burdens.

     This consolidation process should provide us, as operator of one of the largest store networks, with opportunities for continued growth.

Competitive Strengths

     We believe that the following competitive strengths position us well for continued growth:

     Leading Position in Core Markets. We have a leading position in core markets, operating 374 company-owned stores in the United States, 214 company-owned stores in Canada and 154 company-owned stores in the United Kingdom. We currently have 131 franchised locations in Canada, 305 franchised locations in the United Kingdom and 152 franchised locations in the United States, 146 of which operate under the name We The People and offer retail-based legal document preparation services. Highlights of our competitive position in these core markets include the following:

	•		Our domestic network is focused in rapidly growing markets in the western United States, where we believe we have held leading market positions for over 10 years.
	•		We are the industry leader in Canada, and we hold a dominant market share with a store in almost every Canadian city with a population of over 50,000. Based on a public opinion study of three major metropolitan markets in English speaking Canada, we have achieved brand awareness of 85%.
	•		We believe that we are the largest check cashing company in the United Kingdom, comprising nearly 25% of the market measured by number of stores, although we believe that we account for 40% of all check cashing transactions performed at check cashing stores.
	•		Our We The People stores comprise the largest network of retail-based legal document preparation services in the United States.

     High-quality Customer Service. We adhere to a strict set of market survey and location guidelines when selecting store sites in order to ensure that our stores are placed in desirable locations near our customers. We believe that our customers appreciate this convenience, as well as the flexible and extended operating hours that we typically offer, which are often more compatible with our customers’ work schedules. We provide our customers with a clean, attractive and secure environment in which to transact their business. We believe that our friendly and courteous customer service at both the store level and through our centralized support centers is a competitive advantage.

     Diversified Product and Geographic Mix. Our stores offer a wide range of consumer financial products and services to meet the demands of their respective locales, including check cashing, short-term consumer loans, money orders, money transfers and legal document preparation services. We also provide high-value ancillary products and services, including electronic tax filing, bill payment, foreign currency exchange, reloadable VISA^® brand debit cards, photo ID and prepaid local and long-distance phone services. For fiscal 2005, the revenue contribution by our check cashing operations was 44.2%, our consumer lending operations was 42.4% and our other products and services were 13.4%. In addition to our product diversification, our business is diversified geographically. For fiscal 2005, our U.S. operations generated 40.5% of our total revenue, our Canadian operations generated 37.1% of our total revenue and our U.K. operations generated 22.4% of total revenue. Our product and geographic mix provides a diverse stream of revenue growth opportunities. Our acquisition in March 2005 of 168 We The People franchises and three company-owned stores further diversifies our revenues and provides us with additional growth opportunities.

     Diversification and Management of Credit Risk. Our revenue is generated through a high volume of small dollar financial transactions, and therefore our exposure to loss from a single customer transaction is minimal. In addition, we actively manage our customer risk profile and collection efforts in order to maximize our consumer lending and check cashing revenues while maintaining losses within a targeted range. We have instituted control mechanisms that have been effective in managing risk. Such mechanisms, among others, include the daily monitoring of initial return rates on our consumer loan portfolio. As a result, we believe that we are unlikely to sustain a material credit loss from a single transaction or series of transactions. We have experienced relatively low net write-offs as a percentage of the face amount of checks cashed. For fiscal 2005, in our check cashing business, net write-offs as a percentage of the face amount of checks cashed were 0.26%. For the same period, with respect to loans funded directly by us, net write-offs as a percentage of originations were 2.1%. During the period where we transition our consumer loan portfolio from bank-funded loans to company-funded loans in connection with the implementation of the March 2, 2005 revisions to the Federal Deposit Insurance Corporation, or FDIC, guidelines for payday lending, which became effective on July 1, 2005 (as revised, the “Payday Lending Guidance”), net write-offs as a percentage of originations may materially increase.

     Management Expertise. We have a highly experienced and motivated management team at both the corporate and operational levels. Our senior management team has extensive experience in the financial services industry. Our Chairman and Chief Executive, Jeffrey Weiss, and our President, Donald Gayhardt, have been with us since 1990 and have demonstrated the ability to grow our business through their operational leadership, strategic vision and experience in making selected acquisitions. Since 1990, Mr. Weiss and Mr. Gayhardt have assisted us in completing 39 acquisitions that added 469 company-operated stores and 170 We The People stores. In addition, the management team is highly motivated to ensure continued business success, as they collectively own approximately 8.5% of our outstanding common stock.

