SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Form 10-Q

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Western Capital Resources, Inc.

 

 

 

 

Basis of Presentation

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

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and sixnine month period ended JuneSeptember 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Form 10-K as of and for the year ended December 31, 2010. The condensed consolidated balance sheet at December 31, 2010, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP.

Nature of Business

Western Capital Resources, Inc. (WCR), through its wholly owned operating subsidiaries, Wyoming Financial Lenders, Inc. (WFL) and PQH Wireless, Inc. (PQH), collectively referred to as the “Company,” provides retail financial services and retail cellular phone sales to individuals primarily in the Midwestern United States.  As of JuneSeptember 30, 2011, the Company operated 51 “payday” stores in nine states (Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming) and operated 2931 Cricket wireless retail stores in seveneight states (Illinois, Indiana, Iowa, Kansas, Missouri, Nebraska, Oklahoma and Texas).  The condensed consolidated financial statements include the accounts of WCR, WFL, and PQH. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company, through its “payday” division, provides non-recourse cash advance loans, check cashing and other money services.  The short-term consumer loans, known as cash advance loans or “payday” loans, are in amounts that typically range from $100 to $500. Cash advance loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state based on applicable regulations, and generally ranges from $15 to $22 per each $100 borrowed. To repay the cash advance loans, customers may pay with cash, in which their personal check is returned to them, or by allowing their check to be presented to the bank for collection.

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

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

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

Use of Estimates

Revenue Recognition

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

Loans Receivable / Allowance for Loans Receivable Losses

Included in loans receivable are cash advance loans that are currently due or past due and cash advance loans that have not been repaid.  This generally is evidenced where a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons.  Cash advance loans are carried at cost less the allowance for loan receivable losses.  The Company does not specifically reserve for any individual cash advance loan.  The Company aggregates cash advance loans for purposes of estimating the loss allowance using a methodology that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio.  This methodology takes into account several factors, including the maturity of the store location and charge-off and recovery rates.  The Company utilizes a software program to assist with the tracking of its historical portfolio statistics.  As a result of the Company’s collection efforts, it historically writes off approximately 42%43% of the returned items.  Based on days past the check return date, write-offs of returned items historically have tracked at the following approximate percentages: 1 to 30 days – 42%43%; 31 to 60 days – 65%66%; 61 to 90 days – 81%82%; 91 to 120 days – 86%87%; and 121 to 180 days – 89%90%.  All returned items are charged off after 180 days, as collections after that date have not been significant.  The loan loss allowance is reviewed monthly and any adjustment to the loan loss allowance as a result of historical loan performance, current and expected collection patterns and current economic trends is recorded.

A rollforward of the Company’s loans receivable allowance for the threenine months ended JuneSeptember 30, 2011 and 2010 is as follows:

Net Loss Per Common Share

Basic net loss per common share is computed by dividing the loss available to common shareholders by the weighted average number of common shares outstanding for the year. Diluted net loss per common share is computed by dividing the net loss available to common shareholders by the sum of the weighted average number of common shares outstanding plus potentially dilutive common share equivalents (convertible preferred shares) when dilutive. The 10 million shares of potentially dilutive Series A Convertible Preferred Stock outstanding at JuneSeptember 30, 2011 and 2010 were anti-dilutive and therefore excluded from the dilutive net loss per share computation.

Recent Accounting Pronouncements

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

At JuneSeptember 30, 2011 and December 31, 2010 our outstanding loans receivable aging was as follows:

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

Segment information related to the three and sixnine months ended JuneSeptember 30, 2011 and  2010 is set forth below:

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

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

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

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

During the 2010 legislative session in Colorado, House Bill 10-1351 was passed into law.  This bill amended the Colorado Deferred Deposit Loan Act, the existing payday lending law.  The law became effective August 11, 2010 and modified traditional payday lending by changing the single payment advance (with no minimum term) into a single or multiple payment loan with a minimum six month term. It also limited the amount and type of fees that can be charged on these loans, effectively reducing by one-half the fees that can be charged and when the fees may be realized.  At present, the Company continues to operate its sole store in Colorado while the impact to profitability of this new law is being assessed.  Currently, we derive 1.34%1.36% of our Payday division revenues from fees in Colorado.