Business Strategy

     Our business strategy is designed to capitalize on our competitive strengths and enhance our leading market positions. Key elements of our strategy include:

     Capitalizing on Our Enhanced Network and System Capabilities. With our current network of 1,330 stores, we are well positioned to capitalize on economies of scale. Our centralized core support functions, including collections, call center, field operations and service, loan processing and tax filing, enable us to generate efficiencies by improving collections and purchasing power with our vendors. Our proprietary systems are used to further improve our customer relations and loan servicing activities, as well as to provide a highly efficient means to manage our internal as well as regulatory compliance efforts. We plan to continue to take advantage of these efficiencies to enhance network and store-level profitability.

     Growing Through Disciplined Network Expansion. We intend to continue to grow our network through the addition of new stores and franchisees, while adhering to a disciplined selection process. In order to optimize our expansion, we carefully assess potential markets by analyzing demographic, competitive and regulatory factors, site selection and availability, and growth potential. We seek to add locations that offer check cashing, consumer lending, legal document preparation services or a combination of any of these products and services. In fiscal 2005, we opened 42 new financial service stores, acquired 51 financial services stores and acquired 168 We The People franchises and three company-owned legal document preparation stores; and we opened four franchised stores offering re-

tail-based legal document preparation services. In addition to these new store openings, we are actively seeking to acquire targeted competitor operations in selected expansion markets in the United States, Canada, and the United Kingdom.

     Maintaining our Customer-Driven Retail Philosophy. We strive to maintain our customer-service-oriented approach and meet the basic financial service needs of our working, lower- and middle-income customers. We believe our approach differentiates us from many of our competitors and is a key tenet of our employee training programs. We offer extended operating hours in clean, attractive and secure store locations to enhance appeal and stimulate store traffic. In certain markets, we operate stores that are open 24 hours a day. To ensure customer satisfaction, we periodically send anonymous market researchers posing as shoppers to our U.S. stores to measure customer service performance. We plan to continue to develop ways to improve our performance, including incentive programs to reward employees for exceptional customer service.

     Introducing Related Products and Services. We offer our customers multiple financial products and services. We believe that our check cashing and consumer lending customers enjoy the convenience of other high value products and services offered by us. These products and services enable our customers to manage their personal finances more effectively. For example, during the twelve month period ended June 30, 2003 (“fiscal 2003”), we introduced private branded reloadable debit cards and customer loyalty programs in many of our stores. We also offered new tax-based products to our Canadian customers, providing qualified individuals with cash advances against anticipated tax refunds. In fiscal 2004, we introduced reloadable VISA^® brand debit cards, and, in fiscal 2005, we introduced VISA^® brand gift cards and began offering legal document preparation services through the acquisition of 168 We The People franchises and three company-owned We The People stores. Our product development department continues to develop and test additional new products and services for our customers.

     Expansion of Our Franchising Strategy. We intend to expand the reach of our business and our network through an extension of our existing franchising strategy. In Canada and the United Kingdom, we have developed our leading market positions in part through the use of a franchising strategy that allowed us to expand without incurring additional capital expenditures. We currently have 131 franchised locations in Canada, and 305 franchised locations in the United Kingdom and 152 franchised locations in the United States, six of which are financial services stores and 146 of which are We The People stores offering retail-based legal document preparation services.

Customers

     Our core customer group generally lacks sufficient income to accumulate assets or to build savings. These customers rely on their current income to cover immediate living expenses and cannot afford to wait for checks to clear through the commercial banking system. We believe that many of our customers use our check cashing and short-term lending services in order to access cash immediately without having to maintain a minimum balance in a checking account and to borrow money to fund living expenses and other needs. We believe that consumers value our affordability and attention to customer service, and their choice of financial service provider is influenced by our convenient locations and extended operating hours.

U.S. Customers

     Based on our operating experience and information provided to us by our customers, we believe that our core domestic check cashing customer group is composed of individuals between the ages of 18 and 44. The majority of these individuals rent their homes, are employed and have annual household incomes of between $10,000 and $35,000, with a median income of $22,500. We believe that many of our customers are workers or independent contractors who receive payment on an irregular basis and generally in the form of a check. In addition, we believe that although approximately 38% of our U.S. customers do have bank accounts, these customers use check cashing stores because they find the locations and extended business hours more convenient than those of banks and because they value the ability to receive cash immediately, without waiting for a check to clear.

     Our operating experience and customer data also suggest that our short-term consumer loan customers are mainly individuals between the ages of 18 and 49. The majority of these individuals rent their homes and are employed in professional/managerial positions. A survey conducted by the Credit Research Center of Georgetown University found that 52.4% of short-term consumer loan customers reported household incomes between $25,000 and $50,000 with 24.8% greater than $50,000. The survey also found that these customers choose short-term consumer loans because of easy and fast approval and convenient location. Unlike many of our check cashing customers, short-term consumer loan customers have a bank account but experience temporary shortages in cash from time to time.

Canadian Customers

     Based on recent market research surveys, we believe that the demographics of our Canadian customers are somewhat different from those of our U.S. customers. Our typical Canadian check cashing customer is approximately 34 years old, employed in the trades/labor sector and earning $(USD)22,400 annually. Our typical Canadian short-term loan customer is 25 to 44 years old, employed in the services sector and earning $(USD)27,300 annually. Approximately 60% of our Canadian customers are male and 40% are female. In contrast to the United States, 66% of our Canadian check cashing customers have bank accounts. Our research shows that these customers continue to use our services because of our fast and courteous service, the stores’ extended operating hours and convenient locations.

U.K. Customers

     Recent market research conducted on our behalf and our own customer data have shown that 89% of our U.K. customers have annual incomes below $(USD)30,000, and 58% are under the age of 35. According to market research, approximately 85% of our customer base is employed, with equal numbers of males and females. While 80% of our U.K. customers have bank accounts, they report a high level of dissatisfaction with their current bank relationship. Market research indicates customer service satisfaction levels for our U.K. customers above 95% compared with 50% to 65% satisfaction for the major banks. Staff friendliness and face-to-face contact are key drivers of customer satisfaction. The need for immediate cash is the number one reason for using our services.

Products and Services

     Customers typically use our stores to cash checks (payroll, government and personal), obtain short-term consumer loans and use one or more of the additional financial services available at most locations including Western Union money order and money transfer products, legal document preparation services, electronic tax filing, bill payment, reloadable VISA brand^® debit cards, foreign currency exchange, photo ID and prepaid local and long-distance phone services.

Check Cashing

     Customers may cash all types of checks at our check cashing locations, including payroll checks, government checks and personal checks. In exchange for a verified check, customers receive cash immediately and do not have to wait several days for the check to clear. Before we distribute any cash, we verify both the customer’s identification and the validity of the check (occasionally using multiple sources) as required by our standard verification procedures. Customers are charged a fee for this service (typically a small percentage of the face value of the check). The fee varies depending on the size and type of check cashed as well as the customer’s check cashing history at our stores. For fiscal 2005, check cashing fees averaged approximately 3.76% of the face value of checks cashed.

     The following chart presents summaries of revenue from our check cashing operations, broken down by consolidated operations, U.S., Canadian and U.K. operations for the periods indicated below:

		Year ended June 30,
		2001				2002				2003				2004				2005
		(Unaudited)
Consolidated operations:
Face amount of checks cashed		$	3,046,705,000			$	2,969,455,000			$	2,938,950,000			$	3,169,350,000			$	3,424,835,000
Number of checks cashed			9,001,635				8,627,526				8,568,944				8,427,990				8,141,697
Average face amount per check		$	338.46			$	344.18			$	342.98			$	376.05			$	420.65
Average fee per check		$	11.74			$	12.06			$	12.65			$	13.93			$	15.81
Average fee as a % of face amount			3.47	%			3.50	%			3.69	%			3.70	%			3.76	%
U.S. operations:
Face amount of checks cashed		$	1,728,504,000			$	1,636,967,000			$	1,384,958,000			$	1,349,956,000			$	1,309,231,000
Number of checks cashed			4,485,393				4,317,534				3,855,664				3,621,174				3,379,123
Average face amount per check		$	385.36			$	379.14			$	359.20			$	372.80			$	387.45
Average fee per check		$	12.19			$	12.41			$	12.75			$	13.18			$	13.79
Average fee as a % of face amount			3.16	%			3.27	%			3.55	%			3.54	%			3.56	%
Canadian operations:
Face amount of checks cashed		$	874,187,000			$	896,586,000			$	989,663,000			$	1,144,380,000			$	1,300,089,000
Number of checks cashed			3,445,858				3,359,225				3,475,201				3,476,375				3,529,879
Average face amount per check		$	253.69			$	266.90			$	284.78			$	329.19			$	368.31
Average fee per check		$	8.67			$	9.03			$	9.58			$	11.07			$	12.38
Average fee as a % of face amount			3.42	%			3.38	%			3.36	%			3.36	%			3.36	%
U.K. operations:
Face amount of checks cashed		$	444,014,000			$	435,902,000			$	564,329,000			$	675,014,000			$	815,515,000
Number of checks cashed			1,070,384				950,767				1,238,079				1,330,441				1,232,695
Average face amount per check		$	414.82			$	458.47			$	455.81			$	507.36			$	661.57
Average fee per check		$	19.76			$	21.93			$	20.99			$	23.45			$	31.20
Average fee as a % of face amount			4.76	%			4.78	%			4.60	%			4.62	%			4.72	%