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

For the sixnine months ended JuneSeptember 30, 2011 and 2010, the Company had significant revenues by state (shown as a percentage of applicable division’s revenue) as follows:

Reconciliations of the cumulative preferred stock dividend payable are as follows:

In addition, the Company has $525,000 of secondthird quarter unaccrued cumulative preferred dividends from JuneSeptember 30, 2011 and 2010 that became due and payable JulyOctober 15, 2011 and 2010, respectively.

A breakout of other expense is as follows:

In June 2011, the Board of Directors appointed Mr. Ellery Roberts to a special committee of the board.  The appointment was initially made for up to six months.  In consideration for his additional service on the committee, the Company willagreed to pay Mr. Roberts $13,000 per month.

On July 6, 2011, the U.S. District Court for the District of Minnesota granted the Company’s motion to dismiss the action brought by Messrs. Steven Staehr and David Stueve.  In their action brought on March 26, 2010, the plaintiffs alleged, among other things, that our Board of Directors breached certain of their fiduciary duties primarily in connection with the sale by WERCS of its capital stock in the Company to WCR, LLC.  The lawsuit was dismissed without prejudice.

On July 22, 2011, Cricket CommunicationsWireless, Inc. notified the Company of its acceptance of the Company's bidCompany’s bids to purchase the assets of three Cricket11Cricket retail stores in Oklahoma, two of which are in Oklahoma City,eight states (Arizona, Colorado, Idaho, Illinois, Missouri, Nebraska, Ohio and one of which is in Tulsa.Oregon).  Each of the retail stores sells mobile phones and related accessories.  The purchase price, after adjustment for working capital and inventory requirements, is expected to be approximately $500,000.$1,200,000.  The Company plans tohas or will enter into a definitive agreement to purchase the retail stores, in August 2011, which the Company expects to be in a form consistent with transactions of a similar nature.nature, and to take over the stores in October and November 2011.

Some of the statements made in this report are “forward-looking statements,” as that term is defined under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon our current expectations and projections about future events. Whenever used in this report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this report are primarily located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part I, Item 2), Legal Proceedings (Part II, Item 1), and “Risk Factors” (Part II, Item 1A), but are found in other parts of this report as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. We will not necessarily update forward-looking statements even though our situation may change in the future.

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

Other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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

 

We provide (through Wyoming Financial Lenders, Inc.) retail financial services to individuals primarily in the midwesternMidwestern and southwestern United States. These services include non-recourse cash advance loans, small unsecured installment loans, check cashing and other money services. As of JuneSeptember 30, 2011, we operated 51 “payday” stores in nine states (Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming).

We provide short-term consumer loans—known as “payday”, “installment” or “cash advance” loans—in amounts that typically range from $100 to $500. Payday loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s post-dated personal check(s) for the aggregate amount of the cash advanced, plus a fee. The fee varies from state to state based on applicable regulations, and generally ranges from $15 to $22 for each whole or partial increment of $100 borrowed. To repay a payday or installment loan, a customer may pay with cash, in which case their personal check is returned to them, or allow the check to be presented to the bank for collection. All of our payday loans, installment loans and other services are subject to state regulations (which vary from state to state), federal regulations and local regulation, where applicable.

We also operate (through PQH Wireless, Inc.) Cricket Wireless retail stores as an authorized dealer of Cricket Wireless products and services. Authorized dealers are permitted to sell the Cricket line and generally locate their store operations in areas with a strong potential customer base where Cricket does not maintain a corporate storefront. These locations are generally within the urban core or surrounding areas of a community. We are an authorized premier Cricket dealer, and as such, we are only permitted to sell the Cricket line of prepaid cellular phones at our Cricket retail stores. As of JuneSeptember 30, 2011, we operated 2931 Cricket wireless retail stores in seveneight states (Illinois, Indiana, Iowa, Kansas, Missouri, Nebraska, Oklahoma and Texas).

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

With respect to our cost structure, salaries and benefits are one of our largest costs and are driven primarily by the number of storefronts operated throughout the year and seasonal fluctuation in sales volumes.  Phone and accessory cost of sales and occupancy costs make up our second and third largest expense items, respectively.  Our provision for losses is also a significant expense.  We have experienced seasonality in our Cricket operations, with the first and fourth quarters typically being our strongest periods as a result of broader economic factors, such as holiday spending habits at the end of each year and income tax refunds during the first quarter.