     From fiscal 2001 through the end of fiscal 2005, the number of stores in our network has increased, while the number of checks cashed in the U.S. has decreased. The primary reasons for this are an increased focus on our consumer loan products and an overall increase in the United States unemployment rate, both of which have resulted in a reduction in the overall number of checks cashed. In addition, studies by the Federal Reserve Board and others show that payments made by electronic means may be displacing a portion of the paper checks traditionally cashed by our customers. We also have a decreased focus on cashing government checks. We have increased our focus on cashing lower fee payroll and commercial checks, which tend to have higher face values and therefore result in higher check cashing fees than government checks.

     If a check cashed by us is not paid for any reason, we record the full face value of the check as a loss in the period when the check was returned unpaid. We then send the check to our internal collections department, or occasionally directly to the store, for collection. Our employees contact the maker and/or payee of each returned check. In certain circumstances, we will take appropriate legal action. Recoveries on returned items are credited in the period when the recovery is received. During fiscal 2005, we collected 72.5% of the face value of returned checks.

     The following chart presents summaries of our returned check experience, broken down by consolidated operations, U.S., Canadian and U.K. operations for the periods indicated below:

		Year ended June 30,
		2001				2002				2003				2004				2005
		(Unaudit)
Face amount of returned checks		$	27,938,000			$	27,874,000			$	26,164,000			$	29,061,000			$	32,893,000
Collections on returned checks			19,752,000				20,812,000				19,426,000				21,399,000				23,715,000
Net write-offs of returned checks			8,186,000				7,062,000				6,738,000				7,662,000				9,178,000
Collections as a percentage of returned checks			70.7	%			74.7	%			74.2	%			73.6	%			72.1	%
Net write-offs as a percentage of check cashing revenues			7.7	%			6.7	%			6.2	%			6.5	%			7.1	%
Net write-offs as a percentage of face amount of checks cashed			0.27	%			0.24	%			0.22	%			0.24	%			0.27	%
United States operations:
Face amount of returned checks		$	14,519,000			$	15,411,000			$	12,046,000			$	13,761,000			$	14,749,000
Collections on returned checks			8,872,000				10,560,000				8,335,000				10,284,000				10,881,000
Net write-offs of returned checks			5,647,000				4,851,000				3,711,000				3,477,000				3,868,000
Collections as a percentage of returned checks			61.1	%			68.5	%			69.2	%			74.7	%			73.8	%
Net write-offs as a percentage of check cashing revenues			10.3	%			9.1	%			7.6	%			7.3	%			8.3	%
Net write-offs as a percentage of face amount of checks cashed			0.33	%			0.30	%			0.25	%			0.26	%			0.30	%
Canadian operations:
Face amount of returned checks		$	7,356,000			$	6,952,000			$	8,116,000			$	8,797,000			$	10,155,000
Collections on returned checks			6,521,000				6,452,000				7,246,000				7,320,000				8,379,000
Net write-offs of returned checks			835,000				500,000				870,000				1,477,000				1,776,000
Collections as a percentage of returned checks			88.6	%			92.8	%			89.3	%			83.2	%			82.5	%
Net write-offs as a percentage of check cashing revenues			2.8	%			1.6	%			2.6	%			3.8	%			4.1	%
Net write-offs as a percentage of face amount of checks cashed			0.10	%			0.06	%			0.09	%			0.13	%			0.14	%
United Kingdom operations:
Face amount of returned checks		$	6,063,000			$	5,511,000			$	6,002,000			$	6,503,000			$	7,989,000
Collections on returned checks			4,359,000				3,800,000				3,845,000				3,795,000				4,455,000
Net write-offs of returned checks			1,704,000				1,711,000				2,157,000				2,708,000				3,534,000
Collections as a percentage of returned checks			71.9	%			69.0	%			64.1	%			58.4	%			55.8	%
Net write-offs as a percentage of check cashing revenues			8.1	%			8.2	%			8.3	%			8.7	%			9.2	%
Net write-offs as a percentage of face amount of checks cashed			0.38	%			0.39	%			0.38	%			0.40	%			0.43	%