We evaluate our stores based on revenue growth, gross profit contributions and loss ratio (which is losses as a percentage of payday loan fees), with consideration given to the length of time the branch has been open and its geographic location.  We evaluate changes in comparable branch financial and other measures on a routine basis to assess operating efficiency.  We define comparable branches as those branches that are open during the full periods for which a comparison is being made.  For example, comparable branches for the annual analysis we undertook as of December 31, 2010 have been open at least 24 months on that date.  We monitor newer branches for their progress toward profitability and rate of loan growth, units sold, or payment volume.

The contraction of the payday loan industry has followed, and continues to be significantly affected by, payday lending legislation and regulation in the various states and nationally.  We actively monitor and evaluate legislative and regulatory initiatives in each of the states and nationally, and are involved with the efforts of the various industry lobbying efforts.  To the extent that states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business could be adversely affected.  In Nebraska, legislation was introduced in 2008 (but did not advance) to ban all cash advance or payday loans in Nebraska.  Despite the defeat of this legislation, since we derived approximately 27.55% of our 2010 and 28.28%27.87% of our year-to-date 2011 total payday revenues in Nebraska, any subsequent attempts to pass similar legislation in Nebraska, or other legislation that would restrict our ability to make cash advance loans in Nebraska, would pose significant risks to our business.

In an effort to expand our geographic reach, our strategic expansion plans involve the expansion and diversification of our product and service offerings.  For this reason, we have focused, and will continue to focus, a significant amount of time and resources on the development of our Cricket Wireless retail stores.  We believe that successful expansion, both geographically and product- and service-wise, will help to mitigate the regulatory and economic risk inherent in our business by making us less reliant on (i) cash advance lending alone and (ii) any particular aspect of our business that is concentrated geographically.

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America applied on a consistent basis.  The preparation of these financial statements requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  We evaluate these estimates and assumptions on an ongoing basis.  We base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under the circumstances.  Actual results could vary materially from these estimates under different assumptions or conditions.

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

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

Included in loans receivable are cash advance loans that are currently due or past due and cash advance loans that have not been repaid.  This generally is evidenced where a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons.  Cash advance loans are carried at cost less the allowance for loans receivable losses.  The Company does not specifically reserve for any individual cash advance loan.  The Company aggregates cash advance loans for purposes of estimating the allowance using a methodology that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio.  This methodology takes into account several factors, including the maturity of the store location and charge-off and recovery rates.  The Company utilizes a software program to assist with the tracking of its historical portfolio statistics.  As a result of the Company’s collection efforts, it historically writes off approximately 42% of the returned items.  Based on days past the check return date, write-offs of returned items historically have tracked at the following approximate percentages: 1 to 30 days – 42%43%; 31 to 60 days – 65%66%; 61 to 90 days – 81%82%; 91 to 120 days – 86%87%; and 121 to 180 days – 89%90%.  All returned items are charged off after 180 days, as collections after that date have not been significant.  The loan loss allowance is reviewed monthly and any adjustment to the loan loss allowance as a result of historical loan performance, current and expected collection patterns and current economic trends is recorded.

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

For the three-month period ended JuneSeptember 30, 2011, net income was $.27$.36 million compared to net income of $.22$.27 million for the three months ended JuneSeptember 30, 2010. During the three months ended JuneSeptember 30, 2011, income from operations before income taxes was $.43$.60 million compared to $.29$.44 million for the three months ended JuneSeptember 30, 2010. The major components of revenues, store expenses, general and administrative expenses, and income tax expense are discussed below.

The following table summarizes our revenues for the three months ended JuneSeptember 30, 2011 and 2010, respectively:

Store Expenses

Total expenses associated with store operations for the three months ended JuneSeptember 30, 2011 were $2.91$3.35 million, compared to $3.03$3.27 million for the three months ended JuneSeptember 30, 2010, or a 3.96% decrease2.4% increase for the interim periods.  The major components of these expenses are salaries and benefits for our store employees, provision for loan losses, costs of sales for phones and accessories, occupancy costs relating to our store leaseholds, advertising expenses, depreciation of store equipment and leasehold improvements, amortization of intangible assets and other expenses associated with store operations.