Consumer Lending

     We currently originate short-term loans on behalf of one domestic bank and for our own account. For the short-term consumer loans we originate, at the time the funds are advanced to the borrower, the borrower signs a note and provides the lender with a post-dated check or a written authorization to initiate an automated clearinghouse charge to the borrower’s checking account for the loan principal plus a finance charge; on the due date of the loan (which is generally set at a date on or near the borrower’s next payday), the check or automated clearinghouse debit is presented for payment.

     From June 13, 2002 until July 27, 2005, we acted as a servicer for County Bank of Rehoboth Beach, Delaware and we have acted as a servicer for First Bank of Delaware since October 18, 2002. The Payday Lending Guidance, among other things, limits the period a borrower may have payday loans outstanding from any FDIC-insured bank to three months during a twelve-month period. As a result of the Payday Lending Guidance, we are transitioning from the bank-funded consumer loan model to the company-funded consumer loan model in most of the states where we previously offered bank-funded consumer loans. As part of this transition, we terminated our relationship with County Bank and amended our relationship with First Bank, in each case by mutual agreement.

     On behalf of First Bank in the United States, we market certain unsecured short-term loans to customers with established bank accounts and verifiable sources of income. Prior to July 1, 2005, loans were made for amounts up to $1,000, with terms of 7 to 23 days. Under these programs, we earned servicing fees, which were reduced if the related loans were not collected. We maintain a reserve for estimated reductions. In addition, we maintain a reserve for anticipated losses for loans we make directly. In order to estimate the appropriate level of these reserves, we consider the amount of outstanding loans owed to us, as well as loans owed to First Bank and serviced by us, the historical loans charged-off, current collection patterns and current economic trends. As these conditions change, additional allowances might be required in future periods. During fiscal 2005, County Bank originated or extended approximately $115.5 million of loans through our locations and document transmitters. First Bank originated or extended approximately $303.2 million of loans through us during this period. County Bank originated or extended approximately $136.2 million of loans through our locations and document transmitters during fiscal 2004 and First Bank originated or extended approximately $249.1 million of loans through us for the same period. Subsequent to June 30, 2005, we are offering these bank-funded short-term consumer loans principally in the States of Pennsylvania and Texas, only.

     As of June 30, 2005, we completed the transition of 241 stores in the following states to the company-funded loan model: Arizona, California, Hawaii, New Mexico, Nevada, Utah, Washington and the District of Columbia. Since June 30, 2005, we have transitioned all stores in the remaining states where enabling legislation exists, with the exception of Ohio. In August 2005, we received license approval from the state of Ohio to offer payday loans under state law. Until this license was approved, we continued to offer bank funded loans in the 22 Ohio locations under the 90 day loan limitation. On August 26, 2005, we began offering company-funded loans in the Ohio stores.

     We also originate unsecured short-term loans to borrowers for our own account in Canada, the United Kingdom and now, most United States markets. We bear the entire risk of loss related to these loans. In the United States, these loans are made for amounts up to $1,000, with terms of 7 to 37 days. In Canada, loans are issued to qualified borrowers based on a percentage of the borrowers’ income with terms of 1 to 35 days. We issue loans in the United Kingdom for up to £600, with a term of 28 days. We originated or extended approximately $684.7 million of the short-term consumer loans through our locations and document transmitters during fiscal 2005 and approximately $491.4 million through our locations and document transmitters during 2004. In addition, beginning in fiscal 2003 we acted as a direct lender of longer-term installment loans in the United Kingdom. This product was introduced in certain United States and Canadian markets at the end of fiscal year 2004. In the United States for fiscal 2005, we originated 414 installment loans with an average principal amount of $781 and a weighted average term of approximately 275 days. We originated or extended installment loans through our locations in the United States of approximately $324,000 in fiscal 2005. In Canada, we originated 2,167 installment loans with an average principal amount of $1,180 and a weighted average term of approximately 215 days. We originated or extended installment loans through our locations in Canada of approximately $2.6 million in fiscal 2005. In the United Kingdom for fiscal 2005, we originated 6,935 installment loans with an average principal amount of $1,079 and a weighted average term of approximately 365 days. In United Kingdom for fiscal 2004, we originated 4,675 longer-term installment loans with an average principal amount of $845 and a weighted average term of approximately 365 days. We originated or extended installment loans through our locations in the United Kingdom of approximately $7.5 million in fiscal 2005 and $3.9 million in fiscal 2004. Outstanding installment loan receivable at June 30, 2005 is $128,883, $4.3 million and $1.1 million in the United States, United Kingdom and Canada, respectively.