Overall, our most significant decreases in store expenses for the three months ended JuneSeptember 30, 2011 and 2010 related to salaries and benefits for our store employees, phone and accessory costs, occupancy costs and provision for loan losses. Our most significant increase in store expenses over that same period prior year relates to our phones and accessories cost of sales. A discussion and analysis of the various components of our store expenses appears below.

General and Administrative Expenses

Total general and administrative costs for the three months ended JuneSeptember 30, 2011 were $.70$.76 million compared to $.82$.71 million for the period ended JuneSeptember 30, 2010. For the three months ended JuneSeptember 30, 2011, the major components of these costs were salaries and benefits for our corporate headquarters operations and executive management, interest expense, and other general and administrative expenses. A discussion and analysis of the various components of our general and administrative costs appears below:

Income Tax Expense

Income tax expense for the three months ended JuneSeptember 30, 2011 was $.16$.23 million compared to income tax expense of $.07$.17 million for the three months ended JuneSeptember 30, 2010, an effective rate of 37%39.3% and 25%38.2%, respectively.  The effective rate for the interim period 2010 was lower as a result of receiving non-taxable income in that period.

For the six-monthnine-month period ended JuneSeptember 30, 2011, net income was $.68$1.04 million compared to net income of $.70$.98 million for the sixnine months ended JuneSeptember 30, 2010. During the sixnine months ended JuneSeptember 30, 2011, income from operations before income taxes was $1.10$1.70 million compared to $1.07$1.51 million for the sixnine months ended JuneSeptember 30, 2010. The major components of revenues, store expenses, general and administrative expenses, and income tax expense are discussed below.

Revenues totaled $9.08$13.78 million for the sixnine months ended JuneSeptember 30, 2011, compared to $8.80$13.2 million for the sixnine months ended JuneSeptember 30, 2010. The increase in total revenues resulted primarily from an increase in payment processing fees due to a change in the compensation arrangement with Cricket year over year.  This increase was partially offset by a reduction in payday loan fees due to the closing of our Montana operations.

Loan originations in the 2011 interim period declined slightly.  During the six-monthnine-month periods ended JuneSeptember 30, 2011 and JuneSeptember 30, 2010, we originated approximately $31.45$49.31 million and $33.77$53.05 million in cash advance loans, respectively.  Our average loan (including fees) totaled approximately $378$379 and $366 during the six-monthnine-month periods ended JuneSeptember 30, 2011 and 2010, respectively. Our average fee for the six-monthnine-month periods ended JuneSeptember 30, 2011 and 2010 was $55 and $54, respectively.

 

The following table summarizes our revenues for the sixnine months ended JuneSeptember 30, 2011 and 2010, respectively:

 

Store Expenses

Total expenses associated with store operations for the sixnine months ended JuneSeptember 30, 2011 were $6.45$9.80 million, compared to $6.25$9.52 million for the sixnine months ended JuneSeptember 30, 2010, or a 3.2%2.9% increase for the interim periods.  The major components of these expenses are salaries and benefits for our store employees, provision for loan losses, costs of sales for phones and accessories, occupancy costs relating to our store leaseholds, advertising expenses, depreciation of store equipment and leasehold improvements, amortization of intangible assets and other expenses associated with store operations.

Overall, our most significant decreases in store expenses for the sixnine months ended JuneSeptember 30, 2011 and 2010 related to salaries and benefits for our store employees and occupancy costs. Our most significant increase in store expenses over that same period prior year relates to our phones and accessories cost of sales. A discussion and analysis of the various components of our store expenses appears below.

General and Administrative Expenses

Total general and administrative costs for the sixnine months ended JuneSeptember 30, 2011 were $1.53$2.29 million compared to $1.48$2.19 million for the period ended JuneSeptember 30, 2010. For the sixnine months ended JuneSeptember 30, 2011, the major components of these costs were salaries and benefits for our corporate headquarters operations and executive management, interest expense, and other general and administrative expenses. A discussion and analysis of the various components of our general and administrative costs appears below:

Income Tax Expense

Income tax expense for the sixnine months ended JuneSeptember 30, 2011 was $.42$.65 million compared to income tax expense of $.37$.54 million for the sixnine months ended JuneSeptember 30, 2010, an effective rate of 38% and 34%36%, respectively.

Summary cash flow data is as follows:

 

Evaluation of Disclosure Controls and Procedures

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

As of JuneSeptember 30, 2011, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of JuneSeptember 30, 2011.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended JuneSeptember 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.