     Additionally, as part of the transition to the company-funded loan model, we are discontinuing our operations as a marketing and servicing agent for consumer loans that are fulfilled through document transmitter locations. We expect this to result in a loss of approximately $4.0 million of revenues for the twelve month period ending June 30, 2006 (“fiscal 2006”) with a minimal impact on income before income taxes. We will continue to offer loans direct to borrowers through other channels of distribution.

     We had approximately $41.4 million of consumer loans on our balance sheet at June 30, 2005 and approximately $32.9 million on June 30, 2004. These amounts are reflected in total loans receivable. Loans receivable at June 30, 2005 are reported net of a reserve of $2.7 million related to consumer lending. Loans receivable at June 30, 2004 are reported net of a reserve of $2.3 million related to consumer lending.

     The following table presents a summary of our consumer lending originations, which includes loan extensions and revenues for the following periods (dollars in thousands):

		Year ended
		June 30,
		2003				2004				2005
U.S. company-funded consumer loan originations (1)		$	81,085			$	65,868			$	73,762
Canadian company-funded consumer loan originations (2)			248,149				309,016				447,940
U.K. company-funded consumer loan originations (2)			99,499				115,283				173,326
Total company-funded consumer loan originations		$	428,733			$	490,167			$	695,028
U.S. Servicing revenues, net		$	41,175			$	47,144			$	52,350
U.S. company-funded consumer loan revenues			14,137				9,873				11,511
Canadian company-funded consumer loan revenues			22,492				31,479				48,682
U.K. company-funded consumer loan revenues			14,748				19,404				25,829
Provision for loan losses on company-funded loans			(9,967	)			(9,928	)			(14,793	)
Total consumer lending revenues, net		$	82,585			$	97,972			$	123,579
Gross charge-offs of company-funded consumer loans		$	42,497			$	45,074			$	64,725
Recoveries of company-funded consumer loans			(32,105	)			(36,102	)			(50,352	)
Net charge-offs on company-funded consumer loans		$	10,392			$	8,972			$	14,373
Gross charge-offs of company-funded consumer loans as a percentage of total company-funded consumer loan originations			9.9	%			9.2	%			9.3	%
Recoveries of company-funded consumer loans as a percentage of total company-funded consumer loan originations			7.5	%			7.4	%			7.2	%
Net charge-offs on company-funded consumer loans as a percentage of total company-funded consumer loan originations			2.4	%			1.8	%			2.1	%

     The increase in total company-funded originations of $204.8 million in fiscal 2005 over fiscal 2004, as well as in prior periods, was driven primarily by increases in originations in Canada and from newly opened stores in Canada and the United Kingdom.

Other Services and Products

     In addition to check cashing and short-term loans, our customers may choose from a variety of products and services when conducting business at our locations. These services include Western Union money order and money transfer products, legal document preparation services, electronic tax filing, bill payment, foreign currency exchange, VISA^® brand reloadable debit-cards and gift cards, photo ID and prepaid local and long-distance phone services. A survey of our customers by an independent third party revealed that over 50% of customers use other services in addition to check cashing. We offer our customers multiple financial products and services. We believe that our check cashing and consumer lending customers enjoy the convenience of other high-value products and services offered by us.

     Among our most significant financial services products and services other than check cashing and short-term loans are the following:

	•		Money Transfers—Through a strategic alliance with Western Union, customers can transfer funds to any location providing Western Union money transfer services. Western Union currently has 212,000 agents in more than 195 countries throughout the world. We receive a percentage of the commission charged by Western Union for the transfer. For fiscal 2005, we generated total money transfer revenues of $14.8 million, primarily at our check cashing stores.
	•		Money Orders—Our stores issue money orders for a minimal fee. Customers who do not have checking accounts typically use money orders to pay rent and utility bills. During fiscal 2005, money order transactions had an average face amount of $182.81 million and an average fee of $1.17. For fiscal 2005, our customers purchased 2.1 million money orders, generating total money order revenues of $2.4 million.

Store Operations

Locations

     The following chart sets forth the number of company-operated and franchised stores in operation as of the specified dates: